C10 - 1 Learning Objectives Power Notes 1. The Nature of Current Liabilities 2. Short-Term Notes Payable 3. Contingent Liabilities 4. Payroll and Payroll Taxes 5. Accounting Systems for Payroll 6. Employees’ Fringe Benefits 7. Financial Analysis and Interpretation Chapter F10 Current Liabilities Current Liabilities C10
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C10 - 1 Learning Objectives Power Notes 1.The Nature of Current Liabilities 2.Short-Term Notes Payable 3.Contingent Liabilities 4.Payroll and Payroll Taxes.
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C10 - 1
Learning Objectives
Power Notes
1. The Nature of Current Liabilities
2. Short-Term Notes Payable
3. Contingent Liabilities
4. Payroll and Payroll Taxes
5. Accounting Systems for Payroll
6. Employees’ Fringe Benefits
7. Financial Analysis and Interpretation
Chapter F10
Current Liabilities Current Liabilities
C10
C10 - 2
• Short-Term Notes Payable• Product Warranty Liability• Payroll and Payroll Taxes• Employees’ Earnings• Employer’s Payroll Taxes• Payroll System and Data Flow• Quick Ratio
Slide # Power Note Topics
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Note: To select a topic, type the slide # and press Enter.
Sales of $60,000 with a 36-month warranty.Estimated average cost to repair defects is 5%.
To match revenues and expenses properly, warranty costs should be recognized as expense in the same period in which related revenues are recorded.
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1. Good employee relations demand that payrolls be
calculated accurately and paid as scheduled.
2. Payroll expenditures are subject to a variety of
federal, state, and local taxes.
3. Total payroll expense (gross payroll plus payroll
taxes) has a major impact on net income.
Payroll and Payroll TaxesPayroll and Payroll Taxes
Payroll is the amount paid to employees for services provided. Payrolls are important because:
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Base earnings (40 x $25) $1,000Overtime earnings (4 x $37.50) 150 Total earnings $1,150
Base earnings (44 x$25) $1,100Overtime premium (4 x $12.50) 50 Total earnings $1,150
Gross Pay CalculationGross Pay Calculation
John T. McGrath is employed by McDermott Supply Co. at the rate of $25 per hour, plus 1.5 times the normal hourly rate for hours over 40 per week. For the week ended December 27, McGrath worked 44 hours.
Employee viewpoint:Employee viewpoint:
Employer viewpoint:Employer viewpoint:
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Base earnings (40 x$25) $1,000Overtime earnings (4 x $37.50) 150 Total earnings $1,150
Base earnings (44 x$25) $1,100Overtime premium (4 x $12.50) 50 Total earnings $1,150
Gross Pay CalculationGross Pay Calculation
John T. McGrath is employed by McDermott Supply Co. at the rate of $25 per hour, plus 1.5 times the normal hourly rate for hours over 40 per week. For the week ended December 27, McGrath worked 44 hours.
Same total earnings
but a different
view of the overtime
hours
Employee viewpoint:Employee viewpoint:
Employer viewpoint:Employer viewpoint:
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($70,000 - $69,150) $850Social security tax rate x 6% Social security tax $51.00
Current earnings $1,150Medicare tax rate x 1.5% Medicare tax 17.25Total FICA tax $68.25
FICA Tax CalculationFICA Tax Calculation
Assume that John T. McGrath’s annual earnings prior to the current period total $69,150. The current period earnings are $1,150.
FICA tax calculation:FICA tax calculation:
Earnings subject to 6.0% social security tax
Earnings subject to 1.5% Medicare tax
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Withholding Taxes, Other DeductionsWithholding Taxes, Other Deductions
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.
Federal income tax and FICA tax must be withheld from the pay of each employee.
Deductions for other purposes may be withheld by mutual agreement.
Social Security Tax Payable 643.07Medicare Tax Payable 208.53Employees Fed. Inc. Tax Payable 3,332.00Retirement Savings Deductions Payable 680.00United Way Deductions Payable 470.00Accounts Receivable–Fred G. Elrod 50.00Salaries Payable 8,518.40
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1. FICA tax must be paid by the employer on the earnings of each employee.
2. Employers must pay federal unemployment compensation tax at the rate of .8% (.008) on the first $7,000 of annual earnings of each employee.
3. Employers in most states also pay state unemployment compensation tax based on claims experience at a rate not to exceed 5.4% (.054) of the first $7,000 of annual earnings.
Employer’s Payroll TaxesEmployer’s Payroll Taxes
In addition to the amounts due employees, the employer must calculate and pay the following: