Financial Accounting, IFRS Edition

Financial Accounting, IFRS Edition
Chapter 10 Liabilities Financial Accounting, IFRS Edition Weygandt Kimmel Kieso

Study Objectives Explain a current liability, and identify the major types of current liabilities. Describe the accounting for notes payable. Explain the accounting for other current liabilities. Explain why bonds are issued, and identify the types of bonds. Prepare the entries for the issuance of bonds and interest expense. Describe the entries when bonds are redeemed. Describe the accounting for long-term notes payable. Identify the methods for the presentation and analysis of non-current liabilities.

Non-Current Liabilities
Notes payable Sales taxes payable Unearned revenues Current maturities of long-term debt Statement presentation and analysis Bond basics Accounting for bond issues Accounting for bond retirements Accounting for long-term notes payable Statement presentation and analysis

What is a Current Liability?
Section 1 Current Liabilities What is a Current Liability? Current liability is debt with two key features: Company expects to pay the debt from existing current assets or through the creation of other current liabilities. Company will pay the debt within one year or the operating cycle, whichever is longer. Current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes payable, salaries payable, and interest payable. SO 1 Explain a current liability, and identify the major types of current liabilities.

Question What is a Current Liability?
To be classified as a current liability, a debt must be expected to be paid: out of existing current assets. by creating other current liabilities. within 2 years. both (a) and (b). SO 1 Explain a current liability, and identify the major types of current liabilities.

Notes Payable Written promissory note. Require the borrower to pay interest. Issued for varying periods. SO 2 Describe the accounting for notes payable.

Illustration: On March 1, 2011, Cole Williams borrows $100,000 from First National Bank on a 4-month, 12% note. Instructions Prepare the entry on March 1. Prepare the adjusting entry on June 30, assuming monthly adjusting entries have not been made. Prepare the entry at maturity (July 1). SO 2 Describe the accounting for notes payable.

Illustration: On March 1, 2011, Cole Williams borrows $100,000 from First National Bank on a 4-month, 12% note. a) Prepare the entry on March 1. Cash 100,000 Notes payable 100,000 b) Prepare the adjusting entry on June 30. $100,000 x 12% x 4/12 = $4,000 Interest expense 4,000 Interest payable 4,000 SO 2 Describe the accounting for notes payable.

Illustration: On March 1, 2011, Cole Williams borrows $100,000 from First National Bank on a 4-month, 12% note. c) Prepare the entry at maturity (July 1). Notes payable 100,000 Interest payable 4,000 Cash 104,000 SO 2 Describe the accounting for notes payable.

Sales Tax Payable Sales taxes are expressed as a stated percentage of the sales price. Either rung up separately or included in total receipts. Retailer collects tax from the customer. Retailer remits the collections to the state’s department of revenue. SO 3 Explain the accounting for other current liabilities.

Illustration: The March 25 cash register reading for Cooley Grocery shows sales of $10,000 and sales taxes of $600 (sales tax rate of 6%), the journal entry is: Cash 10,600 Sales 10,000 Sales tax payable 600 SO 3 Explain the accounting for other current liabilities.

Unearned Revenue Revenues that are received before the company delivers goods or provides services. Company debits Cash, and credits a current liability account (unearned revenue). When the company earns the revenue, it debits the Unearned Revenue account, and credits a revenue account. SO 3 Explain the accounting for other current liabilities.

Illustration: Assume that Superior University sells 10,000 season football tickets at $50 each for its five-game home schedule. The university makes the following entry for the sale of season tickets: Aug. 6 Cash 500,000 Unearned revenue 500,000 As the school completes each of the five home games, it would record the revenue earned. Sept. 7 Unearned revenue 100,000 Ticket revenue 100,000 SO 3 Explain the accounting for other current liabilities.

Unearned Revenue Illustration 10-2 Unearned and earned revenue accounts SO 3 Explain the accounting for other current liabilities.

Current Maturities of Long-Term Debt Portion of long-term debt that comes due in the current year. No adjusting entry required. SO 3 Explain the accounting for other current liabilities.

Statement Presentation and Analysis
Illustration 10-3 Statement of financial position presentation of current liabilities (in thousands) SO 3 Explain the accounting for other current liabilities.

Illustration 10-4 Liquidity refers to the ability to pay maturing obligations and meet unexpected needs for cash. The current ratio permits us to compare the liquidity of different-sized companies and of a single company at different times. Illustration 10-5 SO 3 Explain the accounting for other current liabilities.

