Deck 10: Current Liabilities, Payroll, and Long-Term Liabilities

Question 1

Accrued liabilities are expenses that have not yet been paid.

Answer 1

True

Question 2

Which of the following is an expense that the business has not yet paid?

A) Unearned revenue
B) Estimated warranty payable
C) Accrued expense
D) Accounts payable

Answer 2

Accrued expense

Question 3

Liabilities are often created as a result of an expense incurred by a company. Which of the following liabilities is NOT the result of an expense incurred by the company?

A) Sales tax payable
B) State unemployment tax payable
C) Federal unemployment tax payable
D) Estimated warranty payable

Answer 3

Sales tax payable

Question 4

Which of the following occurs when accrued interest is accrued on a note payable at year-end?

A) Interest is accrued for the number of days the note is outstanding in the subsequent period.
B) Interest is accrued for the number of days the note is outstanding in the current period.
C) Interest is accrued for the total life of the note.
D) None of the above occurs.

Question 5

To which of the following would a company have an account payable?

A) A customer
B) A vendor
C) A governmental agency
D) All would be accounts payable

Question 6

A $12,500, 9% note is dated April 9 and is due in 90 days. The note will mature on what date?

A) July 9
B) July 8
C) June 9
D) June 8

Question 7

RGF Manufacturing recently signed a $200,000, 138-day note on June 22. The interest rate is 5%. When will the note be due?

A) November 8
B) November 5
C) November 7
D) November 6

Question 8

RGF Manufacturing recently signed a $200,000, 138-day note on June 22. The interest rate is 5%. Using a 365-day year, how much interest will be due on the note?

A) $ 10,000
B) $ 3,833.33
C) $ 3,780.82
D) $203,780.82

Question 9

The payment due at maturity on a $489.52, 8% note, dated May 28 and due July 31 is __________ using a 360-day year to compute interest.

A) $496.48
B) $493.89
C) $495.56
D) $495.82

Question 10

Archie's had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be credited to Sales revenue?

A) $6,758.00
B) $7,231.06
C) $ 473.06
D) Sales revenue will be debited and not credited.

Question 11

Archie's had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be debited to Cash?

A) $6,758.00
B) $7,231.06
C) $ 473.06
D) Cash will be credited and not debited.

Question 12

A contingent liability that will probably become an actual liability must be estimated and recorded as an expense.

Question 13

Which of the following are categories of contingent liabilities?

A) Remote
B) Reasonably possible
C) Probable, and the amount can be reasonably estimated
D) All of the above are categories of contingent liabilities

Question 14

Ace Appliances sells dishwashers with a 3-year warranty. They expect 3% of the dishwashers to need repairs in year 1, 7% in year 2 and 15% in year 3. They sell 500 dishwashers in 2009 with the warranty in effect from 2009 to 2011. Each repair is estimated at $40. What is the total estimated warranty payable for Ace regarding the sales in 2009?

A) $5,000
B) $ 600
C) $1,400
D) $3,000

Question 15

Ace Appliances sells dishwashers with a 3-year warranty. They expect 3% of the dishwashers to need repairs in year 1, 7% in year 2 and 15% in year 3. They sell 500 dishwashers in 2009 with the warranty in effect from 2009 to 2011. Each repair is estimated at $40. If 4% of the dishwashers need repairs in 2009, what is the 2009 warranty expense?

A) $600
B) $800
C) $0
D) Nothing is recorded until the end of 2011.

Question 16

A company has been sued for product failures allegedly resulting in injuries to the individuals bringing the lawsuit. The company's lawyers believe it is probable that the lawsuit will result in an actual liability of approximately $100,000. Which of the following entries should be made?

A)
$$\begin{array} { | l | l | l | l | } \hline \text { Loss on lawsuit } & & 100,000 & \\\hline & \begin{array} { l } \text { Estimated lawsuit loss } \\\text { payable }\end{array} & & 100,000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | l | l | } \hline \text { Cash } & & 100,000 & \\\hline & \text { Loss on lawsuit } & & 100,000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Estimated lawsuit loss } \\\text { payable }\end{array} & & 100,000 & \\\hline & \text { Cash } & & 100,000 \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | l | l | } \hline \text { Loss on lawsuit } & & 100,000 & \\\hline & \text { Cash } & & 100,000 \\\hline\end{array}$$

Question 17

Booker Company reported sales revenue for 2007 of $800,000. The products were sold with a six-month warranty. Members of Booker's management estimate the cost of the warranty will be equal to 3% of sales revenue. Which of the following is included in the entry to record the repair of a product under warranty?

