ILLUSTRATION 11-1
INTEREST-BEARING NOTES
October 1, 2005
Four months after the above date, I agree to
pay $10,000 to City National Bank with interest
at the rate of 9% per annum.
Ed Ryon Company
Oct. 1 Cash
10,000
Notes Payable
10,000
Recording cash received from note
Dec. 31 Interest Expense
225
Interest Payable
225
$10,000 × 9% × 3/12 = $225
Recording three months interest expense
Financial Statements at December 31
Income Statement
Interest expense
Balance Sheet
Notes payable
Interest payable
225
10,000
225
10,225
Feb. 1 Notes Payable 10,000
Interest Expense
75
Interest Payable
225
10,300
Cash
$10,000 × 9% × 1/12 = $75
Recording the interest expense and payment of note and interest
11-20
ILLUSTRATION 11-2
COMMON LISTING ORDER OF CURRENT LIABILITIES
•
•
•
•
Current portion of long-term debt
Notes payable
Accounts payable
Others by order of magnitude
Current Liabilities
(in millions)
Current portion of long-term debt
Notes Payable
$ 278
362
Accounts Payable
1,498
Payroll and related benefits payable
733
Taxes Payable
356
Interest Payable
190
Other liabilities
65
Total current liabilities
$3,482
11-21
ILLUSTRATION 11-3
CONTINGENT LIABILITIES
0%
0%
PROBABILITY THAT A FUTURE EVENT WILL CONFIRM
THAT A LIABILITY HAS BEEN INCURRED
It is unlikely that
the contingency
will occur.
It is reasonably
possible that the
contingency will
occur.
It is likely that the
contingency will
occur.
Remote
Possible
Probable
No
Can amount
be reasonably
estimated?
Yes
Need not
be recorded
or disclosed.
Disclose in
notes to the
financial
statements.
11-22
Record
liability.
100%
100%
ILLUSTRATION 11-4
EMPLOYER PAYROLL TAXES
EMPLOYER PAYROLL TAXES CONSISTS OF:
FICA TAX ...
7.65% of first $87,000 of wages
each year. Employee
must also pay this tax
(maximum of $6,655.50).
FEDERAL UNEMPLOYMENT TAX ...
Normally 0.8% on the first
$7,000 of wages each year.
Federal rate is 6.2% but allows
the employer a maximum credit
of 5.4% on the federal rate for
contributions to state
unemployment taxes
(6.2% – 5.4% = 0.8%).
STATE UNEMPLOYMENT TAX ...
Basic rate of 5.4% on the first
$7,000 of wages each year.
State rates are adjusted
according to the employer's
experience rating.
11-23
Deductions
Earnings
Total
OverHours Regular time
Employee
11-24
Wages
Fisher, John
Dunlop, Robert
Hemander, Paul
Bell, Bert
Total
42
42
43
44
480.00
480.00
480.00
480.00
1,920.00
Gross
Pay
72.00 552.00
36.00 516.00
54.00 534.00
72.00 552.00
234.00 2,154.00
Paid
Federal State
Total
Income Income United Union DeducCheck
Tax
Fund Dues tions Net Pay No.
FICA Tax
44.16 94.00
41.28 94.00
42.72 88.00
44.16 73.00
172.32 349.00
10.32
10.32
10.68
11.04
42.36
18.00 5.00
15.00 5.00
20.00 5.00
10.00 5.00
63.00 20.00
171.48 380.52
165.60 350.40
166.40 367.60
143.20 408.80
646.68 1,507.32
Record:
a. Payroll entry for the week ending January 14.
b. Payroll taxes associated with the January 14 payroll. FICA (8%);
Fed. Unemp. (.8%); State Unemp. (5.4%).
c. Payment of the January 14 payroll on January 21.
d. Payment of the January 14 payroll taxes on January 21.
1025
1026
1027
1028
ILLUSTRATION 11-5
EMPLOYER PAYROLL ENTRIES
GLEASON COMPANY
Payroll Register
For the Week Ending January 14, 2005
ILLUSTRATION 11-5 (Continued)
a.
Jan. 14 Wages Expense
FICA Taxes Payable
Federal Income Taxes Payable
State Income Taxes Payable
United Fund Payable
Union Dues Payable
Wages Payable
2,154.00
172.32
349.00
42.36
63.00
20.00
1,507.32
To record January 14 payroll
b.
Jan. 14 Payroll Tax Expense
FICA Taxes Payable
Federal Unemployment Taxes Payable
State Unemployment Taxes Payable
305.87
172.32
17.23
116.32
To record January 14 payroll taxes
c.
Jan. 21 Wages Payable
Cash
1,507.32
1,507.32
To record payment of January 14 payroll
d.
Jan. 21 FICA Taxes Payable
Federal Unemployment Taxes Payable
State Unemployment Taxes Payable
Cash
172.32
17.23
116.32
To record payment of January 14 payroll taxes
11-25
305.87