Summary Business Accounting

CHAPTER 11
CURRENT LIABILITIES AND PAYROLL

DISCUSSION QUESTIONS

1. No. A discounted note payable has no stated interest rate, but provides interest by discounting the
note proceeds. The discount, which is the difference between the proceeds and the face of the
note, is the interest and is accounted for as such.
2. a. Employee’s federal income taxes, social security, and Medicare
b. Employees Federal Income Tax Payable, Social Security Tax Payable, and Medicare Tax
Payable
3. The deductions from employees’ earnings are for amounts owed (liabilities) to others for
such items as federal taxes, state and local income taxes, and contributions to pension plans.
4. 1. a
2. c
3. c
4. b
5. b
5. An advantage of using a separate payroll bank account is that reconciling the bank statements
is simplified. In addition, a payroll bank account establishes control over payroll checks
and, thus, prevents their theft or misuse.
6. a. Constants are data that remain unchanged from payroll to payroll. These include employee
names, social security numbers, marital status, number of income tax withholding
allowances, rates of pay, tax rates, and withholding tables.
b. Variables are data that change from payroll to payroll. These include number of hours or
days worked for each employee, accrued days of sick leave, vacation credits, total earnings
to date, and total taxes withheld.
7. The vacation pay expense should be recorded during the period in which the vacation privilege
is earned.
8. In a defined contribution plan, the company invests contributions on behalf of the employee
during the employee’s working years. Normally, the employee and employer contribute to the
plan. The employee’s pension depends on the total contributions and the investment returns
earned on those contributions.
9. To match revenues and expenses properly, the liability to cover product warranties should be
recorded in the period during which the sale of the product is recorded.
10. When the defective product is repaired, the repair costs would be recorded by debiting
Product Warranty Payable and crediting Cash, Supplies, or another appropriate account.




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, CHAPTER Current Liabilities and

PRACTICE EXERCISES
PE 11–1A
a. $70,000
b. $69,650 [$70,000 – ($70,000 × 30/360 × 6%)]


PE 11–1B
a. $150,000
b. $148,125 [$150,000 – ($150,000 × 45/360 × 10%)]


PE 11–2A
Total wage payment……………………………………………………………… $2,600.00
One allowance (provided by IRS)…………………………………………… $70.00
Multiplied by allowances claimed on Form W-4…………………………… × 2 140.00
Amount subject to withholding……………………………………………… $2,460.00

Initial withholding from wage bracket in Exhibit 3……………………… $ 327.40
Plus additional withholding: 28% of excess over $1,648*……………… 227.36
Federal income tax withholding……………………………………………… $ 554.76

*($2,460 – $1,648) × 28%



PE 11–2B
Total wage payment…………………………………………………………… $1,400.00
One allowance (provided by IRS)..................................................................$70.00
Multiplied by allowances claimed on Form W-4...........................................× 1 70.00
Amount subject to withholding……………………………………………… $1,330.00

Initial withholding from wage bracket in Exhibit 3……………………… $ 91.40
Plus additional withholding: 25% of excess over $704*………………… 156.50
Federal income tax withholding……………………………………………… $ 247.90

*($1,330 – $704) × 25%




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, CHAPTER Current Liabilities and


PE 11–
Total wage payment…………………………………………… $2,600.00
Less: Federal income tax withholding………………… $554.76
Social security tax ($2,600 × 6%)………………… 156.00
Medicare tax ($2,600 × 1.5%)…………………… 39.00 749.76
Net pay………………………………………………………… $1,850.24


PE 11–3B
Total wage payment………………………………………… $1,400.00
Less: Federal income tax withholding………………… $247.90
Social security tax ($1,400 × 6%)……………… 84.00
Medicare tax ($1,400 × 1.5%)……………………… 21.00 352.90
Net pay…………………………………………………………… $1,047.10



PE 11–4A
Salaries Expense 220,000
Social Security Tax Payable 13,200
Medicare Tax Payable 3,300
Employees Federal Income Tax Payable 43,560
Salaries Payable 159,940


PE 11–4B
Salaries Expense 90,000
Social Security Tax Payable 5,400
Medicare Tax Payable 1,350
Employees Federal Income Tax Payable 17,820
Retirement Savings Deductions Payable 5,400
Salaries Payable 60,030




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, CHAPTER Current Liabilities and


PE 11–
Payroll Tax Expense 18,670
Social Security Tax Payable 13,200
Medicare Tax Payable 3,300
State Unemployment Tax Payable* 1,890
Federal Unemployment Tax Payable** 280
* $35,000 × 5.4%
** $35,000 × 0.8%



PE 11–5B
Payroll Tax Expense 7,370
Social Security Tax Payable 5,400
Medicare Tax Payable 1,350
State Unemployment Tax Payable* 540
Federal Unemployment Tax Payable** 80
* $10,000 × 5.4%
** $10,000 × 0.8%


PE 11–6A
a. Vacation Pay Expense 19,500
Vacation Pay Payable 19,500
Vacation pay accrued for the period.

b. Pension Expense 15,600
Cash 15,600
To record pension contribution,
6% × $260,000.


PE 11–6B
a. Vacation Pay Expense 35,000
Vacation Pay Payable 35,000
Vacation pay accrued for the period.

b. Pension Expense 201,250
Cash 175,000
Unfunded Pension Liability 26,250
To record pension cost and funding.




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