Deck 10: Current Liabilities and Payroll

Question 1

The amount borrowed is equal to the face amount of the note on an interest bearing note payable.

Answer 1

True

Question 2

The proceeds from discounting a $20,000, 60-day, note payable at 6% is $20,200.

Answer 2

False

Question 3

Taxes deducted from an employee's earnings to finance social security and Medicare benefits are called FICA taxes.

Answer 3

True

Question 4

Notes payable may be issued to creditors to satisfy previously created accounts payable.

Question 5

Receiving payment prior to delivering goods or services causes a current liability to be incurred.

Question 6

An employee's take-home pay is equal to gross pay less all voluntary deductions.

Question 7

Amounts withheld from each employee for social security and Medicare vary by state.

Question 8

Most employers are required to withhold federal unemployment taxes from employee earnings.

Question 9

Generally, all deductions made from an employee's gross pay are required by law.

Question 10

The borrower issues a note payable to a creditor.

Question 11

Payroll taxes are based on the employee's net pay.

Question 12

The discount on a note payable is charged to an account that has a normal credit balance.

Question 13

All long-term liabilities eventually become current liabilities.

Question 14

The proceeds of a discounted note are equal to the face value of the note.

Question 15

Form W-4 is a form authorizing employers to withhold a portion of employee earnings for payment of an employee's federal income taxes.

Question 16

FICA tax is a payroll tax that is paid only by employers.

Question 17

For a current liability to exist, the liability must be due usually within a year and must be paid out of current assets.

Question 18

An interest-beating note is a loan in which the lender deducts interest from the amount loaned before the money is advanced to the borrower.

Question 19

Interest expense is reported in the operating expense section of the income statement.

Question 20

The amount of money a borrower receives from the lender is called the discount rate.

Question 21

During the first year of operations, employees earned vacation pay of $35,000. The vacations will be taken during the second year. The vacation pay expense should be recorded in the second year as the vacations are taken by the employees.

Question 22

Federal income taxes are subject to a maximum amount per employee per year.

Question 23

Federal unemployment compensation taxes that are collected by the federal government are not paid directly to the unemployed but are allocated among the states for use in state programs.

Question 24

Federal unemployment taxes are paid by the employer and the employee.

Question 25

Most employers use payroll checks drawn on a special bank account for paying the payroll.

Question 26

Payroll taxes levied against employers become an employer liability at the time the employee wages are incurred.

Question 27

Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid.

Question 28

Medicare taxes are paid by both the employee and the employer.

Question 29

One of the more popular defined contribution plans is the 401k plan.

Question 30

The use of a separate payroll bank account is not an advantageous control, because it creates more complexity in reconciliation functions for a company and invites theft.

Question 31

Federal income taxes withheld increase the employer's payroll tax expense.

Question 32

Depending upon when an unfunded pension liability is to be paid, it will be classified on the balance sheet as either a long-term or a current liability.

Question 33

Employers are required to compute and report payroll taxes on a calendar-year basis, even if a different fiscal year is used for financial reporting and income tax purposes.

Question 34

Form W-2 is called the Wage and Tax Statement.

Question 35

The payroll register is a multicolumn form used to assemble the payroll-related data for all employees.

Question 36

Payroll taxes only include social security taxes and federal unemployment and state unemployment taxes.

Question 37

For proper matching of revenues and expenses, the estimated cost of fringe benefits must be recognized as an expense of the period during which the employee earns the benefits.

Question 38

Internal controls for cash payments apply to payrolls.

Question 39

FICA tax becomes a liability to the federal government at the time an employee's payroll is prepared.

Question 40

The total net pay for a period is determined from the payroll register.

Question 41

Assuming a 360-day year, when a $50,000, 90-day, 9% interest-bearing note payable matures, total payment will be

A) $51,125
B) $54,500
C) $1,125
D) $4,500

Question 42

During the first year of operations, a company granted warranties on its products at an estimated cost of $8,500. The product warranty expense should be recorded in the years of the expenditures to repair the products covered by the warranty payments.

