Question 1

Identify the types of payroll records prepared for each pay period and each employee.

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Question 2

On January 1,2013,Charlie Keller paid $2,000 for a two-year membership to the High Beam Gym.High Beam records adjusting entries annually when the company prepares its financial statements.How would the company record the adjusting entry relating to transaction on December 31,2013?

Accepted Answer

The company should recognize one year of the membership revenue, which is $1,000, as earned by debiting Unearned Membership Revenue and crediting Membership Revenue.

Question 3

Rambling Company has one employee whose total salary for the month of January totaled $20,000.The federal income tax rate for this employee is 15%,the FICA Social Security tax is 6.2%,and the FICA Medicare tax is 1.45%.The state unemployment tax rate is 5.4% and the federal unemployment tax rate is 0.8% of the first $7,000 paid each employee.How would the company accrue its January employer's payroll tax expense and related liabilities?

Accepted Answer

The company would accrue its January employer's payroll tax expense and related liabilities by debiting Payroll Tax Expense for $1,964,crediting FICA-Social Security Taxes Payable for $1,240,crediting FICA-Medicare Taxes Payable for $290,crediting State Unemployment Tax Payable for $378, and crediting Federal Unemployment Tax Payable for $56.

Calculation:

FICA-Social Security Tax = $20,000 x 6.2% = $1,240
FICA-Medicare Tax = $20,000 x 1.45% = $290
Federal Income Tax = $20,000 x 15% = $3,000
State Unemployment Tax = $20,000 x 5.4% = $1,080
Federal Unemployment Tax = $7,000 x 0.8% = $56

Total Payroll Tax Expense = $1,240 + $290 + $3,000 + $1,080 + $56 = $5,666
Total Liabilities = $1,240 + $290 + $1,080 + $56 = $2,666

Therefore, choice B is the correct answer.

Question 4

Explain the accounting procedures that employers must follow for employee payroll deductions.

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Question 5

If a company had net income of $1,486,875,a times interest earned ratio of 4.0,a tax rate of 35%,and operating income of $3,050,000,what is the company's interest expense for the year?

Accepted Answer

First, let's calculate the earnings before interest and taxes (EBIT):
EBIT = Operating Income + Interest Expense
4.0 = Times Interest Earned Ratio
Therefore, Interest Expense = Operating Income / Times Interest Earned Ratio
Interest Expense = $3,050,000 / 4.0 = $762,500

Next, we need to calculate the earnings before taxes (EBT):
EBT = EBIT - Interest Expense
EBT = $3,050,000 - $762,500 = $2,287,500

Finally, we can calculate the net income:
Net Income = EBT x (1 - Tax Rate)
Net Income = $2,287,500 x (1 - 0.35)
Net Income = $1,486,875, which matches the given net income.

Therefore, the company's interest expense for the year is $762,500 (Choice D).

Question 6

Wolfe Company employer offers a bonus to its employees based on the company's annual pre-bonus net income (to be equally shared by all).This year's bonuses are estimated at $25,000.How would the company record the year-end adjusting entry to record this benefit?

Accepted Answer

The adjusting entry should debit Employee Bonus Expense for $25,000 to recognize the expense of the bonus and credit Bonus Payable for $25,000 to reflect the liability owed to the employees. This entry will not affect Salaries Expense, Payroll Tax Expense, Income Summary, or Retained Earnings.

Question 7

Identify and explain the types of employer payroll taxes.

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Question 8

What is a short-term note payable? Explain the accounting issues related to notes payable.

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Question 9

The Washington Appliance Company sells a dealer a new washer for $5,000 on December 1,2013,with a maximum one-year warranty covering parts.Washington's experience shows that warranty expense averages about 5% of a washer's selling price.The company recorded the estimated expense and liability of $125 ($5,000 x 5%) related to this sale at the time of the sale.On March 18,2014,Washington sent a service person to the customer's home for warranty repairs.Parts costing $100 were replaced.How would the company record this transaction?

Accepted Answer

When the service person visits the customer's home for warranty repair, the company should debit Estimated Warranty Liability and credit Washer Parts Inventory for the cost of the parts replaced during the repair. Since the parts cost $100, the company should record a debit to Estimated Warranty Liability for $100 and a credit to Washer Parts Inventory for $100. This transaction reduces the liability for estimated warranty expense and reduces the quantity of parts held in inventory.

