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Exam 9: Accounting for Current Liabilities

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Question 41

Multiple Choice

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An employer's federal unemployment taxes (FUTA) are reported:

A) Annually
B) Semiannually
C) Quarterly
D) Monthly
E) Weekly

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

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Question 42

True/False

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Unearned revenues are listed on the balance sheet under liabilities.

A) True
B) False

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Question 43

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On October 10, 2013, Printfast Company sells a commercial printer for $2,350 with a one-year warranty that covers parts. Warranty expense is projected to be 4% of sales. On February 28, 2014, the printer requires repairs. The cost of the parts for the repair is $80 and Printfast pays their technician $150 to perform the repair. What warranty expense is recorded for this printer during 2014?

__________ allowances are items that reduce the amount of federal income taxes owed by the individual.

The times interest earned ratio is calculated by dividing income before interest expense and income taxes by interest expense.

When there is little uncertainty surrounding current liabilities, both GAAP and IFRS require companies to record them in a similar manner.

Experience shows that when times interest earned falls below 1.5 to 2.0 and remains at that level or lower for several time periods, the default rate on liabilities increases sharply.

A note payable can be used to extend the payment due on an account payable.

Payroll taxes are considered to be contingent liabilities.

Walmart had income before interest expense and income taxes of $12,581 million and interest expense of $1,063 million. Sears had income before interest expense and income taxes of $3,596 million and interest expense of $1,143 million. Calculate the times interest earned ratio for each company and comment on the results.

The Form W-2 must be given to employees before January 31 following the year covered by this report.

When the number of withholding allowances increases, the amount of income tax withheld increases.

Define liabilities and explain the differences between current and long-term liabilities.

If a company had net income of $3,003,000; interest expense of $400,000; a tax rate of 40%; and operating income of $5,405,000, what would the times interest earned ratio be for the year?

FUTA requires employers to pay a federal unemployment tax on the first $7,000 in salary or wages paid to each employee.

A company's payroll for the week ended May 15 included earned salaries of $20,000. All of that week's pay is subject to FICA Social Security taxes of 6.2% and Medicare taxes of 1.45%. In addition, the company withholds the following amounts for this weekly pay period: $900 for medical insurance; $3,400 for federal income taxes; and $180 for union dues. a. Prepare the general journal entry to accrue the payroll. b. The company is subject to state unemployment taxes at the rate of 2% and federal unemployment taxes at the rate of 0.8%. By May 15, some employees had earned over $7,000, so only $9,000 of the $20,000 weekly gross pay was subject to unemployment tax. Prepare the general journal entry to accrue the employer's payroll tax expense.

The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible.

Identify and explain the types of employer payroll taxes.

Accounting for contingent liabilities covers three possibilities. (1) The future event is probable and the amount cannot be reasonably estimated. (2) The future event is remote or unlikely to recur. (3) The likelihood of the liability to occur is impossible.

Payments of FUTA are made quarterly to a federal depository bank if the total amount due exceeds $1,000.