Deck 7: Accounting for Liabilities

Question 1

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is Homer's gross pay?

A)$5,000
B)$4,250
C)$3,940
D)$3,867.50

Answer 1

A

Question 2

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is Bob's gross pay?

A)$1,000
B)$823.50
C)$900
D)$923.50

Answer 2

A

Question 3

ABC Company borrows $15,000 from a local bank for six months at 9% annual interest.Which statement below is TRUE?

A)It is a definitely determinable liability.
B)It is a long-term liability.
C)It is an estimated liability.
D)Interest expense of $225 will be recorded each month the loan is outstanding.

Answer 3

A

Question 4

How are liabilities classified on the balance sheet?

A)paid and unpaid
B)current and long-term
C)current and unfunded
D)definitely determinable and estimated

Question 5

Current liabilities are liabilities that ________.

A)must be satisfied within two years
B)must be paid from revenues
C)must be of a definite amount
D)are to be settled within one year

Question 6

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much cash will Springfield Power pay the government for Medicare tax because of Homer's December earnings?

A)$72.50
B)$145
C)$620
D)$310

Question 7

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much payroll tax expense for Bob's December salary will be reported on Scrooge & Marley's income statement for the year ended December 31,2010?

A)$76.50
B)$176.50
C)$153.00
D)$306.00

Question 8

Definitely determinable liabilities are ________.

A)obligations of an exact amount
B)obligations of an uncertain amount
C)always current liabilities
D)always long-term liabilities

Question 9

Beau Brentley earned $60,000 from his job at Bridgestone Tires.He had 15% of his gross pay withheld for federal income taxes,6.2% withheld for FICA Social Security taxes,and 1.45% withheld for Medicare taxes.What was Beau's net pay?

A)$48,200
B)$46,410
C)$48,000
D)$60,000

Question 10

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much cash will Springfield Power pay the government for FICA because of Homer's December earnings?

A)$750
B)$382.50
C)$620
D)$310

Question 11

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is Homer's net pay?

A)$5,000
B)$4,250
C)$3,940
D)$3,867.50

Question 12

Estimated liabilities are ________.

A)obligations of an exact amount
B)obligations of an uncertain amount
C)always current liabilities
D)always long-term liabilities

Question 13

Beau Brentley earned $60,000 in 2011 from his job at Bridgestone Tires.He had 15% of his gross pay withheld for federal income taxes,6.2% withheld for FICA Social Security taxes,and 1.45% withheld for Medicare taxes.What amount will Bridgestone Tires report as salary expense for 2011?

A)$60,000
B)$64,590
C)$46,410
D)$69,160

Question 14

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much of Homer's December salary will be included in Salary expense on Springfield Power's income statement for the year ended December 31,2011?

A)$5,000
B)$4,250
C)$3,940
D)$3,867.50

Question 15

Which of the following is NOT a definitely determinable liability?

A)Salary payable
B)Accounts payable
C)Unearned revenue
D)Accumulated depreciation

Question 16

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much of Bob's December salary will be included in Salary expense on Scrooge & Marley's income statement for the year ended December 31,2010?

A)$1,000
B)$823.50
C)$900
D)$923.50

Question 17

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much payroll tax expense will Springfield Power record when it pays these taxes?

A)$750
B)$382.50
C)$1,132.50
D)$765

Question 18

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is Bob's net pay?

A)$1,000
B)$823.50
C)$900
D)$923.50

Question 19

Liabilities are ________.

A)recorded only when the exact amount of the obligation is determined
B)usually not disclosed until they are settled
C)recorded even if the exact amount is not known
D)recorded in the period the obligation is due

Question 20

Beau Brentley earned $60,000 in 2011 from his job at Bridgestone Tires.He had 15% of his gross pay withheld for federal income taxes,6.2% withheld for FICA Social Security taxes,and 1.45% withheld for Medicare taxes.What amount will Bridgestone Tires report as payroll tax expense when it pays these taxes?

