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Exam 10: Current Liabilities and Payroll

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Question 61

Multiple Choice

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Lee Company has the following information for the pay period of December 15-31: $\begin{array}{lrlr}\text { Gross payroll } & \$ 16,000 & \text { Federal income tax withheld } & \$ 4,000 \\\text { Social security rate } & 6 \% & \text { Federal unemployment tax rate } & 0.8 \% \\\text { Medicare rate } & 1.5 \% & \text { State unemployment tax rate } & 5.4 \%\end{array}$ Assuming no employees are subject to ceilings for taxes on their earnings,Salaries Payable would be recorded for

A) $16,000
B) $9,808
C) $10,800
D) $11,040

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

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Question 62

Multiple Choice

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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,$110; cumulative earnings for the year prior to this week,$24,500; 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.What is the net amount to be paid to the employee?

A) $569.87
B) $539.00
C) $625.00
D) $544.88

E) B) and C)
F) C) and D)

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Question 63

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When a borrower receives the face amount of a discounted note less the discount,the amount is known as

Which of the following are included in the employer's payroll taxes?

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 payroll taxes would include a

Florida Keys Construction installs swimming pools.It calculates that warranty obligations are 3% of sales.For the year just ending,Florida Keys' sales were $1,450,000.Previous quarterly entries debiting Warranty Expense totaled $28,700.Determine the estimated warranty expense for the year and make the journal entry necessary to bring the account to the needed balance.

Roseland Design borrowed $700,000 on a 90-day note from CorpOne Funding Company. CorpOne discounts the note at 8%. Assume a 360-day year is used for interest calculations. a- Journalize Roseland’s entries to record: a. The issuance of the note. b. The payment of the note at maturity. b- Journalize CorpOne’s entries to record: a. The receipt of the note. b. The receipt of the payment of the note at maturity.

The current assets and current liabilities for Kolbie Company and Newton Company are as follows: $\begin{array}{|l|r|r|}\hline &\text { Kolbie Company } & \text { Newton Company } \\&\text { in millions } & \text { in millions } \\&\text { For the Year Ending } & \text { For the Year Ending } \\&\text { December 31 } & \text { December 31 }\\\hline \text { Current assets: }\\\hline \text { Cash and cash equivalents } & \$ 8,352 & \$ 8,546 \\\hline \text { Short-term investments } & 6,034 & 752 \\\hline \text { Accounts receivable } & 3,029 & 5,152 \\\hline \text { Inventories } & 446 & 660 \\\hline \text { Other current assets* } & 2,195 & 2,829 \\\hline \text { Total current assets } & \$ 20,056 & \$ 17,939 \\\hline\\\hline\text { Current liablities: }\\\hline \text { Accounts payable } & \$ 4,970 & \$ 10,430 \\\hline \text { Accrued and other current liabilities } & 3,329 & 6,361 \\\hline \text { Total current liabilities } & \$ 8,299 & \$ 16,791 \\\hline\end{array}$ *These represent prepaid expenses and other non-quick current assets. a- Determine the quick ratio for both companies.Round to two decimal places. b- Interpret the quick ratio difference between the two companies.

Several months ago,Maximilien Company experienced a spill of radioactive materials into the Missouri River from one of its plants.As a result,the Environmental Protection Agency EPA fined the company $1,750,000.The company contested the fine.In addition,an employee is seeking $975,000 damages related to the spill.Finally,a homeowner has sued the company for $580,000.Although the homeowner lives 15 miles downstream from the plant,he believes that the spill has reduced his home's resale value by $580,000. Maximilien's 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 $650,000 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 Maximilien Company. d. Other litigation related to the spill is possible,but the damage amounts are uncertain. 1. Based on this information,prepare the journal entries for the contingent liabilities associated with the spill.Use the account "Environmental Awards and Fines" to recognize the expense for the period. 2. Prepare any note disclosure related to the spill.

Federal income taxes withheld increase the employer's payroll tax expense.

Which of the following is the most desirable quick ratio?

Nelson Industries warrants its products for one year.The estimated product warranty is 4.3% of sales.Sales were $475,000 for September.In October,a customer received warranty repairs requiring $215 of parts and $65 of labor. a Journalize the adjusting entry required at September 30,the end of the first month of the current year,to record the estimated product warranty expense. b Journalize the entry to record the warranty work provided in October.

The detailed record indicating the data for each employee for each payroll period and the cumulative total earnings for each employee is called the

Vacation pay payable is reported on the balance sheet as an

The journal entry used to record the issuance of a discounted note for the purpose of borrowing funds for the business is

In order to be a recorded contingent liability,the liability must be possible and easily estimated.

Lamar Industries warrants its products for one year.The estimated product warranty expense is 3% of sales.Sales for June were $190,000.In July,a customer received warranty repairs requiring $185 of parts and $50 of labor. a Journalize the adjusting entry required at June 30,the end of the first month of the current year,to record the estimated product warranty expense. b Journalize the entry to record the warranty work provided in July.

Zennia Company provides its employees with varying amounts of vacation per year,depending on the length of employment.The estimated amount of the current year's vacation cost is $135,000.The journal entry to record the adjusting entry required on December 31,the end of the current year,to record the current month's accrued vacation pay is

Perez Company has the following information for the pay period of January 15-31. $\begin{array}{lrlr}\text { Gross payroll } & \$ 20,000 & \text { Federal income tax withheld } & \$ 2,500 \\\text { Social security rate } & 6 \% & \text { Federal unemployment tax rate } & 0.8 \% \\\text { Medicare rate } & 1.5 \% & \text { State unemployment tax rate } & 5.4 \%\end{array}$ Assuming no employees are subject to ceilings for their earnings,calculate salaries payable and employer payroll taxes payable.

Medicare taxes are paid by both the employee and the employer.