1. © 2009 The McGraw-Hill Companies, Inc., All Rights Reserved C URRENT L IABILITIES AND P AYROLL A CCOUNTING Chapter 11

2. McGraw-Hill/Irwin Slide 2 McGraw-Hill/Irwin Slide 2 PastPresentFuture D EFINING L IABILITIES Because of a past event... The company has a present obligation... For future sacrifices C 1

3. McGraw-Hill/Irwin Slide 3 McGraw-Hill/Irwin Slide 3 Expected to be paid within one year or the company’s operating cycle, whichever is longer. C LASSIFYING L IABILITIES Current Liabilities Expected not to be paid within one year or the company’s operating cycle, whichever is longer. Long-Term Liabilities C 1

4. McGraw-Hill/Irwin Slide 4 McGraw-Hill/Irwin Slide 4 C URRENT AND L ONG -T ERM L IABILITIES Percent of Total Liabilities Current Liabilities as a Percent of Total Liabilities C 1

5. McGraw-Hill/Irwin Slide 5 McGraw-Hill/Irwin Slide 5 U NCERTAINTY IN L IABILITIES Uncertainty in Whom to Pay Uncertainty in When to Pay Uncertainty in How Much to Pay C 1

6. McGraw-Hill/Irwin Slide 6 McGraw-Hill/Irwin Slide 6 Accounts Payable 应付帐款 Sales Taxes Payable 应付销售税 Unearned Revenues 预收收入 Short-Term Notes Payable 短期应付票据 K NOWN (D ETERMINABLE ) L IABILITIES 已知（可确定的）负债 Payroll Liabilities 工资负债 Multi-Period Known Liabilities 多期已知负债 C 2

7. McGraw-Hill/Irwin Slide 7 McGraw-Hill/Irwin Slide 7 On May 15, 2009, Max Hardware sold tools and supplies for $7,500 that are subject to a 6% sales tax. S ALES T AXES P AYABLE $7,500 × 6% = $450 C 2

8. McGraw-Hill/Irwin Slide 8 McGraw-Hill/Irwin Slide 8 On May 1, 2009, A-1 Catering received $3,000 in advance for catering a wedding party to take place on July 12, 2009. U NEARNED R EVENUES C 2

9. McGraw-Hill/Irwin Slide 9 McGraw-Hill/Irwin Slide 9 A written promise to pay a specified amount on a definite future date within one year or the company’s operating cycle, whichever is longer. S HORT -T ERM N OTES P AYABLE P 1

10. McGraw-Hill/Irwin Slide 10 McGraw-Hill/Irwin Slide 10 On August 1, 2009, Matrix, Inc. asked Carter, Co. to accept a 90-day, 12% note to replace its existing $5,000 account payable to Carter. Matrix would make the following entry: N OTE G IVEN TO E XTEND C REDIT P ERIOD P 1

11. McGraw-Hill/Irwin Slide 11 McGraw-Hill/Irwin Slide 11 On October 30, 2009, Matrix, Inc. pays the note plus interest to Carter. Interest expense = $5,000 × 12% × (90 ÷ 360) = $150 N OTE G IVEN TO E XTEND C REDIT P ERIOD P 1

12. McGraw-Hill/Irwin Slide 12 McGraw-Hill/Irwin Slide 12 PROMISSORY NOTE Face Value Date after date promise to pay to the order of American Bank Nashville, TN Dollars plus interest at the annual rate of. PROMISSORY NOTE Face Value Date after date promise to pay to the order of American Bank Nashville, TN Dollars plus interest at the annual rate of. $20,000Sept. 1, 2009 Ninety daysI Twenty thousand and no/100 - - - - - - - - - - - - - - - - - 6% Jackson Smith N OTE G IVEN TO B ORROW FROM B ANK P 1

13. McGraw-Hill/Irwin Slide 13 McGraw-Hill/Irwin Slide 13 F ACE V ALUE 面值 E QUALS A MOUNT B ORROWED On September 1, 2009, Jackson Smith borrows $20,000 from American Bank. The note bears interest at 6% per year. Principal and interest are due in 90 days (November 30, 2009). P 1

14. McGraw-Hill/Irwin Slide 14 McGraw-Hill/Irwin Slide 14 On November 30, 2009, Smith would make the following entry: $20,000 × 6% × (90 ÷ 360) = $300 F ACE V ALUE E QUALS A MOUNT B ORROWED P 1

