Exam 11: Current Liabilities and Payroll

Benefits are extra compensation-items that are not paid directly to an employee.

FICA tax is a tax which is paid by the employee only.

Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $110,100, and thus subject to FICA. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. Which of the following is a part of journal entry in the payroll cycle to record the employer's payroll taxes?

A company has been sued for product failures allegedly resulting in injuries to the individuals bringing the lawsuit. The company's lawyers believe it is more than remote, but less than probable, that the lawsuit will result in an actual liability. Which of the following actions should be taken by the company's management?

The Statewide Sales Company has gross pay for March of $45,000. Which of the following would be included in the journal entry in the payroll cycle to record salary expense?

Art Panache, the sole employee of Panache Sales, has gross salary for March of $5,000. The entire amount is under the OASDI limit of $110,100, and thus subject to FICA. He is also subject to federal income tax at a rate of 20%. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. The journal entry in the payroll cycle to record the employer's payroll tax expense includes a credit to FICA-OASDI Taxes Payable for $310. (Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.)

Gem Corp. had sales of $3,500. The state sales tax rate is 8.2%. Sales are for cash. What amount will be debited to the Cash account?

Gross pay is the total amount of compensation earned by an employee, after the deductions are made.

Bike World offers warranties on all their bikes. They estimate warranty expense at 3.5% of sales. At the beginning of 2013, the Estimated Warranty Payable account had a credit balance of $1,200. During the year, Bike World had $295,000 of sales, and had to pay out $5,300 in warranty payments. At the end of the year, what is the closing balance in the Estimated Warranty Payable accounts?

Estimated Warranty Payable would be included in the liability section of the balance sheet.

Berkley's gross pay for the week is $950. His deduction for federal income tax is based on a rate of 20%. He has no voluntary deductions. His yearly pay is under the limit for OASDI. How much is the amount of FICA tax that will be withheld from Berkley's pay? (Assume a FICA-OASDI Tax of 4.2% and FICA-Medicare Tax of 1.45%.)

Which of the following accounting principles requires that warranty expenses must be estimated and recognized in the same period as the related sales revenue is recognized?

A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become an actual liability, and the amount could be reasonably estimated. If the accountant decided to report it on the balance sheet, this could be considered a violation of generally accepted accounting principles.

Which of the following correctly describes the accounting treatment for interest payable?

Which of the following is true of a contingent liability?

Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $110,100, and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. Provide the journal entry to record salaries expense and payroll withholdings. (Assume a FICA-OASDI Tax of 4.2% and FICA-Medicare Tax of 1.45%.)

On August 31, 2013, Peter Services received $3,500 in advance from a customer. Which of the following would be the journal entry to record the receipt of cash?

The operating expense section of the income statement includes the estimated warranty payable.

A contingent liability that will probably become an actual liability, and can be reasonably estimated, must be recorded as an expense and a liability.

Applied Foods had cash sales of $598,000 during the month of August. Sales taxes of 6.5% were collected on the sales. Prepare a compound journal entry to record the sales revenue and sales tax for the month.