Chapter 9 Reporting and Understanding Liabilities lecture notes

Chapter 9 Reporting and Understanding Liabilities lecture notes

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Unformatted text preview: Chapter 9 Reporting and Understanding Liabilities In Chapter 9 You will learn: o How firms account for current and non-current liabilities Reporting Current and Non-Current Liabilities Current Liabilities are debts that will be settled within the next year Long-term Liabilities are debts that will NOT be settled within the next year Gross Pay Where does your paycheck go? Think about your pay stub…. Gross Pay FIT FICA- SS FICA – Med Other Net Pay Gross Pay = # of hours worked at hourly rate 40 hours @ $12.50 $500.00 FIT = Federal Income Tax Withholding The amount is determined based on the employee’s wages, marital status and number of dependents Assume 20% 20% of $500 = $100.00 FICA (SS) = Social Security Taxes withheld. This amount is 6.2% of gross wages $500 * 6.2% $31.00 FICA (Med) = Medicare Taxes withheld. This amount is 1.45% of gross wages $500 * 1.45% $7.25 As authorized Other Employee-Authorized deductions to include: Health Insurance, Union Dues, 401k contributions, gifts to charity Gross Pay – FIT – FICA – Medicare = Net Pay $500.00 - $100.00 - $31.00 - $7.25 = $361.75 $361.75 Journal Entry for Salaries Expense Gross Pay FIT FICA- SS FICA – Med Other Net Pay Debit Salaries Expense $500.00 Credit FIT Payable $100.00 Credit FICA Payable $31.00 Credit Medicare Payable $7.25 Credit Other Payables Credit Cash $361.75 Employer Payroll Tax Expense In addition to the Gross Pay, the employer is responsible for: o Matching amounts for Social Security and Medicare o State and Federal Unemployment Taxes o Other State and Local taxes $7.25 Employer’s Payroll Tax Expense Gross Pay FIT FICA- SS FICA – Med Other Net Pay Debit Salaries Expense $500.00 Credit FIT Payable $100.00 Credit Other Payables Credit Cash $361.75 $31.00 Amounts withheld from Employees $7.25 Matched by Employer $31.00 Matched by Employer $7.25 Paid to the Governmental Agency Total Withheld . Total Withheld plus Employer’s Tax is paid to Governmental Agency + Employer Match Accounting for Warranties When products are sold with warranties, a liability is estimated and recorded. This records the expense in the same time period as the resulting revenue (Matching Principle) Satisfying Warranty Obligations When a warranty claim is made, the cost is written off against the liability This transaction has no affect on net income, even if the claim is made in a subsequent accounting period. Disclosing Warranty Information Details of Warranty obligations are disclosed in the notes to the financial statements Long-Term Notes Payable and Mortgages Company has borrowed funds for more than one year Principal payments may be made periodically (e.g. a car payment) or as a lump-sum at the maturity date....
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