Accounting principles 8th weygars kieso kimmel chapter 11

Chapter 11-1 CHAPTER 11 CURRENT LIABILITIES AND PAYROLL ACCOUNTING Accounting Principles, Eighth Edition Chapter 11-2 Study Study Objectives Objectives Explain a current liability, and identify the major types of current liabilities Describe the accounting for notes payable Explain the accounting for other current liabilities Explain the financial statement presentation and analysis of current liabilities Describe the accounting and disclosure requirements for contingent liabilities Compute and record the payroll for a pay period Describe and record employer payroll taxes Discuss the objectives of internal control for payroll Chapter 11-3 Current Current Liabilities Liabilities and and Payroll Payroll Accounting Accounting Accounting for Current Liabilities Chapter 11-4 Notes payable Sales taxes payable Unearned revenues Current maturities of long-term debt Statement presentation and analysis Contingent Liabilities Payroll Accounting Recording Disclosure Determining payroll Recording payroll Employer payroll taxes Filing and remitting payroll taxes Internal control for payroll Accounting Accounting for for Current Current Liabilities Liabilities Current liability is debt with two key features: Company expects to pay the debt from existing current assets or through the creation of other current liabilities Company will pay the debt within one year or the operating cycle, whichever is longer Current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes payable, salaries payable, and interest payable Chapter 11-5 LO Explain a current liability, and identify the major types of current liabilities Accounting Accounting for for Current Current Liabilities Liabilities Question To be classified as a current liability, a debt must be expected to be paid: a out of existing current assets b by creating other current liabilities c within years d both (a) and (b) Chapter 11-6 LO Explain a current liability, and identify the major types of current liabilities Accounting Accounting for for Current Current Liabilities Liabilities Notes Payable Written promissory note Require the borrower to pay interest Issued for varying periods Chapter 11-7 LO Describe the accounting for notes payable Accounting Accounting for for Current Current Liabilities Liabilities E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note Instructions a) Prepare the entry on June b) Prepare the adjusting entry on June 30 c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30 d) What was the total financing cost (interest expense)? Chapter 11-8 LO Describe the accounting for notes payable Accounting Accounting for for Current Current Liabilities Liabilities E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note a) Prepare the entry on June Cash 90,000 Notes payable 90,000 b) Prepare the adjusting entry on June 30 $90,000 x 12% x 1/12 = $900 Interest expense 900 Interest payable Chapter 11-9 900 LO Describe the accounting for notes payable Accounting Accounting for for Current Current Liabilities Liabilities E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30 Notes payable Interest payable Cash 90,000 5,400 95,400 d) What was the total financing cost (interest expense)? $5,400 Chapter 11-10 LO Describe the accounting for notes payable Recording Recording the the Payroll Payroll E11-10 Joyce is married and claims three withholding Illustration 11-10 allowances Federal Tax Withholding Chapter 11-38 LO Compute and record the payroll for a pay period Recording Recording the the Payroll Payroll Recording Payment of the Payroll Using the facts from E11-10 Wages payable Cash Chapter 11-39 500.50 500.50 LO Compute and record the payroll for a pay period Employer Employer Payroll Payroll Taxes Taxes Payroll tax expense results from three taxes that governmental agencies levy on employers  Same rate and maximum These taxes are: earnings as the employee’s FICA tax Federal unemployment tax State unemployment tax Chapter 11-40  In 2006, the rate was 7.65% (6.2% Social Security plus 1.45% Medicare) on the first $94,200 of gross earnings for each employee LO Describe and record employer payroll taxes Employer Employer Payroll Payroll Taxes Taxes Payroll tax expense results from three taxes that governmental agencies levy on employers  FUTA tax rate is 6.2% of These taxes are: FICA Federal unemployment tax State unemployment tax Chapter 11-41 first $7,000 of taxable wages  Employers who pay the state unemployment tax on a timely basis will receive an offset credit of up to 5.4% Therefore, the net federal tax rate is generally 0.8% LO Describe and record employer payroll taxes Employer Employer Payroll Payroll Taxes Taxes Payroll tax expense results from three taxes that governmental agencies levy on employers These taxes are: FICA Federal unemployment