Practice Quiz Current Liabilities Part 1 The following information is taken from the payroll records of ABC Company for the current payroll period: Salaries $ 540,000 Federal Income Tax Withheld 92,500 State Income Tax Withheld 21,200 Employee 401(k) Contributions 500 Insurance paid by Employee* 7,500 Salaries Subject to Unemployment Taxes 180,000 Tax Rates: Social Security** 6.20% Medicare 1.45% State Unemployment 5.40% Federal Unemployment 0.80% *Represents 25% of total insurance cost **All salaries subject to Social Security taxes Required: Please record, in journal entry form, the (1) employee payroll and (2) employer's payroll tax and benefit expense. Part 2 Please answer the following questions: 1. A discounted note will produce an effective rate which is different than the stated rate. Why does this occur? 2. The Social Security tax is often described as a regressive tax since only earnings below a certain threshold are taxed. What is your opinion on the fairness of this tax? 3. Describe how the matching principle applies to contingent liabilities (hint: warranties)