Question Statement Presentation and Analysis
Working capital is calculated as: current assets minus current liabilities. total assets minus total liabilities. non-current liabilities minus current liabilities. both (b) and (c). SO 3 Explain the accounting for other current liabilities.

Section 2 Non-Current Liabilities
Bond Basics Bonds are a form of interest-bearing notes payable. Three advantages over ordinary shares: Stockholder control is not affected. Tax savings result. Earnings per share may be higher. SO 4 Explain why bonds are issued, and identify the types of bonds.

Bond Basics Effects on earnings per share—equity vs. debt.
Illustration 10-7 SO 4 Explain why bonds are issued, and identify the types of bonds.

Bond Basics Question The major disadvantages resulting from the use of bonds are: that interest is not tax deductible and the principal must be repaid. that the principal is tax deductible and interest must be paid. that neither interest nor principal is tax deductible. that interest must be paid and principal repaid. SO 4 Explain why bonds are issued, and identify the types of bonds.

Bond Basics Types of Bonds Secured and Unsecured (debenture) bonds.
Term and Serial bonds. Registered and Bearer (or coupon) bonds. Convertible and Callable bonds. SO 4 Explain why bonds are issued, and identify the types of bonds.

Bond Basics Issuing Procedures
Bond contract known as a bond indenture. Represents a promise to pay: sum of money at designated maturity date, plus periodic interest at a contractual (stated) rate on the maturity amount (face value). Paper certificate, typically a $1,000 face value. Interest payments usually made semiannually. Generally issued when the amount of capital needed is too large for one lender to supply. SO 4 Explain why bonds are issued, and identify the types of bonds.

Bond Basics Issuer of Bonds Maturity Date Contractual Interest Rate
Illustration 10-8 Maturity Date 2013 DUE 2013 DUE 2013 Contractual Interest Rate Face or Par Value SO 4

Bond Basics Bond Trading
Bonds traded on national securities exchanges. Newspapers and the financial press publish bond prices and trading activity daily. Read as: Outstanding 5.125%, $1,000 bonds that mature in Currently yield a 5.747% return. On this day, $33,965,000 of these bonds were traded. Closing price was % of face value, or $ SO 4 Explain why bonds are issued, and identify the types of bonds.

Bond Basics Determining the Market Value of Bonds
Market value is a function of the three factors that determine present value: dollar amounts to be received, length of time until the amounts are received, and market rate of interest. The features of a bond (callable, convertible, and so on) affect the market rate of the bond. SO 4 Explain why bonds are issued, and identify the types of bonds.

SO 4 Explain why bonds are issued, and identify the types of bonds.
p. 447 When to Go Long-Term Q: Based on this story, what is a good general rule to use in choosing between short-term and long-term financing? A: In general, it is best to finance short-term assets with current liabilities and long-term assets with non-current liabilities, in order to reduce the likelihood of a liquidity crunch such as this. SO 4 Explain why bonds are issued, and identify the types of bonds.

Question Accounting for Bond Issues
The rate of interest investors demand for loaning funds to a corporation is the: contractual interest rate. face value rate. market interest rate. stated interest rate. SO 4 Explain why bonds are issued, and identify the types of bonds.

Question Accounting for Bond Issues
Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that: the contractual interest rate exceeds the market interest rate. the market interest rate exceeds the contractual interest rate. the contractual interest rate and the market interest rate are the same. no relationship exists between the two rates. SO 4 Explain why bonds are issued, and identify the types of bonds.

Accounting for Bond Issues
Issuing Bonds at Face Value Illustration: On January 1, 2011, Candlestick Corporation issues $100,000, five-year, 10% bonds at 100 (100% of face value). The entry to record the sale is: Jan. 1 Cash 100,000 Bonds payable 100,000 SO 4 Explain why bonds are issued, and identify the types of bonds.

Issuing Bonds at Face Value
Illustration: On January 1, 2011, Candlestick Corporation issues $100,000, five-year, 10% bonds at 100 (100% of face value). Assume that interest is payable semiannually on January 1 and July 1. Prepare the entry to record the payment of interest on July 1, 2011, assume no previous accrual. July 1 Bond interest expense 5,000 Cash 5,000 SO 4 Explain why bonds are issued, and identify the types of bonds.