Question 10

Define liabilities and explain the differences between current and long-term liabilities.

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Question 11

What are known current liabilities? Provide at least two examples of known current liabilities.

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Question 12

DuPage Company agrees to pay an amount for medical insurance equal to $12,000 and contribute an additional 15% of the employees' $100,000 gross salary to a retirement program.How would the company record this transaction?

Accepted Answer

The company is paying $12,000 for medical insurance and an additional 15% of the employees' $100,000 gross salary for retirement program. Total benefits expense is $12,000 + ($100,000 x 15%) = $27,000. Therefore, the company should debit Employee Benefits Expense for $27,000, credit Employee Medical Insurance Payable for $12,000, and credit Employee Retirement Program Payable for $15,000. A, B, and D are incorrect because they do not properly account for both the medical insurance and retirement program contributions. E is incorrect because it only records salaries expense and does not account for the benefit contributions.

Question 13

What are estimated liabilities? Provide at least two examples and explain why they are classified as estimated liabilities.

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Question 14

Rambling Company has an employee whose total salary for the month of January totaled $20,000.The federal income tax rate for this employee is 15%,the FICA Social Security tax is 6.2%,and the FICA Medicare tax is 1.45%.How would the company accrue the January salaries expense and withholding of January taxes for this employee?

Accepted Answer

The company should debit Salaries Expense for the total amount of the employee's salary, which is $20,000. Then, the company should credit FICA-Social Security Taxes Payable for 6.2% of the employee's salary, which is $1,240. The company should also credit FICA-Medicare Taxes Payable for 1.45% of the employee's salary, which is $290. The company should credit Employee Federal Income Taxes Payable for the federal income tax rate of 15% on the employee's salary, which is $3,000. Finally, the company should credit Salaries Payable for the remaining amount of the employee's salary after taxes have been withheld, which is $15,470.

Question 15

One of the employees of the Hill Company earns one month of vacation per year.The employee's annual salary is $132,000.The employee is paid monthly.How would the company record the monthly vacation expense?

Accepted Answer

The company would record the monthly vacation expense by debiting Vacation Benefits Expense for $1,000 (1/12 of the employee's yearly vacation benefit) and crediting Vacation Benefits Payable for $1,000 (as the amount will not be paid out until the employee takes their vacation).

Question 16

The Edgartown Company borrowed $480,000 on December 1,2014.The note,which is due in 60 days,included interest at 8%.The company's fiscal year ends on December 31.How would the company record the adjusting entry relating to this note at December 31,2014?

Accepted Answer

The interest for one month (December) needs to be recorded. The interest for 60 days is $480,000 * 8% * (60/365) = $6,400. For one month (December), it is $480,000 * 8% * (30/365) = $3,200. Thus, the adjusting entry is to debit Interest Expense for $3,200 and credit Interest Payable for $3,200.

Question 17

The Appleton Company borrowed $100,000 on May 1,2014.The note,which is due on May 31,2015,included interest at 12%.The note is due on April 30,2015.The company's fiscal year ends on May 31.The company recorded an adjusting entry to recognize $1,000 of interest expense for the year ended May 31,2014.Appleton paid the note and interest owed on April 30,2015.How would the company record this transaction?

Accepted Answer

The company borrowed $100,000 on May 1, 2014, and the note includes interest at 12%, which accrues from May 1, 2014, to April 30, 2015. Therefore, the interest expense for the year ended May 31, 2014, is $1,000 ($100,000 × 12% × 11/12).

On April 30, 2015, Appleton paid the note and interest owed. The entry to record the payment should be a debit to Notes Payable for $100,000, debit to Interest Expense for $11,000 ($100,000 × 12% × 12/12), debit to Interest Payable for $1,000 (the interest accrued but not yet paid), and a credit to Cash for $112,000. Therefore, option B is the correct answer.

Question 18

Describe how to account for and report on contingent liabilities.

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Question 19

Describe employer responsibilities for reporting payroll taxes.(To the extent possible,reference the form to be filed for each tax.)

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Question 20

Explain how to calculate times interest earned and how this ratio is used to analyze a company.

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Quiz 9: Reporting and Analyzing Current Liabilities