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Exam 10: Liabilities: Current, Installment Notes, and Contingencies

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Question 51

Multiple Choice

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The journal entry a company uses to record accrued vacation privileges for its employees at the end of the year is

A) debit Vacation Pay Expense; credit Vacation Pay Payable
B) debit Vacation Pay Payable; credit Vacation Pay Expense
C) debit Salary Expense; credit Cash
D) debit Salary Expense; credit Salaries Payable

E) A) and B)
F) A) and C)

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Question 52

Multiple Choice

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Martinez Co. borrowed $50,000 on March 1 of the current year by signing a 60-day, 9%, interest-bearing note. Assuming a 360-day year, when the note is paid on April 30, the entry to record the payment should include a

A) debit to Interest Payable for $750
B) debit to Interest Expense for $750
C) credit to Cash for $50,000
D) credit to Cash for $54,500

E) A) and C)
F) A) and B)

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Question 53

Multiple Choice

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According to a summary of the payroll of Scotland Company, total salaries were $500,000. Assume that social security taxes are payable at a 6% rate and Medicare taxes are payable at a 1.5% rate with no maximum earnings. Federal income tax withheld was $98,000. Also, $15,000 was subject to state (5.4%) and federal (0.8%) unemployment taxes. The journal entry to record accrued salaries would include a

Journalize the following transactions: Dec. 31 $\quad$ The accrued product warranty expense for the year is estimated to be $1.5 \%$ of $\quad$$\quad$$\quad$ sales. Sales for the year totaled $\$ 7,760,000$ . 31 $\quad$ The accrued vacation pay for the year is estimated to be $\$ 46,000$ . 31 $\quad$ Paid Reliable Insurance Co. $\$ 85,000$ as fund trustee for the pension plan. The annual $\quad$$\quad$ pension cost is $\$ 109,000$ .

Wilson Cafeteria issues gift cards, which are very popular in the small town where the restaurant is located. In a recent month, Wilson issued $4,000 in gift cards. Experience indicates that 80 percent of the cards will be redeemed before they expire. What is the entry to record the estimated gift card expense?

Use the following information and calculate the quick ratio for Davis Company and for Bender Inc. (a) Calcul ate the quick ratio for each company. Round ratios to two decimal places. (b) Comment on which one is more able to meet current liabilities. ​

Below are two independent sets of transactions for Welcott Company: ​ (a) Welcott provides its employees with varying amounts of vacation per year, depending on the length of employment. The estimated amount of the current year's vacation pay is $78,000. Journalize the adjusting entry required on January 31, the end of the first month of the year, to record the accrued vacation pay. ​ (b) Welcott maintains a defined contribution pension plan for its employees. The plan requires quarterly installments to be paid to the funding agent, Northern Trust, by the fifteenth of the month following the end of each quarter. Assuming that the pension cost is $119,600 for the quarter ended December 31, journalize entries to record (1) the accrued pension liability on December 31 and (2) the payment to the funding agent on January 15.

Estimating and recording product warranty expense in the period of the sale best follows the

Interest expense is reported in the operating expense section of the income statement.

An unfunded pension liability is reported on the balance sheet as

According to a summary of the payroll of Sinclair Company, $545,000 was subject to the 6.0% social security tax and the 1.5% Medicare tax. Also, $10,000 was subject to state and federal unemployment taxes. (a) Calculate the employer's payroll taxes using the following rates: state unemployment tax, $5.4 \%$ ; unemployment tax, $0.8 \%$ . (b) Journalize the entry to record the accrual of the employer's payroll taxes.

Vacation pay payable is reported on the balance sheet as a(n)

On the first day of the fiscal year, Hawthorne Company obtained an $88,000, 7-year, 5% installment note from Sea Side Bank. The note requires annual payments of $15,208, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $4,400 and principal repayment of $10,808. The journal entry Hawthorne would record to make the first annual payment due on the note would include a

During the first year of operations, employees earned vacation pay of $35,000. The vacations will be taken during the second year. The vacation pay expense should be recorded in the second year as the vacations are taken by the employees.

Grant Co. had the following liabilities at December 31, the end of its fiscal year: ​ Accounts Payable $56,000 Salaries Payable 12,200 Unearned Fees 8,900 Income Taxes Payable 3,200 Notes Payable 240,000 ​ The note payable is an 8-year note with $30,000 due in the next year. Prepare the liabilities section of the balance sheet for the company.

In order to be a recorded contingent liability, the liability must be possible and easily estimated.

The current assets and current liabilities for Kolbie Company and Newton Company are as follows: ​ *These represent prepaid expenses and other non-quick current assets. (a) Determine the quick ratio for both companies. Round to two decimal places. (b) Interpret the quick ratio difference between the two companies.

The proceeds from discounting a $20,000, 60-day, note payable at 6% is $20,200.

The following totals for the month of June were taken from the payroll register of Arcon Company: $\begin{array} { l r } \text { Sal aries expense } & \$ 14,000 \\\text { Social security and Medicare taxes withheld } & 1,050 \\\text { Income taxes withheld } & 2,600 \\\text { Retirement savings } & 1,000\end{array}$ The entry to record the payment of net pay would include a

Baker Green's weekly gross earnings for the week ending December 7 were $2,500, and her federal income tax withholding was $525. Assuming the social security rate is 6% and Medicare is 1.5%, and all earnings are subject to FICA taxes, what is Green's net pay?