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Exam 9: Accounting for Current Liabilities

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Question 91

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If a company had net income of $2,379,600, interest expense of 234,000, a tax rate of 40%, and operating income of $4,200,000, what is the times interest earned ratio?

A) 10.17
B) 17.95
C) 7.78
D) 7.18
E) 4.07

F) B) and C)
G) C) and D)

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Question 92

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Describe how to account for and report on contingent liabilities.

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A contingent liability is an uncertain o...

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Question 93

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Cooper Company borrows $785,100 cash on November 1, 2013, by signing a 120-day, 8% note. What amount of interest expense should Cooper recognize in 2013?

Times interest earned can be calculated by multiplying income by the interest rate on a company's debt.

The payroll records of a company provided the following data for the weekly pay period ended December 7: The FICA Social Security tax rate is 6.2% and the FICA Medicare tax rate is1.45% on all of this week's wages paid to each employee. The federal and state unemployment tax rates are 0.8% and 5.4%, respectively, on the first $7,000 paid to each employee. Prepare the journal entries to (a) accrue the payroll and (b) record payroll taxes expense.

If Jefferson Company paid a bonus equal to 6.5% of net income after bonuses and the total bonus distributed was $560,000, how much was net income for the year?

If Jefferson Company paid a bonus equal to 8% of net income after bonuses and the total bonus distributed was $420,000, how much was net income for the year?

Apple Company has three employees: $\begin{array} { l c l } \text { Tax } & \text { Rate } & \text { Applied To } \\\text { FICA-Social Security } & 6.20 \% & \text { First } \$ 106,800 \\\text { FICA-Medicare } & 1.45 & \text { All gross pay } \\\text { FUTA } & .80 & \text { First } \$ 7,000 \\\text { SUTA } & 5.40 & \text { First } \$ 7,000\end{array}$ What is the amount that Apple Company will record as total payroll taxes for August?

Identify the types of payroll records prepared for each pay period and each employee.

A company's income before interest expense and income taxes was $395,000 in 2013 and $427,000 in 2014. Its fixed interest expense was $125,000 for both years. Calculate the company's times interest earned ratio and comment on its level of risk.

The deferred income tax liability:

A bank that is authorized to accept amounts payable to the federal government is a:

Classify each of the following items as a contingent liability, estimated liability, or current liability: $\begin{array}{ll}\text { 1. Accrued wages payable. } & \text { Contingent liability } \\\text { 2. Payroll taxes payable. } & \text { Estimated liability } \\\text { 3. Lawsuit against the company. } & \text { Current liability } \\\text { 4. Warranty on products sold this } & \text { Estimated liability } \\\text { year. } & \\\text { 5. Accounts payable. } & \text { Estimated liability } \\\text { 6. Vacation benefits. } & \text { Current liability } \\\text { 7. Property taxes payable. } & \text { Contingent liability } \\\text { 8. Income taxes payable. } & \text { Estimated liability } \\\text { 9. Unearned revenues. } & \text { Current liability } \\\text { 10. Debt guarantees. } & \text { Current liability }\end{array}$

The current FUTA tax rate is 0.8% and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned $8,900. What is the amount of total unemployment taxes the employer must pay on this employee's wages?

Miller Company has a times interest earned ratio of 5. Sales and variable expenses were $57,290 and $40,105 respectively. Compute the company's fixed interest expense.

The Federal Insurance Contributions Act (FICA) requires that each employer file a:

Gross pay less all deductions is called ____________________.

All expected future payments are liabilities.

Match each of the following terms with the appropriate definitions:

The FICA tax for Social Security is 6.2% and the FICA tax for Medicare is 1.45%. An employee's share of both FICA taxes was $3,901.50. Given that this employee did not exceed the FICA earnings limitation, compute gross pay.