Question 1

A company's income before interest expense and income taxes in 2010 and 2011 is $395,000 and $427,000,respectively.Its fixed interest expense was $125,000 for both years.Calculate the company's times interest earned ratio,and comment on its level of risk.

Accepted Answer

Risk analysis: The income before interest expense has increased,but the interest expense appears fixed.Consequently,the company's level of risk has decreased over the 2-year period.The company is improving on its ability to meet fixed interest expense.
 Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest
Expense
Times Interest Earned Ratio = $395,000/$125,000 = 3.2 (2010)
Times Interest Earned Ratio = $427,000/$125,000 = 3.4 (2011)

Question 2

The payroll records of a company provided the following data for the weekly pay period ended December 7:
  The FICA social security tax rate is 6.2% and the FICA Medicare tax rate is 1.45% on all of this week's wages paid to each employee.The federal and state unemployment tax rates are 0.8% and 5.4%,respectively,on the first $7,000 paid to each employee.Prepare the journal entries to (a)accrue the payroll and (b)record payroll taxes expense.

Accepted Answer

The answer of The payroll records of a company provided...

Question 3

On November 1,Bob's Skateboards signed a $12,000,90-day,5% note payable to cover a past due account payable.
a.What amount of interest expense on this note should Bob's Skateboards report on year-end December 31?
b.Prepare Bob's journal entry to record the issuance of the note payable.
c.Prepare Bob's journal entry to record the payment of the note on February 1 of the following year.

Accepted Answer

The answer of On November 1,Bob's Skateboards signed a $12,000,90-day,5%...

Question 4

Metro Express has 5 sales employees,each of whom earns $4,000 per month and is paid on the last working day of the month.Each employee's wages are subject to FICA social security taxes of 6.2% and Medicare taxes of 1.45% on all wages.Withholding for each employee also includes federal income tax of 16% and monthly medical insurance premiums of $110 for each employee.
a.Prepare the general journal entry to accrue the monthly sales salaries expense at January 31.
b.The employer payroll taxes for Metro Express include FICA taxes,federal unemployment taxes of 0.8% of the first $7,000 paid each employee,and state unemployment taxes of 4.0% of the first $7,000 paid to each employee.Prepare the journal entry to record the employer's payroll taxes at January 31 for Metro Express.(Assume that none of the employees has reached the unemployment limit of $7,000.)

Accepted Answer

The answer of Metro Express has 5 sales employees,each of...

Question 5

A company's income before interest expense and income taxes is $302,400,and its interest expense is $72,000.Calculate the company's times interest earned ratio.

Accepted Answer

Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest
Expense
Times Interest Earned Ratio = $302,400/$72,000 = 4.2

Question 6

ZMart had income before interest expense and income taxes of $12,581 million and interest expense of $1,063 million.XMart had income before interest expense and income taxes of $3,596 million and interest expense of $1,143 million.Calculate the times interest earned for each company and comment on the results.

Accepted Answer

ZMart's times interest earned is almost four times that of Xmart.Neither company appears to have a very high risk of default on debt,but ZMart appears to have much lower risk Xmart.
 Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest
Expense
Times Interest Earned Ratio = $12,581/$1,063 = 11.8 (ZMart)
Times Interest Earned Ratio = $3,596/$1,143 = 3.1 (XMart)

Question 7

On June 1,Martin Company signed a $25,000,120-day,6% note payable to cover a past due account payable.
a.What is the total amount of interest to be paid on this note?
b.Prepare Martin Company's general journal entry to record the issuance of the note payable.
c.Prepare Martin Company's general journal entry to record the payment of the note on September 29.

Accepted Answer

The answer of On June 1,Martin Company signed a $25,000,120-day,6%...

Question 8

The tax rate for FICA-social security is 6.2% and the tax rate for FICA-Medicare is 1.45%.Calculate the total amount of FICA withholding for an employee whose pay is $2,400 and is entirely subject to these FICA taxes.

Accepted Answer

The answer of The tax rate for FICA-social security is...

Question 9

A company has 90 employees and a weekly payroll of $117,000.The FICA-social security tax rate is 6.2% and the FICA-Medicare tax rate is 1.45%.The total withholding for federal income tax is $16,500 for the current week.Calculate the amount of FICA taxes owed (assuming no employee's salary is over the FICA limit)and prepare the journal entry to accrue this week's salaries expense and withholdings.

Accepted Answer

The answer of A company has 90 employees and a...

Question 10

A company has 2 employees.The company's total salaries for the month of January were $8,000.The federal income tax rate for both employees is 15%.The FICA-social security tax rate is 6.2% and the FICA-Medicare tax rate is 1.45%.Calculate the amount of employee taxes withheld and prepare the company's journal entry to record the January payroll assuming these were the only deductions.

Accepted Answer

The answer of A company has 2 employees.The company's total...

