Chapter 13

Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty a. should be reported as long-term. b. should be reported as current. c. should be reported as part current and part long-term. d. need not be disclosed.

c. should be reported as part current and part long-term

Of the following items, the only one which should not be classified as a current liability is a. current maturities of long-term debt. b. sales taxes payable. c. short-term obligations expected to be refinanced on a long-term basis. d. unearned revenues.

c. short-term obligations expected to be refinanced on a long-term basis

On August 31, Latty Co. partially refunded $900,000 of its outstanding 10% note payable made one year ago to Dugan State Bank by paying $900,000 plus $90,000 interest, having obtained the $990,000 by using $262,000 cash and signing a new one-year $800,000 note discounted at 9% by the bank. Instructions (1) Make the entry to record the partial refunding. Assume Latty Co. makes reversing entries when appropriate. (2) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount.

1) Note Payable $900,000 Interest Expense $90,000 Disc on NP $72,000 (9% * $800,000) Note Payable $800,000 Cash $262,000 2) Interest Expense $24,000 (1/3 * 72,000) Disc on NP $24,000

Which of the following is true about accounts payable? 1. Accounts payable are also called trade accounts payable. 2. When accounts payable are recorded at the net amount, a Purchase Discounts account will be used. 3. When accounts payable are recorded at the gross amount, a Purchase Discounts Lost account will be used.

1. Accounts Payable are also called trade accounts payable

A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized

False

Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is reasonably possible that a liability has been incurred

False

Current liabilities are usually recorded and reported in financial statements at their full maturity value

True

Magazine subscriptions and airline ticket sales both result in unearned revenues when amounts are collected from the customers

True

Total payroll of Walnut Co. was $2,760,000, of which $480,000 represented amounts paid in excess of $128,400 to certain employees. The amount paid to employees in excess of $7,000 was $2,160,000. Income taxes withheld were $675,000. The state unemployment tax is 1.2%, the federal unemployment tax is .8%, and the F.I.C.A. tax is 7.65% on an employee's salaries and wages to $128,400 and 1.45% in excess of $128,400. Instructions (a) Prepare the journal entry for the salaries and wages paid. (b) Prepare the entry to record the employer payroll taxes.

a) Salaries and Wages Exp $2,760,000 Withholding taxes pay $675,000 FICA Taxes Pay $181,380 Cash $1,903,620 b) Payroll Taxes Exp $193,380 FICA Taxes Pay $181,380 SUTA ($600,000 * 7.65%) $7,200 FUTA ($600,000 * 1.2%) $4,800 FICA Calculation ($2,760,000-$480,000) *7.65%+ ($480,000*1.45%)

A company gives each of its 75 employees (assume they were all employed continuously through 2020 and 2021) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2020, they made $24.50 per hour and in 2021 they made $28 per hour. During 2021, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2020 and 2021 balance sheets, respectively? a. $176,400; $245,700 b. $201,600; $252,000 c. $176,400; $252,000 d. $201,600; $245,700

c. $176,400; $252,000 Calculation 2020: 75 * 12 * 8 * $24.50 = $176,400 Calculation 2021: 75 * 15 * 8 * $28 = $252,000 (12-9) + 12