Chapter 11: Q5TI (page 597)
Match the likelihood of a future event with the reporting of the contingency. An answer may be selected more than once.
Likelihood of Future Event | How to Report the Contingency |
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Remote contingency do not disclose.
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Liam Wallace is general manager of Moonwalk Salons. During 2018, Wallace worked for the company all year at a \(13,400 monthly salary. He also earned a year-end bonus equal to 5% of his annual salary.
Wallace’s federal income tax withheld during 2018 was \)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’s gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.
2. Compute Moonwalk’s total 2018 payroll tax expense for Wallace.
3. Make the journal entry to record Moonwalk’s expense for Wallace’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 Moonwalk’s payroll tax expense for Wallace’s total earnings.
5. Make the journal entry for the payment of the payroll withholdings and taxes.
What is a contingent liability? Provide some examples of contingencies.
How is the times-interest-earned ratio calculated, and what does it evaluate?
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’s warranty expense has been 9% of sales. During 2018, Sculpted made sales of \(113,000 and paid \)7,000 to satisfy warranty claims. Requirements
What is contingent liability? Provide some examples of contingencies.
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