Reimersppt_ch09 - Chapter 9 Reporting and Understanding Liabilities In Chapter 8 You learned o How to account for the purchase and use of long-term

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Chapter 9 Reporting and Understanding Liabilities
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In Chapter 8 You learned: o How to account for the purchase and use of long-term assets o How to calculate depreciation using various methods
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In Chapter 9 You will learn: o How firms account for current and non-current liabilities
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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
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Payroll related liabilities I worked 40 hours this week. My hourly rate is $12.50. I’ll take your time sheet and you’ll get your check on Friday I wonder how much my check will be
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Gross Pay Where does your paycheck go?
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Payday!
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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
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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
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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
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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
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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)
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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.
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Disclosing Warranty Information Details of Warranty obligations are disclosed in the notes to the financial statements
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This note was uploaded on 04/08/2010 for the course BUSINESS 4456 taught by Professor Blackwell during the Spring '10 term at West Liberty.

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Reimersppt_ch09 - Chapter 9 Reporting and Understanding Liabilities In Chapter 8 You learned o How to account for the purchase and use of long-term

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