A) A debit to Estimated warranty payable for $24,000
B) A credit to Estimated warranty payable when the products are repaired or replaced
C) A debit to Estimated warranty payable in 2007 for $24,000
D) A debit to Warranty expense of $24,000

Question 18

Which of the following is included in the entry to record warranty expense?

A) A debit to Cash
B) A credit to Estimated warranty payable
C) A credit to Warranty expense
D) A debit to Estimated warranty payable

Question 19

In the current year, a company sells 1,000 units of a product for $100 each. Each product is sold with a one-year warranty. It is estimated that warranty costs will be 10% of the cost of the product. Historically, 60% of the warranty repairs are completed in the year of sale and 40% of the warranty repairs are completed in the year after the sale. What is the correct amount of warranty expense for the current year?

A) $10,000
B) $ 6,000
C) $ 4,000
D) $12,000

Question 20

Most companies pay employees with cash.

Question 21

Which of the following are taxes paid by the employer?

A) FUTA
B) SUTA
C) FICA
D) All of the above

Question 22

Which are required to be deducted from employees' paychecks?

A) Federal income tax and health insurance premiums
B) OASDI and Medicare
C) Retirement contributions
D) Cafeteria plans and FICA

Question 23

For which of the following taxes is there a ceiling on the amount of annual earnings subject to the tax?

A) Only the FICA tax and the federal unemployment
B) The FICA tax and the state and federal unemployment taxes
C) Only the state and federal unemployment taxes
D) Only the FICA tax

Question 24

Which of the following is the total amount of employee compensation before deductions?

A) Gross pay
B) Net pay
C) Take-home pay
D) Compensation after withholdings

Question 25

Which of the following is referred to as net pay?

A) Take-home pay plus all deductions
B) Gross pay minus federal and state income taxes
C) All deductions plus all withholdings
D) Gross pay minus all deductions

Question 26

Which of the following is NOT an optional deduction?

A) Social security taxes
B) Charitable contributions
C) Medical insurance
D) Union dues

Question 27

Which of the following is the type of account that represents taxes withheld from employees' gross pay?

A) Liability
B) Expense
C) Asset
D) Contra asset

Question 28

Which of the following is extra compensation that is not paid directly to employees, but paid to entities that provide various items or services to employees?

A) Bonuses
B) Benefits
C) Wages
D) Commissions

Question 29

Which of the following is NOT one of the factors used to determine withheld income tax?

A) The number of exemptions for the employee
B) The filing status of the employee
C) The FUTA withholding rate
D) The gross pay of the employee

Question 30

Which of the following forms is used to determine the number of exemptions claimed by an employee for purposes of determining the amount of income taxes withheld?

A) Form W-4
B) Form 941
C) Form 1040
D) Form W-2

Question 31

Which of the following deductions must be matched by the employer, resulting in an expense to the employer?

A) Federal income taxes
B) Federal unemployment taxes
C) FICA taxes
D) Both federal income taxes and FICA taxes are matched by the employer

Question 32

Which of the following is the form filed with the IRS to report each employee's gross pay, federal income tax withheld, and FICA taxes withheld?

A) Form 1040
B) Form W-2
C) Form 941
D) Form W-4

Question 33

Which of the following is the form filed with the IRS to report the employer's federal income tax withheld and FICA taxes withheld?

A) Form 1040
B) Form 941
C) Form W-2
D) Form W-4

Question 34

Which of the following amounts are included on an employee's W-2?

A) Net pay for the employee
B) Number of exemptions claimed
C) Income taxes withheld
D) Unemployment taxes paid for the employee

Question 35

Which of the following amounts are included on an employee's W-4?

A) Unemployment taxes paid for the employee
B) Net pay for the employee
C) Number of exemptions claimed
D) Income taxes withheld

Question 36

An employer must file Form 941 with the federal government.

Question 37

The three payments made by employers for payroll include net pay to employees, payroll taxes and other payroll deductions, and employee benefits.

Question 38

Which of the following amounts would be included in the employer's entry to pay unemployment taxes?

A) A debit to FICA taxes payable
B) A debit to Federal income taxes payable
C) A debit to Cash
D) A debit to Unemployment taxes payable

Question 39

Which of the following would be included in the entry to record salary expense?

A) A debit to Salary payable to employees
B) A credit to Federal unemployment tax payable
C) A debit to FICA tax expense
D) A credit to Employee income taxes payable

Question 40

Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2009, Dan's gross pay was $4,400 and Pat's gross pay was $5,200. All earnings are subject to FICA taxes of 8%.
Which of the following would be included in the entry to record the payroll for January?

