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Exam 9: Accounting for Current Liabilities

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Question 91

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When a company is obligated for sales taxes payable, it is reported as a(n) :

A) Estimated liability.
B) Contingent liability.
C) Current liability.
D) Business expense.
E) Long-term liability.

F) D) and E)
G) B) and E)

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Question 92

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Debt guarantees are usually disclosed as a contingent liability.

A) True
B) False

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Question 93

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An employee earnings report is a cumulative record of each employee's hours worked, gross earnings, deductions, and net pay.

An employee earned $62,500 during the year working for an employer. The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. What is the amount of total unemployment taxes the employee must pay?

FUTA taxes are:

A _______________________ is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.

On January 31, Ransom Company's payroll register showed that its employers earned $30,320 of office salaries and $82,750 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes as the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $16,960 of federal income taxes, $3,350 of medical insurance deductions (which represents 50% of the total cost of the employee medical insurance), and $4,210 of 401(k) retirement contribution deductions. Ransom Company pays the other 50% of the employee insurance cost and matches the employee 401(k) contributions. Several employees earned more than $7,000 for the period which reduced salaries subject to unemployment to $104,000. No employees exceeded the FICA-Social Security taxable wage base. 1. Prepare the journal entry to record Ransom Company's January 31 payroll expenses and liabilities. 2. Prepare the journal entry to record Ransom Company's employer payroll taxes resulting from the January 31 payroll. Ransom's merit rating reduces its state unemployment (SUTA) to 4% of the first $7,000 paid each employee. The federal unemployment tax (FUTA) rate is 0.6%. 3. Prepare the journal entry to record Ransom's additional employee expenses.

A known obligation of an uncertain amount that can at least be reasonably estimated is reported as an estimated liability.

A ___________________ is a potential obligation that depends on a future event arising from a past transaction or event.

A company's fixed interest expense is $8,000, its income before interest expense and income taxes is $32,000. Its net income is $9,600. The company's times interest earned ratio equals:

A company's income before interest expense and income taxes in 2014 and 2015 is $487,500 and $427,000, respectively. Its fixed interest expense was $125,000 for both years. Calculate the company's times interest earned ratio, and comment on its level of risk.

Times interest earned is calculated by:

Unearned revenues are current liabilities.

Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of $8,260. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45%. The FUTA tax rate of 0.6% and the SUTA tax rate of 5.4% are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld from her earnings was $1,325.17. What is the total amount of taxes withheld from the Portia's earnings?

Accrued vacation benefits are a form of estimated liability for an employer.

Star Recreation receives $48,000 cash in advance ticket sales for 12 home games. Record the advance ticket sales on April 30. Record the revenue earned for the first home game played on August 14.

An employee earned $37,000 during the year working for an employer when the maximum limit for Social Security was $117,000. The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The employee's annual FICA taxes amount is:

Explain how to calculate times interest earned and how it is used to analyze a company's risk.

Athena Company provides employee health insurance that costs $5,000 per month. In addition, the company contributes an amount equal to 5% of the employees' $120,000 gross salary to a retirement program. The entry to record the accrued benefits for the month would include a:

A contingent liability is a potential obligation that depends on a future event arising from a past transaction or event.