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Exam 11: Current Liabilities and Payroll Accounting

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Question 21

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Cantrell Company is required by law to collect and remit sales taxes to the state. If Cantrell has $8,000 of cash sales that are subject to an 8% sales tax, what is the journal entry to record the cash sales?

A) Debit Accounts Receivable $8,640; credit Sales $8,000; credit Sales Taxes Payable $640.
B) Debit Cash $8,000; credit Sales $7,360; credit Sales Taxes Payable $640.
C) Debit Sales Taxes Payable $640; debit Cash $7,360; credit Sales $8,000.
D) Debit Cash $8,000; credit Sales $8,000; and record the taxes when paid.
E) Debit Cash $8,640; credit Sales $8,000; credit Sales Taxes Payable $640.

F) B) and D)
G) A) and B)

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Question 22

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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) 0.25.
B) 3.33.
C) 0.30.
D) 4.0.
E) 0.83.

F) B) and E)
G) A) and E)

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Question 23

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

The amount of FICA tax that employers must pay is twice the amount of the FICA taxes withheld from their employees.

Employers' responsibilities for payroll do not include:

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

Floral Depot's income before interest expense and income taxes was $5,900 million, and interest expense was $38 million. Calculate Floral Depot's times interest earned.

FUTA requires employers to pay a federal unemployment tax on all salary or wages paid to each employee.

The employer should record deductions from employee pay as:

Accounts payable are:

A company's income before interest expense and taxes is $250,000 and its interest expense is $100,000. Its times interest earned ratio is 2.5.

An employee earned $4,600 in February working for an employer. Cumulative earnings of the previous pay periods are $4,800. The FICA tax rate for Social Security is 6.2% of the first $118,500 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. 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 the employer should record as payroll taxes expense for the month of February?

A high value for the times interest earned ratio means that a company is a lower risk borrower.

Obligations to be paid within one year or the company's operating cycle, whichever is longer, are:

On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of an account payable with Erikson Company. What is the journal entry that should be recorded upon signing the note?

During the first week of January, an employee works 46 hours. For this company, workers earn 150% of their regular rate for hours in excess of 40 per week. Her pay rate is $16 per hour, and her wages are subject to no deductions other than FICA Social Security, FICA Medicare, and federal income taxes. The tax rate for Social Security is 6.2% of the first $118,500 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. 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. The employee has $80 in federal income taxes withheld. What is the amount of this employee's net pay for the first week of January?

Contingent liabilities are recorded or disclosed unless they are:

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

On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of an account payable with Erikson Company. What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.)

The correct times interest earned computation is: