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Chapter 11 - Current Liabilities and Payroll Accounting
Chapter 11
Current Liabilities and Payroll Accounting
QUESTIONS
4. The amount of the sale for the item only is $950 ($988/1.04).
5. The combined Social Security tax rate (assuming the maximum wage amount is not yet reached) is
6. The Medicare tax rate is 1.45%. This rate is applied to all wages earned by an employee—no maximum
limit exists.
7. The employee is responsible for federal income taxes, state income taxes, local income taxes
8. An employee’s gross earnings along with the number of withholding allowances that an employee
9. An unemployment merit rating is based on an evaluation of an employer’s experience in
10. The obligation to correct or replace defective products (or services) is created when the
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
11. There are no conditions in which a probable loss tied to a future event can create a liability,
12.AA wage bracket withholding table shows for a pay period of a given length (weekly, biweekly,
14. At September 28, 2013, Apple reports accounts payable of $22,367 million.
15. At December 31, 2013, Google reports the following accrued expenses:
16. At December 31, 2013, Samsung reports nine current liabilities: Trade and other payables;
17. Samsung’s current liabilities include one income-tax-related liability titled: Income tax
payable. This account reflects taxes that must be paid to the government in the short term.
Instructor note: Samsung has a current liability title “Withholdings.” This may represent some tax
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
QUICK STUDIES
Quick Study 11-1 (5 minutes)
Items 1, 4, 5 and 6 are current liabilities for this company.
Quick Study 11-2 (10 minutes)
Sept. 30 Cash.........................................................................6,300
Sept. 30 Cost of Goods Sold................................................3,900
Oct. 15 Sales Taxes Payable............................................... 300
Quick Study 11-3 (10 minutes)
Oct. 31 Cash.........................................................................5,000,000
Nov. 5 Unearned Ticket Revenue......................................1,250,000
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
Quick Study 11-4 (15 minutes)
1. Computation of interest payable at December 31, 2015:
2. 2015
Dec.31 Interest Expense..................................................... 1,920
3. 2016
Feb. 5 Interest Expense..................................................... 1,280
Quick Study 11-5 (15 minutes)
Jan. 15 Sales Salaries Expense..................................................................................... 35,000.00
FICA—Social Sec. Taxes Payable*.......................................................... 2,170.00
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
Quick Study 11-6 (15 minutes)
[Note: Two months (January and February) of earnings have already been
recorded for each of the 10 employees.]
Mar. 31 Payroll Taxes Expense........................................... 2,730.00
FICA—Social Security Taxes Payable1............. 1,240.00
Quick Study 11-7 (5 minutes)
Dec. 31 Employee Bonus Expense..................................... 15,000
Quick Study 11-8 (5 minutes)
Vacation Benefits Expense*................................... 500
Quick Study 11-9 (10 minutes)
2014
Sep 11 Cash......................................................................... 500
Sep 11 Warranty Expense................................................... 40
2015
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
To record cost of warranty repairs.
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
Quick Study 11-10 (10 minutes)
1. (b); reason—is reasonably estimated but not a probable loss.
Quick Study 11-11 (10 minutes)
Interpretation: This company’s times interest earned ratio of 13 exceeds (is superior
to) its competitors’ average ratio of 4.0. Moreover, a times interest earned of 13
suggests sufficient income to cover interest obligations.
Quick Study 11-12A (15 minutes)
Gross Pay.......................................................................... $740.00
Social Security tax deduction (6.2%).......................................................................... $45.88
Quick Study 11-13B (10 minutes)
To record tax expense and deferred tax liability.
Quick Study 11-14 (10 minutes)
a. The definitions and characteristics of current liabilities are broadly similar for
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
EXERCISES
Exercise 11-1 (10 minutes)
To record revenue earned.
Exercise 11-3 (30 minutes)
1. Maturity date = May 15 + 60 days = July 14, 2015
2a.
2b.
July 14 Interest Expense*.................................................... 2,200
Notes Payable.........................................................110,000
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
Exercise 11-4 (30 minutes)
1. Maturity date = November 1 + 90 days = January 30, 2016.
2. Principal.....................................................$200,000
4a.
2015
Borrowed cash by issuing an interest-bearing note.
4b.
2015
Accrued interest on note payable.
4c.
2016
Jan. 30 Interest Expense..................................................... 1,500
Repaid note plus interest.
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
Exercise 11-5 (20 minutes)
Subject
to Tax Rate Tax Explanation
a.
FICA--Social Security..... $ 800 6.20% $ 49.60 Full amount is subject to tax.
FICA—Medicare............. 800 1.45 11.60 Full amount is subject to tax.
b.
FICA--Social Security..... $2,100 6.20% $130.20 Full amount is subject to tax.
c.
FICA--Social Security..... $6,300 6.20% $390.60 $1,700 is over the maximum.
Exercise 11-6 (10 minutes)
Sept. 30 Salaries Expense.................................................... 800.00
FICA—Social Security Taxes Payable.............. 49.60
Exercise 11-7 (10 minutes)
Sept. 30 Payroll Taxes Expense........................................... 82.20
FICA—Social Security Taxes Payable.............. 49.60
To record employer payroll taxes.
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
Exercise 11-8 (30 minutes)
1. July 31 Sales Salaries Expense..................................................................................... 200,000
Office Salaries Expense....................................................................................
160,000
FICA—Social Sec. Taxes Payable............................................................ 22,320
FICA—Medicare Taxes Payable.............................................................. 5,220
To record payroll for period.
* $7,000 x 40% ** $4,000 x 40%
2. July 31 Salaries Payable................................................................................................ 217,060
Cash.............................................................................................................. 217,060
To record payment of payroll.*
*Check numbers may be entered in the Payroll Register.
3. July 31 Payroll Taxes Expense...................................................................................... 30,540
To record employer payroll taxes.
July 31 Employee Benefits Expense............................................................................. 6,600
Employee Medical Insurance Payable*.................................................. 4,200
Employee Life Insurance Payable**....................................................... 2,400
To record costs of employee benefits.
* $7,000 x 60% ** $4,000 x 60%
4. July 31 FICASocial Security Taxes Payable............................................................ 44,640
FICAMedicare Taxes Payable...................................................................... 10,440
Employee Fed. Income Taxes Payable........................................................... 90,000
Cash.............................................................................................................. 180,080
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 11 - Current Liabilities and Payroll Accounting
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