Question 43

Assuming a 360-day year, proceeds of $48,750 were received from discounting a $50,000, 90-day note at a bank. The discount rate used by the bank in computing the proceeds was

A) 6.25%
B) 10.00%
C) 10.26%
D) 9.75%

Question 44

Martinez Co. borrowed $50,000 on March 1 of the current year by signing a 60­day, 9%, interest-bearing note. Assuming a 360-day year, when the note is paid on April 30, the entry to record the payment should include a

A) debit to Interest Payable for $750
B) debit to Interest Expense for $750
C) credit to Cash for $50,000
D) credit to Cash for $54,500

Question 45

The accounting for defined benefit plans is usually very easy and straightforward.

Question 46

Notes may be issued

A) when assets are purchased
B) to creditors to temporarily satisfy an account payable created earlier
C) when borrowing money
D) for all of these

Question 47

On June 8, Smith Technologies issued a $75,000, 6%, 140-day note payable to Johnson Company. What is the due date of the note?

A) October 28
B) October 27
C) October 26
D) October 25

Question 48

On June 1, Davis Inc. issued an $84,000, 5%, 120-day note payable to Garcia Company. Assume that the fiscal year of Garcia ends June 30. Using the 360-day year, what is the amount of interest revenue recognized by Garcia in the following year?

A) $700
B) $1,600
C) $1,061
D) $4,200

Question 49

On July 8, Jones Inc. issued an $80,000, 6%, 120-day note payable to Miller Company. Assume that the fiscal year of Jones ends July 31. Using the 360-day year, what is the amount of interest expense recognized by Jones in the current fiscal year?

A) $700
B) $4,200
C) $307
D) $1,400

Question 50

Anderson Co. issued a $50,000, 60-day, discounted note to National Bank. The discount rate is 6%. At maturity, assuming a 360-day year, the borrower will pay

A) $53,000
B) $50,500
C) $50,000
D) $49,500

Question 51

A defined contribution plan promises employees a fixed annual pension benefit.

Question 52

Obligations that may arise from past transactions only if certain events occur in the future are contingent liabilities.

Question 53

Current liabilities are due

A) but not receivable for more than one year
B) but not payable for more than one year
C) and receivable within one year
D) and payable within one year

Question 54

On June 8, Williams Company issued an $80,000, 5%, 120-day note payable to Brown Industries. Assuming a 360- day year, what is the maturity value of the note?

A) $82,600
B) $84,000
C) $81,333
D) $88,200

Question 55

In a defined benefits plan, the employer bears the investment risks in funding a future retirement income benefit.

Question 56

When a borrower receives the face amount of a discounted note less the discount, the amount is known as

A) the note proceeds
B) the note discount
C) the note deferred interest
D) the note principal

Question 57

The journal entry to record the cost of warranty repairs that were incurred during the current period, but related to sales made in prior years, includes a debit to Warranty Expense.

Question 58

In order to be a recorded contingent liability, the liability must be possible and easily estimated.

Question 59

On May 18, Rodriguez Co. issued an $84,000, 6%, 120-day note payable on an overdue account payable to Wilson Company. Assume that the fiscal year of Rodriguez ends on June 30. Which of the following relationships is true?

A) Rodriguez is the creditor and credits Accounts Receivable
B) Wilson is the creditor and debits Accounts Receivable
C) Wilson is the borrower and credits Accounts Payable
D) Rodriguez is the borrower and debits Accounts Payable

Question 60

Assuming a 360-day year, the interest charged by the bank, at the rate of 6%, on a 90­day, discounted note payable of $100,000 is

A) $6,000
B) $1,500
C) $500
D) $3,000

Question 61

Which is not a determinate in calculating federal income taxes withheld from an individual's pay?

A) filing status
B) types of earnings
C) gross pay
D) number of exemptions

Question 62

Taylor Bank lends Guarantee Company $150,000 on January 1. Guarantee Company signs a $150,000, 8%, 9- month note. The entry made by Guarantee Company on January 1 to record the proceeds and issuance of the note is

A) Interest Expense 12,000
Cash
138,000
Notes Payable
150,000
B) Cash 150,000 Notes Payable 150,000
C) Cash 162,000
Interest Expense
12,000
Notes Payable
150,000
D) Notes Payable 120,000
Interest Payable
7,200
Cash
120,000
Interest Expense
7,200

Question 63

The journal entry used to record the issuance of a discounted note for the purpose of borrowing funds for the business is

A) debit Cash and Interest Expense; credit Notes Payable
B) debit Cash and Interest Payable; credit Notes Payable
C) debit Accounts Payable; credit Notes Payable
D) debit Notes Payable; credit Cash

Question 64

Which of the following would be used to compute the federal income taxes to be withheld from an employee's earnings?