15. McGraw-Hill/Irwin Slide 15 McGraw-Hill/Irwin Slide 15 Note Date End of Period Maturity Date An adjusting entry is required to record Interest Expense incurred to date. E ND - OF -P ERIOD A DJUSTMENT TO N OTES P 1

16. McGraw-Hill/Irwin Slide 16 McGraw-Hill/Irwin Slide 16 Dec. 16, 2009 Dec. 31, 2009 Feb. 14, 2010 James Burrows borrowed $8,000 on Dec. 16, 2009, by signing a 12%, 60-day note payable. Note Date End of Period Maturity Date E ND - OF -P ERIOD A DJUSTMENT TO N OTES P 1

17. McGraw-Hill/Irwin Slide 17 McGraw-Hill/Irwin Slide 17 On December 16, 2009, James Burrows would make the following entry: On December 31, 2009, the adjustment is: $8,000 × 12% × (15 ÷ 360) = $40 E ND - OF -P ERIOD A DJUSTMENT TO N OTES P 1

18. McGraw-Hill/Irwin Slide 18 McGraw-Hill/Irwin Slide 18 On February 14, 2010, James Burrows would make the following entry. $8,000 × 12% × (45 ÷ 360) = $120 E ND - OF -P ERIOD A DJUSTMENT TO N OTES P 1

19. McGraw-Hill/Irwin Slide 19 Employers incur expenses and liabilities from having employees. P AYROLL L IABILITIES P 2

20. McGraw-Hill/Irwin Slide 20 McGraw-Hill/Irwin Slide 20 E MPLOYEE P AYROLL D EDUCTIONS 职工工资扣除项目 FICA Taxes 养老金税 Medicare Taxes 医疗保险 税 Federal Income Tax 联 邦收入税 State and Local Income Taxes 州与 地方收入税 Voluntary Deductions 自 愿扣除 Gross Pay Net Pay P 2

21. McGraw-Hill/Irwin Slide 21 McGraw-Hill/Irwin Slide 21 FICA Taxes — Soc. Sec. FICA Taxes — Medicare 2008: 6.2% of the first $102,200 earned in the year ( Max = $6,324). 2008: 1.45% of all wages earned in the year. Employers must pay withheld taxes 代扣税项 to the Internal Revenue Service (IRS) 联邦税务局. E MPLOYEE FICA T AXES Federal Insurance Contributions Act (FICA) P 2

22. McGraw-Hill/Irwin Slide 22 McGraw-Hill/Irwin Slide 22 Amounts withheld depend on the employee’s earnings, tax rates, and number of withholding allowances. Employers must pay the taxes withheld from employees’ gross pay to the appropriate government agency. Federal Income Tax State and Local Income Taxes E MPLOYEE I NCOME T AX 职工收入税 P 2

23. McGraw-Hill/Irwin Slide 23 McGraw-Hill/Irwin Slide 23 Amounts withheld depend on the employee’s request. Employers owe voluntary amounts withheld from employees’ gross pay to the designated agency. Voluntary Deductions Examples include union dues, savings accounts, pension contributions, insurance premiums, and charities E MPLOYEE V OLUNTARY D EDUCTIONS P 2

24. McGraw-Hill/Irwin Slide 24 McGraw-Hill/Irwin Slide 24 The entry to record payroll expenses and deductions for an employee might look like this. $4,000  6.20% = $248 $4,000  1.45% = $58 R ECORDING E MPLOYEE P AYROLL D EDUCTIONS P 2

25. McGraw-Hill/Irwin Slide 25 McGraw-Hill/Irwin Slide 25 FICA Taxes Medicare Taxes Federal and State Unemployment Taxes Employers pay amounts equal to that withheld from the employee’s gross pay. E MPLOYER P AYROLL T AXES 雇主工资税 P 3

26. McGraw-Hill/Irwin Slide 26 McGraw-Hill/Irwin Slide 26 2008: 6.2% on the first $7,000 of wages paid to each employee (A credit up to 5.4% is given for SUTA paid, therefore the net rate is 0.8%.) Federal Unemployment Tax (FUTA) 2008: Basic rate of 5.4% on the first $7,000 of wages paid to each employee (Merit ratings may lower SUTA rates.) State Unemployment Tax (SUTA) F EDERAL AND S TATE U NEMPLOYMENT T AXES 联邦与州失业保险税 P 3

27. McGraw-Hill/Irwin Slide 27 McGraw-Hill/Irwin Slide 27 The entry to record the employer payroll taxes for January might look like this: SUTA: $4,000  5.4% = $216 FUTA: $4,000  (6.2% - 5.4%) = $32 FICA amounts are the same as that withheld from the employee’s gross pay. R ECORDING E MPLOYER P AYROLL T AXES P 3

