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Exam 9: Accounting for Current Liabilities

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Question 71

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On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of an account payable with Erikson Company. What is the journal entry that should be recorded upon signing the note?

A) Debit Accounts Receivable $24,000; credit Notes Receivable $24,000.
B) Debit Accounts Payable $24,000; credit Notes Payable $24,000.
C) Debit Accounts Payable $24,160; credit Notes Payable $24,160.
D) Debit Notes Payable $24,000; debit Interest Expense $160; credit Accounts Payable $24,160.
E) Debit Notes Payable $24,000; debit Interest Expense $160; credit Cash $24,160.

F) B) and E)
G) C) and D)

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Question 72

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The difference between the amount borrowed and the amount repaid is referred to as _______________.

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Question 73

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Contingent liabilities are recorded or disclosed unless they are:

A company has a selling price of $1,800 each for its printers. Each printer has a 2 year warranty that covers replacement of defective parts. It is estimated that 2% of all printers sold will be returned under the warranty at an average cost of $150 each. During November, the company sold 30,000 printers, and 400 printers were serviced under the warranty at a total cost of $55,000. The balance in the Estimated Warranty Liability account at November 1 was $29,000. What is the company's warranty expense for the month of November?

Kelso had income before interest expense and income taxes of $570 million and interest expense of $37 million. Calculate Kelso' times interest earned.

The Wage and Tax Statement given to each employee annually is:

An estimated liability:

Describe contingent liabilities and how to account for and/or report them.

The amount of federal income tax withheld from employee pay depends on the employee's annual earnings rate and the number of withholding allowances claimed by the employee.

The Federal Insurance Contributions Act (FICA) requires that each employer file a:

Obligations not due within one year or the company's operating cycle, whichever is longer, are reported as current liabilities.

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

A contingent liability is:

All of the following are employer payroll taxes except:

In the accounting records of a defendant, lawsuits:

Payments of FUTA are made quarterly to a federal depository bank if the total amount due exceeds $500.

Deacon Company provides you with following information related to payroll transactions for the month of May. Prepare journal entries to record the transactions for May. $\begin{array} { | r | r | r | r | r | } \hline \text { Office Salaries } & \text { Sales Salaries } & \begin{array} { r } \text { Social Security } \\\text { Taxes }\end{array} & \text { Medicare Taxes } & \text { Feder al Income Taxes } \\\hline \$ 38,000 & \$ 26,000 & \$ 3,968 & \$ 928 & \$ 5,600 \\\hline\end{array}$ a. Recorded the May payroll using the payroll register information given above. b. Recorded the employer's payroll taxes resulting from the May payroll. The company had a merit rating that reduces its state unemployment tax rate to 3.5% of the first $7,000 paid each employee. Only $42,000 of the current months salaries are subject to unemployment taxes. The federal rate is 0.6%. c. Issued a check to Reliant Bank in payment of the May FICA and employee taxes. d. Issued a check to the state for the payment of the SUTA taxes for the month of May. e. Issued a check to Reliant Bank in payment of the employer's quarterly FUTA taxes for the first quarter in the amount of $1,020.

______________________ are amounts received in advance from customers for future products or services.

An employer has an employee benefit package that includes employer-paid health insurance and an employer-paid retirement program. During March, the employer paid $5,500 for health insurance, and contributed to the employee retirement program 10% of the employees' $120,000 gross salaries. Prepare the journal entry to record these employee benefits.

Even if the end of an accounting period occurs between the signing of a note payable and its maturity date, the matching principle requires that interest expense not be accrued on a note payable until the note is paid.