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Various questions relating to liabilities

1. Chris Rock believes a current liability is a debt that can be expected to be paid in one year. Is Chris correct? Explain.

11. Describe the two major obligations incurred by a company when bonds are issued.

25. You are a newly hired accountant with Schindlebeck Company. On your first day, the controller asks you to identify the main internal control objectives related to payroll accounting. How would you respond?

32. Distinguish between the two types of payroll deductions and give examples of each.

Please see attached.

E1-2 The ledger of Salizar Company at the end of the current year shows Accounts Receivable $110,000, Sales $840,000, and Sales Returns and Allowances $40,000.
Instructions
(a) If Allowance for Doubtful Accounts has a credit balance of $2,500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts receivable.
(b) If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable.

Instructions
Prepare the journal entries on December 31, 2002, May 11, 2003, and June 12, 2003.
E1-5 Presented below are two independent situations.
(a) On March 3, Lisa Ceja Appliances sells $700,000 of its receivables to Horatio
Factors Inc. Horatio Factors assesses a finance charge of 3% of the amount of receivables sold. Prepare the entry on Lisa Ceja Appliances' books to record the sale of the receivables.
(b) On May 10, Worthy Company sold merchandise for $4,000 and accepted the customer's Firstar Bank MasterCard. At the end of the day, the Firstar Bank MasterCard receipts were deposited in the company's bank account. Firstar Bank charges a 4% service charge for credit card sales. Prepare the entry on Worthy Company's books to record the sale of merchandise.

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All answers are in the attached file

1. Chris Rock believes a current liability is a debt that can be expected to be paid in one year. Is Chris correct? Explain.

Yes, Chris is correct. Any liability, which is expected to be paid within one year or within the operating cycle, which ever is longer, is classified as current liability.

11. Describe the two major obligations incurred by a company when bonds are issued.

The two major obligations are -
1. Payment of Interest
2. Refund of principal amount on maturity

25. You are a newly hired accountant with Schindlebeck Company. On your first day, the controller asks you to identify the main internal control objectives related to payroll accounting. How would you respond?

The main control objectives of payroll accounting would be -
1. Payrolls are calculated accurately
2. Payrolls are paid as scheduled
3. All deductions are made as required
4. Any changes in payroll are authorized
5. An audit trail is kept of keep a track of changes in payroll.

32. Distinguish between the two types of payroll deductions and give examples of each.

The two types of payroll deductions are -
1. Deductions made for the benefit of the employee. The amounts deducted are savings of the employee only and payable to employee on retirement. An example is FICA Tax. Employers are required to withhold a portion of the earnings of each of the employees. The amount is matched by the employer and serves to provide the employee with social security and Medicare benefits upon retirement.
2. The other is the withholding tax. These are on account of income tax and the amount does not get back to the employee. One example is employers are required to withhold federal income tax from each employee based on the withholding table and information provided by the employee's W-4 form.

E1-2 The ledger of Salizar Company at the end of the current year shows Accounts Receivable $110,000, Sales $840,000, and Sales Returns and Allowances $40,000.
Instructions
(a) If Allowance for Doubtful Accounts has a credit balance of $2,500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts receivable.
(b) If Allowance for Doubtful Accounts has a debit balance of $500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable.

(a) The net sales are 840,000 - 40,000 = $800,000. If bad ...

Solution Summary

The solution explains various questions relating to liabilities and payroll

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