28. McGraw-Hill/Irwin Slide 28 McGraw-Hill/Irwin Slide 28 M ULTI -P ERIOD K NOWN L IABILITIES Often include unearned revenues and notes payable. Unearned revenues from magazine subscriptions 杂 志订购 often cover more than one accounting period. A portion of the earned revenue is recognized each period and the unearned revenue account is reduced. Notes payable often extend over more than one accounting period. A three-year note payable would be classified as a current liability for one year and a long-term liability for two years. C 2

29. McGraw-Hill/Irwin Slide 29 An estimated liability is a known obligation 已知义务 of an uncertain amount, but one that can be reasonably estimated. E STIMATED L IABILITIES P 4

30. McGraw-Hill/Irwin Slide 30 McGraw-Hill/Irwin Slide 30 Employer expenses for pensions or medical, dental, life and disability insurance H EALTH AND P ENSION B ENEFITS 健康与退休金福利 Assume an employer agrees to pay an amount for medical insurance equal to $8,000, and contribute an additional 10% of the employees’ $120,000 gross salary to a retirement program. P 4

31. McGraw-Hill/Irwin Slide 31 McGraw-Hill/Irwin Slide 31 Employer expenses for paid vacation by employees V ACATION B ENEFITS 休假福利 Assume an employee earns $62,400 per year and earns two weeks of paid vacation each year. $62,400 ÷ 52 weeks = $1,200 $62,400 ÷ 50 weeks = $1,248 Weekly vacation benefit $ 48 P 4

32. McGraw-Hill/Irwin Slide 32 McGraw-Hill/Irwin Slide 32 Many bonuses paid to employees are based on reported net income. B ONUS P LANS 奖金计划 Assume the annual yearly bonus to the store manager is equal to 10% of the company’s annual net income minus the bonus. The store earned $100,000 net income this year. P 4

33. McGraw-Hill/Irwin Slide 33 McGraw-Hill/Irwin Slide 33 B ONUS P LANS Assume the annual yearly bonus to the store manager is equal to 10% of the company’s annual net income minus the bonus. The store earned $100,000 net income this year. Many bonuses paid to employees are based on reported net income. P 4

34. McGraw-Hill/Irwin Slide 34 McGraw-Hill/Irwin Slide 34 W ARRANTY L IABILITIES 质量保证负债 Seller’s obligation to replace or correct a product (or service) that fails to perform as expected within a specified period. To conform with the matching principle, the seller reports expected warranty expense in the period when revenue from the sale is reported. A dealer sells a car for $32,000, on December 1, 2009, with a warranty for parts and labor for 12 months, or 12,000 miles. The dealership experiences an average warranty cost of 3% of the selling price of each car. P 4

35. McGraw-Hill/Irwin Slide 35 W ARRANTY L IABILITIES On February 15, 2010, parts of $200 and labor of $250 covered under warranty were incurred. A dealer sells a car for $32,000, on December 1, 2009, with a warranty for parts and labor for 12 months, or 12,000 miles. The dealership experiences an average warranty cost of 3% of the selling price of each car. P 4

36. McGraw-Hill/Irwin Slide 36 McGraw-Hill/Irwin Slide 36 Amount... C ONTINGENT L IABILITIES 或有负债 Potential obligation that depends on a future event arising out of a past transaction or event. C 3

37. McGraw-Hill/Irwin Slide 37 McGraw-Hill/Irwin Slide 37 A CCOUNTING FOR C ONTINGENT L IABILITIES C 3

38. McGraw-Hill/Irwin Slide 38 McGraw-Hill/Irwin Slide 38 R EASONABLY P OSSIBLE C ONTINGENT L IABILITIES Potential Legal Claims 潜在的官司 – A potential claim is recorded if the amount can be reasonably estimated and payment for damages is probable. Debt Guarantees 债务担保 – The guarantor usually discloses the guarantee in its financial statement notes. If it is probable that the debtor will default, the guarantor should record and report the guarantee as a liability. C 3

39. McGraw-Hill/Irwin Slide 39 McGraw-Hill/Irwin Slide 39 If income before interest and taxes varies greatly from year to year, fixed interest charges can increase the risk that an owner will not earn a positive return and be unable to pay interest charges. T IMES I NTEREST E ARNED Times interest earned Income before interest and income taxes Interest expense = A 1

40. McGraw-Hill/Irwin Slide 40 McGraw-Hill/Irwin Slide 40 E ND OF C HAPTER 11