Chapter 09 – Reporting and Analyzing Current Liabilities
Chapter 9
1. A current liability is expected to be paid within one year or the company’s operating
term.
2. An estimated liability is an obligation to make a future payment, the exact amount of
3. The three questions are: (1) Who must be paid? (2) When is payment due? (3) How
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
6. The Medicare tax rate is 1.45%. This rate is applied to all wages earned by an
7. The employee is responsible for federal income taxes, state income taxes, local
8. An employee’s gross earnings along with the number of withholding allowances that
9. An unemployment merit rating is based on an evaluation of an employer’s
experience in creating or avoiding unemployment with its employees. The merit
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
11. There are no conditions in which a probable loss tied to a future event can create a
12.A A wage bracket withholding table shows for a pay period of a given length (weekly,
13.A Single employee earning $725 with two allowances has $76 taxes withheld.
14. At September 29, 2012, Apple reports accounts payable of $21,175 million.
15. At December 31, 2012, Google reports the following accrued expenses:
16. At December 31, 2012, Samsung reports nine current liabilities: Trade and other
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.
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Solutions Manual, Chapter 9
3
Quick Study 9-1 (5 minutes)
Quick Study 9-2 (10 minutes)
Oct. 31
Cash ………………………………………………………..………
5,000,000
Unearned Ticket Revenue …………………………..
5,000,000
To record sales in advance of concerts.
Nov. 5
Unearned Ticket Revenue …………………………..
1,250,000
Earned Ticket Revenue ……………………….….
1,250,000
To record concert revenues earned.
Quick Study 9-3 (10 minutes)
Sept. 30
Cash ………………………………………………………..………
6,300
Sales ………………………………………………….……
6,000
Sales Taxes Payable …………………………..
300
To record cash sales and 5% sales tax.
Sept. 30
Cost of Goods Sold ………………………………….………
3,900
Merchandise Inventory ……………………….….
3,900
To record cost of Sept. 30 sales.
Oct. 15
Sales Taxes Payable ………………………………..………
300
Cash …………………………………………………..…..
300
To record remittance of sales taxes to govt.
Quick Study 9-4 (10 minutes)
1. (b); reason—is reasonably estimated but not a probable loss.
2. (b); reason—probable loss but cannot be reasonably estimated.
3. (a); reason—can be reasonably estimated and loss is probable.
Quick Study 9-5 (15 minutes)
1. Computation of interest payable at December 31, 2013:
Days from November 7 to December 31 ………………..
54 days
Accrued interest (8% x $160,000 x 54/360) …………….
$1,920
2. 2013
Dec.31
Interest Expense ……………………………………………...
Interest Payable ………………………………………...
1,920
To record accrued interest (8% x $160,000 x 54/360).
3. 2014
Feb. 5
Interest Expense …………………………………………..….
1,280
Interest Payable ……………………………………………….
1,920
Notes Payable ………………………………………………….
160,000
Cash ……………………………………………………….
163,200
To record payment of note plus interest
(8% x $160,000 x 90/360 = 3,200).
Quick Study 9-6 (15 minutes)
Jan. 15
Sales Salaries Expense …………………………………….
35,000.00
FICA—Social Sec. Taxes Payable* …………..….
2,170.00
FICA—Medicare Taxes Payable** …………….….
507.50
Employee Fed. Inc. Taxes Payable …………..….
6,500.00
Employee Medical Insurance Payable ………….
772.50
Employee Union Dues Payable ………………..….
120.00
Salaries Payable ……………………………………..….
24,930.00
To record payroll for period.
* $35,000 x 6.2%
** $35,000 x 1.45%
Quick Study 9-11 (10 minutes)
Quick Study 9-12A (15 minutes)
Gross Pay ………………………………………………………………….
$740.00
Social Security tax deduction (6.2%) ………………………...
$45.88
Medicare tax deduction (1.45%) ………………………………..
10.73
Federal income tax deduction (from Exhibit 9A.6) ……..
96.00
State income tax deduction (1.0%) …………………………...
7.40
Total deductions ……………………………………………………...
160.01
Net Pay ……………………………………………………………………...
$579.99
Quick Study 9-13B (10 minutes)
Dec. 31
Income Taxes Expense …………………………………....
Income Taxes Payable ………………………………..
34,000
Deferred Income Tax Liability ……………………..
6,000
To record tax expense and deferred tax liability.
Quick Study 9-14 (10 minutes)
a. The definitions and characteristics of current liabilities are broadly
$1,885,000
Exercise 9-4 (Concluded)
2b.
July 14
Interest Expense* …………………………………………....
Notes Payable ………………………………………………....
Cash …………………………………………………………..
112,200
Repaid note plus interest.
* Principal …………………….…….
$110,000
x Interest rate ……………..……..
12%
x Fraction of year ……….……..
60/360
Total interest ……………………..
$ 2,200
Exercise 9-5 (30 minutes)
1. Maturity date = November 1 + 90 days = January 30, 2014.
2.
Principal ……………………………………………..
$200,000
x Interest rate ……………………………………...
9%
x Fraction of year (Nov. 1 – Dec. 31)……..
60/360
Total interest in 2013 …………………………..
$ 3,000
3.
Principal ……………………………………………..
$200,000
x Interest rate ……………………………………...
9%
x Fraction of year (Jan. 1 – Jan. 30)……...
30/360
Total interest in 2014 …………………………..
$ 1,500
4a.
2013
Nov. 1
Cash ………………………………………………………………..
Notes Payable …………………………………………....
200,000
Borrowed cash by issuing an interest-bearing note.
4b.
2013
Dec. 31
Interest Expense ……………………………………………...
Interest Payable ………………………………………....
3,000
Accrued interest on note payable.
4c.
2014
Jan. 30
Interest Expense ……………………………………………...
Interest Payable ……………………………………………....
Notes Payable ………………………………………………....
Cash …………………………………………………………..
204,500
Repaid note plus interest.
Exercise 9-9 (25 minutes)
1. Warranty Expense = 4% of dollar sales = 4% x $6,000 = $240
2. The December 31, 2013, balance of the liability equals the expense
3. The company should report no additional warranty expense in 2014 for
4. The December 31, 2014, balance of the Estimated Warranty Liability
account equals the 2014 beginning balance minus the costs incurred in