Question 11

On September 15,SportsWorld borrowed $75,000 cash from FirstBank by signing a 12%,60-day note payable.
a.Prepare SportsWorld's journal entry to record the issuance of the note payable.
b.Prepare SportsWorld's journal entry to record the payment of the note at maturity.

Accepted Answer

The answer of On September 15,SportsWorld borrowed $75,000 cash from...

Question 12

A company's payroll for the week ended May 15 included earned salaries of $20,000.All of that week's pay is subject to FICA social security taxes of 6.2% and Medicare taxes of 1.45%.In addition,the company withholds the following amounts for this weekly pay period:
 $900 for medical insurance,$3,400 for federal income taxes,and $180 for union dues.
a.Prepare the general journal entry to accrue the payroll.
b.The company is subject to state unemployment taxes at the rate of 2% and federal unemployment taxes at the rate of 0.8%.By May 15,some employees had earned over $7,000,so only $9,000 of the $20,000 weekly gross pay was subject to unemployment tax.Prepare the general journal entry to accrue the employer's payroll tax expense.

Accepted Answer

The answer of A company's payroll for the week ended...

Question 13

A company borrowed $60,000 by signing a 60-day,10% note payable from its bank.Compute the total cash payment due on the note's maturity date.

Accepted Answer

The answer of A company borrowed $60,000 by signing a...

Question 14

Calco had income before interest expense and income taxes of $5,698 million and interest expense of $399 million.Calculate Calco's times interest earned.

Accepted Answer

Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest
Expense
Times Interest Earned Ratio = $5,698/$399 = 14.3

Question 15

A company's income before interest expense and income taxes in 2010 and 2011 is $225,000 and $200,000,respectively.Its interest expense was $45,000 for both years.Calculate the company's times interest earned ratio,and comment on its level of risk.

Accepted Answer

Risk analysis: The income before interest expense has decreased,but the interest expense appears fixed.Consequently,the company's risk has increased over the 2-year period.
 Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest
Expense
Times Interest Earned Ratio = $225,000/$45,000 = 5.0 (2010)
Times Interest Earned Ratio = $200,000/$45,000 = 4.4 (2011)

Question 16

A company's employees had the following earnings records at the close of the current payroll period:
  The company's payroll taxes expense on each employee's earnings includes:
 FICA Social Security taxes of 6.2% on the first $106,800 of earnings plus 1.45% FICA Medicare on all wages; 0.8% federal unemployment taxes on the first $7,000; and 2.5% state unemployment taxes on the first $7,000.Compute the employer's total payroll taxes expense for the current pay period.

Accepted Answer

The answer of A company's employees had the following earnings...

Question 17

On December 1,Gates Company borrowed $45,000 cash from FirstBank by signing a 90-day,9% note payable.
a.Prepare Gate's journal entry to record the issuance of the note payable.
b.Prepare Gate's journal entry to record the accrued interest due at December 31.
c.Prepare Gate's journal entry to record the payment of the note on March 1 of the next year.

Accepted Answer

The answer of On December 1,Gates Company borrowed $45,000 cash...

Question 18

A company had income before interest expense and income taxes of $176,000,and its interest expense is $55,000.Calculate the company's times interest earned ratio.

Accepted Answer

Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest
Expense
Times Interest Earned Ratio = $176,000/$55,000 = 3.2

Question 19

Ember Co.entered into the following transactions involving short-term notes payable.
On June 18,Ember purchased $25,000 merchandise from Halco Co.,terms are 2/10,n/30.Halco uses the perpetual inventory system.On July 19,Ember replaced the June 18 account payable with a 60-day,$22,000 note bearing 9% annual in addition to paying $3,000 in cash.
______ Paid the amount due on the note at maturity.
1.Determine the maturity date for the note.
2.Prepare journal entries for all the preceding transactions and events.

Accepted Answer

The answer of Ember Co.entered into the following transactions involving...

Question 20

On January 31,Hale Company's payroll register showed that its employers earned $30,320 of office salaries and $82,750 of sales salaries.Withholdings from the employees' salaries include FICA Social Security taxes as the rate of 6.2%,FICA Medicare taxes at the rate of 1.45%,$16,960 of federal income taxes,$2,350 of medical insurance deductions (which represents 50% of the total cost of the employee medical insurance),and $4,210 of 401(k)retirement contribution deductions.Hale Company pays the other 50% of the employee insurance cost and matches the employee 401(k)contributions.Several employees earned more than $7,000 for the period which reduced salaries subject to unemployment to $110,000.No employees exceeded the FICA-Social Security taxable wage base.
1.Prepare the journal entry to record Hale Company's January 31 payroll expenses and liabilities.
2.Prepare the journal entry to record Hale Company's employer payroll taxes resulting from the January 31 payroll.Hale's merit rating reduces its state unemployment to 4% of the first $7,000 paid each employee.The federal unemployment tax rate is .8%.
3.Prepare the journal entry to record Hale's additional employee expenses.

Accepted Answer

The answer of On January 31,Hale Company's payroll register showed...

Quiz 11: Current Liabilities and Payroll Accounting