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11
Chapter
11-1
Study Objectives
1.
2.
3.
4.
5.
6.
7.
8.
Chapter
11-2
Accounting for
Current Liabilities
Notes payable
Recording
Sales taxes
payable
Disclosure
Payroll
Accounting
Determining
payroll
Recording payroll
Unearned
revenues
Employer payroll
taxes
Current maturities
of long-term debt
Filing and
remitting payroll
taxes
Statement
presentation and
analysis
Chapter
11-3
Contingent
Liabilities
Question
To be classified as a current liability, a debt must be
expected to be paid:
a. out of existing current assets.
Chapter
11-5
Chapter
11-6
Instructions
a) Prepare the entry on March 1.
b) Prepare the adjusting entry on June 30, assuming
monthly adjusting entries have not been made.
c) Prepare the entry at maturity (July 1).
Chapter
11-7
100,000
Notes payable
100,000
Interest expense
Interest payable
Chapter
11-8
4,000
4,000
Chapter
11-9
100,000
4,000
104,000
10,600
Sales
10,000
Chapter
11-11
600
Cash
Unearned revenue
50,000
50,000
Chapter
11-13
Unearned revenue
Ticket revenue
100,000
100,000
Chapter
11-14
Chapter
11-15
Question
Working capital is calculated as:
a. current assets minus current liabilities.
b. total assets minus total liabilities.
Chapter
11-16
Illustration 11-5
Contingent Liabilities
The likelihood that the future event will confirm
the incurrence of a liability can range from
probable to remote.
FASB uses three areas of probability:
Probable.
Reasonably possible.
Remote.
Chapter
11-18
Contingent Liabilities
Chapter
11-19
Probability
Accounting
Probable
Accrue
Reasonably
Possible
Footnote
Remote
Ignore
SO 5 Describe the accounting and disclosure
requirements for contingent liabilities.
Contingent Liabilities
Question
A contingent liability should be recorded in the accounts
when:
a. it is probable the contingency will happen, but the
amount cannot be reasonably estimated.
Contingent Liabilities
Recording a Contingent Liability
Product Warranties
Promise made by a seller to a buyer to make good
on a deficiency of quantity, quality, or performance
in a product.
Chapter
11-21
Contingent Liabilities
Illustration: Denson Manufacturing Company sells 10,000
washers and dryers at an average price of $600 each. The
selling price includes a one-year warranty on parts. Denson
expects that 500 units (5%) will be defective and that
warranty repair costs will average $80 per unit. In 2010, the
company honors warranty contracts on 300 units, at a total
cost of 24,000. At December 31, compute the estimated
warranty liability.
Illustration 11-6
Computation of estimated
product warranty liability
Chapter
11-22
Contingent Liabilities
Illustration: Assume that in 2010 Denson Manufacturing
Company sells 10,000 washers and dryers at an average
price of $600 each. The selling price includes a one-year
warranty on parts. Denson expects that 500 units (5%) will
be defective and that warranty repair costs will average
$80 per unit. In 2010, the company honors warranty
contracts on 300 units, at a total cost of $24,000.
At December 31, make the required adjusting entry.
Warranty expense
40,000
40,000
Contingent Liabilities
Illustration: Prepare the entry to record the repair costs
incurred in 2010 to honor warranty contracts on 2010 sales.
Estimated warranty liability
24,000
Repair parts
24,000
1,600
1,600
Chapter
11-25
Payroll Accounting
The term payroll pertains to both:
Chapter
11-27
Voluntary:
FICA tax
Charity
Retirement
Union dues
Health and life insurance
Pension plans
Chapter
11-28
Supplemental retirement,
FICA tax
Federal income tax
Chapter
11-29
Mandatory:
FICA tax
Federal income tax
Chapter
11-30
Chapter
11-31
Chapter
11-32
Illustration 11-11
Illustration 11-12
Employee earnings
record
Chapter
11-33
Chapter
11-34
Illustration 11-13
Payroll register
5,200.00
Wages expense
12,010.00
1,376.80
3,490.00
344.20
421.50
115.00
11,462.50
Cash
Chapter
11-36
11,462.50
11,462.50
Illustration 11-14
Paycheck and
statement of
earnings
Chapter
11-37
Chapter
11-38
FICA tax
Federal
unemployment tax
State
unemployment tax
Chapter
11-39
Federal
unemployment tax
State
unemployment tax
Chapter
11-40
Federal
unemployment tax
State
unemployment tax
Chapter
11-41
2,443.82
1,376.80 *
$ 17,210.00 x 8% = $1,376.80
**
Chapter
11-42
929.34 **
***
Question
Employer payroll taxes do not include:
a. Federal unemployment taxes.
b. State unemployment taxes.
Chapter
11-43
Chapter
11-45
APPENDIX
Chapter
11-46
Paid Absences
APPENDIX
Post-Retirement Benefits
APPENDIX
Chapter
11-48
Pensions
APPENDIX
Chapter
11-49
Copyright
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contained herein.
Chapter
11-50