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Chapter 11: Q10RQ (page 604)
What payroll taxes is the employer responsible for paying?
An employer is responsible for paying FICA, SUTA, and FUTA payroll taxes.
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What is a contingent liability? Provide some examples of contingencies.
Golden Bear Construction operates throughout California. The owner, Gaylan Beavers, employs 15 work crews. Construction supervisors report directly to Beavers, and the supervisors are trusted employees. The home office staff consists of an accountant and an office manager.
Because employee turnover is high in the construction industry, supervisors hire and fire their own crews. Supervisors notify the office of all personnel changes. Also, supervisors forward the employee W-4 forms to the home office. Each Thursday, the supervisors submit weekly time sheets for their crews, and the accountant prepares the payroll. At noon on Friday, the supervisors come to the office to get paychecks for distribution to the workers at 5 p.m.
The company accountant prepares the payroll, including the paychecks. Beavers signs all paychecks. To verify that each construction worker is a bona fide employee, the accountant matches the employee鈥檚 endorsement signature on the back of the canceled paycheck with the signature on that employee鈥檚 W-4 form.
Requirements
Discuss a control feature that the company can use to safeguard against the fraud you identified in Requirement 1.
List the required employee payroll withholding deductions, and provide the tax rate for each.
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.
Rios Raft Company had the following liabilities.
a. Accounts Payable
b. Note Payable due in 3 years
c. Salaries Payable
d. Note Payable due in 6 months
e. Sales Tax Payable
f. Unearned Revenue due in 8 months
g. Income Tax Payable
Determine whether each liability would be considered a current liability (CL) or a long-term liability (LTL).
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