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Chapter 11: 13RQ (page 604)
What is contingent liability? Provide some examples of contingencies.
Contingent liabilities are potential but not actual and depend upon some future event.
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On December 31, Weston Company estimates that it will pay its employees a 5% bonus on net income after deducting the bonus. The company reports net income of $64,000 before the calculation of the bonus. The bonus will be paid on January 15 of the next year.Requirements
1. Journalize the December 31 transaction for Weston.
2. Journalize the payment of the bonus on January 15.
Liam Wallace is general manager of Moonwalk Salons. During 2018, Wallace worked for the company all year at a \(13,400 monthly salary. He also earned a year-end bonus equal to 5% of his annual salary.
Wallace鈥檚 federal income tax withheld during 2018 was \)2,010 per month, plus \(1,608 on his bonus check. State income tax withheld came to \)110 per month, plus \(80 on the bonus. FICA tax was withheld on the annual earnings. Wallace authorized the following payroll deductions: Charity Fund contribution of 2% of total earnings and life insurance of \)15 per month.
Moonwalk incurred payroll tax expense on Wallace for FICA tax. The company also paid state unemployment tax and federal unemployment tax.
Requirements
1. Compute Wallace鈥檚 gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.
2. Compute Moonwalk鈥檚 total 2018 payroll tax expense for Wallace.
3. Make the journal entry to record Moonwalk鈥檚 expense for Wallace鈥檚 total earnings for the year, his payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.
4. Make the journal entry to record the accrual of Moonwalk鈥檚 payroll tax expense for Wallace鈥檚 total earnings.
5. Make the journal entry for the payment of the payroll withholdings and taxes.
Erin O鈥橬eil Associates reported short-term notes payable and salaries payable as follows:
2018 | 2017 | |
Current Liabilities鈥攑artial: | ||
Short-term Notes Payable | \(16,900 | \) 16,000 |
Salaries Payable | 3,400 | 4,000 |
During 2018, O鈥橬eil paid off both current liabilities that were left over from 2017, borrowed cash on short-term notes payable, and accrued salaries expense. Journalize all four of these transactions for O鈥橬eil during 2018. Assume no interest on short-term notes payable of $16,000.
The following transactions of Philadelphia Pharmacies occurred during 2017 and 2018:
2017
Jan. 9 Purchased computer equipment at a cost of \(7,000, signing a six-month, 8% note payable for that amount.
29 Recorded the week鈥檚 sales of \)68,000, three-fourths on credit and one-fourth for cash. Sales amounts are subject to a 6% state sales tax. Ignore cost of goods sold.
Feb. 5 Sent the last week鈥檚 sales tax to the state.
Jul. 9 Paid the six-month, 8% note, plus interest, at maturity.
Aug. 31 Purchased merchandise inventory for \(3,000, signing a six-month, 10% note payable. The company uses the perpetual inventory system.
Dec. 31 Accrued warranty expense, which is estimated at 2% of sales of \)609,000.
31 Accrued interest on all outstanding notes payable.
2018
Feb. 28 Paid the six-month 10% note, plus interest, at maturity.
Journalize the transactions in Plymouth鈥檚 general journal. Explanations are not required.
On January 1, Irving Company purchased equipment of \(280,000 with a long-term note payable. The debt is payable in annual installments of \)56,000 due on December 31 of each year. At the date of purchase, how will Irving Company report the note payable?
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