ch11 current solu - 11-1CHAPTER 11Current Liabilities and...

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Unformatted text preview: 11-1CHAPTER 11Current Liabilities and Payroll AccountingANSWERS TO QUESTIONS1.Jeff is not correct. A current liability is a debt that can reasonably be expected to be paid: (a) fromexisting current assets or through the creation of other current liabilities and (2) within one year orthe operating cycle, whichever is longer.2.In the balance sheet, Notes Payable of $25,000 and Interest Payable of $562.50 should be reportedas current liabilities. In the income statement, Interest Expense of $562.50 should be reported underother expenses and losses.3.(a)Disagree. The company only serves as a collection agent for the taxing authority. It does notreport sales taxes as an expense; it merely forwards the amount paid by the customer to thegovernment.(b)The entry to record the proceeds is:Cash ..............................................................................................10,400Sales ......................................................................................10,000Sales Taxes Payable..............................................................4004.(a)The entry when the tickets are sold is:Cash ........................................................................................800,000Unearned Football Ticket Revenue ..................................800,000(b)The entry after each game is:Unearned Football Ticket Revenue ..........................................160,000Football Ticket Revenue...................................................160,0005.Liquidity refers to the ability of a company to pay its maturing obligations and meet unexpectedneeds for cash. Two measures of liquidity are working capital (current assets – current liabilities)and the current ratio (current assets ÷ current liabilities).6.A contingent liability is an existing situation involving uncertainty as to a possible obligation whichwill be resolved when one or more future events occur or fail to occur. Contingent liabilities are onlyrecorded in the accounts if they are probable and the amount is reasonably estimable. Warrantycosts are a contingent liability usually recorded in the accounts since they are both probable inincurrence and subject to estimation.7.If an event is only reasonably possible, then only note disclosure is required. If the possibility of acontingent liability occurring is only remote, then neither recording in the accounts nor note disclo-sure is required.8.The main internal control objectives associated with payrolls are: (1) to safeguard company assetsfrom unauthorized payments of payrolls and (2) to assure the accuracy and reliability of the ac-counting records pertaining to payrolls.9.The four functions associated with payroll are: (1) hiring employees, (2) timekeeping, (3) preparingthe payroll, and (4) paying the payroll.11-210.Gross pay is the amount an employee actually earns. Net pay, the amount an employee is paid,is gross pay reduced by both mandatory and voluntary deductions, such as FICA taxes, uniondues, federal income taxes, etc. Gross pay should be recorded as wages or salaries expense.dues, federal income taxes, etc....
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ch11 current solu - 11-1CHAPTER 11Current Liabilities and...

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