ACCT Chapter 9 Review

Kooky's Cookies is a popular bakery. The company's payroll records for the October 12-23 pay period show that employees earned wages totaling $69,000 but that employee income taxes totaling $8,900 and FICA taxes totaling $3,575 were withheld from this amount. The net pay was directly deposited into the employees' bank accounts. What was the amount of net pay?

$56,525

Mr. Evans earned $920.00 during the pay period ended January 31, and had $245.38 withheld from his check. What is his net pay?

$674.62

Niwa Co. replaced a $3,000 account payable balance to Fiona Co. with a 60-day, $3,000 note bearing 5% annual interest. Niwa's entry to record this transaction would include which of the following entries?

-Debit to Accounts Payable -Credit to Notes Payable

The following information was obtained from Quayle Company's income statement: Income before Interest and Income Tax Expense $697,000 Interest Expense $81,000 Income before Income Tax Expense $616,000 Income Tax Expense $231,500 Net Income $384,500 What is the times interest earned ratio?

8.60 (697,000/81,000)

The times interest earned ratio is used to measure:

A company's ability to cover interest obligation

Estimated Liability

A known obligation of an uncertain amount that can be reasonably estimated

Current Liability

A liability that is due within one year or within the company's operating cycle, whichever is longer.

Known Liability

A measurable obligation arising from agreements, contracts, or laws. Include: payroll obligations. unearned revenues. correct notes payable. accounts payable.

Short-term Note Payable

A written promise to pay a specified amount on a stated future date within one year or the company's operating cycle, whichever is longer

Unearned Revenue

Amounts received in advance from customers for future products or services are typically recorded in a liability account

Which of the following is included in the adjusting entry to accrue interest on a short-term note payable?

Debit to Interest Expense and a credit to Interest Payable

The future event is remote

Do nothing

Accrued Liabilities

Expenses incurred but not paid at the end of the accounting period

Which deductions are generally withheld from an employee's gross pay?

FICA taxes, income taxes, and voluntary deductions

Which of the following is not part of an employee's payroll deduction?

Federal and state unemployment taxes

Net Pay

Gross pay minus all deductions (including federal and state taxes, FICA and any voluntary deductions)

Times Interest Earned Ratio

Income before Interest and Income Tax Expense/ Interest Expense

Future event is reasonably possible. Or future event is probable but the amount of loss cannot be reasonably estimated

Information about contingent liability should be disclosed in the notes.

On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest note. On April 8, Lee Co. will pay National Bank a total of $101,500. The difference between the amount paid back to National Bank of $101,500 and the amount borrowed of $100,000 (or $1,500) represents

Interest Expense

Bryne Co. sells merchandise and collects a 5% state sales tax. The tax is recorded on Bryne's general ledger as

Liability account

Future event is probable & amount owed can be reasonably estimated

Liability should be recorded for amount of loss estimated. Details of loss should be disclosed in notes.

Bushra Co. replaced a $1,000 account payable balance to Elin Co. with a 120-day, $1,000 note bearing 8% annual interest. Bushra's entry to record this transaction would include a credit to which account?

Notes Payable Reason: This is an accounts payable which is being replaced with a note payable, so Notes Payable is credited to increase it.

Zion Co. sells $100 of merchandise and collects $10 sales tax. The sales tax is recorded to which account?

Sales Tax Payable

Cadie Construction Co. signed a note promising to pay a cement supplier $1,000 60-days from now. As a result of this transaction, Cadie would record

Short-term note payable

Employers must pay employee taxes in addition to those paid by the employees. Which of the following is paid only by the employer?

Unemployment

Abby Co. allows each employee two weeks of paid time off during each calendar year. Since employees are working for 50 weeks, rather than 52 weeks, Abby must accrue the paid time off during the 50 weeks that the employees work. The year-end adjusting entry is recorded as a credit to?

Vacation Benefits Payable

Life insurance premiums, pension contributions, and charitable giving are all examples of:

Voluntary Deductions

Liability

a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events.

On November 1, Lockwood Co. borrowed $65,000 cash from a bank by signing a 5%, 45-day note payable. a. Prepare Lockwood Co.'s journal entry to record the issuance of the note payable. b. Prepare Lockwood Co.'s journal entry to record the payment of the note at maturity.

a. Dr: Cash 65,000 Cr: Note Payable 65,000 b. Dr: Notes Payable 65,000 Dr: Interest Payable/ Expense 406.25 Cr: Cash 65,406.25

Current Liability

amts. withheld from employee's earnings for employee income tax and is by the employer until the government is paid.

On June 1, Sawyer Co. borrowed $5,000 by extending their past-due account payable with a 45-day, 12% interest-bearing note. On July 16, the due date, Sawyer pays the amount due in full. Sawyer would record this payment with a

debit to Interest Expense $75. Reason: Interest Expense is debited for $75 computed as $5,000x.12x(45/360).

On January 1, Avers Co. borrowed $10,000 by extending their past-due account payable with a a 60-day, 8% interest-bearing note. On March 1, the due date, Avers pays the amount due in full. This entry would be recorded:

debit to notes payable; 10,000. Debit Interest Expense: 133. Cash will be credited for $10,133.

Employee Income Tax

depends on employee's income and number of employee withholding allowances

Long-term Liability

liabilities are due in more than one year

Employee Benefits

perks that are provided in addition to salaries and wages, such as all or part of medical, dental, life and disability insurance.

Interest

the difference between the amount borrowed and the amount repaid.

Gross Pay

the total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions such as taxes.

Bonus Plan

when an employer provides employees with a percentage of the company's net income earned during the year.