A)$13,590
B)$4,590
C)$27,180
D)$9,160

Question 21

In December 2011,B.Rich worked for Payless,Inc.and earned $10,000.Federal income tax withholding is 20%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much payroll tax expense for B.Rich's December salary will Payless record when it pays these taxes?

A)$2,765
B)$765
C)$3,170.45
D)$1,240

Question 22

Liabilities are recorded once the amount is definitely determinable.

Question 23

In December 2011,B.Rich worked for Payless,Inc.and earned $10,000.Federal income tax withholding is 20%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is B.Rich's net pay?

A)$10,000
B)$8,000
C)$7,235
D)$6,615

Question 24

Salary payable is considered an estimated liability.

Question 25

Identify each of the items below as a(n):
∙ definitely determinable liability
∙ estimated liability
a.amount of warranty obligations
b.amount owed on outstanding loans
c.amount owed to employees for work performed
d.amount owed to suppliers for inventory purchases
e.amount owed for employee payroll taxes

Question 26

What are definitely determinable liabilities and estimated liabilities?

Question 27

Indicate with an "X" whether each description results in the reporting of a current liability,long-term liability,or neither on the company's balance sheet.Assume a December 31,2011 yearend.

Question 28

In December 2011,B.Rich worked for Payless,Inc.and earned $10,000.Federal income tax withholding is 20%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is B.Rich's gross pay?

A)$12,000
B)$12,765
C)$13,385
D)$10,000

Question 29

In December 2011,B.Rich worked for Payless,Inc.and earned $10,000.Federal income tax withholding is 20%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much of B.Rich's December salary will be included in Salary expense on Payless' income statement for the year ended December 31,2011?

A)$10,000
B)$7,235
C)$8,000
D)$12,000

Question 30

In December,2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much cash will Scrooge & Marley pay the government for FICA because of Bob's December earnings?

A)$62.00
B)$124.00
C)$14.50
D)$29.00

Question 31

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much cash will Scrooge & Marley pay the government for Medicare tax because of Bob's December earnings?

A)$62.00
B)$124.00
C)$14.50
D)$29.00

Question 32

The amount withheld for FICA (Social Security)is first recorded as a liability on the employer's books.

Question 33

Indicate with an "X" whether each description results in the reporting of a current liability,long-term liability,or neither on the company's Balance Sheet.Assume a December 31,2011 yearend.

Question 34

Indicate with an "X" whether each description results in the reporting of a definitely determinable liability,an estimated liability or neither on the company's balance sheet.Assume a December 31,2011 yearend.

Question 35

In December 2011,B.Rich worked for Payless,Inc.and earned $10,000.Federal income tax withholding is 20%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much cash will Payless pay the government for FICA because of B.Rich's December earnings?

A)$1,240
B)$2,765
C)$765
D)$1,530

Question 36

Employers are required by law to withhold from their employees''earnings.

Question 37

Interest is the cost of using someone else's money.

Question 38

In December 2011,B.Rich worked for Payless,Inc.and earned $10,000.Federal income tax withholding is 20%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much cash will Payless pay the government for Medicare tax because of B.Rich's December earnings?

A)$765
B)$145
C)$290
D)$1,530

Question 39

Indicate with an "X" whether each description results in the reporting of a definitely determinable liability,an estimated liability or neither on the company's Balance Sheet.Assume a December 31,2011 yearend.

Question 40

An employee's gross pay is recorded as an expense on the employer's books.

Question 41

The following data comes from the payroll department of LoJack Corporation for the last pay period of 2011.Employees will not be paid until 2012.
Required:
1.Determine the amount the balance sheet will report as Wages payable.
2.Determine the amount the income statement will report as Wages expense from this pay period.
3.What type of liability is Wages payable?
4.To what party must the company pay the FICA taxes?
5.Why does LoJack have to withhold taxes from its employees?

Question 42

Brook's Bike Company sold 80 mountain bikes during May.The company offered a one-year warranty.Future warranty expense was estimated to be $25 per bike.During May,the company spent $115 on parts and labor to repair three bikes that were under warranty.The warranty expense for May was ________.

