CHAPTER 11
CURRENT LIABILITIES AND PAYROLL

1 EYE OPENERS

1. A discounted note payable has no stated interest rate, but provides interest by discounting the note proceeds. The discount, which is the difference between the proceeds and the face of the note, is the interest and is accounted for as such.
2. a. Income or withholding taxes, social security, and Medicare b. Employees Federal Income Tax Payable, Social Security Tax Payable, and Medicare Tax Payable
3. There is a ceiling on (c) the social security portion of the FICA tax and (d) the federal unemployment compensation tax.
4. The deductions from employees’ earnings are for amounts owed (liabilities) to others for such items as federal taxes, state and local income taxes, and contributions to pension plans.
5. Yes. Unemployment compensation taxes are paid by the employer on the first $7,000 of annual earnings for each employee. Therefore, hiring two employees, each earning $12,500 per year, would require the payment of twice the unemployment tax than if only one employee, earning $25,000, was hired.
6. 1. a 2. c 3. c 4. b 5. b
7. The use of special payroll checks relieves the treasurer or other executives of the task of signing a large number of regular checks each payday. Another advantage of this system is that reconciling the regular bank statement is simplified. The paid payroll checks are returned by the bank separately from regular checks and are accompanied by a statement of the special bank account. Any balance shown on the bank’s statement will correspond to the sum of the payroll checks outstanding because the amount of each deposit is exactly the same as the total amount of checks drawn.
8. a. Input data that remain relatively unchanged from period to period (and therefore do not need to be reintroduced into the system frequently) are called