Questions and Answers
Contingent liabilities must be recorded if:
What are FUTA taxes?
Unemployment taxes
What is the current warranty expense if warranty expense is 4% of sales of $185,000?
$7,400
What do FICA taxes include?
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Recording employee payroll deductions may involve:
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Unearned future wages to be paid to employees should be recorded as liabilities.
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What are obligations to be paid within one year or the company's operating cycle, whichever is longer?
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What is a written promise to pay a specified amount on a definite future date within one year or operating cycle?
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What is a potential obligation that depends on a future event arising from a past transaction or event?
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What are amounts received in advance from customers for future products or services?
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Study Notes
Contingent Liabilities
- Recorded when a future event is probable and the amount owed can be reasonably estimated.
FUTA Taxes
- Stands for Federal Unemployment Tax Act, related to unemployment taxes.
Warranty Expense
- Calculated as 4% of sales; for sales of $185,000, current warranty expense is $7,400.
- Journal entry involves debiting warranty expense and crediting estimated warranty liability for the same amount.
FICA Taxes
- Comprises Social Security and Medicare taxes, crucial for employee earnings and health services.
Employee Payroll Deductions
- Involves liabilities owed to federal and state governments for withheld amounts from employee paychecks.
Misconceptions About Liabilities
- Unearned future wages for employees should not be recorded as liabilities; only actual obligations are recorded.
Current Liabilities
- Defined as obligations due within one year or the length of the operating cycle, whichever is longer.
Short Term Note Payable
- A written promise to pay a specified amount on a definite future date, typically within one year or operating cycle.
Contingent Liability Definition
- Represents a potential obligation that relies on the occurrence of a future event stemming from a past transaction or event.
Advance Payments from Customers
- Recognized as liabilities, these amounts are received ahead of delivering products or services.
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Description
Test your knowledge on key concepts from Accounting Chapter 9 with these flashcards. Covering topics like contingent liabilities, FUTA taxes, and warranty expenses, this quiz will help reinforce your understanding of essential accounting principles.