Deck 10: Current Liabilities and Payroll

Question 1

At its December 31, 2017 year end, Jamison Company recorded $200 interest payable on a $10,000, 3 month, 5% note payable. The company's financial statements will present notes payable of $10,200.

Answer 1

False

Question 2

Collateral is usually required by a bank as protection in case the company is unable to repay the bank.

Answer 2

True

Question 3

A note payable must be payable within one year.

Answer 3

False

Question 4

Sales taxes apply to all sales.

Question 5

A future commitment is NOT considered a liability unless a present obligation also exists.

Question 6

A note payable will result in more security of the debt obligation for the creditor than an account payable.

Question 7

A note payable must always have an interest rate attached to it.

Question 8

Bank overdrafts will require a journal entry at the end of the year to record the amount.

Question 9

A bank overdraft is the same as an operating line of credit.

Question 10

A liability is defined as a past obligation, arising from present events to make future payments of assets or services.

Question 11

A $15,000, 9-month, 8% note payable requires an interest payment of $900 at maturity if no interest was previously paid.

Question 12

Prime rate refers to the rate that banks charge their worst customers.

Question 13

Current maturities of long-term debt refer to the amount of interest on a note payable that must be paid in the current year.

Question 14

Money borrowed on a line of credit is normally borrowed on a long-term basis.

Question 15

If a note payable is payable in a term longer than one year, it will be classified as a non-current liability.

Question 16

The higher the sales tax rate, the more profit a retailer can earn.

Question 17

It is possible to have a prepaid property tax and a property tax expense payable recorded at the same time.

Question 18

An operating line of credit is a credit which is set up by a major supplier to assist the company with their purchases online.

Question 19

Liabilities with a known amount, payee and due date are often referred to as determinable liabilities.

Question 20

It is NOT necessary to prepare an adjusting entry to recognize the current maturity of long-term debt.

Question 21

After the warranty liability has been established, the costs in the future will be recorded with a debit to Warranty Expense.

Question 22

Warranty liabilities are estimated based on actual warranty costs incurred to date.

Question 23

IFRS is generally regarded as having a higher threshold for recognizing liabilities.

Question 24

Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, employment insurance (EI), and personal income taxes are mandatory payroll deductions.

Question 25

Payroll deductions may be mandatory or voluntary.

Question 26

Contingencies are events with certain outcomes.

Question 27

When a company issues a gift card, the company will record the gift card in revenue in the period in which it is sold.

Question 28

Under ASPE, a contingent liability is defined as a liability that is contingent on the occurrence or non-occurrence of some future event.

Question 29

As long as it is likely the company will have to settle the obligation, and the company can reasonably estimate the amount, the liability is recognized.

Question 30

Under IFRS, a provision is a liability of certain timing and amounts.

Question 31

The higher the pay or earnings, the higher the amount of income taxes withheld.

Question 32

There are two types of payroll costs to a company: employee costs and employer costs.

Question 33

ASPE considers a liability to be a contingent liability as long as its ultimate existence depends on the outcome of a future event, even if the event is likely to occur.

Question 34

Canadian Tire Money represents a liability to Canadian Tire.

Question 35

Gross pay is the amount of net pay less any deductions.

Question 36

During the month, a company sells goods for a total of $113,480, which includes HST of $13,480; therefore, the company should recognize $100,000 in Sales Revenues and $13,480 in Sales Tax Payable.

Question 37

The employer incurs a payroll cost equal to the amount withheld from the employees' wages for personal income taxes.

Question 38

CPP is an example of a voluntary payroll deduction.

Question 39

An estimated liability is a liability that is known to exist but whose amount and timing are uncertain.

Question 40

Gross pay, or earnings, is the total compensation earned by an employee.

Question 41

Current Liabilities are usually listed in order of liquidity.

Question 42

With an interest-bearing note, the amount of assets received upon issue of the note is generally

A) equal to the note's face value.
B) greater than the note's face value.
C) less than the note's face value.
D) equal to the note's maturity value.

Question 43

Employers are required by law to remit the mandatory payroll deductions to Canada Revenue Agency on at least a monthly basis.

Question 44

Operating line of credit borrowings usually

A) are credited to a note payable account.
B) are reported as a non-current liability.
C) are debited to the cash account and result in a current liability.
D) are required by all companies.