A) FICA tax rate
B) wage and tax statement
C) FUTA tax rate
D) wage bracket and withholding table

Question 65

On January 5, Thomas Company, a calendar-year company, issued $1,000,000 of notes payable, of which $250,000 is due on January 1 each of the next four years. The proper balance sheet presentation on December 31 is

A) Current Liabilities, $1,000,000
B) Current Liabilities, $250,000; Long-Term Debt, $750,000
C) Long-Term Debt, $1,000,000
D) Current Liabilities, $750,000; Long-Term Debt, $250,000

Question 66

Current liabilities are

A) due and receivable within one year
B) due and to be paid out of current assets within one year
C) due, but not payable for more than one year
D) payable if a possible subsequent event occurs

Question 67

A current liability is a debt that is reasonably expected to be paid

A) between 6 months and 18 months
B) out of currently recognized revenues
C) within one year
D) out of cash currently on hand

Question 68

The journal entry to record the conversion of a $6,300 accounts payable to a notes payable would be

A) Cash 6,300 Notes Payable 6,300
B) Notes Receivable 6,300 Notes Payable 6,300
C) Notes Payable 6,300 Cash 6,300
D) Accounts Payable 6,300 Notes Payable 6,300

Question 69

Assuming a 360-day year, when a $20,000, 90-day, 5% interest-bearing note payable matures, total payment will be

A) $21,000
B) $1,000
C) $20,250
D) $250

Question 70

Which of the following taxes would be deducted in determining an employee's net pay?

A) FUTA taxes
B) SUTA taxes
C) FICA taxes
D) all are correct

Question 71

The journal entry used to record the payment of a discounted note is

A) debit Notes Payable and Interest Expense; credit Cash
B) debit Notes Payable; credit Cash
C) debit Cash; credit Notes Payable
D) debit Accounts Payable; credit Cash

Question 72

Which of the following would most likely be classified as a current liability?

A) two-year notes payable
B) bonds payable
C) mortgage payable
D) unearned rent

Question 73

The journal entry to record the payment of an interest-bearing note is

A) debit Cash; credit Notes Payable
B) debit Accounts Payable; credit Cash
C) debit Notes Payable and Interest Expense; credit Cash
D) debit Notes Payable and Interest Receivable; credit Cash

Question 74

Which of the following taxes are employers required to withhold from employees?

A) FICA tax
B) FICA tax, state, and federal unemployment tax
C) state unemployment tax
D) federal unemployment tax

Question 75

The journal entry to record the issuance of a note for the purpose of converting an existing account payable would be

A) debit Cash; credit Accounts Payable
B) debit Accounts Payable; credit Cash
C) debit Cash; credit Notes Payable
D) debit Accounts Payable; credit Notes Payable

Question 76

Proper payroll accounting methods are important for a business for all the reasons below except

A) good employee morale requires timely and accurate payroll payments
B) payroll is subject to various federal and state regulations
C) to help a business with cash flow problems by delayed payments of payroll taxes to federal and state agencies
D) payroll and related payroll taxes have a significant effect on the net income of most businesses

Question 77

The current portion of long-term debt should

A) be classified as a long-term liability
B) not be separated from the long-term portion of debt
C) be paid immediately
D) be reclassified as a current liability

Question 78

The amount of federal income taxes withheld from an employee's gross pay is recorded as an)

A) payroll expense
B) contra account
C) asset
D) liability

Question 79

Chang Co. issued a $50,000, 120-day, discounted note to Guarantee Bank. The discount rate is 6%. Assuming a 360-day year, the cash proceeds to Chang Co. are

A) $49,750
B) $47,000
C) $49,000
D) $51,000

Question 80

The journal entry used to record the issuance of an interest-bearing note for the purpose of borrowing funds for the business is

A) debit Accounts Payable; credit Notes Payable
B) debit Cash; credit Notes Payable
C) debit Notes Payable; credit Cash
D) debit Cash and Interest Expense; credit Notes Payable