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Chapter 11: Q2RQ (page 603)

What is a current liability? Provide some examples of current liabilities.

Short Answer

Expert verified

Current liabilities are short-term liabilities that must discharge within a year. Current liabilities are significant because they restrict the firm's cash flow, making it crucial for the company to own sufficient liquid assets to support liquidity.

Step by step solution

01

Meaning of Current Liabilities

Current liabilities refer to an individual or business entity's short-term liability that must settle within a year.

02

Examples of current liabilities

Accounts payable, short-term debt,notes payableand unpaid taxesare a few examples of current obligations or current liabilities.

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Most popular questions from this chapter

What is the difference between gross pay and net pay?

Accounting for warranty expense and warranty payable

The accounting records of Sculpted Ceramics included the following at January 1, 2018:

Estimated Warranty Payable

5,000 Beg. Bal

In the past, Sculpted鈥檚 warranty expense has been 9% of sales. During 2018, Sculpted made sales of \(113,000 and paid \)7,000 to satisfy warranty claims. Requirements

  1. Journalize Sculpted鈥檚 warranty expense and warranty payments during 2018. Explanations are not required.
  2. What balance of Estimated Warranty Payable will Sculpted report on its balance sheet at December 31, 2018?

Question: Recording employee and employer payroll taxes County Company had the following partially completed payroll register:

EarningsWithholdings

Beginning Cumulative Earnings

Current Period Earnings

Ending Cumulative Earnings

OASDI

Medicare

Income

tax

Health

Insurance

United

way

Total

Withholding

Net

pay

Check

No.

Salaries and Wages Expense

\( 77,000

\) 4,500

\( 900

\) 90

\(15

801

112,000

7,200

1,200

144

35

802

48,000

3,300

600

66

0

803

61,000

3,300

850

66

20

804

0

4,500

1,100

90

0

805

\)298,000

\(22,800

\)4,650

\(456

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Requirements

  1. Complete the payroll register. Round to two decimals.
  2. Journalize County Company鈥檚 salaries and wages expense accrual for the current pay period.
  3. Journalize County Company鈥檚 expenses for employer payroll taxes for the current pay period.
  4. Journalize the payment to employees.
  5. Journalize the payment for withholdings and employer payroll taxes.

Many small businesses have to squeeze down costs any way they can just to survive. One way many businesses do this is by hiring workers as 鈥渋ndependent contractors鈥� rather than as regular employees. Unlike rules for regular employees, a business does not have to pay Social Security (FICA) taxes and unemployment insurance payments for independent contractors. Similarly, it does not have to withhold federal, state, or local income taxes or the employee鈥檚 share of FICA taxes. The IRS has a 鈥�20-factor test鈥� that determines whether a worker should be considered an employee or a contractor, but many businesses ignore those rules or interpret them loosely in their favor. When workers are treated as independent contractors, they do not get a W-2 form at tax time (they get a 1099 instead), they do not have any income taxes withheld, and they find themselves subject to 鈥渟elf-employment鈥� taxes, by which they bear the brunt of both the employee鈥檚 and the employer鈥檚 shares of FICA taxes.

Requirements

  1. When a business abuses this issue, how is the independent contractor hurt?

If a business takes an aggressive position鈥攖hat is, interprets the law in a very slanted way鈥攊s there an ethical issue involved? Who is hurt?

In 150 words or fewer, explain how contingent liabilities are accounted for.
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