A)$115
B)$345
C)$2,000
D)$2,115

Question 43

Brooke's Bike Company sold 225 mountain bikes in October.The future estimated warranty cost for the bikes is $25 per bike.The warranty period is one year.The amount of warranty expense for October is $468.75

Question 44

Payless,Inc's gross payroll was $100,000 for the current pay period.Federal income tax (FIT)withheld totals $20,000.The FICA (Social Security)rate is 6.2% and the Medicare rate is 1.45%.
Part B: How much cash will Payless,Inc.have to pay to the government for Federal income taxes,Social Security,and Medicare on the gross payroll of $100,000?

Question 45

When companies borrow money for longer than one year,that obligation is called ________.

A)equity financing
B)a long-term liability
C)an operating activity
D)a current liability

Question 46

Matt's Rug Company began business on January 1,2011.
Part A: Show the effect of the following events on the accounting equation:
Part B: Write in the amount (even if $0)as of or for the Year Ended December 31,2011.Write in the one financial statement where the line item is found.

Question 47

In May,Fish Nets,Inc.sold 8,000 nets with a three-month warranty for $10 each on account.Fish Nets estimates that warranty costs will be approximately $100 on these sales.What effect will the warranty adjusting entry have on Fish Nets' current ratio?

A)It will cause the current ratio to increase.
B)It will cause the current ratio to decrease.
C)It will have no effect on the current ratio because the entry will cause the current assets to increase by $100 and the current liabilities to decrease by $100.
D)It will have no effect on the current ratio because no adjusting entry is made for estimated warranty costs.

Question 48

Identify each of the liabilities listed below using the following code:
a.definitely determinable liability
b.estimated liability
_______ 1.purchased merchandise on account
_______ 2.had the employees work all month but won't pay them until next month
_______ 3.owes the bank interest on an outstanding loan
_______ 4.withheld $9,000 from the employees' earnings for payroll taxes
_______ 5.sold 1,000,000 units during the current period and agreed to fix or replace each unit sold if it did not last two years or completely satisfy the customer
_______ 6.borrowed money from a local bank

Question 49

How should companies estimate and report warranty expense?

Question 50

Brooke's Bike Company sold $3,780 worth of mountain bikes in June.Warranty expense is estimated to be 2% of sales.During June,Brooke's Bikes replaced two faulty parts under warranty.The parts cost a total of $100.The warranty expense for June was ________.

A)$65.60
B)$75.60
C)$100
D)$175.60

Question 51

Warranty expense is recognized when products are sold.This is required by the ________.

A)revenue recognition principle
B)matching principle
C)full disclosure principle
D)going concern principle

Question 52

Albert,the accountant,has been asked by his boss to calculate the net pay for each of Pinnock Company's three employees.Albert has gathered the following information about payroll for the period:
Required: Calculate the net pay for each of the employees.Assume that FICA (Social Security)taxes are withheld at the rate of 6.2% of gross pay and that Medicare taxes are withheld at the rate of 1.45% of gross pay.

Question 53

In May,Fish Nets,Inc.sold 8,000 nets with a three-month warranty for $10 each on account.Fish Nets estimates that warranty costs will be approximately $100 on these sales.The actual warranty cost for the sales made in May was $30 in June and $50 in July.Fish Nets should ________.

A)record Warranty expense of $100 in May
B)record Warranty expense of $30 in June
C)report Allowance for uncollectible accounts of $(100)in May
D)report Allowance for uncollectible accounts of $(30)in June

Question 54

Companies are required to recognize warranty expense at the time of sale due to the matching principle.

Question 55

In November,Mayberry Repair Shop spent $395 on parts to fix appliances under warranty.The $395 will be a reduction to ________.

A)Warranty liability
B)Warranty expense
C)Parts expense
D)Allowance for uncollectible accounts

Question 56

Explain how payroll affects the liabilities of a firm.

