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Exam 9: Reporting and Analyzing Current Liabilities

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Question 1

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A corporation has a $40,000 credit balance in the Income Tax Payable account. Period end information shows that the actual liability is $47,000. The company should record an entry to debit Income Tax Expense for $7,000 and credit Income Taxes Payable for $7,000.

A) True
B) False

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Question 2

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A company has income before interest expense and income taxes of $186,000, and its interest expense is $55,000. Calculate the company's times interest earned ratio.

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Question 3

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

Contingent liabilities are recorded in the accounts if the future event is _______________ and the amount owed can be _______________.

The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned total wages of $9,900. What is the amount of total unemployment taxes the employer must pay on this employee's wages?

All of the following statements regarding uncertainty in liabilities are true except:

Loong Industries collected $17,350 of sales tax on sales to customers during the month of March. When Loong remits these collections to the government in early April, the correct journal entry will be:

During June, Vixen Fur Company sells $850,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 3% of the selling price. Customers returned $14,000 of merchandise for warranty replacement during the month. The entry to settle the customer warranties is:

Accounting for contingent liabilities covers three possibilities: (1) The future event is probable and the amount cannot be reasonably estimated; (2) The future event is remote or unlikely to recur; (3) The likelihood of the liability to occur is impossible.

Employers must keep individual earnings reports for each employee.

The Form W-2 must be given to employees before January 31 following the year covered by the Form W-2.

On January 31, Ransom 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 at the rate of 6.2% on the first $118,500 of earnings per calendar year, FICA Medicare taxes at the rate of 1.45% on all earnings, $16,960 of federal income taxes, $3,350 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. Ransom 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 $104,000. No employees exceeded the FICA-Social Security taxable wage base. 1. Prepare the journal entry to record Ransom Company's January 31 payroll expenses and liabilities. 2. Prepare the journal entry to record Ransom Company's employer payroll taxes resulting from the January 31 payroll. Ransom's merit rating reduces its state unemployment (SUTA) to 4% of the first $7,000 paid each employee. The federal unemployment tax (FUTA) rate is 0.6%. 3. Prepare the journal entry to record Ransom's additional employee expenses.

On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. Alan made the appropriate year-end accrual on December 31. What is the journal entry as of March 1 to record the payment of the note assuming no reversing entry was made?

An employee earned $4,600 in February working for an employer. The FICA tax rate for Social Security is 6.2% of the first $118,500 earned during each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The employee has $644 in federal income taxes withheld and has voluntary deductions for health insurance of $50 and contributes 10% of gross pay to a retirement plan each month. The employer pays the $200 remainder of the health insurance premium and an equal amount of contribution to the retirement fund. What is the amount of net pay for the employee for the month of February?

_________________ are probable future payments of assets or services that a company is presently obligated to make as a result of past transactions or events.

Loong Industries sells materials on March 16 for $12,000 cash, subject to 8% sales tax. The cost of the materials sold is $5,700. The revenue portion of the transaction is recorded as:

A payroll register does not include:

On June 1, Jasper 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 Jasper Company's general journal entry to record the issuance of the note payable. c. Prepare Jasper Company's general journal entry to record the payment of the note on September 29.

All of the following are true of known liabilities except:

Debt guarantees are: