Chapter 11 – Current Liabilities and Payroll Accounting
Chapter 11
Current Liabilities and Payroll Accounting
QUESTIONS
1. A current liability is expected to be paid within one year or the company’s operating
cycle, whichever is longer. Any liability that is not current is considered to be long
term.
2. An estimated liability is an obligation to make a future payment, the exact amount of
which is uncertain, but it is capable of being reasonably estimated.
7. The employee is responsible for federal income taxes, state income taxes, local
income taxes (if any), and the employee portion of the FICA taxes. The employer is
responsible for both federal and state unemployment taxes and the employer
portion of the FICA taxes.
create more unemployment.
10. The obligation to correct or replace defective products (or services) is created when
the products are sold with the warranties. Even though the seller does not know
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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, regardless of its probability. A liability is an obligation created by a past
event, not by a future event. If a disaster occurs, the company must report the loss
in the period when it occurs.
16. At December 31, 2013, Samsung reports nine current liabilities: Trade and other
payables; Short-term borrowings; Advance received; Withholdings; Accrued
expenses; Income tax payable; Current portion of long-term borrowings and
debentures; Provisions; and Other current liabilities.
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.
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
Sales………………………………………………..………... 6,000
Sales Taxes Payable………………..………..……….. 300
To record cash sales and 5% sales tax.
Chapter 11 – Current Liabilities and Payroll Accounting
To record remittance of sales taxes to govt.
Quick Study 11-3 (10 minutes)
Oct. 31 Cash…………………………………………………………………5,000,000
Unearned Ticket Revenue…....………..………..…. 5,000,000
To record sales in advance of concerts.
Quick Study 11-4 (15 minutes)
1. Computation of interest payable at December 31, 2015:
2. 2015
Dec.31 Interest Expense………………………………………………. 1,920
Interest Payable…………………………………....…… 1,920
To record accrued interest (8% x $160,000 x 54/360).
3. 2016
Feb. 5 Interest Expense…………………………………………….... 1,280
Quick Study 11-5 (15 minutes)
Jan. 15 Sales Salaries Expense………………………………………………………………..…….. 35,000.00
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Chapter 11 – Current Liabilities and Payroll Accounting
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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
Bonus Payable………………………………………….. 15,000
To record expected bonus costs.
Quick Study 11-8 (5 minutes)
Quick Study 11-9 (10 minutes)
2014
Sep 11 Cash………………………………………………………………… 500
Sales…………………………………………….…..………... 500
To record mower sales.
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Chapter 11 – Current Liabilities and Payroll Accounting
Quick Study 11-10 (10 minutes)
Quick Study 11-11 (10 minutes)
Times interest earned = = 13 times
Quick Study 11-12A (15 minutes)
Gross Pay………………………………………………..………..……… $740.00
Social Security tax deduction (6.2%)…………………………………………………………….. $45.88
Medicare tax deduction (1.45%)…………………………………………………………………… 10.73
Quick Study 11-13B (10 minutes)
Dec. 31 Income Taxes Expense………………………....……….... 40,000
Quick Study 11-14 (10 minutes)
a. The definitions and characteristics of current liabilities are broadly
similar for both U.S. GAAP and IFRS. Although differences exist, the
similarities vastly outweigh any differences.
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$1,885,000
$145,000
Chapter 11 – Current Liabilities and Payroll Accounting
EXERCISES
Exercise 11-1 (10 minutes)
Exercise 11-2 (10 minutes)
[Note: All entries dated December 31, 2015]
1. Cash………………………………………………………………… 10,400,000
Sales…………………………………………....………..….. 10,000,000
Sales Taxes Payable………………..………..……….. 400,000
To record sales and sales taxes.
To record revenue earned.
Exercise 11-3 (30 minutes)
1. Maturity date = May 15 + 60 days = July 14, 2015
2a.
May 15 Cash…………………………………………………………………110,000
Notes Payable……………………………………..……… 110,000
Borrowed cash by issuing an interest-bearing note.
2b.
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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
x Interest rate………………………………….…… 9%
4a.
2015
Nov. 1 Cash…………………………………………………………………200,000
Notes Payable……………………………………..……… 200,000
Borrowed cash by issuing an interest-bearing note.
4b.
2015
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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.
SUTA.………..………..….... 0 2.90 0.00 Full amount is over maximum.
c.
FICA––Social Security…... $6,300 6.20% $390.60 $1,700 is over the maximum.
FICA—Medicare............. 8,000 1.45 116.00 Full amount is subject to tax.
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
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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
2. July 31 Salaries Payable…………………………………………………………………………..…… 217,060
3. July 31 Payroll Taxes Expense……………………………………………………….…………..…. 30,540
FICASocial Sec. Taxes Payable……………………………………....……….... 22,320
FICAMedicare Taxes Payable………………………………………………….... 5,220
State Unemployment Taxes Payable……………………………………..……… 2,700
4. July 31 FICASocial Security Taxes Payable…………………………………………….…… 44,640
FICAMedicare Taxes Payable……………………………………………………….... 10,440
Employee Fed. Income Taxes Payable……………………………..…..………..….. 90,000
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