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Exam 10: Current Liabilities and Payroll

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Question 1

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Proper payroll accounting methods are important for a business for all the reasons below except

A) good employee morale requires timely and accurate payroll payments
B) payroll is subject to various federal and state regulations
C) to help a business with cash flow problems by delayed payments of payroll taxes to federal and state agencies
D) payroll and related payroll taxes have a significant effect on the net income of most businesses

E) A) and D)
F) A) and B)

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Question 2

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Federal income taxes withheld increase the employer's payroll tax expense.

A) True
B) False

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False

Question 3

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FICA tax becomes a liability to the federal government at the time an employee's payroll is prepared.

McKay Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 1,200 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in Year 1 and 70% in Year 2. In the Year 1 income statement, McKay should show warranty expense of

Match each payroll item that follows to the one item a-f) that best describes its characteristics. -State unemployment compensation tax SUTA)

According to a summary of the payroll of Scotland Company, $450,000 was subject to the 6.0% social security tax and $500,000 was subject to the 1.5% Medicare tax. Federal income tax withheld was $98,000. Also, $15,000 was subject to state 4.2%) and federal 0.8%) unemployment taxes. The journal entry to record accrued salaries would include a

The following totals for the month of June were taken from the payroll register of Arcon Company: Salaries expense $14,000 Social security and Medicare taxes withheld 1,050 Income taxes withheld 2,600 Retirement savings 1,000 The entry to record the payment of net pay would include a

According to a summary of the payroll of Scotland Company, $450,000 was subject to the 6.0% social security tax and $500,000 was subject to the 1.5% Medicare tax. Federal income tax withheld was $98,000. Also, $15,000 was subject to state 4.2%) and federal 0.8%) unemployment taxes. The journal entry to record accrued payroll taxes would include a

Dixon Sales has seven sales employees that receive weekly paychecks. Each earns $10.25 per hour and each has worked 40 hours in the pay period. Each employee pays 12% of gross in federal income tax, 3% in state income tax, 6% of gross in social security tax, 1.5% of gross in Medicare tax, and 0.5% in state disability insurance. Journalize the recognition of the pay period ending January 19 which will be paid to the employees January 26.

Several months ago, Jones Company experienced a spill of hazardous materials into the White River from one of its plants. As a result, the Environmental Protection Agency EPA) fined the company $405,000. The company contested the fine. In addition, an employee is seeking $180,000 damages related to the spill. Finally, a homeowner has sued the company for $260,000. Although the homeowner lives 30 miles downstream from the plant, he believes that the spill has reduced his home's resale value by $260,000. Jones' legal counsel believes the following will happen in relationship to these incidents: a) It is probable that the EPA fine will stand. b) An out-of court-settlement for $165,000 has recently been reached with the employee, with the final papers to be signed next week. c) Counsel believes that the homeowner's case is weak and will be decided in favor of Jones Company. d) Other litigation related to the spill is possible, but the damage amounts are uncertain. 1) Based on this information, journalize the contingent liabilities associated with the spill. Use the account "Damage Awards and Fines" to recognize the expense for the period. 2) Prepare any note disclosure related to the spill.

The entry to record accrual of employer's payroll taxes would include a

Several months ago, Maximilien Company experienced a spill of radioactive materials into the Missouri River from one of its plants. As a result, the Environmental Protection Agency EPA) fined the company $1,750,000. The company contested the fine. In addition, an employee is seeking $975,000 damages related to the spill. Finally, a homeowner has sued the company for $580,000. Although the homeowner lives 15 miles downstream from the plant, he believes that the spill has reduced his home's resale value by $580,000. Maximilien's legal counsel believes the following will happen in relationship to these incidents: a) It is probable that the EPA fine will stand. b) An out-of-court settlement for $650,000 has recently been reached with the employee, with the final papers to be signed next week. c) Counsel believes that the homeowner's case is weak and will be decided in favor of Maximilien Company. d) Other litigation related to the spill is possible, but the damage amounts are uncertain. 1) Based on this information, prepare the journal entries for the contingent liabilities associated with the spill. Use the account "Environmental Awards and Fines" to recognize the expense for the period. 2) Prepare any note disclosure related to the spill.

Which of the following are included in the employer's payroll taxes?

Notes payable may be issued to creditors to satisfy previously created accounts payable.

An unfunded pension liability is reported on the balance sheet as

Which of the following would most likely be classified as a current liability?

Which is not a determinate in calculating federal income taxes withheld from an individual's pay?

Payroll taxes only include social security taxes and federal unemployment and state unemployment taxes.

All long-term liabilities eventually become current liabilities.

Kelly Howard has the following transactions. Prepare the journal entries. Dec. 31 The accrued product warranty expense for the year is estimated to be 2.3% of sales. Sales for the year totaled $6,005,000. 31 The accrued vacation pay for the year is estimated to be $75,225. 31 Paid Reliable Insurance Co. $275,000 as fund trustee for the pension plan. The annual pension cost is $350,000.