Current Liabilities and Payroll Accounting

Gallardo Co. is involved in a lawsuit as a result of an accident that took place September 5, 2020. The lawsuit was filed on November 1, 2020, and claims damages of $1,000,000.

Instructions

1. At December 31, 2020, Gallardo's attorneys feel it is remote that Gallardo will lose the lawsuit. How should the company account for the effects of the lawsuit?
2. Assume instead that at December 31, 2020, Gallardo's attorneys feel it is proable that Gallardo will lose the lawsuit and be required to pay $1,000,000. How should the company account for this lawsuit?
3. Assume instead that at December 31, 2020, Gallardo's attorneys feel it is reasonable possible that Gallardo could lost the lawsuit and be required to pay $1,000,000. How should the company account for this lawsuit?

Solution

Younger Online Company has the following liability accounts after posting adjusting entries: Accounts Payable $73,000, Unearned Ticket Revenue $24,000, Warranty Liability $18,000, Interest Payable $8,000, Mortgage Payable $120,000, Notes Payable $80,000, and Sales Taxes Payable $10,000. Assume the company's operating cycle is less than 1 year ticket revenue will be recognized within 1 year; warranty costs are expected to be incurred within 1 year, and the notes mature in 3 years.

Instructions

1. Prepare the current liabilities section of the balance sheet, assuming $30,000 of the mortgage is payable next year.
2. Comment on Younger Online Company's liquidity6, assuming total current assets are $300,000.

Solution

Suppose the following financial data were reported by $3M Company for 2019 and 2020

Instructions

1. Calculate the current ratio and working capital for 3M for 2019 and 2020.
2. Suppose that at the end of 2020, 3M management used 200 million cash to pay off $200 million of accounts payable. How would its current ratio and working capital have changed?

Solution

Maria Garza's regular hourly wage rate is $16, and she receives a wage of 1 1/2 times the regular hourly rate for work in excess of 40 hours. During a March weekly pay period, Maria worked 42 hours. Her gross earnings prior to the current week were $6,000. Maria is married and claims three withholding allowances. Her only voluntary deduction is for group hospitalization insurance at $25 per week

Instructions

1. Compute the following amounts for Maria's wages for the current week.
   
   1. Gross earnings.
   2. FICA taxes. (Assume a 7.65% rate on maximum of $117,000.)
   3. Federal income taxes withheld. (Use the withholding table)
   4. State income taxes withheld. (Assume a 2.0% rate.)
   5. Net Pay
2. Record Maria's Pay.

Solution

Employee earnings records for Slaymaker Company reveals the following gross earnings for four employees through the pay period of December 15.

For the pay period ending December 31, each employee's gross earnings is 4,500. The FICA tax rate is 7.65% on gross earnings of $117,000.

Instructions

Compute the FICA withholdings that should be made for each employee for the December 31 pay period.

Solution

Ramirez Company has the following data for the weekly payroll ending January 31.

Employees are paid 1 1/2 times the regular hourly rate for all hours worked in excess of 40 hours per week. FICA taxes are 7.65% on the first $117,000 of gross earnings. Ramirez company is subject to 5.4% state unemployment taxes and 0.8% federal unemployment taxes on the first $7,000 of gross earnings.

Instructions

1. Prepare the payroll register for the weekly payroll.
2. Prepare the journal entries to record the payroll and Reamirez's payroll tax expense.

Solution

Selected data from a February payroll register for Sutton Company are presented below. Some amounts are intentionally omitted.

FICA taxes are 7.65%, State income taxes are 4% of gross earnings.

Instructions

1. Fill in the missing amounts.
2. Journalize the February payroll and the payment of the payroll.

Solution

According to a payroll register summary of Frederickson Company, the amount of employees, gross pay in December was $850,000, of which $80,000 was not subject to Social Security taxes of 6.2% and $750,000 was not subject to state and federal unemployment taxes.

Instructions

1. Determine the employer's payroll tax expense for the month, using the following rates: FICA 7.65%, state unemployment 5.4%, and federal unemployment 0.8%
2. Prepare the journal entry to record December payroll tax expense.

Solution

Mayberry Company has two fringe benefit plans for its employees.

1. It grants employees 2 days' vacation for each month worked. Ten employees worked the entire month of March at an average daily wage of $140 per employee.
2. In its pension plan, the company recognizes 10% of gross earnings as a pension expense. Gross earnings in March were $40,000. No contribution has been made to the pension fund.

Instructions

Solution

Podsednik Corporation has 20 employees who each earn $140 a day. The following information is available.

1. At December 31, Podsednik recorded vacation benefits. Each employee earned 5 vacation days during the year.
2. At December 31, Podsednik recorded pension expense of $100,000, and made a contribution of $70,000 to the pension plan.
3. In January, 18 employees used on vacation day each

Instructions

Prepare Podsednik's journal entries to record these transactions

Solution