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Chapter 9. Current Liabilities, Contingencies, and Payroll. Financial Accounting 4e by Porter and Norton. McDonald's Corporation Partial Balance Sheet - 2001. Listed in order of liquidity. (in millions). Liabilities and shareholders' equity Current liabilities: Notes payable$184.9 - PowerPoint PPT Presentation
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1
Chapter 9
Current Liabilities,Contingencies, and Payroll
A
FEDERAL RESERVE NOTE
THE UNITED STATES OF AMERICATHE UNITED STATES OF AMERICA
L70744629F
12
1212
12
L70744629F
ONE DOLLARONE DOLLAR
WASHINGTON, D.C.
THIS NOTE IS LEGAL TENDER
FOR ALL DEBTS, PUBLIC AND PRIVATE
SERIES
1985
H 293
Financial Accounting 4e by Porter and Norton
2
Liabilities and shareholders' equityCurrent liabilities:
Notes payable $ 184.9Accounts payable 689.5Income taxes 20.4Other taxes 180.4Accrued interest 170.6Other accrued liabilities 824.9Current maturities of long-term debt 177.6
Total current liabilities $ 2,248.3
McDonald's CorporationPartial Balance Sheet - 2001(in millions)
Require paymentwithin
one year
Listed in order of liquidity
3
Accounts Payable
Purchase of inventory, goods or services on credit
2/10,n30
Discount payment terms offered to encourage early payment
4
Promissory Note
S.J.Devona
I promise to pay $1,000 plus 12% annualinterest on December 31, 2004.
Date: January 1, 2004
Signed:_________Lamanski Co.
Total repayment = $1,120 $1,000 + ($1,000 x 12%)
58
Current Maturities of Long-Term Debt
Principal repayment on borrowings due within one year of balance sheet date
Due in upcoming year
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4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 28 29 30 3127
1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 28 29 30 3127
1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 28 29 30 3127
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Taxes Payable
Record expense when incurred; not when paid
Record 2004 taxexpense
Taxes Paid
12/31/04 3/15/05
711
Contingent Liability
Obligation involving existing condition
Outcome not known with certainty
Dependent upon some future event
Actual amount is estimated
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Accrue estimated amount if: liability is probable amount can be reasonably estimated
Contingent Liability
In year criteria are met: Expense (loss) XXX
Liability XXX
913
Warranties
Premium or coupon offers
Lawsuits
Typical Contingent Liabilities
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Recording Contingent Liabilities
Quickkey Computer sells a computer product for $5,000 with a one-year warranty. In 2004, 100 of these products were sold for a total sales revenue of $500,000.
Analyzing past records, Quickkey estimates that repairs will average 2% of total sales.
Example:
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Recording Contingent Liabilities
Probable liability has been incurred?
Amount reasonably estimable?
Warranty Expense 100,000 Estimated Liability 100,000
YES
YES
Record in 2004:
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Disclosing Contingent Liabilities
IF not probable
but reasonably possible
ORamount not estimable
Disclose in footnotes
1317
Contingent Assets
Contingent gains and assets are not recorded but may be disclosed in footnotes
Conservatism principle applies
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Appendix
Accounting Tools:
Payroll Accounting
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Calculation of Gross Wages
Hourly Multiply the number of
hours worked times employee’s hourly rate
Salaried Paid at a flat rate per
week, month, or year, regardless of hours
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Calculation of Net Pay
Gross wages- Income tax (federal, state, local)- FICA - Voluntary deductions
(includes health insurance, retirement contributions, savings plans, charitable contributions, union dues)
= Net pay
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Employer Payroll Taxes
Not deducted from paycheck – employer pays taxes per employee, in addition to salary FICA – employer’s share Unemployment tax
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Payroll Accounting
Example:
Gross wages for Kori Company for July are $100,000. The following amounts have been withheld from employees’ paychecks:
Kori Company’s unemployment tax rate is 3%. Make the appropriate payroll entries.
Income Tax $20,000FICA 7,650United Way contributions 5,000Union dues 3,000
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Payroll Accounting
Salary Expense 100,000
Salary Payable 64,350
Income Tax Payable 20,000
FICA Payable 7,650
United Way Payable 5,000
Union Dues Payable 3,000
To record July salary & deductions
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Payroll Accounting
Salary PayableCash
To record payment of employee salaries
Payroll Tax ExpenseFICA PayableUnemployment Tax Payable
To record employer’s payroll taxes
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Compensated Absences
Employee absences for which the employee will be paid Vacation, illness, holidays
Accrued as a liability if The services have been rendered The rights (days) accumulate Payment is probable and can be
reasonably estimated
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End of Chapter 9
A
FEDERAL RESERVE NOTE
THE UNITED STATES OF AMERICATHE UNITED STATES OF AMERICA
L70744629F
12
1212
12
L70744629F
ONE DOLLARONE DOLLAR
WASHINGTON, D.C.
THIS NOTE IS LEGAL TENDER
FOR ALL DEBTS, PUBLIC AND PRIVATE
SERIES
1985
H 293