Current Liabilities and Payroll Current Liabilities and Payroll

Chapter 10 Current Liabilities and Payroll

475 Solution Mar. 1 Merchandise Inventory 20,000 Accounts Payable—Kelvin Co. 20,000 Apr. 10 Accounts Payable—Kelvin Co. 20,000 Notes Payable 20,000 June 9 Notes Payable 20,000 Interest Expense 400 Cash 20,400 Aug. 1 Building 48,125 Interest Expense 1,875 Notes Payable 50,000 Oct. 30 Notes Payable 50,000 Cash 50,000 Dec. 27 Sales Salaries Expense 63,400 Officers Salaries Expense 36,600 Office Salaries Expense 10,000 Social Security Tax Payable 6,600 Medicare Tax Payable 1,650 Employees Federal Income Tax Payable 17,600 Employees State Income Tax Payable 4,950 Bond Deductions Payable 850 Medical Insurance Payable 1,120 Salaries Payable 77,230 27 Payroll Tax Expense 8,250 Social Security Tax Payable 6,600 Medicare Tax Payable 1,650 30 Employees Federal Income Tax Payable 17,600 Social Security Tax Payable 13,200 Medicare Tax Payable 3,300 Cash 34,100 31 Pension Expense 9,500 Cash 9,500 Fund pension cost. 31 Vacation Pay Expense 36,100 Vacation Pay Payable 36,100 Accrue vacation pay. 31 Product Warranty Expense 37,240 Product Warranty Payable 37,240 Accrue warranty expense. Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook andor eChapters. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 476

Chapter 10 Current Liabilities and Payroll

1. Does a discounted note payable provide credit with- out interest? Discuss. 2. Employees are subject to taxes withheld from their paychecks. a. List the federal taxes withheld from most em- ployee paychecks. b. Give the title of the accounts credited by amounts withheld. 3. Why are deductions from employees’ earnings clas- sified as liabilities for the employer? 4. For each of the following payroll-related taxes, indi- cate whether they generally apply to a employees only, b employers only, or c both employees and employers: 1. Federal income tax 2. Medicare tax 3. Social security tax 4. Federal unemployment compensation tax 5. State unemployment compensation tax 5. What are the principal reasons for using a special payroll bank account? 6. In a payroll system, what types of input data are referred to as a constants and b variables? 7. To match revenues and expenses properly, should the expense for employee vacation pay be recorded in the period during which the vacation privilege is earned or during the period in which the vacation is taken? Discuss. 8. Explain how a defined contribution pension plan works. 9. When should the liability associated with a product warranty be recorded? Discuss. 10. General Motors Corporation reported 2.6 billion of product warranties in the Current Liabilities sec- tion of a recent balance sheet. How would costs of repairing a defective product be recorded? Discussion Questions Practice Exercises PE 10-1A Proceeds from notes payable OBJ. 1 On October 12, Belleville Co. borrowed cash from Texas Bank by issuing a 30-day note with a face amount of 70,000. a. Determine the proceeds of the note, assuming the note carries an interest rate of 6. b. Determine the proceeds of the note, assuming the note is discounted at 6. PE 10-1B Proceeds from notes payable OBJ. 1 On January 26, Nyree Co. borrowed cash from Conrad Bank by issuing a 45-day note with a face amount of 150,000. a. Determine the proceeds of the note, assuming the note carries an interest rate of 10. b. Determine the proceeds of the note, assuming the note is discounted at 10. PE 10-2A Federal income tax withholding OBJ. 2 Bella Chen’s weekly gross earnings for the present week were 2,600. Chen has two exemptions. Using the wage bracket withholding table in Exhibit 3 with a 70 standard withholding allowance for each exemption, what is Chen’s federal income tax withholding? EE 10-1 p. 453 EE 10-2 p. 455 EE 10-1 p. 453 Example Exercises Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook andor eChapters. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Chapter 10 Current Liabilities and Payroll