Deck 11: Current Liabilities and Payroll

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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 10

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

Question 11

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

Question 12

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

Question 13

The borrower issues a note payable to a creditor.

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

All long-term liabilities eventually become current liabilities.

Question 19

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

Question 20

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 21

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

Question 22

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

Question 23

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 24

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

Question 25

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 26

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

Question 27

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

Question 28

Depending on 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 29

Internal controls for cash payments apply to payrolls.

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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 35

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 36

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

Question 37

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

Question 38

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 39

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

Question 40

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

Question 41

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

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

Question 44

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 (rounded) recognized by Garcia in the following year?

A) $700
B) $1,600
C) $1,062
D) $4,200

Question 45

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

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

Question 46

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

Question 47

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

Question 48

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 on 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 49

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 50

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 51

Martinez Co. borrowed $50,000 on March 1 of the current year by signing a 60-day, 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 52

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 53

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

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

Question 54

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 55

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 56

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

Question 57

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

Question 58

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

Question 59

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%
C) 10.26%
D) 9.75%

Question 60

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) All of these choices

Question 61

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

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

Question 62

Proper payroll accounting methods are important for a business for all of the following reasons 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 63

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

Question 64

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 of these choices

Question 65

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

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

Question 66

On January 5, Thomas Company, which follows a calendar year, 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 67

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 68

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 69

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

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

Question 70

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 71

Which of the following is not a determinant in calculating federal income taxes withheld from an individual's pay?

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

Question 72

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

A) two-year note payable
B) bond payable
C) mortgage payable
D) unearned rent

Question 73

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 74

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 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

The journal entry to record the conversion of a $6,300 account payable to a note payable would be​

Question 77

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 78

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 79

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

Question 80

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