Question

Define current liabilities. List the current liabilities we cover in this chapter.

What are payroll deductions? Provide some examples.

How is net pay calculated?

Employer payroll taxes include FICA Tax and Federal & State Unemployment Tax. Which expense account is debited for employer payroll taxes? Provide an example journal entry.

Employee payroll taxes include FICA Tax & Income Tax. Which expense account is debited for employee payroll taxes? Provide an example journal entry.

What is the formula to calculate interest on a note payable?

Provide the following journal entries:

Establish note payable

Accrue interest incurred but not paid

Record interest paid

Record principal paid

Explain the current portion of long term debt.

What are contingent liabilities?

What is the debt-to-assets ratio and what does it tell you?

What is the times interest earned ratio and what does it tell you?

What are the three key elements of a bond?

What types of bonds are available?

Explain the difference between face value and issue price.

Explain when each occurs, how interest is recorded, and provide the journal entry for:

Bonds issued at face value

Bonds issued at a premium

Bonds issued at a discount

Bond Amortization using the Effective Interest Method:

Bond Retirement:

Time Value of Money:

Answer 1

Answer 1: Current Liabilities are the liabilities which are payable in a year. They are shown under liabilities section of Balance Sheet. It is desirable to have current liabilites lesser then current assets for a company. Some of the current liabilites are Accounts Payables( it is the amount payable for the inventories purchased or services used but not paid), Accrued Benifits (it is like the money payable to employees as salaries). Short Term Debt (these are like notes payable of long term nature which have or would be matured and paid during the year)

Answer 2: Payrol deductions are the mandatory or voluntary deductions as ordered by government to be made from the gross salary of the employee. Amount deducted from gross salary is what is paid to the employee. Example of payroll deductions include Federal Tax, State Tax, Social Security Tax, Medicare etc.

Answer 3: Net pay is calculated by deducting payroll deductions from gross pay.

Answer 5: Gross Wages (expenses) account is debited. Example of journal entry would be:

Gross Wages A/c	xxx
FICA		xxx
Federal withholding Income Tax		xxx
State withholding Income Tax		xxx
Net Wages paid (cash)		xxx

Answer 4: For employer payroll taxes, payroll tax expenses account is debited and following example entry can be passed:

Payroll tax expenses	xxx
FICA		xxx
Federal Unemplyment Tax		xxx
State Unemployment Tax		xxx