Chapter 8: Current Liabilities (Financial Accounting 201)

Sales tax collected by a company on behalf of the state and local government are recorded by..

a credit to a liability account.

Line of Credit

the maximum amount of money a creditor will allow a credit user to borrow without following formal loan procedures

On November 1, 2018, The Trap signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due in six months later on May 1, 2019. The Trap should report interest payable at December 31, 2018 in the amount of..

$1,000

On September 1, 2018, RoundtwoNYC signed a $100K, 9%, six-month note payable with the amount borrowed plus accrued interest due in six months on March 1, 2019. RoundtwoNYC should report interest payable at December 31, 2018 in the amount of..

$3,000

Mike Amiri is a college football coach making a base salary of $2,400,000 a year ($200,000 per month). Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum. Assuming the Social Security maximum base amount amount is $118,500, how much will be withheld during the year for the coach's Social Security and Medicare?

$42,147 Social Security: 7,347 (118,500 *.062) Medicare: 34,800 (2,400,000 * .0145)

Suppose you buy lunch for $8.39 that includes 5% sales tax. How much did the restaurant charge you for the lunch (excluding any tax) and how much do they owe for sales tax?

$7.99 for lunch and $0.40 for sales tax. 8.39/1.05 = 7.99 8.39-7.99..

Action Travel has 10 employees each working 40 hours per week and earning $20 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the employer's total payroll tax expense for the first week of January?

$916 40*10*20 =8000 8000*.0765 = 612 (FICA) 8000*.038 = 304 (Unemployment Tax)

Withheld Amount Formula

(Social Security * SS Tax) + (Medicare * Medicare Tax)

Liablities

-a probable future sacrifice of economic benefits. -arising from present obligations to other entities - resulting from past transactions or events

Which of the following is not a current liability? - accounts payable - a note payable in 2 years - current portion of long term debt - sales tax payable

A note payable due in 2 years.

In December 2017, Quebecor Printing received magazine subscriptions for 2018 from a customer, who paid $500 in cash. What would be the appropriate journal entry for this event?

Debit Cash $500 and Credit Deferred Revenue $500

Gymii Essentials borrowed $50,000 from Lagos Bank and signed a promissory note. What entry should Gymii Essentials record?

Debit Cash 50K & Credit Notes Payable for 50K.

On December 1, 2018, SupremeNYC signed a $300,000, 5%, six-month note payable with the amount borrowed plus accrued interest due six months later on June 1, 2019. SupremeNYC should record which of the following adjusting entries at December 31, 2018?

Debit Interest Expense and credit Interest Payable for $1,250.

Payroll Tax Expense Formula

FICA + Unemployment Tax

An informal agreement that allows a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork is known as..

a line of credit

Commercial Paper

a promissory note from one company to another to pay a specific amount of money and when a company lends money to another for a short term

Types of Current Liabilities

accounts payable, deferred revenue, note payable, line of credit, commercial paper, sales tax payable and payroll liabilities

Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation? A. As a liability for $100,000 with disclosure of the range B. As a liability for $150,000 with disclosure of the range C. As a liability for $200,000 with disclosure of the range D. As a disclosure only. No liability is reported

as a liability for $100,00 with a disclosure of the range.

Accounts Payable

buying something with credit and paying it back in the future

If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be A. Disclosed, but not reported as a liability B. Disclosed and reported as a liability C. Neither disclosed nor reported as a liability D. Reported as a liability, but not disclosed

disclosed, but not reported as a liability.

Which of the following is not an employer payroll cost? -FICA taxes - federal and state income taxes - federal and state unemployment taxes - employer contributions to a retirement plan

federal and state income taxes

Which of the following are withheld from an employee's salary? a. fica taxes b. federal and state unemployment taxes c. federal and state income taxes d. employee portion of health insurance

fica taxes, federal and state income taxes and employee portion of health insurance

Which of the following is not a characteristic of a liability? -it represents a probable, future sacrifice of economic benefits -it must be payable in cash - it arises from present obligations to other entities - it results from past transactions or events

it must be payable in cash

In most cases, current liabilities are payable within ____ year(s), and long-term liabilities are payable more than ____ year(s) from now.

one & one

FICA taxes

taxes paid by the employee and employer that are used to finance the federal Social Security and Medicare programs

Deferred Revenue

when a business collects cash from customers in advance of completing a service or delivering a product.