Acct Chapter 8

FICA is the acronym for the

Federal Insurance Contribution Act.

Which of the following payroll-related costs are incurred by employees?

1. employee investments in retirement plans 2. federal and state income tax

Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700, Medicare $1,450, federal income tax $18,000 and state income tax $3,850. The journal entry to record wages paid includes a ______.

The credit to Cash is $70,000. Gross pay of $100,000 less $30,000 withholdings (6,700 + 1,450 + 18,000 + 3,850). $100,000 debit to Salaries expense

A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a(n)

liability.

Supreme Inc. sells its products with a 3-year warranty. The company estimates that estimated warranty costs relating to sales during 2018 are as follows: 2018: $10,000; 2019: $25,000; 2020: $15,000. Assume that actual warranty costs during 2018 were as estimated. What is the amount of warranty expense that Supreme should recognize in its 2018 income statement?

$50,000

During the year, a $1,000,000 lawsuit was filed against a US company for unsafe working conditions. Management and the attorneys feel that it is not likely that the company will lose the case. The plaintiff who filed the lawsuit has offered to settle for $600,000. Management estimates that lawsuits for unsafe working conditions are generally settled for $300,000. What amount of contingent liability would be recorded for this lawsuit on the current balance sheet?

0

Identify characteristics of notes payable that are not common to accounts payable.

1. Interesting Bearing 2. Based on Promissory Note

A contingent liability is recorded if which conditions are met?

1. It is probable that a future loss will occur. 2. The amount of the loss can be reasonably estimated.

Volker Company signs a 3-month, $10,000 note. Stated interest rate is 12% payable at the maturity date. Interest incurred on the note is:

$10,000 x 0.12 x 3/12 $300

Jingle Company signs a 6-month, $20,000 note. Stated interest rate is 8% payable at the maturity date. Interest incurred on the note is:

$20,000 x 0.08 x 6/12 $800

Spencer Corp.'s attorney estimates that the company will ultimately have to pay between $250,000 and $500,000 relating to current litigation. Spencer should record a contingent liability and loss of

$250,000

Abbott Corp.'s attorney estimates that the company will ultimately have to pay between $350,000 and $500,000 relating to current litigation, and that the most likely amount of the loss will be equal to $400,000. Abbott Corporation should record a contingent liability and loss of

$400,000.

Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal Income tax $18,000 and State income tax $3,850. What is the net pay to employees?

$70,000

Melvin charges a fee of $1,080 for merchandise purchased by a customer. Assuming that the amount includes 8% of sales tax, Melvin should credit sales tax payable for:

$80

Which of the following are included in FICA taxes?

1. 6.2% social security tax 2. 1.45% Medicare tax

A(n) BLANK payable results from an agreement with a supplier to pay within 30 to 60 days, whereas BLANK payable is a signed contract that promises to pay a specific amount with interest at a specific maturity date.

1. accounts 2. notes

Under US GAAP, a contingent liability should ______.

1. be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated 2. not be reported if the loss is remote and unable to be estimated 3. be reported on the balance sheet if the loss will probably occur and can be reasonably estimated

Abbott Corp.'s attorney estimates that the company will ultimately have to pay $400,000 related to current litigation. Abbot's journal entry should include a:

1. credit to contingent liability 2. debit to loss

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20, Medicare $8.70, federal income tax $58, and state income tax $10. Assuming that John gets paid in cash, ABC would record a journal entry that includes a ______.

1. debit to Wages Expense of $600 2. credit to FICA (Social Security and Medicare) Payable of $45.90 3. credit to State and Federal Income Tax Payable of $68 4. credit to Cash of $486.10

The feature that distinguishes loss BLANK from other liabilities is the uncertain outcome.

Contingent

Lambert Corporation has employee salary expense of $100,000 on May 31. FICA contributions are 7.65%, and FUTA contributions are 6.2%. The journal entry for payroll tax expense will include which of the following entries?

Credit FICA payable $7,650 Credit FUTA payable $6,200 Debit payroll tax expense $13,850

Balance Corporation sells $1,000 of goods to a customer for cash. The sales tax is 5%. The journal entry to record the sale will include which of the following?

Credit sales tax payable $50

Which payroll tax is paid equally by the employee and the employer?

FICA

Which type of contingent liability would most likely be found on a balance sheet prepared under U.S. GAAP?

Probable contingent liability that can be estimated.

Lark Corporation believes it is probable the company will lose a lawsuit for $10,000. The journal entry to record the contingent loss will include a

credit to contingent liability for lawsuit $10,000.

Kevin sells $100 of goods to a customer for cash. The sales tax is 8%. The journal entry for this sale will include which of the following entries?

Debit cash $108 Credit revenues $100 Credit sales tax payable $8

Rimland Corporation has employee salary expense of $10,000 on April 30, 2018. FICA contributions are 7.65%, and FUTA contributions are 6.2%. The journal entry for payroll tax expense will include which of the following?

Debit payroll tax expense $1,385

Which of the following items are included in the numerators for both the current ratio and the acid-test ratio?

1. Current investments 2.Accounts receivable

What are the two criteria used to determine whether a contingent liability is reported in the financial statements?

1. The ability to estimate the amount of payment 2. The likelihood of payment

ABC Airlines collects $300 for a round-trip ticket from Chicago to Los Angeles and back. How does ABC Airlines record the $300 collected in advance?

A debit to Cash of $300 and a credit to Deferred Revenue of $300. The credit is to Deferred revenue because the cash has been collected in advance. Later when ABC Airlines provides the service of flying its customers, it can record a decrease to Deferred revenue (debit) and increase Revenue (credit).

Which of the following describes the requirement to pay FUTA.

An employer must pay FUTA taxes even if the employer pays SUTA taxes

West Company pays health insurance for its employees of $2,000 for the pay period. The journal entry to record this fringe benefit includes which of the following?

Debit Salaries Expense $2,000 Credit accounts payable $2,000

Which of the following items are included in the numerator for the current ratio but are excluded from the numerator of the quick or acid-test ratio?

Inventory Prepaid assets

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20, Medicare $8.70, federal Income tax $58, and state income tax $10. What is John's net pay?

Net pay=$600-$37.20-$8.70-$58-$10=$468.10.

A loss that is judged to be probable and for which the amount is reasonably estimable should be

Recorded

Which of the following is correct regarding gain contingencies?

They are recorded when the gain is known with certainty.

The Federal Unemployment Tax Act (FUTA) requires employers to pay a tax of 6.2% of the first $7,000 earned by each employee reduced by a maximum 5.4% credit for contributions to a state unemployment program.

True

Which of the following is a guarantee that protects a customer from product defects for a specified period of time?

Warranty

Liabilities are classified as

current and long-term.

The journal entry to record employer payroll taxes affects ______.

liabilities and stockholders' equity

An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) ______ account.

revenue

The employer's portion of FICA tax remitted to the taxing authority is:

the same as the employee's portion