A) A debit to Salary payable to employees for $8,832
B) A debit to FICA tax payable for $768
C) A credit to FICA tax payable for $768
D) A credit to Salary expense for $8,832

Question 41

Payroll Form 941 is required by:

A) the federal government.
B) the state government.
C) both of them.
D) neither of them.

Question 42

Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2009, Dan's gross pay was $4,400 and Pat's gross pay was $5,200. All earnings are subject to FICA taxes of 8%.
Which of the following would be included in the entry to record the payroll taxes imposed on Lone Star Company for January?

A) A debit to FICA tax payable for $768
B) A credit to FICA tax payable for $768
C) A credit to Salary expense for $8,832
D) A debit to Salary payable to employees $9,600

Question 43

A company has 24 employees who are paid on a monthly basis. For the most recent month, gross earnings were $78,000, of which $27,000 is subject to employment taxes. The federal unemployment tax rate is.8% and the state unemployment rate is 5.4%. Federal income taxes are withheld at the rate of 20% of total earnings. All earnings are subject to FICA taxes of 8%.
What is the employer's total payroll taxes expense for the month?

A) $23,514
B) $ 7,914
C) $12,480
D) $ 6,240

Question 44

An employee's hourly rate is $25, with time-and-a-half for hours over 40 hours. FICA is withheld at the rate of 8%, federal income tax withholding is 15% and state income tax withholding is 3%. Which of the following is the employee's net pay if the employee worked 45 hours this week? Round to the nearest dollar.

A) $ 914
B) $1,188
C) $1,093
D) $ 879

Question 45

A company has 24 employees who are paid on a monthly basis. For the most recent month, gross earnings were $78,000, of which $27,000 is subject to employment taxes. The federal unemployment tax rate is .8% and the state unemployment rate is 5.4%. Federal income taxes are withheld at the rate of 20% of total earnings. All earnings are subject to FICA taxes of 8%.
What is the employees' net pay?

A) $56,160
B) $55,944
C) $54,486
D) $62,400

Question 46

A company has 24 employees who are paid on a monthly basis. For the most recent month, gross earnings were $78,000, of which $27,000 is subject to employment taxes. The federal unemployment tax rate is .8% and the state unemployment rate is 5.4%. Federal income taxes are withheld at the rate of 20% of total earnings. All earnings are subject to FICA taxes of 8%.
What is the company's total payroll cost for the month?

A) $101,514
B) $ 85,914
C) $ 6,240
D) $ 78,000

Question 47

A company has 24 employees who are paid on a monthly basis. For the most recent month, gross earnings were $78,000, of which $27,000 is subject to employment taxes. The federal unemployment tax rate is .8% and the state unemployment rate is 5.4%. Federal income taxes are withheld at the rate of 20% of total earnings. All earnings are subject to FICA taxes of 8%.
Which of the following is included in the entry to record salary expense?

A) A debit to Employee income tax payable for $15,600
B) A debit to Salary expense for $85,914
C) A credit to Salary payable for $56,160
D) A debit to FICA tax payable for $6,240

Question 48

A company has 24 employees who are paid on a monthly basis. For the most recent month, gross earnings were $78,000, of which $27,000 is subject to employment taxes. The federal unemployment tax rate is .8% and the state unemployment rate is 5.4%. Federal income taxes are withheld at the rate of 20% of total earnings. All earnings are subject to FICA taxes of 8%.
Which of the following is included in the entry to record payroll taxes?

A) A credit to Employee income tax payable for $6,240
B) A credit to FICA tax payable for $6,240
C) A debit to Payroll tax payable for $7,914
D) A debit to Unemployment tax expense for $6,240

Question 49

The employee earnings record is NEITHER a journal NOR a ledger.

Question 50

Good internal control for payroll requires that the human resources department distribute paychecks to the employees.

Question 51

Adequate separation of duties would prohibit the payroll department from recording the transactions related to payroll.

Question 52

The failure to accrue warranty expenses will result in the understatement of net income.

Question 53

Which of the following items must be filed with the IRS by each employer each year?

A) Employees' earnings records
B) Copies of the employees' paychecks
C) Payroll record
D) Form 941

Question 54

How do most employers pay employees?

A) By check
B) By electronic fund transfer
C) By cash payments
D) Both A and B are common ways for employers to pay employees

Question 55

Which of the following is NOT a component of a payroll system?

A) Payroll sinking fund
B) Employee earnings record
C) Payroll bank account
D) Payroll record

Question 56

Which of the following is the source of the information to record salary expense for the period?

