Chapter 11 - Current Liabilities & Payroll

Question 1

Current Portion of Notes Payable

Answer 1

The amount of the principal that I payable within one year

Question 2

Interest

Answer 2

Interest = principal * time * Interest Rate

Question 3

Gross Pay

Answer 3

Total amount of salary, wages, commissions, or any other employee compensation before taxes and other deductions

Question 4

Net Pay

Answer 4

Gross Pay - all deductions. The amount of compensation that the employee actually takes home.

Question 5

Income Tax Withholding

Answer 5

Income tax deducted from an employee’s gross Pay.

Question 6

Federal Insurance Contributions Act (FICA)

Answer 6

The federal act that created the Social Security tax that provides retirement, disability, and medical benefits.

Question 7

Social Security Tax (FICA)
OASDI - 6.2% up to 117,000
Medicare - 1.45% of up to 200,000 and then 2.35 after.
Remember this is per employee

Answer 7

FICA tax which is withheld from employees’ pay and matched by the employer

Question 8

Payroll Register

Answer 8

A schedule that summarizes the earnings, withholdings, and net Pay for each employee.

Question 9

Unemployment Compensation Tax
SUTA - 5.4% of up to 7000
FUTA - .6% of up to 7000

Answer 9

Payroll tax paid by employers to the government, which uses the cash to pay unemployment benefits to people who are out of work

Question 10

Bonus

Answer 10

Bonus = (Bonus % * Net Income before bonus) / (1 + Bonus %)

Question 11

Contingent Liabilities

Answer 11

A potential liability that depends on some future event

• Remote (do nothing)
• Reasonably Possible (make a note on financial statements)
• Probable & Estimable (recorded as a liability and expense is accrued)

Question 12

Times-Interest-Earned Ratio

Answer 12

Evaluates a business’s ability to pay interest expense.

= (Net Income + Income tax expense + Interest Expense) / Interest Expense