1. No. A discounted note payable has no stated interest rate, but provides interest by discounting the
4. 1. a
5. An advantage of using a separate payroll bank account is that reconciling the bank statements
6. a. Constants are data that remain unchanged from payroll to payroll. These include employee
to date, and total taxes withheld.
8. In a defined contribution plan, the company invests contributions on behalf of the employee
CHAPTER 11
CURRENT LIABILITIES AND PAYROLL
DISCUSSION QUESTIONS
11-1
CHAPTER 11 Current Liabilities and Payroll
PE 11–1A
PE 11–1B
PE 11–2A
Total wage payment……………………………………………………………
…
$2,600.00
…
*($2,460 – $1,648) × 28%
PE 11–2B
Total wage payment……………………………………………………………
…
$1,400.00
…
PRACTICE EXERCISES
11-2
CHAPTER 11 Current Liabilities and Payroll
PE 11–3A
Total wa
g
e pa
y
ment…………………………………………
…
$2,600.00
PE 11–3B
Total wa
g
e pa
y
ment…………………………………………
…
$1,400.00
PE 11–4A
Salaries Expense 220,000
PE 11–4B
Salaries Expense 90,000
PE 11–5A
Payroll Tax Expense 18,670
PE 11–5B
Payroll Tax Expense 7,370
PE 11–6A
a. Vacation Pay Expense 19,500
PE 11–6B
a. Vacation Pay Expense 35,000
11-4
CHAPTER 11 Current Liabilities and Payroll
PE 11–7A
a. Feb. 28 Product Warranty Expense 12,000
PE 11–7B
PE 11–8A
a. December 31, 2014
11-5
PE 11–8B
a. December 31, 2014
Quick Ratio = Quick Assets ÷ Current Liabilities
b. The quick ratio of Adieu Company has improved from 1.5 in 2013 to 1.6 in
2014. This increase is the result of a small decrease in the three types of quick
11-6
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–1
Current liabilities:
Federal income taxes pa
y
able*………………………………………………………
…
$ 336,000
Ex. 11–2
a. 1. Merchandise Inventory 792,000
2. Notes Payable 800,000
Cash 800,000
b. 1. Notes Receivable 800,000
2. Cash 800,000
EXERCISES
11-7
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–3
c. Alternative (1) is more favorable to the borrower. This can be verified by
comparing the effective interest rates for each loan as follows:
Ex. 11–4
a. Accounts Payable 150,000
Ex. 11–5
a. Accounts Payable 89,100
11-8
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–6
a. June 30 Building 450,000
Ex. 11–7
Ex. 11–8
a. Regular pay (40 hrs. × $50)…………………………………………
…
$2,000
11-9
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–9
Regular earnings……………………………… $3,800.00 $1,600.00 $1,760.00
Withholding supporting calculations:
Gross weekly pay……………………………
…
$3,800.00 $2,800.00 $2,640.00
Computer
Consultant Programmer Administrator
Consultant Programmer
Computer
Administrator
11-10
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–10
a. Summary: (1) $460,000; (3) $540,000; (8) $6,750; (12) $135,000
$338,850
Total earnings……………………………………………………
…
$540,000
…
b. Factory Wages Expense 285,000
Sales Salaries Expense 135,000
11-11
…
…
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–11
a. Social security tax (6% × $880,000)………………………………………………
…
$52,800
Medicare tax (1.5% × $880,000)……………………………………………………
…
13,200
11-12
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–13
a. Wages Expense 240,000
Social Security Tax Payable* 14,400
b. Payroll Tax Expense 20,170
Social Security Tax Payable 14,400
Ex. 11–14
Big Howie’s Hot Dog Stand does have an internal control procedure that should detect the
payroll error. Before funds are transferred from the regular bank account to the payroll
Ex. 11–15
a. Appropriate. All changes to the payroll system, including wage rate increases,
should be authorized by someone outside the Payroll Department.
11-13
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–16
a. Vacation Pay Expense 3,500
pay is decreased.
Ex. 11–17
a. Dec. 31 Pension Expense 365,000
b. In a defined contribution plan, the company invests contributions on behalf of
the employee during the employee’s working years. Normally, the employee
Ex. 11–18
The $4,267 million unfunded pension liability is the approximate amount of the
pension obligation that exceeds the value of the net assets of the pension plan.
11-14
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–19
a. Product Warranty Expense 22,400
Ex. 11–20
a. The warranty liability represents estimated outstanding automobile warranty
c. In order for a product warranty to be reported as a liability in the financial
11-15
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–21
a. Damage Awards and Fines 365,000
b. The company experienced a hazardous materials spill at one of its plants during
the previous period. This spill has resulted in a number of lawsuits to which the
Ex. 11–22
Quick Assets
Current Liabilities
b. The quick ratio decreased between the two balance sheet dates. The major
reason is a significant increase in inventory which likely drove the increase in
a. Quick Ratio =
11-16
CHAPTER 11 Current Liabilities and Payroll
Ex. 11–23
a. Dell, Inc.
Quick Ratio 1.3
b. It is clear that Apple Inc.’s short-term liquidity is stronger than Dell’s.
Apple Inc.
1.8
11-17
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–1A
1. Feb. 3 Merchandise Inventory 410,000
Accounts Payable—Onifade Co. 410,000
Aug. 30 Notes Payable 250,000
PROBLEMS
11-18
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–1A (Concluded)
2. a. Product Warranty Expense 32,500
Product Warranty Payable 32,500
11-19
CHAPTER 11 Current Liabilities and Payroll
Prob. 11–2A
1. a. Dec. 30 Sales Salaries Expense 350,000
Warehouse Salaries Expense 180,000
2. a. Dec. 30 Sales Salaries Expense 350,000
b. Jan. 5 Payroll Tax Expense 92,475