Issuing Bonds at Face Value
Illustration: On January 1, 2011, Candlestick Corporation issues $100,000, five-year, 10% bonds at 100 (100% of face value). Assume that interest is payable semiannually on January 1 and July 1. Prepare the entry to record the accrual of interest on December 31, 2011, assume no previous accrual. Dec. 31 Bond interest expense 5,000 Bond interest payable 5,000 SO 4 Explain why bonds are issued, and identify the types of bonds.

Assume Contractual Rate of 8%
Accounting for Bond Issues Assume Contractual Rate of 8% Market Interest Bonds Sold At 6% Premium 8% Face Value 10% Discount SO 5 Prepare the entries for the issuance of bonds and interest expense.

Issuing Bonds at a Discount Illustration: On January 1, 2011, Candlestick, Inc. sells $100,000, five-year, 10% bonds for $92,639 (92.639% of face value). Interest is payable on July 1 and January 1. The entry to record the issuance is: Jan. 1 Cash 92,639 Bond payable 92,639 SO 5 Prepare the entries for the issuance of bonds and interest expense.

Issuing Bonds at a Discount
Statement Presentation Illustration 10-11 Statement presentation of bonds issued at a discount SO 5 Prepare the entries for the issuance of bonds and interest expense.

Issuing Bonds at a Discount
Total Cost of Borrowing Illustration 10-12 Illustration 10-13 SO 5 Prepare the entries for the issuance of bonds and interest expense.

Question Issuing Bonds at a Discount Discount on Bonds Payable:
has a credit balance. is a contra account. is added to bonds payable on the statement of financial position. increases over the term of the bonds. SO 5 Prepare the entries for the issuance of bonds and interest expense.

Issuing Bonds at a Premium Illustration: On January 1, 2011, Candlestick, Inc. sells $100,000, five-year, 10% bonds for $108,111 ( % of face value). Interest is payable on July 1 and January 1. The entry to record the issuance is: Jan. 1 Cash 108,111 Bonds payable 108,111 SO 5 Prepare the entries for the issuance of bonds and interest expense.

Issuing Bonds at a Premium
Statement Presentation Illustration 10-14 Statement presentation of bonds issued at a premium Issuing bonds at an amount different from face value is quite common. By the time a company prints the bond certificates and markets the bonds, it will be a coincidence if the market rate and the contractual rate are the same. SO 5 Prepare the entries for the issuance of bonds and interest expense.

Issuing Bonds at a Premium
Total Cost of Borrowing Illustration 10-15 Illustration 10-16 SO 5 Prepare the entries for the issuance of bonds and interest expense.

Accounting for Bond Retirements
Redeeming Bonds at Maturity Assuming that the company pays and records separately the interest for the last interest period, Candlestick records the redemption of its bonds at maturity as follows: Bond payable 100,000 Cash 100,000 SO 6 Describe the entries when bonds are redeemed.

Redeeming Bonds before Maturity When retiring bonds before maturity, it is necessary to: eliminate the carrying value of the bonds at the redemption date; record the cash paid; and recognize the gain or loss on redemption. The carrying value of the bonds is the face value of the bonds less unamortized bond discount or plus unamortized bond premium at the redemption date. SO 6 Describe the entries when bonds are redeemed.

Question Accounting for Bond Retirements
When bonds are redeemed before maturity, the gain or loss on redemption is the difference between the cash paid and the: carrying value of the bonds. face value of the bonds. original selling price of the bonds. maturity value of the bonds. SO 6 Describe the entries when bonds are redeemed.

Illustration: Assume Candlestick, Inc. has sold its bonds at a premium. At the end of the eighth period, Candlestick retires these bonds at 103 after paying the semiannual interest. The carrying value of the bonds at the redemption date is $101,623. Candlestick makes the following entry to record the redemption at the end of the eighth interest period (January 1, 2015): Bonds payable 101,623 Loss on redemption 1,377 Cash 103,000 SO 6 Describe the entries when bonds are redeemed.

Accounting for Long-Term Notes Payable
May be secured by a mortgage that pledges title to specific assets as security for a loan. Typically, terms require the borrower to make installment payments over the term of the loan. Payment consists of interest on the unpaid balance of the loan and a reduction of loan principal. Companies initially record mortgage notes payable at face value. SO 7 Describe the accounting for long-term notes payable.

Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-year mortgage note on December 31, The terms provide for semiannual installment payments of $33,231 (not including real estate taxes and insurance). The installment payment schedule for the first two years is as follows. Illustration 10-17 SO 7 Describe the accounting for long-term notes payable.

Illustration: Porter Technology Inc. issues a $500,000, 12%, 20-year mortgage note on December 31, The terms provide for semiannual installment payments of $33,231 (not including real estate taxes and insurance). The installment payment schedule for the first two years is as follows. Dec. 31 Cash 500,000 Mortgage notes payable 500,000 Jun. 30 Interest expense 30,000 Mortgage notes payable 3,231 Cash 33,231 SO 7 Describe the accounting for long-term notes payable.

Question Accounting for Long-Term Notes Payable
Each payment on a mortgage note payable consists of: interest on the original balance of the loan. reduction of loan principal only. interest on the original balance of the loan and reduction of loan principal. interest on the unpaid balance of the loan and reduction of loan principal. SO 7 Describe the accounting for long-term notes payable.

p. 455 Search for Your Best Rate
Q: What should you do if the dealer “trash-talks” your lender, or refuses to sell you the car for the agreed-upon price unless you get your car loan through the dealer? A: Experts suggest that if the dealer “trash-talks” your lender or refuses to sell you the car at the agreed-upon price unless you get your financing through the dealer, get up and leave, and buy your car somewhere else.

Illustration 10-18 SO 8 Identify the methods for the presentation and analysis of non-current liabilities.

Two ratios that provide information about debt-paying ability and long-run solvency are: Total debt 1. Debt to total assets = Total assets The higher the percentage of debt to total assets, the greater the risk that the company may be unable to meet its maturing obligations. SO 8 Identify the methods for the presentation and analysis of non-current liabilities.

Income before income taxes and interest expense
Statement Presentation and Analysis Analysis Income before income taxes and interest expense 2. Times Interest Earned = Interest expense Indicates the company’s ability to meet interest payments as they come due. SO 8 Identify the methods for the presentation and analysis of non-current liabilities.

Illustrate: LG’s (KOR) had total liabilities of W39,048 billion, total assets of W64,782 billion, interest expense of W778 billion, income taxes of W1,092 billion, and net income of W2,967 billion. Illustration 10-19 SO 8 Identify the methods for the presentation and analysis of non-current liabilities.

p. 456 “Covenant-Lite” Debt
Q: How can financial ratios such as those covered in this chapter provide protection for creditors? A: Financial ratios such as the current ratio, debt to total assets ratio, and the times interest earned ratio provide indications of a company’s liquidity and solvency. By specifying minimum levels of liquidity and solvency, as measured by these ratios, a creditor creates triggers that enable it to step in before a company’s financial situation becomes too dire.

Understanding U.S. GAAP Liabilities Key Differences
IFRS reserves the use of the term contingent liability to refer only to possible obligations that are not recognized in the financial statements but may be disclosed if certain criteria are met. Under GAAP, contingent liabilities are recorded in the financial statements if they are both probable and can be reasonably estimated. If only one of these criteria is met, then the item is disclosed in the notes. IFRS uses the term provisions to refer to liabilities of uncertain timing or amount. Examples of provisions would be provisions for warranties, employee vacation pay, or anticipated losses. Under GAAP, these are considered recordable contingent liabilities.

Both GAAP and IFRS classify liabilities industries where a presentation based on liquidity would be considered to provide more useful information (such as financial institutions) can use that format instead. Under IFRS, companies sometimes show liabilities before assets. Also, they will sometimes show non-current liabilities before current liabilities. Neither of these presentations is used under GAAP. Under IFRS, companies sometimes will net current liabilities against current assets to show working capital on the face of the statement of financial position. This practice is not used under GAAP.

IFRS requires the effective-interest method for amortization of bond discounts and premiums. GAAP allows use of the straight-line method where the difference is not material. GAAP often uses a separate Discount or Premium account to account for bonds payable. IFRS records discounts or premiums as direct increases or decreases to Bonds Payable. The GAAP accounting for leases is much more “rules-based,” with specific bright-line criteria (such as the “90% of fair value” test) to determine if a lease arrangement transfers the risks and rewards of ownership; IFRS is more conceptual in its provisions.

