Chapter 11: Q13RQ (page 604)
What is a contingent liability? Provide some examples of contingencies.
Contingent liabilities are potential but not actual and depend upon some future event.
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Macintosh Company has monthly salaries of \(26,000. Assume Macintosh pays all the standard payroll taxes, no employees have reached the payroll tax limits, total income tax withheld is \)2,000, and the only payroll deductions are payroll taxes. Journalize the accrual of salaries expense, accrual of employer payroll taxes, and payment of employee and employer payroll taxes for Macintosh Company.
: O’Conner guarantees its vacuums for four years. Prior experience indicates that warranty costs will be approximately 6% of sales. Assume that O’Conner made sales totaling $200,000 during 2018. Record the warranty expense for the year.
Logan White is general manager of Valuepoint Salons. During 2018, White worked for the company all year at a \(13,600 monthly salary. He also earned a year-end bonus equal to 15% of his annual salary.
White’s federal income tax withheld during 2018 was \)1,360 per month, plus \(4,876 on his bonus check. State income tax withheld came to \)150 per month, plus \(60 on the bonus. FICA tax was withheld on the annual earnings. White authorized the following payroll deductions: Charity Fund contribution of 1% of total earnings and life insurance of \)40 per month.
Valuepoint incurred payroll tax expense on White for FICA tax. The company also paid state unemployment tax and federal unemployment tax.
Requirements
1. Compute White’s gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.
2. Compute Valuepoint’s total 2018 payroll tax expense for White.
3. Make the journal entry to record Valuepoint’s expense for White’s 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 Valuepoint’s payroll tax expense for White’s total earnings.
5. Make the journal entry for the payment of the payroll withholdings and taxes.
How is the times-interest-earned ratio calculated, and what does it evaluate?
What are the three main characteristics of liabilities?
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