Answer eye openers
1. Does a discounted note payable provide credit without interest? Discuss.
2. Employees are subject to taxes withheld from their paychecks.
a. List the federal taxes withheld from most employee paychecks.
b. Give the title of the accounts credited by amounts withheld.
3. For each of the following payroll-related taxes, indicate whether there is a ceiling
on the annual earnings subject to the tax: (a) federal income tax, (b) Medicare tax,(c) social security tax, (d) federal unemployment compensation tax.
4. Why are deductions from employees’ earnings classified as liabilities for the employer?
5. Taylor Company, with 20employees, is expanding operations. It is trying to decide whether to hire one full-time employee for $25,000 or two part-time employees for a total of $25,000. Would any of the employer’s payroll taxes discussed in this chapter have a bearing on this decision? Explain.
6. For each of the following payroll-related taxes, indicate whether they generally
apply to (a) employees only, (b) employers only, or (c) both employees and employers:
1. Federal income tax
2. Medicare tax
3. Social security tax
4. Federal unemployment compensation tax
5. State unemployment compensation tax
7. What are the principal reasons for using a special payroll checking account?
8. In a payroll system, what types of input data are referred to as (a) constants and (b) variables?
9. Explain how a payroll system that is properly designed and operated tends to
ensure that (a) wages paid are based on hours actually worked and (b) payroll checks are not issued to fictitious employees.
10. To match revenues and expenses properly, should the expense for employee vacation pay be recorded in the period during which the vacation privilege is earned or during the period in which the vacation is taken? Discuss.
11. Identify several factors that influence the future pension obligation of an employer under a defined benefit pension plan.
12. When should the liability associated with a product warranty be recorded? Discuss.
13. General Motors Corporation reported $10.1 billion of product warranties in the Current Liabilities section of a recent balance sheet. How would costs of repairing a defective product be recorded?
14. The “Questions and Answers Technical Hotline” in the Journal of Accountancy included the following question:
Several years ago, Company B instituted legal action against Company A. Under a memorandum of settlement and agreement, Company A agreed to pay Company B a total of $17,500 in three installments—$5,000 on March 1, $7,500 on July 1, and the remaining $5,000 on December 31. Company A paid the first two installments during its fiscal year ended September 30. Should the unpaid amount of $5,000 be presented as a current liability at September 30?
How would you answer this question?
