WRD_IMCh11_10 - chapter Current Liabilities and Payroll...

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chapter 11 Current Liabilities and Payroll ______________________________________________ OPENING COMMENTS Chapter 11 covers a variety of obligations included in the Current Liabilities section of the balance sheet: notes payable, contingent liabilities, payroll, and employee fringe benefits. The quick ratio is introduced in the Financial Analysis and Interpretations portion of this chapter as a tool to analyze the level of current liabilities held by a business. Remember to download the Transparency Masters (TM) posted on Modules as they complement the lecture listed below. After studying the chapter, you should be able to: 1. Understand and illustrate current liabilities related to accounts payable, current portion of long-term debt, and notes payable. 2. Determine employer liabilities for payroll, including liabilities arising from employee earnings and deductions from earnings. 3. Understand payroll accounting systems that use a payroll register, employee earnings record, and a general journal. 4. Journalize entries for employee fringe benefits, including vacation pay and pensions. 5. Understand the accounting treatment for contingent liabilities and journalize entries for product warranties. OBJECTIVE 1 Understand and illustrate current liabilities related to accounts payable, current portion of long-term debt, and notes payable. Current Liability Identification 175
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Chapter 11 Current Liabilities and Payroll TM 11-1 lists current liability accounts already discussed in previous chapters. Notice all these are debts that are settled within one year. The following new accounts, which are introduced in Chapter 11, should be added to this list: Product Warranty Payable Social Security Tax Payable Medicare Tax Payable Employees Federal Income Tax Payable State Unemployment Tax Payable Federal Unemployment Tax Payable Vacation Pay Payable Unfunded Pension Liability Notes Payable A portion of N/P that will be paid over the next 12 months must be classified on the balance sheet as a current liability. The portion that is due beyond 12 months is classified as long-term liabilities. Noninterest-Bearing Notes Payable Many of us are familiar with the saying, “There’s no such thing as a free lunch!” Notes that truly have no interest charged are just as rare. For example, if a company borrows cash from a bank by signing a noninterest-bearing note, the interest is simply deducted from the cash proceeds received on the note. At maturity, only the face value of the note is repaid. Therefore, interest is deducted up front, rather than paid at the end. Steps to account for a noninterest-bearing note are as follows: STEP 1: Calculate the Discount on the Note The discount on a noninterest-bearing note is computed using the following formula: Discount = Face Amount of Note × Discount Rate × Time Period The discount rate is the interest rate being charged on the note. For example, assume that Wycoff Company borrows $7,500 by signing a 90-day noninterest-bearing note. The bank discounts the note at
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This note was uploaded on 04/13/2010 for the course ACTG 1B a taught by Professor 2 during the Spring '10 term at Foothill College.

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WRD_IMCh11_10 - chapter Current Liabilities and Payroll...

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