Understanding U.S. GAAP Liabilities Looking to the Future
The FASB and IASB are currently involved in two projects that have implications for the accounting for liabilities. The FASB and IASB have identified leasing as one of the most problematic areas of accounting. The joint project will initially focus primarily on lessee accounting. One of the first areas to be studied is, “What are the assets and liabilities to be recognized related to a lease contract?” The main issue is whether the focus should remain on the leased item or should instead focus on the right to use the leased item. Finally, the two standard-setting bodies are involved in a far-reaching project to significantly change the approach used to account for pensions.

Present Value Concepts Related to Bond Pricing
Present Value of Face Value Appendix 10A To illustrate present value concepts, assume that you are willing to invest a sum of money that will yield $1,000 at the end of one year, and you can earn 10% on your money. What is the $1,000 worth today? To compute the answer, divide the future amount by 1 plus the interest rate ($1,000/1.10 = $ OR use a Present Value of 1 table. ($1,000 X ) = $ (10% per period, one period from now). SO 9 Compute the market price of a bond.

Present Value of Face Value To compute the answer, divide the future amount by 1 plus the interest rate ($1,000/1.10 = $ Illustration 10A-1 SO 9 Compute the market price of a bond.

Present Value of Face Value To compute the answer, use a Present Value of 1 table. ($1,000 X ) = $ (10% per period, one period from now). TABLE 10A-1 SO 9 Compute the market price of a bond.

Present Value of Face Value The future amount ($1,000), the interest rate (10%), and the number of periods (1) are known Illustration 10A-2 SO 9 Compute the market price of a bond.

Present Value of Face Value If you are to receive the single future amount of $1,000 in two years, discounted at 10%, its present value is $ [($1, ) 1.10]. Illustration 10A-3 SO 9 Compute the market price of a bond.

Present Value of Face Value To compute the answer using a Present Value of 1 table. ($1,000 X ) = $ (10% per period, two periods from now). TABLE 10A-1 SO 9 Compute the market price of a bond.

Present Value of Interest Payments (Annuities) In addition to receiving the face value of a bond at maturity, an investor also receives periodic interest payments (annuities) over the life of the bonds. To compute the present value of an annuity, we need to know: interest rate, number of interest periods, and amount of the periodic receipts or payments. SO 9 Compute the market price of a bond.

Present Value of Interest Payments (Annuities) Assume that you will receive $1,000 cash annually for three years and the interest rate is 10%. Illustration 10A-5 SO 9 Compute the market price of a bond.

Present Value of Interest Payments (Annuities) Assume that you will receive $1,000 cash annually for three years and the interest rate is 10%. Illustration 10A-6 SO 9 Compute the market price of a bond.

Present Value of Interest Payments (Annuities) Assume that you will receive $1,000 cash annually for three years and the interest rate is 10%. TABLE 10A-2 $1,000 annual payment x = $2,486.85 SO 9 Compute the market price of a bond.

Computing the Present Value of a Bond The selling price of a bond is equal to the sum of: The present value of the face value of the bond discounted at the investor’s required rate of return PLUS The present value of the periodic interest payments discounted at the investor’s required rate of return SO 9 Compute the market price of a bond.

Assume a bond issue of 10%, five-year bonds with a face value of $100,000 with interest payable semiannually on January 1 and July 1. Illustration 10A-8 SO 9 Compute the market price of a bond.

Assume a bond issue of 10%, five-year bonds with a face value of $100,000 with interest payable semiannually on January 1 and July 1. Illustration 10A-9 Contractual Rate = Discount Rate Issued at Face Value SO 9 Compute the market price of a bond.

Assume a bond issue of 10%, five-year bonds with a face value of $100,000 with interest payable semiannually on January 1 and July 1. Illustration 10A-10 Contractual Rate < Discount Rate Issued at a Discount SO 9 Compute the market price of a bond.

Assume a bond issue of 10%, five-year bonds with a face value of $100,000 with interest payable semiannually on January 1 and July 1. Illustration 10A-11 Contractual Rate > Discount Rate Issued at a Premium SO 9 Compute the market price of a bond.

Effective-Interest Method of Bond Amortization
Appendix 10B Under the effective-interest method, the amortization of bond discount or bond premium results in period interest expense equal to a constant percentage of the carrying value of the bonds. Required steps: Compute the bond interest expense. Compute the bond interest paid or accrued. Compute the amortization amount. SO 10 Apply the effective-interest method of amortizing bond discount and bond premium.

