The times-interest-earned ratios of four companies are given below: \[\begin{array} { | l | r | } \hline \text { Forge Company } & 8.9 \\ \hline \text { Fellow Company } & 9.2 \\ \hline \text { Stacy Company } & 6.7 \\ \hline \text { Bennett Company } & 13.5 \\ \hline \end{array}\] Which of the above companies has the highest debt-paying ability?

A) Forge Company B) Fellow Company C) Stacy Company D) Bennett Company A) Forge Company B) Fellow Company C) Stacy Company D) Bennett Company

Exam 11: Current Liabilities and Payroll

You have started working for a company that manufactures lawn mowers.These mowers carry a warranty that will replace defective parts for one year.The corporate president feels that an expense should be recorded when the defective parts are replaced.Explain the proper accounting treatment to the corporate president.

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(Essay)

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Question 1

Correct Answer:

Verified

The matching principle requires businesses to record warranty expense in the same period the company records the revenue from the sales of the lawn mowers.This means that the expense is incurred when the sale is made,not when the company makes the warranty repairs.Because the exact amount of the warranty expense is not known at the time of the sale,the company must estimate the amount of expense.At the end of the accounting period,an adjusting entry is made to debit Warranty Expense and credit Estimated Warranty Payable.Estimated Warranty Payable is a liability account that appears on the balance sheet.When defective parts are replaced,the company will debit Estimated Warranty Payable and credit Parts Inventory.

Andrew,an employee of Super Retailer,Inc.,has gross salary for March of $5,500.The entire amount is under the OASDI limit of $118,500 and thus subject to FICA.The total amount of employee FICA tax is $841.50.(Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.)

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(True/False)

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Question 2

Correct Answer:

Verified

False

Southwest Company records indicate that January sales on account were $109,000.The company's management estimates warranty expense to be 3.6% of sales.Prepare the journal entry to record warranty expense.Omit explanation.

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Question 3

Correct Answer:

Verified

$\begin{array} { | l | r | r | } \hline \text { Warranty Expense } & 3,924 & \\\hline \text { Estimated Warranty Payable } & & 3,924 \\\hline\end{array}$

Contingencies that are reasonably possible are not described in the notes to the financial statements.

(True/False)

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Question 4

Bill's gross pay for the week is $2150.His deduction for federal income tax is based on a rate of 25%.He has no voluntary deductions.His year-to-date pay is under the limit for OASDI.What is the amount of FICA tax that will be withheld from Bill's pay? (Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar.)

(Multiple Choice)

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Question 5

A contingency was evaluated at year-end.Management felt it was probable that this would become an actual liability and the amount could be reasonably estimated.If this was not reported on the balance sheet or in the notes to the financial statements,what is the effect on the financial reporting of the company?

(Multiple Choice)

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Question 6

State Street Digital Company starts the year with $3500 in its Estimated Warranty Payable account.During the year,there were $213,000 in sales and $4900 in warranty repair payments.State Street Digital estimates warranty expense at 4% of sales.The Warranty Expense for the year is ________.

(Multiple Choice)

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Question 7

Amounts owed for products or services purchased on account are called ________.

(Multiple Choice)

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Question 8

A contingency was evaluated at year-end and considered to have a remote possibility of becoming an actual liability.If this is not reported on the balance sheet or in the notes to the financial statements,it could be considered a violation of generally accepted accounting principles.

(True/False)

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Question 9

Tim's gross pay for this month is $8950.His gross year-to-date pay,prior to this month,totaled $111,500.What is the amount of FICA tax withheld from Tim's pay for this month? (Assume an OASDI rate of 6.2%,applicable on the first $118,500 earnings,and a Medicare rate of 1.45%,applicable on all earnings.Do not round any intermediate calculations,and round your final answer to the nearest cent.)

(Multiple Choice)

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Question 10

Direct deposits decrease the efficiency of the payroll process because of cyber issues.

(True/False)

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Question 11

Which of the following is an important aspect of control over payroll?

(Multiple Choice)

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Question 12

Unearned revenues are current liabilities until they are earned.

(True/False)

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Question 13

Vacation,health,and pension benefits must be estimated and recorded as a liability.

(True/False)

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Question 14

It is mandatory for both the employer and employee to pay ________.

(Multiple Choice)

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Question 15

Which of the following liabilities is created when a company receives cash for services to be provided in the future?

(Multiple Choice)

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Question 16

If a long-term debt is paid in installments,the business will report the current portion of the note payable as a current liability.

(True/False)

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Question 17

A contingent liability is a potential,rather than an actual liability,because it depends on a future event.

(True/False)

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Question 18

The times-interest-earned ratios of four companies are given below: Forge Company 8.9 Fellow Company 9.2 Stacy Company 6.7 Bennett Company 13.5 Which of the above companies has the highest debt-paying ability?

(Multiple Choice)

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Question 19

Gross pay is the total amount of compensation earned by an employee after the deductions are made.

(True/False)

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Question 20

Showing 1 - 20 of 221

Exam 11: Current Liabilities and Payroll

Andrew,an employee of Super Retailer,Inc.,has gross salary for March of $5,500.The entire amount is under the OASDI limit of $118,500 and thus subject to FICA.The total amount of employee FICA tax is $841.50.(Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.)

Southwest Company records indicate that January sales on account were $109,000.The company's management estimates warranty expense to be 3.6% of sales.Prepare the journal entry to record warranty expense.Omit explanation.

Contingencies that are reasonably possible are not described in the notes to the financial statements.

State Street Digital Company starts the year with $3500 in its Estimated Warranty Payable account.During the year,there were $213,000 in sales and $4900 in warranty repair payments.State Street Digital estimates warranty expense at 4% of sales.The Warranty Expense for the year is ________.

Amounts owed for products or services purchased on account are called ________.

A contingency was evaluated at year-end and considered to have a remote possibility of becoming an actual liability.If this is not reported on the balance sheet or in the notes to the financial statements,it could be considered a violation of generally accepted accounting principles.

Direct deposits decrease the efficiency of the payroll process because of cyber issues.

Which of the following is an important aspect of control over payroll?

Unearned revenues are current liabilities until they are earned.

Vacation,health,and pension benefits must be estimated and recorded as a liability.

It is mandatory for both the employer and employee to pay ________.

Which of the following liabilities is created when a company receives cash for services to be provided in the future?

If a long-term debt is paid in installments,the business will report the current portion of the note payable as a current liability.

A contingent liability is a potential,rather than an actual liability,because it depends on a future event.

The times-interest-earned ratios of four companies are given below: Forge Company 8.9 Fellow Company 9.2 Stacy Company 6.7 Bennett Company 13.5 Which of the above companies has the highest debt-paying ability?

Gross pay is the total amount of compensation earned by an employee after the deductions are made.

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

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Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

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Long-Term Liabilities

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The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

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Process Costing

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Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

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