Question 57

WhackCo began business on January 1,2011.Show the effect of the following events:

Question 58

Robert,the accountant,has to calculate the net pay for each of Dotson Company's three employees.Robert has gathered the following information about payroll for the period:
Required: Calculate the net paycheck for each of the employees.Assume that FICA (Social Security)taxes are withheld at the rate of 6.2% of gross earnings and that Medicare taxes are withheld at the rate of 1.45% of gross earnings.

Question 59

In its first month of business,Fish Nets,Inc.sold 8,000 nets with a three-month warranty for $10 each on account.Fish Nets estimates that 1% of its sales will be uncollectible and that warranty costs will be approximately $100 on its sales.Fish Nets' financial statements should include ________.

A)Bad debts expense of $800 and Warranty expense of $100 on its income statement
B)Allowance for uncollectible accounts of $(80)and nothing for the warranties on its balance sheet
C)Bad debts expense of $80 and Warranty expense of $100 on its income statement
D)Allowance for uncollectible accounts of $(80)and Unearned warranty of $100 on its balance sheet

Question 60

Companies are required to recognize warranty expense in the period the goods are returned for repairs.

Question 61

On January 1,2011,Alpha Enterprise signed a $100,000,6%,20-year mortgage note to buy a new warehouse.The mortgage will be repaid in a series of twenty equal annual installment payments.Over the 20-year period,as each installment payment is made,the amount that Alpha Enterprise will show on its balance sheet for mortgage payable will ________.

A)increase
B)decrease
C)stay the same
D)The answer cannot be determined from the information given.

Question 62

On January 1,2011,Ajax Corporation signed a $1,000,000,7%,10-year mortgage note to buy a new warehouse.The note will be repaid in 10 equal annual installments of $142,378.Over the 10-year period,as each installment payment is made,the portion of the payment that is used to reduce the principal will ________.

A)increase
B)decrease
C)stay the same
D)The answer cannot be determined from the information given.

Question 63

Row,Inc.needed some long-term financing and arranged for a 10-year,$100,000,7% mortgage loan on January 1,2010.Annual payments of $14,238 will be made on December 31 each year.Interest expense for the year ended December 31,2012 will be ________ interest expense for 2011.

A)higher than
B)the same as
C)lower than
D)The answer cannot be determined from the information given.

Question 64

On January 1,2011,Zenith,Inc.,signed a $200,000,5%,20-year mortgage note to buy a new office building.The mortgage will be repaid in a series of twenty equal annual installment payments.Over the 20-year period,as each installment payment is made,the portion of the payment that is used to reduce the principal will ________.

A)increase
B)decrease
C)stay the same
D)The answer cannot be determined from the information given.

Question 65

On January 1,2012,Ace Electronics borrowed $40,000 on a five-year,7% note.Ace will pay only the interest on the loan on December 31 each year.The entire principal will be repaid on December 31,2016,the last interest payment date.Interest expense for the year ended December 31,2013 will be ________ interest expense for 2012.

A)higher than
B)the same as
C)lower than
D)The answer cannot be determined from the information given.

Question 66

On January 1,2011,Zenith,Inc.,signed a $200,000,5%,20-year mortgage note to buy a new office building.The mortgage will be repaid in a series of twenty equal annual installment payments.Over the 20-year period,as each installment payment is made,the amount that Zenith,Inc.,will show on its balance sheet for mortgage payable will ________.

A)increase
B)decrease
C)stay the same
D)The answer cannot be determined from the information given.

Question 67

Row,Inc.needed some long-term financing and arranged for a 10-year,$100,000,7% mortgage loan on January 1,2010.Annual payments of $14,238 will be made on December 31 each year.After the first payment,Mortgage payable will have a balance of ________.

A)$100,000
B)$85,762
C)$92,762
D)$93,000

Question 68

On January 1,2011,Zenith,Inc.signed a $200,000,5%,20-year mortgage note to buy a new office building.The mortgage will be repaid in a series of twenty equal annual installment payments.Over the 20-year period,as each installment payment is made,the portion of the payment that is interest expense will ________.

A)increase
B)decrease
C)stay the same
D)The answer cannot be determined from the information given.

