Principle of Financial Accounting- Chapter 8

Windsor Corporation borrows $100,000 from a bank on November 1, Year 1, by signing a 9 percent, six-month note for the amount borrowed plus accrued interest due six months later on May 1, Year 2. What is the interest expense per month on this note?

750 (100,000*9% *1/12)

All of the following are essential characteristics of liabilities, except _____.

they represent probable future benefits

Which of the following is not deducted from an employee's salary?

unemployment taxes

Susan, a recent college graduate, makes a base salary of $70,000 per year. Susan has federal income tax withholding of $12,000, and state tax withholding of $4,000. Employers are required to withhold a 6.2% Social Security tax and a 1.45% Medicare tax. What is Susan's take-home pay?

48645

A contingent liability that is probable and can be reasonably estimated must be

recorded

Caddell Corporation borrows $100,000 from a bank on August 1, Year 1, by signing an 8 percent, six-month note for the amount borrowed plus accrued interest due six months later on February 1, Year 2. Which of the following is recorded on August 1, Year 1?

$100,000 credit to Notes Payable

Mike Samson is a college football coach making a base salary of $643,200 a year ($53,600 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 FICA base amount is $128,400. 1. Compute how much will be withheld during the year for Coach Samson's Social Security and Medicare. 2. What matching amount will the employer need to contribute?

1. Social security- 7,960.80 (6.2%*128400); Medicare- 9,326.40 (1.45%*643,200) 2. 17,287.2 (7,960.80+9,326.40)

Aspen Ski Resorts has 100 employees, each working 40 hours per week and earning $16 an hour. Although the company does not pay any health or retirement benefits, one of the perks of working at Aspen is that employees are allowed free skiing on their days off. Federal income taxes are withheld at 15% and state income taxes at 5%. FICA taxes are 7.65% of the first $128,400 earned per employee and 1.45% thereafter. Unemployment taxes are 6.2% of the first $7,000 earned per employee. 1. Compute the total salary expense, the total withholdings from employee salaries, and the actual direct deposit of payroll for the first week of January. 2.Compute the total payroll tax expense Aspen Ski Resorts will pay for the first week of January in addition to the total salary expense and employee withholdings calculated in Part 1.

1. Total salary expense: 64000 Total withholdings: 17,696 (15%*64k + 5%*64k + 7.65%*64k) Actual direct deposit: 46,304 2. 8864 (7.65%*64k + 6.2%*64k)

The payroll related information for Smart Packers is provided below. The company has a total payroll for the month of January of $100,000 for its 30 employees. Use the information provided to answer the following questions. (Assume that none of the employees earn more than $7,000 in January.); Federal and state income tax withheld- 20,000; Health insurance premiums paid by employer- 10,000; Contribution to retirement plan paid by employer- 15,000; FICA tax rate (Social Security and Medicare)- 7.65%; Federal and state unemployment tax rate- 6.20%. What is the amount of Payroll Tax Expense for the month?

13,850 (FICA + federal and state unemployment tax)

A company has total payments for the month of March for its 20 employees of $100,000. The FICA tax rate (Social Security and Medicare) is 7.65%. What is the total amount due to the government for FICA taxes?

15,300 ((7.65% of 100,000) *2)

If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 20X1?

450,000

On July 1, Alaskan Adventures issues a $200,000, eight-month, 6.5% note. Interest is payable at maturity. What is the amount of interest expense that the company would record in a year-end adjustment on December 31?

6,500 (6.5% of 200,000 * 6/12)

Which of the following is not a current liability?

An unused line of credit

On April 1, Online Travel issues $12.7 million of commercial paper with a maturity on December 31 and a 9% interest rate. Record the issuance of the commercial paper and its repayment at maturity.

Apr 1 Cash: 12,700,000 -D Notes payable - Commercial paper: 12,700,000 -C Dec 31 Interest Exp: 857,250 -D Notes Payable- commercial paper: 12,700,000 -D Cash: 13,557,250 -C

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?

Debit Cash, $5,000; Credit Notes Payable, $5,000.

On September 1, 2021, Southwest Airlines borrows $40.2 million, of which $8.4 million is due next year. Show how Southwest Airlines would record the $40.2 million debt on its December 31, 2021, balance sheet.

Current liabilities: Current portion of long-term debt: 8,400,000 Long-term liabilities: Notes payable: 31,800,000 Total liabilities: 40,200,000

On December 18, Intel receives $247,000 from a customer toward a cash sale of $2.47 million for computer chips to be completed on January 23. The computer chips had a total production cost of $1.47 million. What journal entries should Intel record on December 18 and January 23? Assume Intel uses the perpetual inventory system.

Dec 18 Cash: 247,000 -D Deferred Revenue: 247,000 -C Jan 23 Cash: 2,223,000 -D Deferred Revenue: 247,000 -D Sales Revenue: 2,470,000 -C Jan 23 Cost of goods sold: 1,470,000 -D Inventory: 1,470,000 -C

Identify a liability that does not require a cash payment.

Deferred revenue

Which of the following are withheld from an employee's salary?

Employee portion of health insurance, Federal and state income taxes, FICA taxes

Which of the following are payroll costs for employers?

Employer portion of FICA taxes, Federal and state unemployment taxes, Employer contribution to retirement plan

Social Security and Medicare taxes withheld from employees' paychecks are collectively referred to as ________.

FICA taxes

Which of the following is paid by both the employee and the employer?

FICA taxes

On November 1, Bahama Cruise Lines borrows $2.4 million and issues a six-month, 6% note payable. Interest is payable at maturity.Record the issuance of the note and the appropriate adjustment for interest expense at December 31, the end of the reporting period.

Nov 1 Cash: 2,400,000 -D Notes Payable: 2,400,000 -C Dec 31 Interest Exp: 24,000 - D Interest Payable: 24,000 -C

On November 1, Bahama National Bank lends $2.3 million and accepts a six-month, 9% note receivable. Interest is due at maturity. Record the acceptance of the note and the appropriate adjustment for interest revenue at December 31, the end of the reporting period.

Nov 1 Notes Receivable: 2,300,000 -D Cash: 2,300,000 -C Dec 31 Interest Receivable: 34,500 - D Interest Revenue: 34,500 -C

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as

Sales tax payable

Interest expense is recorded in the period in which

The interest is incurred

Which of the following is reported as a current liability?

current portion of long-term debt

Boyd Corporation borrows $300,000 from a bank on March 1, Year 1, by signing a 6 percent, nine-month note for the amount borrowed plus accrued interest due nine months later. On issuance date, this transaction

increases assets and increases liabilities.

Federal and state income taxes withheld by employers from their employees' payroll are initially recorded with a credit to a(n)

liability