Amortizing Bond Discount Assume Candlestick, Inc. issues $100,000 of 10%, five-year bonds on January 1, 2011, for $92,639, with interest payable each July 1 and January 1. Illustration 10B-2 SO 10

Amortizing Bond Discount Assume Candlestick, Inc. issues $100,000 of 10%, five-year bonds on January 1, 2011, for $92,639, with interest payable each July 1 and January 1. Journal entry on July 1, 2011, to record the interest payment and amortization of discount is as follows: July 1 Interest Expense ,558 Cash 5,000 Bonds Payable SO 10 Apply the effective-interest method of amortizing bond discount and bond premium.

Amortizing Bond Premium Assume Candlestick, Inc. issues $100,000 of 10%, five-year bonds on January 1, 2011, for $108,111, with interest payable each July 1 and January 1. Illustration 10B-4 SO 10

Amortizing Bond Premium Assume Candlestick, Inc. issues $100,000 of 10%, five-year bonds on January 1, 2011, for $108,111, with interest payable each July 1 and January 1. Journal entry on July 1, 2011, to record the interest payment and amortization of premium is as follows: July 1 Interest Expense ,324 Bonds Payable Cash 5,000 SO 10 Apply the effective-interest method of amortizing bond discount and bond premium.

Straight-Line Amortization
Amortizing Bond Discount Appendix 10C Candlestick, Inc., sold $100,000, five-year, 10% bonds on January 1, 2011, for $92,639 (discount of $7,361). Interest is payable on July 1 and January 1. Illustration 10C-2 SO 11

Amortizing Bond Discount Candlestick, Inc., sold $100,000, five-year, 10% bonds on January 1, 2011, for $92,639 (discount of $7,361). Interest is payable on July 1 and January 1. The bond discount amortization for each interest period is $736 ($7,361/10). Journal entry on July 1, 2011, to record the interest payment and amortization of discount is as follows: July 1 Interest Expense ,736 Bonds Payable Cash 5,000 SO 11 Apply the straight-line method of amortizing bond discount and bond premium.

Amortizing Bond Premium Candlestick, Inc., sold $100,000, five-year, 10% bonds on January 1, 2011, for $108,111. Interest is payable on July 1 and January 1. Illustration 10C-4 SO 11

Amortizing Bond Premium Candlestick, Inc., sold $100,000, five-year, 10% bonds on January 1, 2011, for $108,111 (premium of $8,111). Interest is payable on July 1 and January 1. The bond discount amortization for each interest period is $811 ($8,111/10). Journal entry on July 1, 2011, to record the interest payment and amortization of discount is as follows: July 1 Interest Expense ,189 Bonds Payable Cash 5,000 SO 11 Apply the straight-line method of amortizing bond discount and bond premium.

Payroll-Related Liabilities
Appendix 10D Payroll and Payroll Taxes Payable The term “payroll” pertains to both: Salaries - managerial, administrative, and sales personnel (monthly or yearly rate). Wages - store clerks, factory employees, and manual laborers (rate per hour). Determining the payroll involves computing three amounts: (1) gross earnings, (2) payroll deductions, and (3) net pay. SO 12 Prepare entries for payroll and payroll taxes under U.S. law.

Illustration: Assume a corporation records its payroll for the week of March 7 as follows: Mar. 7 Salaries and wages expense 100,000 FICA tax payable 7,650 Federal income tax payable 21,864 State income tax payable 2,922 Salaries and wages payable 67,564 Record the payment of this payroll on March 11. Mar. 11 Salaries and wages payable 67,564 Cash 67,564 SO 12 Prepare entries for payroll and payroll taxes under U.S. law.

Payroll tax expense results from three taxes that governmental agencies levy on employers. These taxes are: FICA tax Federal unemployment tax State unemployment tax SO 12 Prepare entries for payroll and payroll taxes under U.S. law.

Illustration: Based on the corporation’s $100,000 payroll, the company would record the employer’s expense and liability for these payroll taxes as follows. Payroll tax expense 13,850 FICA tax payable 7,650 Federal unemployment tax payable 800 State unemployment tax payable 5,400 SO 12 Prepare entries for payroll and payroll taxes under U.S. law.

Question Payroll-Related Liabilities
Employer payroll taxes do not include: Federal unemployment taxes. State unemployment taxes. Federal income taxes. FICA taxes. SO 12 Prepare entries for payroll and payroll taxes under U.S. law.

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