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Exam 9: Accounting for Current Liabilities

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Question 1

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All of the following statements regarding liabilities are true except:

A) A liability is a probable future payment of assets or services.
B) Unearned future wages to be paid to employees should be recorded as liabilities.
C) For a liability to be reported, it must be a present obligation that results from a past transaction or event, and requires a future payment of assets or services.
D) Information about liabilities is more useful when the balance sheet identifies them as either current or long term.
E) Liabilities can involve uncertainty in whom to pay.

F) A) and B)
G) C) and D)

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Question 2

Multiple Choice

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Employees earn vacation pay at the rate of one day per month. During the month of July, 25 employees qualify for one vacation day each. Their average daily wage is $100 per day. What is the amount of vacation benefit expense to be recorded for the month of July?

A) $25
B) $100
C) $250
D) $2,500
E) $25,000

F) A) and E)
G) C) and D)

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Question 3

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Maturity date: September 17 (12 days in July, 31 days in August, 17 days in September)

An employee earns $9,450 for the current period. The cumulative earnings of previous pay periods is $110,000. Social security tax applies to the first $117,000 of employee earnings. Calculate the total and individual amounts to be withheld for social security (6.2%), Medicare (1.45%) and federal income tax (15%).

A company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers. When the company mails the first quarterly journal to customers, it should record:

A company cannot have a liability if the amount of the obligation is unknown.

If the times interest earned ratio:

Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45% for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. What is the total amount of taxes withheld from the Trey's earnings?

A company sold $12,000 worth of bicycles with an extended warranty. It estimates that 2% of these sales will result in warranty work. The current period's entry to record the warranty expense is:

Vacation benefits are a type of _______________ liability.

Identify and discuss the factors involved in computing federal income taxes withheld from employees.

On September 15, SkateWorld borrowed $70,000 cash from Mutual Bank by signing a 6%, 60-day note payable. a. Prepare SkateWorld's journal entry to record the issuance of the note payable. b. Prepare SkateWorld's journal entry to record the payment of the note at maturity.

The report that shows the pay period dates, hours worked, gross pay, deductions, and net pay of each employee for every pay period is the payroll register.

On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. What amount of interest expense is accrued at December 31 on the note?

Companies with many employees rarely use a special payroll bank account from which to pay employees.

Experience shows that the default rate on liabilities increases sharply when times interest earned falls below 1.5 to 2.0 and remains at that level or lower for several time periods.

Obligations due within one year or the company's operating cycle, whichever is longer, are ________________________.

All of the following are true of known liabilities except:

FUTA requires employers to pay a federal unemployment tax on all salary or wages paid to each employee.

SaveMart had income before interest expense and income taxes of $12,581 million and interest expense of $1,063 million. Valueland 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.