Question 69

On January 1,2011,Ajax Corporation signed a $1,000,000,7%,10-year mortgage note to buy a new warehouse.The note will be repaid in 10 equal annual installments of $142,378.Over the 10-year period,as each installment payment is made,the amount that Ajax Corporation will show on its balance sheet for mortgage payable will ________.

A)increase
B)decrease
C)stay the same
D)The answer cannot be determined from the information given.

Question 70

On January 1,2011,Ace Electronics borrowed $40,000 on a five-year,7% note.The loan will be repaid in 5 equal installments of $9,756 each year,beginning on December 31,2011.Interest expense for the year ended December 31,2012 will be ________ interest expense for 2011.

A)higher than
B)the same as
C)lower than
D)The answer cannot be determined from the information given.

Question 71

On January 1,2011,Ace Electronics borrowed $40,000 on a five-year,7% note.The loan will be repaid in 5 equal installments of $9,756 each year,beginning on December 31,2011.On its statement of cash flows for the year ended December 31,2011,Ace will show cash paid for interest as ________ activity.

A)$(9,756),an operating
B)$(2,800),a financing
C)$(9,756),a financing
D)$(2,800),an operating

Question 72

Row,Inc.needed some long-term financing and arranged for a 10-year,$100,000,7% mortgage loan on January 1,2010.Annual payments of $14,238 will be made on December 31 each year.What effect will the payments have on the accounting equation?

A)Total assets,liabilities and shareholders' equity will all decrease.
B)Only total assets and total liabilities will decrease.
C)Only total assets and total shareholders' equity will decrease.
D)Total liabilities will increase and total shareholders' equity will decrease.

Question 73

Principal = rate multiplied by time multiplied by interest.

Question 74

On January 1,2011,Alpha Enterprise signed a $100,000,6%,20-year mortgage note to buy a new warehouse.The mortgage will be repaid in a series of twenty equal annual installment payments.Over the 20-year period,as each installment payment is made,the portion of the payment that is interest expense will ________.

A)increase
B)decrease
C)stay the same
D)The answer cannot be determined from the information given.

Question 75

On January 1,2011,Ace Electronics borrowed $40,000 on a five-year,7% note.The loan will be repaid in 5 equal installments of $9,756 each year,beginning on December 31,2011.Notes payable at December 31,2012 will be ________ notes payable at December 31,2011.

A)higher than
B)the same as
C)lower than
D)The answer cannot be determined from the information given.

Question 76

On January 1,2012,Ace Electronics borrowed $40,000 on a five-year,7% note.Ace will pay only the interest on the loan on December 31 each year.The entire principal will be repaid on December 31,2016,the last interest payment date.Notes payable at December 31,2013 will be ________ notes payable at December 31,2012.

A)higher than
B)the same as
C)lower than
D)The answer cannot be determined from the information given.

Question 77

On January 1,2011,Ace Electronics borrowed $40,000 on a five-year,7% note.Ace will pay only the interest on the loan on December 31 each year.The entire principal will be repaid on December 31,2015,the last interest payment date.On its statement of cash flows for the year ended December 31,2011,Ace will show cash paid for interest as ________ activity.

A)$(9,756),an operating
B)$(2,800),a financing
C)$(9,756),a financing
D)$(2,800),an operating

Question 78

When a company borrows money for longer than one year,that obligation is called a long-term liability.

Question 79

On January 1,2011,Alpha Enterprise signed a $100,000,6%,20-year mortgage note to buy a new warehouse.The mortgage will be repaid in a series of twenty equal annual installment payments.Over the 20-year period,as each installment payment is made,the portion of the payment that is used to reduce the principal will ________.

A)increase
B)decrease
C)stay the same
D)The answer cannot be determined from the information given.

Question 80

On January 1,2011,Ace Electronics borrowed $40,000 on a five-year,7% note.The loan will be repaid in 5 equal installments of $9,756 each year,beginning on December 31,2011.With each successive payment on the note,________ of the payment will be applied to the loan principal.

A)more
B)the same amount
C)less
D)The answer cannot be determined from the information given.