tax State unemployment tax Chapter 11-42  SUTA basic rate is usually 5.4% on the first $7,000 of wages paid LO Describe and record employer payroll taxes Employer Employer Payroll Payroll Taxes Taxes E11-14 According to a payroll register summary of Ruiz Company, the amount of employees’ gross pay in December was $850,000, of which $90,000 was not subject to FICA tax and $750,000 was not subject to state and federal unemployment taxes Instructions: Prepare the journal entry to record December payroll tax expense Use the following rates: FICA 8%, state unemployment 5.4%, federal unemployment 0.8% Chapter 11-43 LO Describe and record employer payroll taxes Employer Employer Payroll Payroll Taxes Taxes E11-14 Prepare the journal entry to record December payroll tax expense Use the following rates: FICA 8%, state unemployment 5.4%, federal unemployment 0.8% Payroll tax expense 67,000 FICA tax payable 60,800 * State unemployment tax payable Federal unemployment tax payable * $760,000 x 8% = $60,800 5,400 ** 800 *** *** $100,000 x 8% = $5,400 ** $100,000 x 5.4% = $5,400 Chapter 11-44 LO Describe and record employer payroll taxes Employer Employer Payroll Payroll Taxes Taxes Question Employer payroll taxes not include: a Federal unemployment taxes b State unemployment taxes c Federal income taxes d FICA taxes Chapter 11-45 LO Describe and record employer payroll taxes Filing Filing and and Remitting Remitting Payroll Payroll Taxes Taxes Companies must report FICA taxes and federal income taxes withheld no later than one month following the close of each quarter Companies generally file and remit federal unemployment taxes annually on or before January 31 of the subsequent year Companies usually file and pay state unemployment taxes by the end of the month following each quarter Employers must provide each employee with a Wage and Tax Statement (Form W-2) by January 31 Chapter 11-46 LO Describe and record employer payroll taxes Internal Internal Control Control for for Payroll Payroll As applied to payroll, the objectives of internal control are to safeguard company assets against unauthorized payments of payrolls, and to ensure the accuracy and reliability of the accounting records pertaining to payrolls Chapter 11-47 LO Discuss the objectives of internal control for payroll Additional Additional Fringe Fringe Benefits Benefits In addition to the three payroll-tax fringe benefits, employers incur other substantial fringe benefit costs Two of the most important fringe benefits include: Paid absences Post-retirement benefits Chapter 11-48 LO Identify additional fringe benefits associated with employee compensation Paid Absences •Employees often are given rights to receive compensation for absence when they meet certain conditions of employment •The compensation may be for paid vacations, sick pay benefits, and paid holidays •When the payment for such absences is probable and the amount can be reasonably estimated, the company should accrue a liability for paid future absences Chapter 11-49 •When the amount cannot be reasonably estimated, the company should instead disclose the potential liability LO Identify additional fringe benefits associated with employee compensation Post-Retirement Benefits Post-retirement benefits are benefits that employers provide to retired employees for (1) pensions and (2) health care and life insurance Companies account for post-retirement benefits on the accrual basis The cost of post-retirement benefits is getting steep Chapter 11-50 LO Identify additional fringe benefits associated with employee compensation Pensions A pension plan is an agreement whereby employers provide benefits to employees after they retire There are two types of pension plans: In a defined-contribution plan, the plan defines the contribution that an employer will make but not the benefit that the employee will receive at retirement This is often referred to as a 401 (k) plan In a defined-benefit plan, the employer agrees to pay a defined amount to retirees, based on employees meeting certain eligibility standards Chapter 11-51 LO Identify additional fringe benefits associated with employee compensation Copyright Copyright “Copyright © 2008 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.” Chapter 11-52 ... department of revenue Chapter 11- 11 LO Explain the accounting for other current liabilities Accounting Accounting for for Current Current Liabilities Liabilities E11-3 In providing accounting services... internal control for payroll Chapter 11- 3 Current Current Liabilities Liabilities and and Payroll Payroll Accounting Accounting Accounting for Current Liabilities Chapter 11- 4 Notes payable Sales.. .CHAPTER 11 CURRENT LIABILITIES AND PAYROLL ACCOUNTING Accounting Principles, Eighth Edition Chapter 11- 2 Study Study Objectives Objectives Explain