A) W-2 forms
B) Form 941
C) Employees' earnings records
D) Payroll record

Question 57

Which of the following columns is NOT found on a payroll record?

A) Check number
B) Federal unemployment tax
C) Total deductions
D) FICA tax

Question 58

Which of the following are important internal controls for payroll?

A) Controls to safeguard against paying employees more than other employers pay their employees
B) Controls for efficiency
C) Controls to safeguard payroll disbursements
D) Both B and C are important controls for payroll

Question 59

Which of the following is NOT a control for safeguarding payroll disbursements?

A) A formal timekeeping system is used.
B) Personnel department employees' and payroll department employees' responsibilities are separated.
C) Personnel department employees and payroll department employees have combined responsibilities.
D) A photo identification is required when payroll checks are distributed.

Question 60

Sending in payroll forms such as the 941represents what part of internal control?

A) Paying the correct amount of payroll tax
B) Accurately computing gross and net pay
C) Filing government forms on time
D) Separating payroll duties

Question 61

Employers must have their W-2s in the mail for their employees:

A) by December 31.
B) by January 31.
C) by February 28.
D) thirty days after the end of the company's fiscal year.

Question 62

Which of the following is a reason that many companies maintain two payroll bank accounts?

A) To avoid writing a paycheck to a fictitious person
B) To prove an employee's hours worked
C) To separate the duties of human resources personnel and accounting personnel
D) To improve efficiency

Question 63

Which of the following is a reason that many companies maintain a human resources department?

A) To prove an employee's hours worked
B) To avoid writing a paycheck to a fictitious person
C) To improve efficiency
D) None of the above

Question 64

Where would unemployment taxes withheld appear?

A) On the income statement as an expense
B) On the balance sheet as a long-term liability
C) On the balance sheet as a current liability
D) There is no account called unemployment taxes withheld

Question 65

Term bonds are bonds that mature in installments over a period of time.

Question 66

Debentures are unsecured bonds backed only by the good faith of the borrower.

Question 67

A premium on a bond payable is the excess of the bond's maturity value over its issue price.

Question 68

A bond issued at par has no discount or premium.

Question 69

How is discount on bonds payable treated on the balance sheet?

A) Discount on bonds payable is a contra asset account.
B) Discount on bonds payable is a contra stockholders' equity account.
C) Discount on bonds payable is a contra account to bonds payable.
D) Discount on bonds payable is an adjunct account to bonds payable.

Question 70

On December 31 of this year, a company purchases a building by paying $50,000 and executing a mortgage payable of $450,000. The mortgage is payable in 10 equal principle payments, plus interest, at the end of each of the next 10 years. How will the mortgage be reported on the December 31 balance sheet at the end of the first year?

A) Current liability of $450,000
B) Current liability of $90,000 and long-term liability of $360,000
C) Current liability of $45,000 and long-term liability of $405,000
D) Long-term liability of $450,000

Question 71

Which of the following would be classified as a non-current liability on a balance sheet?

A) Note payable due in 11 months
B) Note payable due in 23 months
C) Salaries payable
D) Accounts payable

Question 72

Which of the following would NOT be included in current liabilities?

A) Earned revenues
B) Unearned revenues
C) Estimated liabilities
D) Accrued expenses

Question 73

Where would sales tax payable appear?

A) On the balance sheet as a current liability
B) On the balance sheet as a long-term liability
C) On the income statement as an expense
D) There is no account called sales tax payable

Question 74

Indicate how each of the following accounts would be classified on the balance sheet and indicate whether the amount is a known amount or is based upon an estimate.

Question 75

Which of the following would be a reason that the stockholders of a company would issue bonds rather than stock to finance expansion?

A) Leveraged debt is always more advantageous than additional stock.
B) The value of their stock will inevitably decrease.
C) Dividends must be paid each year even if the company is not profitable.
D) Additional shares of stock might decrease earnings per share.

Question 76

The records of Panhandle Greenhouses include the following accounts. Prepare the current liabilities and long-term liabilities section of the company's balance sheet.

Question 77

Which of the following is an advantage of issuing bonds rather than issuing stock?

A) Issuing bonds is more risky to the issuing corporation.
B) Issuing bonds generally results in lower earnings per share.
C) Interest expense is tax deductible.
D) Issuing bonds dilutes control of the corporation.

Question 78

Which of the following is an advantage of issuing stock rather than issuing bonds?

A) Issuing stock creates interest expense that must be paid.
B) Issuing stock is more risky to the issuing corporation.
C) Issuing stock creates no liabilities.
D) Issuing stock generally results in higher earnings per share.