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Page 5 > of 11 - ZOOM + Accounting 1 Class Notes and Classwork Chapter 10 - Liabilities: Current, Installment Notes and Contingencies Credit 1. Record the entry to accrue Je-Clear's warranty costs at the end of 2019. Date Description Post Debit ref 1 2 3 1 2. 3 2. During the first quarter of 2020, Jet-Clean paid $750 for washing machine repairs under warranty Date Description Post Debit Credit rel 1 1 2 2 3 3 Payroll Liabilities Payroll is often the largest expense for most service businesses Payroll Department is often segregated from the rest of Accounting. Requires controls and honesty Terminology Gross Pay-the expense of the employer Net Pay Regular Pay Overtime Pay Exempt employees are exempt from the Fair Labors Standards Act requiring that employees be paid 1 1/2 times the regular wage rate for all hours worked in excess of 40 hours per week. . (aka Salaried employees) Non-exempt employees (a.k.a. hourly employees) receive an overtime differential. FICA Tax FICA - Federal Insurance Contributions Act. Social Security and Medicare. Tax rates are set by Congress, and they may change The textbook uses a social security rate of 6% on all earnings (Wrong. Social Security is 6.2% of the first $132.900 (in 2019) of earnings.) Medicare rate of 1.5% on all earnings. (Wrong Medicare is 1.45%). Federal Income Tax The amount withheld for federal income tax depends on your tax filing status (married, single, etc.) and the number of withholding allowances claimed (one for yourself, one for a spouse, and one for cach dependent). W-4 form. The IRS publishes withholding tables An employee earns $32 per hour and 1.5 times that rate for all hours in excess of 40 hours per week. Assume that the employee worked 55 hours during the week. Assume further that the social security tax rate was 6.0% the Medicare tax rate was 1.5%, and federal income tax to be withheld was $398 Pages Page 4 > of 11 o - ZOOM + Accountine 1A Class Notes and Classwork Chapter 10 - Liabilities: Current, Installment Notes and Contingencies 2 3 4 5 6 2 3 4 5 6 Contingent Liabilities at ring Probable Accounting Treatment facand und Delone Estimable Met Estimable Desde Contingen Pouble Dado None An obligation that (1) resulted from a pest transaction but is (2) contingent on a future event. ONLY RECORDED in the accounting records if they are probable and the amount is estimable. . Other contingent liabilities are simply disclosed in the financial statements. Recommendations on Peading Litigation must come from the company's legal counsel We Live in a Litigious Society Warranties The cost of repairs made under warranties must be recorded as an expense in the same period as the sales revenue is recognized Since warranty repairs are often not made until months or years after the sale occurs, these potential warranty costs must be estimated and accrued. The entry to accrue wroty costs is as follows: XXX Product Warranty Expense Product Warranty Payable........... XXX Example: Jet-Clean sold washing machines totaling $1 million during 2019. Each washing machine carries a 3-year warranty. Jet-Clean estimates that warranty repairs on the washing machines will cost 1% of the sales price. Page 4 Page 5 > of 11 - ZOOM + Accounting 1 Class Notes and Classwork Chapter 10 - Liabilities: Current, Installment Notes and Contingencies Credit 1. Record the entry to accrue Je-Clear's warranty costs at the end of 2019. Date Description Post Debit ref 1 2 3 1 2. 3 2. During the first quarter of 2020, Jet-Clean paid $750 for washing machine repairs under warranty Date Description Post Debit Credit rel 1 1 2 2 3 3 Payroll Liabilities Payroll is often the largest expense for most service businesses Payroll Department is often segregated from the rest of Accounting. Requires controls and honesty Terminology Gross Pay-the expense of the employer Net Pay Regular Pay Overtime Pay Exempt employees are exempt from the Fair Labors Standards Act requiring that employees be paid 1 1/2 times the regular wage rate for all hours worked in excess of 40 hours per week. . (aka Salaried employees) Non-exempt employees (a.k.a. hourly employees) receive an overtime differential. FICA Tax FICA - Federal Insurance Contributions Act. Social Security and Medicare. Tax rates are set by Congress, and they may change The textbook uses a social security rate of 6% on all earnings (Wrong. Social Security is 6.2% of the first $132.900 (in 2019) of earnings.) Medicare rate of 1.5% on all earnings. (Wrong Medicare is 1.45%). Federal Income Tax The amount withheld for federal income tax depends on your tax filing status (married, single, etc.) and the number of withholding allowances claimed (one for yourself, one for a spouse, and one for cach dependent). W-4 form. The IRS publishes withholding tables An employee earns $32 per hour and 1.5 times that rate for all hours in excess of 40 hours per week. Assume that the employee worked 55 hours during the week. Assume further that the social security tax rate was 6.0% the Medicare tax rate was 1.5%, and federal income tax to be withheld was $398 Pages Page 4 > of 11 o - ZOOM + Accountine 1A Class Notes and Classwork Chapter 10 - Liabilities: Current, Installment Notes and Contingencies 2 3 4 5 6 2 3 4 5 6 Contingent Liabilities at ring Probable Accounting Treatment facand und Delone Estimable Met Estimable Desde Contingen Pouble Dado None An obligation that (1) resulted from a pest transaction but is (2) contingent on a future event. ONLY RECORDED in the accounting records if they are probable and the amount is estimable. . Other contingent liabilities are simply disclosed in the financial statements. Recommendations on Peading Litigation must come from the company's legal counsel We Live in a Litigious Society Warranties The cost of repairs made under warranties must be recorded as an expense in the same period as the sales revenue is recognized Since warranty repairs are often not made until months or years after the sale occurs, these potential warranty costs must be estimated and accrued. The entry to accrue wroty costs is as follows: XXX Product Warranty Expense Product Warranty Payable........... XXX Example: Jet-Clean sold washing machines totaling $1 million during 2019. Each washing machine carries a 3-year warranty. Jet-Clean estimates that warranty repairs on the washing machines will cost 1% of the sales price. Page 4