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

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Question 61

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FICA tax is a payroll tax that is paid only by employers.

A) True
B) False

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Question 62

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List five internal controls that relate directly to payroll.

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All of the cash payment controls.
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Question 63

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Federal unemployment taxes are paid by the employer and the employee.

Dixon Sales has seven sales employees that receive weekly paychecks. Each earns $10.25 per hour and each has worked 40 hours in the pay period. Each employee pays 12% of gross in federal income tax, 3% of gross in state income tax, 6% of gross in social security tax, 1.5% of gross in Medicare tax, and 0.5% of gross in state disability insurance. Journalize the recognition of the pay period ending January 19 which will be paid to the employees January 26.

Payroll taxes levied against employees become liabilities

Hadley Industries warrants its products for one year. The estimated product warranty expense is 4% of sales. Assume that sales were $210,000 for June. In July, a customer received warranty repairs requiring $205 of parts and $75 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.

Hall Company sells merchandise with a one-year warranty. In the current year, sales consisted of 4,500 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in the current year and 70% in the next year. In the current year's income statement, Hall should show warranty expense of

Sterling Inc. has two long-term notes outstanding. One is a five-year note for $50,000. An equal amount of principal must be repaid each year of the loan. The other is a seven-year note for $210,000. In the next calendar year, the company will pay $21,000 of the principal. What is total amount of the notes that will be reported as current liabilities on its balance sheet?

Obligations that may arise from past transactions only if certain events occur in the future are contingent liabilities.

Payroll taxes only include social security taxes and federal unemployment and state unemployment taxes.

-Assume that social security taxes are payable at a 6% rate and Medicare taxes are payable at a 1.5% rate with no maximum earnings, and that federal and state unemployment compensation taxes total 6.2% on the first $7,000 of earnings. If an employee earns $2,500 for the current week and the employee's year-to-date earnings before this week were $6,800, what is the total employer payroll taxes related to the current week?

Form W-4 is a form authorizing employers to withhold a portion of employee earnings for payment of an employee's federal income taxes.

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 fav or 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) Frepare any note disclosure related to the spill.

Anderson Co. issued a $50,000, 60-day, discounted note to National Bank. The discount rate is 6%. At maturity, assuming a 360-day year, the borrower will pay

identify the proper treatment of each contingent liability by using the following key.

Which of the following would most likely be classified as a current liability?

Thomas Martin receives an hourly wage rate of $40, with time and a half for all hours worked in excess of 40 hours during a week. Payroll data for the current week are as follows: hours worked, 48; federal income tax withheld, $350; social security tax rate, 6.0%; and Medicare tax rate, 1.5%. What is the gross pay for Martin?

Martin Jackson receives an hourly wage rate of $30, with time and a half for all hours worked in excess of 40 hours during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; social security tax rate, 6.0%; and Medicare tax rate, 1.5%. What is the net amount to be paid to Jackson?

Assuming a 360-day year, the interest charged by the bank, at the rate of 6%, on a 90-day, discounted note payable of $100,000 is

On January 5, Thomas Company, a calendar-year company, issued $1,000,000 of notes payable, of which $250,000 is due on January 1 each of the next four years. The proper balance sheet presentation on December 31 is