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Exam 9: Current Liabilities

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Question 71

Multiple Choice

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If a company uses a special payroll bank account:

A) The company does not need to issue paychecks
B) The company draws one check for the entire payroll on the regular bank account and deposits it in the payroll bank account
C) The company must use a federal depository bank for the payroll
D) There is no need for a payroll register
E) There is no need to issue W-2's

F) C) and E)
G) D) and E)

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Question 72

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Unearned revenues are the same as liabilities.

A) True
B) False

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Question 73

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The difference between the amount borrowed and the amount repaid is referred to as _______________.

A note payable can be used to extend the payment due on an account payable.

A company's income before interest expense and taxes is $250,000 and its interest expense is $100,000. Its times interest earned ratio is equal to .4.

Employee vacation benefits:

An estimated liability is a known obligation of an uncertain amount that can at least be reasonably estimated.

A company sells personal computers, with an included two-year warranty for $2,300 each. During the current year, the company sells 400 computers. On the basis of past experience, the warranty costs are estimated to be $250 per computer. The actual warranty costs (paid in cash) by the company during the current year were $65,000. Prepare general journal entries to record the (a) estimated warranty expense and (b) warranty repair costs during current year.

The rate for FICA-social security is 6.2% and the rate for FICA-Medicare is 1.45%. Calculate the total amount of FICA withholding for an employee whose pay is $2,400 and is entirely subject to these FICA taxes.

Mission Company has three employees: $\begin{array} { c c c } & \text { Gross Pay through July } & \text { Gross Pay for August } \\\text { Smith } & \$ 3,200 & \$ 1,000 \\\text { Cain } & 25,800 & 3,500 \\\text { Clark } & 94,600 & 13,100\end{array}$ $\begin{array} { l c l } \text { Tax } & \text { Rate } & { \text { Applied To } } \\\text { FICA-Social Security } & 6.20 \% & \text { First } \$ 106,800 \\\text { FICA-Medicare } & 1.45 & \text { All gross pay } \\\text { FUTA } & .80 & \text { First } \$ 7,000 \\\text { SUTA } & 5.40 & \text { First } \$ 7,000\end{array}$ What is the amount that Mission Company will withhold from Smith's gross pay?

The Form W-2 must be given to employees before January 31 following the year covered by the Form W-2.

Explain the responsibilities and necessary accounting procedures that employers must follow for employee payroll deductions.

Obligations due to be paid within one year or within the company's operating cycle, whichever is longer, are:

Conner Company borrows $185,600 cash on November 1, 2010, by signing a 120-day, 8% note. What is the total amount of interest expense that Conner will recognize?

An employee earnings report is a cumulative record of an employee's hours worked, gross earnings, deductions and net pay.

For the year ended December 31, 2010, Mason Company has implemented an employee bonus program equal to 7% of Mason's net income, which employees will share equally. Mason's net income (pre-bonus) is expected to be $3,500,000, and bonus expense is deducted in computing net income. What is the amount that needs to be recorded for estimated bonus liability for 2010?

Employers are required to pay local, state and federal payroll taxes.

Employers must keep certain payroll records, including individual earnings reports for each employee.

Debt guarantees are not disclosed because the guarantor is not the primary debtor.

Unearned revenues are amounts received _______________ for future products or services.