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CHAPTER 11
Current Liabilities and Payroll Accounting
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
1. Explain how to account for
current liabilities.
1, 2, 3, 4,
6, 7
1, 2, 3, 4
1
1, 2, 3, 4
1A, 2A
2. Discuss how current liabilities
are reported and analyzed.
5
5, 6
2
5, 6, 7, 8, 9
1A
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
1A
Prepare current liability entries, adjusting entries,
and current liabilities section.
Moderate
30–40
2A
Journalize and post note transactions and show balance
sheet presentation.
Moderate
30–40
WEYGANDT ACCOUNTING PRINCIPLES 12E
CHAPTER 11
CURRENT LIABILITIES AND PAYROLL ACCOUNTING
Number
LO
BT
Difficulty
Time (min.)
BE1
1
C
Simple
3–5
BE2
1
AP
Simple
2–4
BE3
1
AP
Simple
2–4
BE4
1
AP
Simple
2–4
BE5
2
AP
Simple
2–4
BE6
2
AN
Simple
1–2
BE7
3
AP
Simple
3–5
CURRENT LIABILITIES AND PAYROLL ACCOUNTING (Continued)
Number
LO
BT
Difficulty
Time (min.)
*EX15
5
AP
Simple
4–6
P1A
1, 2
AN
Moderate
30–40
P2A
1
AN
Moderate
30–40
P3A
3
AN
Simple
30–40
P4A
3
AN
Moderate
30–40
P5A
3
AN
Moderate
30–40
BLOOM’ S TAXONOMY TABLE
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
Learning Objective
Knowledge
Comprehension
Application
Analysis
Synthesis
Evaluation
1. Explain how to account for current
liabilities.
Q11-1
Q11-2
Q11-6
Q11-7
BE11-1
DI11-1
Q11-3 DI11-2
Q11-4 E11-3
BE11-2
BE11-3
BE11-4
E11-7
E11-1
E11-2
E11-4
P11-1A
2. Discuss how current liabilities are
reported and analyzed.
Q11-5
E11-6
BE11-5
DI11-2
E11-7
E11-8
E11-9
BE11-6
E11-5
P11-1A
ANSWERS TO QUESTIONS
1. Lori is not correct. A current liability is a debt that a company expects to pay within one year or
the operating cycle, whichever is longer.
2. In the balance sheet, Notes Payable of $40,000 and Interest Payable of $700 ($40,000 X .07 X 3/12)
should be reported as current liabilities. In the income statement, Interest Expense of $700 should
be reported under other expenses and losses.
3. (a) Disagree. The company only serves as a collection agent for the taxing authority. It does not
report sales taxes as an expense; it merely forwards the amount paid by the customer to the
government.
(b) The entry to record the proceeds is:
Cash......................................................................................... 8,400
5. Liquidity refers to the ability of a company to pay its maturing obligations and meet unexpected
needs for cash. Two measures of liquidity are working capital (current assets – current liabilities)
and the current ratio (current assets ÷ current liabilities).
6. A contingent liability is a potential liability that may become an actual liability in the future. Contin-
gent liabilities are only recorded in the accounts if they are probable and the amount is reasonably
estimable. Warranty costs are a contingent liability usually recorded in the accounts since they are
both probable in occurrence and subject to estimation.
Questions Chapter 11 (Continued)
11. FICA stands for Federal Insurance Contribution Act; FUTA stands for Federal Unemployment
Tax Act; and SUTA stands for State Unemployment Tax Act.
12. A W-2 statement contains the employee’s name, address, social security number, wages, tips,
other compensation, social security taxes withheld, wages subject to social security taxes, and
federal, state and local income taxes withheld.
13. Payroll deductions can be classified as either mandatory (required by the government) or voluntary
(not required by the government). Mandatory deductions include FICA taxes and income taxes.
Examples of voluntary deductions are health and life insurance premiums, pension contributions,
union dues, and charitable contributions.
17. The four functions associated with payroll are: (1) hiring employees, (2) timekeeping, (3) preparing the
payroll, and (4) paying the payroll.
*18. Two additional types of fringe benefits are:
(1) Paid absences—vacation pay, sick pay, and paid holidays.
(2) Post-retirement benefits—pensions and health care and life insurance.
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 11-1
(a) A note payable due in two years is a long-term liability, not a current
liability.
(b) $30,000 of the mortgage payable is a current maturity of long-term debt.
This amount should be reported as a current liability; the remainder
should be reported as a long-term liability.
BRIEF EXERCISE 11-2
July 1 Cash ................................................................. 60,000
Notes Payable .......................................... 60,000
BRIEF EXERCISE 11-3
Sales tax payable
(1) Sales = $15,600 = ($16,380 ÷ 1.05)
(2) Sales taxes payable = $780 = ($15,600 X 5%)
BRIEF EXERCISE 11-4
Cash ................................................................................ 840,000
Unearned Ticket Revenue ...................................... 840,000
(To record sale of 4,000 season tickets)
BRIEF EXERCISE 11-5
BRIEF EXERCISE 11-6
Dec. 31 Warranty Expense ......................................... 4,500
Warranty Liability .................................. 4,500
[(1,000 X 5%) X $90]
BRIEF EXERCISE 11-7
BRIEF EXERCISE 11-8
Jan. 15 Salaries and Wages Expense ......................... 760.00
FICA Taxes Payable ($760 X 7.65%) ....... 58.14
BRIEF EXERCISE 11-9
Jan. 31 Payroll Tax Expense ........................................ 11,080
FICA Taxes Payable ($80,000 X 7.65%) ..... 6,120
BRIEF EXERCISE 11-10
(a) Timekeeping (c) Preparing the payroll
*BRIEF EXERCISE 11-11
Jan. 31 Vacation Benefits Expense (70 X $120) ....... 8,400
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 11-1
1. $70,000 X 6% X 5/12 = $1,750
DO IT! 11-2
(a) Current liabilities
Notes payable .................................................... $ 40,000
Accounts payable ............................................. 63,000
Long-term debt due within one year ................ 90,000
(b) Working capital = Current assets – Current liabilities = $570,000
DO IT! 11-3a
(a) Net pay: $80,000 – (7.65% X $80,000) – $14,000 – $1,600 = $58,280
(b) Salaries and Wages Expense ................................ 80,000
DO IT! 11-3b
Payroll Tax Expense ...................................................... 16,620
FICA Taxes Payable ($120,000 X 7.65%) ............... 9,180
SOLUTIONS TO EXERCISES
EXERCISE 11-1
July 1, 2017
Cash ...................................................................... 50,000
Notes Payable ................................................ 50,000
November 1, 2017
Cash ...................................................................... 60,000
Notes Payable ................................................ 60,000
December 31, 2017
February 1, 2018
Notes Payable ....................................................... 60,000
Interest Payable .................................................... 600
Interest Expense ................................................... 300
Cash ............................................................... 60,900
April 1, 2018
EXERCISE 11-2
(a) June 1 Cash ......................................................... 90,000
Notes Payable ................................... 90,000
EXERCISE 11-3
POOLE COMPANY
Apr. 10 Cash ............................................................... 31,500
Sales Revenue ....................................... 30,000
Sales Taxes Payable .............................. 1,500
EXERCISE 11-4
(a) Nov. 30 Cash .......................................................... 300,000
Unearned Subscription Revenue
(15,000 X $20) ................................ 300,000
(b) Dec. 31 Unearned Subscription Revenue ............ 25,000
Subscription Revenue
($300,000 X 1/12) ........................... 25,000
EXERCISE 11-5
(a) Warranty Expense (1,860 X $15) ............................... 27,900
Warranty Liability ............................................... 27,900
(b) Estimated warranties outstanding:
Month
Estimate
Units Defective
Outstanding
November
900
600
300
(c) Warranty Liability (500 X $15) ................................... 7,500
Repair Parts ........................................................ 7,500
EXERCISE 11-6
(a) If a contingency is remote (unlikely to occur), it need not be recorded or
disclosed.
(b) Since the contingency is probable and reasonably estimable, the liability
should be recorded in the accounts. In addition, the details should be
disclosed in the notes to the financial statements. The journal entry is:
EXERCISE 11-7
(a) YOUNGER ONLINE COMPANY
Partial Balance Sheet
Current liabilities
Accounts payable ......................................................... $ 73,000
Mortgage payable .......................................................... 30,000
Unearned ticket revenue ............................................... 24,000
(b) Younger Online Company’s working capital is $137,000 and its current
ratio is 1.84:1. Although a current ratio of 2:1 has been considered the
EXERCISE 11-8
(a) Current ratio
2016 $9,598 ÷ $5,839 = 1.64:1
2017 $10,795 ÷ $4,897 = 2.20:1
Working capital
2016 $9,598 – $5,839 = $3,759 million
2017 $10,795 – $4,897 = $5,898 million
EXERCISE 11-9
(a) 1. Regular 40 X $16 = $640
Overtime 2 X $24 = 48
Gross earnings $688
(b) Salaries and Wages Expense ................................... 688.00
EXERCISE 11-10
J. Seligman $4,500 X 7.65% = $344.25. Seligman’s total gross earnings
for the year are $98,000 = ($93,500 + $4,500), which is below
the $117,000 maximum for Social Security taxes.
EXERCISE 11-11
(a) See next page.
(b) Jan. 31 Salaries and Wages Expense ................ 1,880.00
FICA Taxes Payable ........................ 143.82
Federal Income Taxes Payable ......... 129.00
EXERCISE 11-11 (Continued)
(a) RAMIREZ COMPANY
Payroll Register
For the Week Ending January 31
Earnings
Deductions
Employee
Total
Hours
Regular
Overtime
Gross
Pay
FICA
Taxes
Federal
Income Taxes
Health
Insurance
Total
Net
Pay
L. Helton
46
$ 480.00
$108.00
$ 588.00
$ 44.98
$ 34.00
$10.00
$ 88.98
$ 499.02
EXERCISE 11-12
(a) (1) $ 900 [$10,000 see (2) below – $9,100].
(2) $10,000 (FICA taxes $765 ÷ 7.65%).
(b) Feb. 28 Salaries and Wages Expense .................. 10,000
FICA Taxes Payable .......................... 765
Federal Income Taxes
EXERCISE 11-13
(a) FICA tax ($770,000 X 6.2%) + ($850,000 X 1.45%) .... $60,065
SUTA tax ($100,000 X 5.4%) ...................................... 5,400
*EXERCISE 11-14
Mar. 31 Vacation Benefits Expense
(10 X 2 X $140) ............................................ 2,800
Vacation Benefits Payable ..................... 2,800
*EXERCISE 11-15
1. Vacation Benefits Expense ..................................... 14,000
Vacation Benefits Payable
(20 X 5 X $140) ............................................ 14,000
