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Exam 10: Liabilities: Current, Installment Notes, and Contingencies

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Question 41

Multiple Choice

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The journal entry used to record the issuance of an interest-bearing note for the purpose of borrowing funds for the business is

A) debit Accounts Payable; credit Notes Payable
B) debit Cash; credit Notes Payable
C) debit Notes Payable; credit Cash
D) debit Cash and Interest Expense; credit Notes Payable

E) B) and D)
F) A) and D)

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Question 42

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On October 1, Ramos Co. signed a $90,000, 60-day discounted note at the bank. The discount rate was 6%, and the note was paid on November 30. (Assume a 360-day year is used for interest calculations.) (a) Journalize the entries for October 1 and November 30 . (b) Assume that Ramos Co. signed a $6 \%$ interest-bearing note. Journalize the entries for October 1 an

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Question 43

Multiple Choice

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

An interest-bearing note is a loan in which the lender deducts interest from the amount loaned before the money is advanced to the borrower.

-Assuming that all wages are subject to federal and state unemployment taxes, the employer's payroll tax expense would be

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

A defined contribution plan promises employees a fixed annual pension benefit.

The payroll register of Seaside Architecture Company indicates $970 of social security and $257 of Medicare tax withheld on total salaries of $16,500 for the period. Federal withholding for the period totaled $4,235. Prepare the journal entry for the period's payroll.

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

Martin Services Company provides its employees vacation benefits and a defined contribution pension plan. Employees earned vacation pay of $39,500 for the period. The pension plan requires a contribution to the plan administrator equal to 9% of employee salaries. Salaries were $750,000 during the period. Provide the journal entries for (a) the vacation pay and (b) the pension benefit.

Most employers are required to withhold federal unemployment taxes from employee earnings.

The journal entry to record the issuance of a note for the purpose of converting an existing account payable would be

The total earnings of an employee for a payroll period is referred to as

Chang Co. issued a $50,000, 120-day, discounted note to Guarantee Bank. The discount rate is 6%. Assuming a 360-day year, the cash proceeds to Chang Co. are

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 fav or 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 joumal 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. ​

​An installment note is a debt that requires the borrower to make equal periodic payments to the lender for the term of the note.

The journal entry a company uses to record partially funded pension rights for its salaried employees at the end of the year is

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.

An employee earns $40 per hour and 1.5 times that rate for all hours in excess of 40 hours per week. Assume that the employee worked 60 hours during the week, and that the gross pay prior to the current week totaled $58,000. Assume further that the social security tax rate was 6.0%, the Medicare tax rate was 1.5%, and the federal income tax to be withheld was $614. ​ (a) Determine the gross pay for the week. (b) Determine the net pay for the week.

Townson Company had gross wages of $180,000 during the week ended December 10. All earnings are subject to social security tax, while the amount of wages subject to federal and state unemployment taxes was $24,000. Tax rates are as follows: $\begin{array} { l l } \text { Social security } & 6.0 \% \\\text { Medicare } & 1.5 \% \\\text { State unemployment } & 5.4 \% \\\text { Federal unemployment } & 0.8 \%\end{array}$ The total amount withheld from employee wages for federal income taxes was $32,000. (a) Journalize the entry to record the payroll for the week of December 10 . If required, round your answers to the nearest cent. (b) Journalize the entry to record the payroll tax expense incurred for the week of December 10 . If required, round your answers to the nearest cent.