Chapter 9: Quick Study

QS 9-1 Classifying Liabilities Current liabilities for a one-year operating cycle: 1. 2. 3. 4. 5. 6. Portion of long-term note due in 10 months: Yes (current liability) Note payable maturing in 2 years: No (long-term liability) Note payable due in 18 months: No (long-term liability) Accounts payable due in 11 months: Yes (current liability) FICA taxes payable: Yes (current liability) Salaries payable: Yes (current liability) QS 9-2 Reporting Current Portion of Long-Term Debt Liabilities section of Organic Foods’s Balance Sheet: • • Current Liabilities: o Notes Payable (current portion) $3,000 Long-Term Liabilities: o Notes Payable $57,000 QS 9-3 Accounting for Sales Taxes 1. Record the sale with sales tax: o Debit: Cash $6,000 o Credit: Sales $5,714.29 o Credit: Sales Tax Payable $285.71 2. Record remittance of sales tax on October 15: o Debit: Sales Tax Payable $285.71 o Credit: Cash $285.71 QS 9-4 Unearned Revenue 1. Record advance ticket sales on October 31: o Debit: Cash $5,000,000 o Credit: Unearned Revenue $5,000,000 2. Record revenue for November 5 concert (one-fourth of total): o Debit: Unearned Revenue $1,250,000 o Credit: Ticket Revenue $1,250,000 QS 9-5 Interest-Bearing Note Transactions 1. Accrued interest payable on December 31: o Interest = $160,000 × 8% × (54/360) = $1,920 2. Record accrued interest expense on December 31: o Debit: Interest Expense $1,920 o Credit: Interest Payable $1,920 3. Record payment of note and interest on February 5: o Interest for remaining 36 days: $160,000 × 8% × (36/360) = $1,280 o Total interest: $1,920 + $1,280 = $3,200 o Debit: Notes Payable $160,000 o Debit: Interest Payable $1,920 o Debit: Interest Expense $1,280 o Credit: Cash $165,200 QS 9-6 Computing Net Pay 1. Calculate net pay: o FICA Social Security: $4,000 × 6.2% = $248 o FICA Medicare: $4,000 × 1.45% = $58 o Federal Income Taxes: $500 o Medical Insurance: $160 o Life Insurance: $10 o Net Pay: $4,000 - ($248 + $58 + $500 + $160 + $10) = $3,024 QS 9-7 Recording Employee Payroll Taxes 1. Record salaries expense and liabilities: o Debit: Salaries Expense $4,000 o Credit: FICA Social Security Payable $248 o Credit: FICA Medicare Payable $58 o Credit: Federal Income Tax Payable $426 o Credit: Medical Insurance Payable $170 o Credit: Salaries Payable $3,098 QS 9-8 Recording Employee Payroll Taxes 1. Record sales salaries expense and liabilities: o FICA Social Security: $35,000 × 6.2% = $2,170 o FICA Medicare: $35,000 × 1.45% = $507.50 o o o o o o o Debit: Sales Salaries Expense $35,000 Credit: FICA Social Security Payable $2,170 Credit: FICA Medicare Payable $507.50 Credit: Federal Income Tax Payable $6,500 Credit: Medical Insurance Payable $772.50 Credit: Union Dues Payable $120 Credit: Salaries Payable $24,930 QS 9-9 Recording Employer Payroll Taxes 1. Record employer payroll taxes: o Debit: Payroll Tax Expense $819 o Credit: FICA Social Security Payable $372 o Credit: FICA Medicare Payable $87 o Credit: FUTA Payable $36 o Credit: SUTA Payable $324 QS 9-10 Recording Employer Payroll Taxes 1. Record March payroll taxes expense: o FICA Social Security: $20,000 × 6.2% = $1,240 o FICA Medicare: $20,000 × 1.45% = $290 o FUTA: $7,000 × 0.6% = $42 o SUTA: $7,000 × 5.4% = $378 o Debit: Payroll Tax Expense $1,950 o Credit: FICA Social Security Payable $1,240 o Credit: FICA Medicare Payable $290 o Credit: FUTA Payable $42 o Credit: SUTA Payable $378 QS 9-11 Accounting for Bonuses 1. Record year-end bonus: o Debit: Bonus Expense $15,000 o Credit: Bonus Payable $15,000 QS 9-12 Accounting for Vacations 1. December 31 year-end adjusting entry: o Debit: Vacation Benefits Expense $8,000 o Credit: Vacation Benefits Payable $8,000 2. April 1 vacation payment: o Debit: Vacation Benefits Payable $500 o Credit: Cash $500 QS 9-13 Recording Warranty Repairs 1. December 1 sale and cost of sale entry: o Debit: Cash $500 o Credit: Sales $500 o Debit: Cost of Goods Sold $200 o Credit: Inventory $200 2. December 31 estimated warranty liability: o Warranty Expense: $500 × 8% = $40 o Debit: Warranty Expense $40 o Credit: Estimated Warranty Liability $40 3. January 24 warranty repair: o Debit: Estimated Warranty Liability $35 o Credit: Parts Inventory $35 QS 9-14 Accounting for Health and Pension Benefits 1. Accrued health and pension benefits: o Debit: Employee Benefits Expense $14,500 o Credit: Medical Insurance Payable $5,500 o Credit: Retirement Contributions Payable $9,000 QS 9-15 Accounting for Contingent Liabilities 1. Pending lawsuit, estimated $1,250,000, probable: (a) Record liability. 2. Pending lawsuit, reasonable possibility, not estimable: (b) Disclose in notes. 3. Pending lawsuit, remote likelihood: (c) No disclosure. QS 9-16 Preparing Liabilities Section of Balance Sheet • Use trial balance amounts to separate current and long-term liabilities in the liabilities section. QS 9-17 Times Interest Earned 1. Times Interest Earned: o TIE = $1,885,000 / $145,000 = 13 o Park is in a better position than its competitor (TIE = 4), indicating a stronger capacity to cover interest payments. QS 9-18A Federal Income Tax Withholdings 1. Use the withholding table to determine federal income tax based on allowances and weekly pay. QS 9-19A Net Pay and Tax Computations 1. Compute all deductions and net pay for Marsha Gottschalk based on provided rates and withholding table. QS 9-20B Recording Deferred Income Tax Liability 1. Year-end tax adjustment: o Debit: Income Tax Expense $40,000 o Credit: Income Taxes Payable $34,000 o Credit: Deferred Income Tax Liability $6,000