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Exam 10: Current Liabilities and Payroll

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Question 31

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Proper payroll accounting methods are important for a business for all the reasons below except

A) good employee morale requires timely and accurate payroll payments
B) payroll is subject to various federal and state regulations
C) to help a business with cash flow problems by delayed payments of payroll taxes to federal and state agencies
D) payroll and related payroll taxes have a significant effect on the net income of most businesses

E) All of the above
F) B) and C)

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Question 32

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The discount on a note payable is charged to an account that has a normal credit balance.

A) True
B) False

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Question 33

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Several months ago, Jones Company experienced a spill of hazardous materials into the White River from one of its plants. As a result, the Environmental Protection Agency EPA fined the company $405,000. The company contested the fine. In addition, an employee is seeking $180,000 damages related to the spill. Finally, a homeowner has sued the company for $260,000. Although the homeowner lives 30 miles downstream from the plant, he believes that the spill has reduced his home’s resale value by $260,000. Jones’ legal counsel believes the following will happen in relationship to these incidents: a. It is probable that the EPA fine will stand. b. An out-of court-settlement for $165,000 has recently been reached with the employee, with the final papers to be signed next week. c. Counsel believes that the homeowner’s case is weak and will be decided in favor of Jones Company. d. Other litigation related to the spill is possible, but the damage amounts are uncertain. 1. Based on this information, journalize the contingent liabilities associated with the spill. Use the account “Damage Awards and Fines” to recognize the expense for the period. 2. Prepare any note disclosure related to the spill.

During the first year of operations,employees earned vacation pay of $35,000.The vacations will be taken during the second year.The vacation pay expense should be recorded in the second year as the vacations are taken by the employees.

Assuming a 360-day year,when a $50,000,90-day,9% interest-bearing note payable matures,total payment will be

During its first year of operations,a company granted employees vacation privileges and pension rights estimated at a cost of $21,500 and $15,000.The vacations are expected to be taken in the next year and the pension rights are expected to be paid in the future 5-30 years.What is the total cost of vacation pay and pension rights to be recognized in the first year?

The amount of money a borrower receives from the lender is called the discount rate.

Ecco Company sold $150,000 of kitchen appliances with six-month warranties during September.The cost to repair defects under the warranty is estimated at 6% of the sales price.On October 15,a customer required a $200 part replacement,plus $85 labor under the warranty. Provide the journal entry for a the estimated expense on September 30 and b the October 15 warranty work.

Most employers are levied a tax on payrolls for

Kelly Howard has the following transactions.Prepare the journal entries. Dec. $\quad$ 31 The accrued product warranty expense for the year is estimated to be 2.3% of sales.Sales for the year totaled $6,005,000. $\quad$$\quad$ 31 The accrued vacation pay for the year is estimated to be $75,225. $\quad$$\quad$ 31 Paid Reliable Insurance Co.$275,000 as fund trustee for the pension plan.The annual pension cost is $350,000.

Which of the following is required to be withheld from employee's gross pay?

List five internal controls that relate directly to payroll.

According to a summary of the payroll of Sinclair Company,$505,000 was subject to the 6.0% social security tax and $545,000 was subject to the 1.5% Medicare tax.Also,$10,000 was subject to state and federal unemployment taxes. a Calculate the employer's payroll taxes using the following rates: State unemployment, 4.2%; Federal unemployment,0.8%. b Journalize the entry to record the accrual of the employer's payroll taxes.

Internal controls for cash payments apply to payrolls.

Journalize the following, assuming a 360-day year is used for interest calculations: Apr. 30 Issued a $150,000, 30-day, 6% note dated April 30 to Misner Co. on account. May 30 Paid Misner Co. the amount owed on the note dated April 30.

Journalize the following entries on the books of the borrower and creditor.Label accordingly.Assume a 360-day year is used for interest calculations. Jun.1 Regis Co.purchased merchandise on account from Winthrop Co.,$60,000,terms n/30. Jun.30 Regis Co.issued a 60-day,5% note for $60,000 on account. Aug.29 Regis Co.paid the amount due.

An employee's take-home pay is equal to gross pay less all voluntary deductions.

An employee receives an hourly rate of $15,with time and a half for all hours worked in excess of 40 during the week.Payroll data for the current week are as follows: hours worked,46; federal income tax withheld,$120; cumulative earnings for the year prior to this week,$5,500; Social security tax rate,6%; and Medicare tax rate,1.5%; state unemployment compensation tax,3.4% on the first $7,000; federal unemployment compensation tax,0.8% on the first $7,000.Prepare the journal entries to record the salaries expense and the employer payroll tax expense.

According to a summary of the payroll of Scotland Company,$450,000 was subject to the 6.0% social security tax and $500,000 was subject to the 1.5% Medicare tax.Federal income tax withheld was $98,000.Also,$15,000 was subject to state 4.2% and federal 0.8% unemployment taxes.The journal entry to record accrued salaries would include a

Assuming a 360-day year,when a $20,000,90-day,5% interest-bearing note payable matures,total payment will be