Chapter 9

Ace your homework & exams now with Quizwiz!

Deferred Income Tax Liability

Corporation income taxes that are deferred until future years because of temporary differences between GAAP and tax rules.

Lyon Co. collected $1,200 in sales tax from customers during the month of March. In April, Lyon sent the $1,200 sales tax to the state government. The entry to record payment to the state would include

Credit to Cash Debit to Sales Tax Payable

Patel Paving collected $1,000 cash in advance from a customer to provide paving services next month. The entry to record this cash receipt would include

Credit to Unearned Paving Fees Debit to Cash

John Grey owns Grey's Snow Plowing. In October, Grey's collects $12,000 cash for 6 commercial accounts for which he will provide snowplowing for the entire season. To record this transaction, Grey will enter

Credit to Unearned Plowing Revenue Debit to Cash

Star Co. reported $10,000 of net income during the month of January. Star estimates that it owes income taxes of $2,000 for the month. The month-end adjusting entry to record this estimate would require

Debit to Income Tax Expense Credit to Income Taxes Payable

Employee Benefits

Employers may offer employee benefits in the form of products or services that add extra value for employees beyond earned wages

Simar Sales Co. sells and installs kitchen appliances. Simar guarantees parts and labor for one year after installation. Simar would record potential claims in a(n) _______ account.

Estimated Warranty Liability

Each month, a corporation will accrue income taxes based on the month's earnings. To record the income tax for the month, the company will debit the Income Tax Expense account and credit the

Income Taxes Payable

Which of the following formulas is used to compute the times interest earned?

Income before interest expense and income tax/interest expense

Rachel Ryder is an employee working at Brand-Mart. Rachel earns $35,000 per year and claims three withholding allowances. The amount withheld from her paycheck, using this information, is called federal

Income taxes

Damen's Co. sells merchandise with a list price of $500 and collects sales tax of $50. The sales tax would be recorded with a credit to which account?

Sales Tax Payable

Stalz Co. collected $2,500 in sales tax from customers during the month of February. In March, Stallon sends the $2,500 to the state government. The payment to the state would be recorded with a debit to which account?

Sales Tax Payable

Sales Tax Payable

Sales tax collected from customers by the seller, representing current liabilities payable to the government

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

Sales tax payable

FICA taxes are separated into two groups

Social Security and Medicare

Unearned revenue

The liability created by receiving revenue in advance.

Tire Co. collected $2,000 in sales tax during the month of October. The entry that shows the remittance of this sales tax to the state government in November would include a credit to the _________ account

cash

contingent liabilities would require a company to record a note to the financial statements?

contingent liabilities would require a company to record a note to the financial statements?

Jorge Lopez worked 40 hours this week and earned $1,000. Federal and state taxes, and other withholdings totaled $350. Jorge's net pay totals

650

Federal Insurance Contributions Act (FICA)

A federal system of old-age, survivors, disability and health-care insurance (Medicare) which requires employers to withhold (or transfer) wages from employees' paychecks and deposit that money in designated accounts.

short-term notes payable

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

Spot Co. purchases office supplies from Sally Supplies, Inc.. Spot does not pay cash for the purchase, and now owes the amount to Sally. This transaction would typically be recorded in which account in Spot's books?

Accounts Payable

Payroll Deductions

Amounts of money withheld from an employee's gross pay.

Accounts payable

Amounts to be paid in the future for goods or services already acquired

Liability

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

A contingent liability can be ignored (not recorded in the financial statements or notes to the financial statements) if it is considered as (probable/reasonably possible/remote)

remote

payroll tax

tax on wages and salaries to finance Social Security and Medicare costs

Gross pay

the total amount of an employee's earnings before deductions are taken out

Net pay

the total earnings paid to an employee after payroll taxes and other deductions

When recording a liability, a company may not know:

when to pay. whom to pay. how much to pay.

Social Security Taxes

withholding to cover retirement, disability, and survivorship

Medicare Taxes Payable

withholdings to cover medical benefits

Characteristics of a Liability

1. it is a present obligation of the entity 2. the company expects to settle it through an outflow of resources that represent future economic benefits 3. the obligation results from an event that has already happened

Jorge Lopez worked 40 hours this week and earned $1,000 gross salary. Federal and state taxes and other withholdings totaled $350. Jorge's gross pay totals

1000

Conditions that determine contingent liability

1. Record liability 2. Disclose in notes or 3. No disclosure

Contingent Liabilities

Liabilities that may arise from past transactions if certain events occur in the future.

Bina Consulting Co. collected $500 from a customer in advance to provide consulting fees for the next two months. The $500 would be recorded with a debit to Cash and a credit to the Unearned Revenues, which is a(n) (asset/liability/equity)

Liability

Employers are required to prepare and submit payroll reports to explain how they compute which taxes?

Local taxes State taxes Federal taxes

Employee Income Tax

Most employers are required to withhold federal income tax from each employee's paycheck.

Gross pay minus all deductions—including federal and state taxes, FICA and any voluntary deductions—equals

Net pay

KRS Co. sells merchandise for $120 and collects sales tax of $12. KRS would record the $12 sales tax with a credit to the Sales Tax ________

Payable account

The reports that employers are required to prepare to explain how they compute local, state and federal payroll taxes are called

Payroll reports

Which of the following situations would require a journal entry to record the contingent liability in the financial statements?

The liability is probable and estimated to be $10,000.

Which of the following situations would not be required to be recorded in the financial statements or reported as a note to the financial statements?

The liability is remote and estimated to be $30,000.

True or false: Net pay is NOT a payroll deduction

True

True or false: A liability can be recorded, even if there is uncertainty of when to pay, how much to pay, or whom to pay.

True. Liabilities sometimes arise with uncertainties. This is acceptable, as long as the transaction is the result of a past transaction, is for a current obligation, and for a future payments.

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

Unearned Revenues

A company sells 12-month subscriptions to popular magazines. During the month of May, the company sells $10,000 in magazines, which will start in June. The journal entry to record the sales not yet earned will include a credit to which account?

Unearned Subscription Revenue

considered a current liability?

Wages payable Accounts payable, terms n/30 Notes payable, due in 3 months

Accounting for liabilities involves three questions:

Whom to pay, when to pay, how much to pay?

Warranty

a confirmation of the quality or performance of a good or service

withholding allowance

a deduction from total earnings for each person legally supported by a taxpayer, including the employee

Which of the following represent reasonably possible contingent liabilities?

debt guarantees potential legal claims

Current Liability

debt that must be paid within one year

Most employers are required to withhold ________ from an employee's paycheck. The amount withheld is computed using tables published by the IRS. The amount depends on the employee's annual earnings rate and the number of withholding allowances the employee claims.

federal income taxes

The formula to compute the times interest earned is income before interest expense and income taxes divided by:

interest expense

long-term liabilities

liabilities owed for more than a year

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

liability

When a company has a current obligation to make a future payment to their supplier due to a shipment of supplies that were received last week, the company would record this transaction with an increase to an asset account and a(n) ________ account.

liability

Obligations not due to be paid within one year or one operating cycle, whichever is longer, are called

long-term liabilities.

Ace Company borrowed $10,000 from Fair Rates Bank by signing a two-year note payable. Ace's operating cycle is 14 months. This note would be considered a ______ on the balance sheet.

long-term liability


Related study sets

Chapter 09: Teaching and Counseling

View Set

Topic 3: Contracts-The Basics (CA portion)

View Set

Ch. 2 Practice Questions SIYU WANG

View Set