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Chapter 11: Q5TI (page 597)
Match the likelihood of a future event with the reporting of the contingency. An answer may be selected more than once.
Likelihood of Future Event | How to Report the Contingency |
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Remote contingency do not disclose.
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Liam Wallace is general manager of Moonwalk Salons. During 2018, Wallace worked for the company all year at a \(13,400 monthly salary. He also earned a year-end bonus equal to 5% of his annual salary.
Wallace’s federal income tax withheld during 2018 was \)2,010 per month, plus \(1,608 on his bonus check. State income tax withheld came to \)110 per month, plus \(80 on the bonus. FICA tax was withheld on the annual earnings. Wallace authorized the following payroll deductions: Charity Fund contribution of 2% of total earnings and life insurance of \)15 per month.
Moonwalk incurred payroll tax expense on Wallace for FICA tax. The company also paid state unemployment tax and federal unemployment tax.
Requirements
1. Compute Wallace’s gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.
2. Compute Moonwalk’s total 2018 payroll tax expense for Wallace.
3. Make the journal entry to record Moonwalk’s expense for Wallace’s total earnings for the year, his payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.
4. Make the journal entry to record the accrual of Moonwalk’s payroll tax expense for Wallace’s total earnings.
5. Make the journal entry for the payment of the payroll withholdings and taxes.
Runner guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 5% of sales. Assume that the Trail Runner dealer in Colorado Springs made sales totaling \(600,000 during 2018. The company received cash for 20% of the sales and notes receivable forthe remainder. Warranty payments totaled \)10,000 during 2018.
Requirements
Record the sales, warranty expense, and warranty payments for the company.
Ignore cost of goods sold.
Rios Raft Company had the following liabilities.
a. Accounts Payable
b. Note Payable due in 3 years
c. Salaries Payable
d. Note Payable due in 6 months
e. Sales Tax Payable
f. Unearned Revenue due in 8 months
g. Income Tax Payable
Determine whether each liability would be considered a current liability (CL) or a long-term liability (LTL).
Sell-Soft is the defendant in numerous lawsuits claiming unfair trade practices. SellSoft has strong incentives not to disclose these contingent liabilities. However, GAAP requires that companies report their contingent liabilities.
Requirements
Recording employer payroll taxes and employee benefits Ricardo’s Mexican Restaurant incurred salaries expense of \(62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, \)22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, \(3,000), life insurance (cost to the company, \)330), and retirement benefits (cost to the company, 10% of salaries expense).
Requirements
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