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Exam 9: Reporting and Analyzing Current Liabilities

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Question 101

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Cooper Company borrows $785,100 cash on November 1,2010,by signing a 120-day,8% note.What is the total amount of interest expense that Cooper will recognize in 2010?

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785,100*....

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Question 102

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A contingent liability:

A) Is always of a specific amount
B) Is a potential obligation that depends on a future event arising out of a past transaction or event
C) Is an obligation not requiring future payment
D) Is an obligation arising from the purchase of goods or services on credit
E) Is an obligation arising from a future event

F) C) and D)
G) B) and D)

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Question 103

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Contingent liabilities are recorded in the accounts if the future event is _______________ and the amount owed can be _______________.

Home Depot had income before interest expense and income taxes of $5,909 million and interest expense of $37 million.Calculate Home Depot's times interest earned ratio.

A company's payroll for the week ended May 15 and 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.

Federal depository banks are authorized to accept deposits of amounts payable to the federal government.

Classify each of the following items as a: Contingent liability,Estimated liability or Current liability.

A short-term note payable:

Mission Company has three employees: $\begin{array}{lcc}&\text { Gross Pay through July}&\text { Gross Pay for August }\\\text { Smith } & \$ 3,200 & \$ 1,000 \\\text { Cain } & 25,800 & 3,500 \\ \text { Clark } & 94,600 & 13,100\end{array}$ $\text { The company is subject to the following taxes: }$ $\begin{array} { l c l } \text { Tax } & \text { Rate } & \text { Applied To } \\ \text { FICA-Social Security } & 6 . 2 0 \% & \text { First } \$ 106,800 \\ \text { FICA-Medicare } & 1.45 & \text { All grosspay } \\ \text { FUTA } & . 8 0& \text { First } \$ 7,000 \\ \text { SUTA } & 5.40 & \text { First } \$ 7,000 \end{array}$ What is Mission Company's amount for payroll taxes for Clark?

Current liabilities are obligations not due within one year or the company's operating cycle,whichever is longer.

If a company had net income of $1,486,875 a times interest earned ratio of 4.0,a tax rate of 35%,and operating income of 3,050,000,what would the company's interest expense be for the year?

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

Match each definition with its term

A company estimates that warranty expense will be 4% of sales.The company's sales for the current period are $185,000.The current period's entry to record the warranty expense is:

An employer has an employee benefit package that includes employer-paid health insurance and employer-paid retirement program.During January,the employer-paid health insurance equaled $7,500 and the amount the employer agreed to contribute to the employee retirement program an amount equal to 10% of the employees' $150,000 gross salaries.Prepare the general journal entry to record these employee benefits.