CURRENTLIABILITIESANDPAYROLLACCOUNTING Chapter11 Past Present Future DEFININGLIABILITIES Becauseofapastevent Thecompanyhasapresentobligation Forfuturesacrifices C1 CLASSIFYINGLIABILITIES CurrentLiabilities C1 CURRENTANDLONG TERMLIABILITIES PercentofTotalLiabilities CurrentLiabilitiesasaPercentofTotalLiabilities C1 UNCERTAINTYINLIABILITIES UncertaintyinWhomtoPay UncertaintyinWhentoPay UncertaintyinHowMuchtoPay C1 AccountsPayable SalesTaxesPayable UnearnedRevenues Short TermNotesPayable KNOWN DETERMINABLE LIABILITIES PayrollLiabilities Multi PeriodKnownLiabilities C2 OnMay15 2009 MaxHardwaresoldtoolsandsuppliesfor 7 500thataresubjecttoa6 salestax SALESTAXESPAYABLE C2 OnMay1 2009 A 1Cateringreceived 3 000inadvanceforcateringaweddingpartytotakeplaceonJuly12 2009 UNEARNEDREVENUES C2 Awrittenpromisetopayaspecifiedamountonadefinitefuturedatewithinoneyearorthecompany soperatingcycle whicheverislonger SHORT TERMNOTESPAYABLE P1 OnAugust1 2009 Matrix Inc askedCarter Co toaccepta90 day 12 notetoreplaceitsexisting 5 000accountpayabletoCarter Matrixwouldmakethefollowingentry NOTEGIVENTOEXTENDCREDITPERIOD P1 OnOctober30 2009 Matrix Inc paysthenoteplusinteresttoCarter NOTEGIVENTOEXTENDCREDITPERIOD P1 NOTEGIVENTOBORROWFROMBANK P1 FACEVALUEEQUALSAMOUNTBORROWED OnSeptember1 2009 JacksonSmithborrows 20 000fromAmericanBank Thenotebearsinterestat6 peryear Principalandinterestareduein90days November30 2009 P1 OnNovember30 2009 Smithwouldmakethefollowingentry FACEVALUEEQUALSAMOUNTBORROWED P1 NoteDate EndofPeriod MaturityDate END OF PERIODADJUSTMENTTONOTES P1 Dec 16 2009 Dec 31 2009 Feb 14 2010 JamesBurrowsborrowed 8 000onDec 16 2009 bysigninga12 60 daynotepayable NoteDate EndofPeriod MaturityDate END OF PERIODADJUSTMENTTONOTES P1 OnDecember16 2009 JamesBurrowswouldmakethefollowingentry OnDecember31 2009 theadjustmentis 8 000 12 15 360 40 END OF PERIODADJUSTMENTTONOTES P1 OnFebruary14 2010 JamesBurrowswouldmakethefollowingentry END OF PERIODADJUSTMENTTONOTES P1 Employersincurexpensesandliabilitiesfromhavingemployees PAYROLLLIABILITIES P2 EMPLOYEEPAYROLLDEDUCTIONS FICATaxes MedicareTaxes FederalIncomeTax StateandLocalIncomeTaxes VoluntaryDeductions GrossPay P2 FICATaxes Soc Sec FICATaxes Medicare 2008 6 2 ofthefirst 102 200earnedintheyear Max 6 324 2008 1 45 ofallwagesearnedintheyear EmployersmustpaywithheldtaxestotheInternalRevenueService IRS EMPLOYEEFICATAXES FederalInsuranceContributionsAct FICA P2 Amountswithhelddependontheemployee searnings taxrates andnumberofwithholdingallowances Employersmustpaythetaxeswithheldfromemployees grosspaytotheappropriategovernmentagency FederalIncomeTax StateandLocalIncomeTaxes EMPLOYEEINCOMETAX P2 Amountswithhelddependontheemployee srequest Employersowevoluntaryamountswithheldfromemployees grosspaytothedesignatedagency VoluntaryDeductions Examplesincludeuniondues savingsaccounts pensioncontributions insurancepremiums andcharities EMPLOYEEVOLUNTARYDEDUCTIONS P2 Theentrytorecordpayrollexpensesanddeductionsforanemployeemightlooklikethis RECORDINGEMPLOYEEPAYROLLDEDUCTIONS P2 FICATaxes MedicareTaxes FederalandStateUnemploymentTaxes EMPLOYERPAYROLLTAXES P3 FEDERALANDSTATEUNEMPLOYMENTTAXES P3 TheentrytorecordtheemployerpayrolltaxesforJanuarymightlooklikethis SUTA 4 000 5 4 216FUTA 4 000 6 2 5 4 32 FICAamountsarethesameasthatwithheldfromtheemployee sgrosspay RECORDINGEMPLOYERPAYROLLTAXES P3 MULTI PERIODKNOWNLIABILITIES Oftenincludeunearnedrevenuesandnotespayable Unearnedrevenuesfrommagazinesubscriptionsoftencovermorethanoneaccountingperiod Aportionoftheearnedrevenueisrecognizedeachperiodandtheunearnedrevenueaccountisreduced Notespayableoftenextendovermorethanoneaccountingperiod Athree yearnotepayablewouldbeclassifiedasacurrentliabilityforoneyearandalong termliabilityfortwoyears C2 Anestimatedliabilityisaknownobligationofanuncertainamount butonethatcanbereasonablyestimated ESTIMATEDLIABILITIES P4 Employerexpensesforpensionsormedical dental lifeanddisabilityinsurance HEALTHANDPENSIONBENEFITS Assumeanemployeragreestopayanamountformedicalinsuranceequalto 8 000 andcontributeanadditional10 oftheemployees 120 000grosssalarytoaretirementprogram P4 Employerexpensesforpaidvacationbyemployees VACATIONBENEFITS Assumeanemployeeearns 62 400peryearandearnstwoweeksofpaidvacationeachyear P4 Manybonusespaidtoemployeesarebasedonreportednetincome BONUSPLANS Assumetheannualyearlybonustothestoremanagerisequalto10 ofthecompany sannualnetincomeminusthebonus Thestoreearned 100 000netincomethisyear P4 BONUSPLANS Assumetheannualyearlybonustothestoremanagerisequalto10 ofthecompany sannualnetincomeminusthebonus Thestoreearned 100 000netincomethisyear Manybonusespaidtoemployeesarebasedonreportednetincome P4 WARRANTYLIABILITIES Seller sobligationtoreplaceorcorrectaproduct orservice thatfailstoperformasexpectedwithinaspecifiedperiod Toconformwiththematchingprinciple thesellerreportsexpectedwarrantyexpenseintheperiodwhenrevenuefromthesaleisreported Adealersellsacarfor 32 000 onDecember1 2009 withawarrantyforpartsandlaborfor12months or12