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Exam 10: Current Liabilities and Payroll

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Question 31

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Aqua Construction installs swimming pools. It calculates that warranty obligations are 5% of sales. For the year just ending, Aqua's sales were $1,500,000. Previous quarterly entries debiting Warranty Expense totaled $48,700. Determine the estimated warranty expense for the year and make the journal entry necessary to bring the account to the needed balance.

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The sales were $1,500,000, thus the warr...

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Question 32

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The Core Company had the following assets and liabilities as of December 31: $\begin{array} { | l | c | } \hline \text { ASSETS } & \\\hline \text { Cash } & \$ 58,000 \\\hline \text { Accounts receivable } & 25,000 \\\hline \text { Inventory } & 20,000 \\\hline \text { Equipment } & 50,000 \\\hline & \\\hline \text { LIABILITIES } & \\\hline \text { Current portion of long-term debt } & 20,000 \\\hline \text { Accounts payable } & 12,000 \\\hline \text { Long-term debt } & 25,000 \\\hline\end{array}$ Calculate the current ratio, working capital, and quick ratio.

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Current ratio: $58,000 + $25,0...

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Question 33

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The journal entry a company uses to record accrued vacation privileges for its employees at the end of the year is

For proper matching of revenues and expenses, the estimated cost of fringe benefits must be recognized as an expense of the period during which the employee earns the benefits.

The total earnings of an employee for a payroll period is referred to as

Journalize the following transactions: Dec. 31 The accrued product warranty expense for the year is estimated to be 1.5% of sales. Sales for the year totaled $7,760,000. 31 The accrued vacation pay for the year is estimated to be $46,000. 31 Paid Reliable Insurance Co. $85,000 as fund trustee for the pension plan. The annual pension cost is $109,000.

For a current liability to exist, the liability must be due usually within a year and must be paid out of current assets.

During the first year of operations, a company granted warranties on its products at an estimated cost of $8,500. The product warranty expense should be recorded in the years of the expenditures to repair the products covered by the warranty payments.

Match the following terms or phrases in a-g) with the explanations in 1-8. Terms or phrases may be used more than once. -Current assets - Current liabilities

Amounts withheld from each employee for social security and Medicare vary by state.

According to a summary of the payroll of Scotland Company, $450,000 was subject to the 6.0% social security tax and $500,000 was subject to the 1.5% Medicare tax. Federal income tax withheld was $98,000. Also, $15,000 was subject to state 4.2%) and federal 0.8%) unemployment taxes. a) Journalize the entry to record the accrual of payroll. b) Journalize the entry to record the accrual of payroll taxes.

Which of the following taxes would be deducted in determining an employee's net pay?

The use of a separate payroll bank account is not an advantageous control, because it creates more complexity in reconciliation functions for a company and invites theft.

An employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40 during the week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $110; cumulative earnings for the year prior to this week, $24,500; Social security tax rate, 6%; and Medicare tax rate, 1.5%; state unemployment compensation tax, 3.4% on the first $7,000; federal unemployment compensation tax, 0.8% on the first $7,000. What is the net amount to be paid to the employee?

Match each payroll item that follows to the one item a-f) that best describes its characteristics. -Federal income tax

Excel Products Inc. pays its employees semimonthly. The summary of the payroll for December 31, indicated the following: $\begin{array}{lr}\text { Salary expense } & \$ 120,000 \\\text { Federal income tax withheld } & 20,000\end{array}$ For the year ended December 31, $40,000 of the December 31 payroll is subject to social security tax of 6%; $120,000 is subject to Medicare tax of 1.5%; $10,000 is subject to state unemployment tax of 4.3% and federal unemployment tax of 0.8%. As of January 1, of the following year, all of the $120,000 is subject to all payroll taxes. Prepare the journal entries for payroll tax expense if the employees are paid a) December 31 of the current year, b) January 2 of the following year.

Lamar Industries warrants its products for one year. The estimated product warranty expense is 3% of sales. Sales for June were $190,000. In July, a customer received warranty repairs requiring $185 of parts and $50 of labor. a) Journalize the adjusting entry required at June 30, the end of the first month of the current year, to record the estimated product warranty expense. b) Journalize the entry to record the warranty work provided in July.

The payroll register of Seaside Architecture Company indicates $970 of social security and $257 of Medicare tax withheld on total salaries of $16,500 for the period. Federal withholding for the period totaled $4,235. Prepare the journal entry for the period's payroll.

An interest-beating note is a loan in which the lender deducts interest from the amount loaned before the money is advanced to the borrower.

Payroll taxes levied against employees become liabilities