Question 45

Under ASPE, current liabilities are the first category reported in the liability section of the Balance Sheet.

Question 46

A note payable is in the form of

A) a contingency that is reasonably likely to occur.
B) a written promissory note.
C) an oral agreement.
D) a standing agreement.

Question 47

Most companies pay current liabilities

A) out of current assets.
B) by issuing interest-bearing notes payable.
C) by issuing common shares.
D) by creating non-current liabilities.

Question 48

Workplace Health, Safety, and Compensation is a cost to both the employee and the employer.

Question 49

CPP and EI and income tax deductions are remitted to the CRA, usually on a quarterly basis.

Question 50

When an interest-bearing note matures, the balance in the Notes Payable account is

A) less than the total amount repaid by the borrower.
B) the difference between the maturity value of the note and the face value of the note.
C) equal to the total amount repaid by the borrower.
D) greater than the total amount repaid by the borrower.

Question 51

Employer payroll costs will include both the gross wages of employees plus the employer costs of benefits.

Question 52

A determinable liability is one which

A) has uncertainty with the timing of the due date.
B) has uncertainty about the amount which is owed.
C) has a known payee.
D) has an amount which is due within one year.

Question 53

Each employer is required to pay an employee for sick days.

Question 54

An operating line of credit

A) is a non-current liability.
B) is required by all companies.
C) helps companies manage temporary cash shortages.
D) is usually required by the bank in case a company is unable to repay a loan.

Question 55

All of the following are definitely determinable liabilities EXCEPT

A) current maturities of long-term debt.
B) operating lines of credit.
C) a future commitment to purchase an asset.
D) accounts payable.

Question 56

Determinable liabilities involve no uncertainty about all of the following EXCEPT

A) the existence of the liability.
B) the amount of the liability.
C) the eventual payment of the liability.
D) all of the above involve no uncertainty with respect to the determinable liability.

Question 57

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

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

Question 58

The entry to record the proceeds upon issuing an interest-bearing note is

A) Interest Expense
Cash
Notes Payable
B) Cash
Notes Payable
C) Notes Payable
Cash
D) Cash
Notes Payable
Interest Payable

Question 59

As interest is recorded on an interest-bearing note, the Interest Expense account is

A) increased; the Notes Payable account is increased.
B) increased; the Notes Payable account is decreased.
C) increased; the Interest Payable account is increased.
D) decreased; the Interest Payable account is increased.

Question 60

Employer payroll costs would include an amount deducted from the individual for income taxes.

Question 61

A company has a negative (credit) balance in the Cash account at the end of the year. This amount can be called all of the following EXCEPT

A) bank indebtedness.
B) operating line of credit.
C) bank overdraft.
D) bank advances.

Question 62

The current portion of long-term debt should

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

Question 63

When HST is remitted to the Canada Revenue Agency, ___ is credited and ___ is debited.

A) Cash; HST Payable
B) Cash; Sales
C) HST Expense; Cash
D) HST Payable; Cash

Question 64

Which of the following is NOT considered an estimated liability?

A) accrued wages
B) gift card promotions
C) warranties
D) customer loyalty programs

Question 65

Sales taxes collected by a retailer are expenses

A) of the retailer.
B) of the customers.
C) of the government.
D) that are not recognized by the retailer until they are submitted to the government.

Question 66

A retailer that collects sales taxes is acting as an agent for the

A) wholesaler.
B) customer.
C) taxing authority.
D) chamber of commerce.

Question 67

Bass Bay Marina had a customer loyalty program at its gas dock. For every litre of gasoline purchased, the customer would get a redemption award of $.015 which can be used to purchase products in the company's retail marine store. In July, the company sold 100,000 litres of gasoline. The entry to record the liability for the July sales would a $___ credit to ___.

A) $1,500; Redemption Reward Liability
B) $1,5000; Sales Discounts
C) $1,5000; Cash
D) $3,000; Cash

Question 68

The accounting for warranty costs is based on the concept of matching expenses with revenues, which requires that the estimated cost of honouring warranty contracts should be recognized as an expense

A) when the product is brought in for repairs.
B) in the period in which the product was sold.
C) at the end of the warranty period.
D) only if the repairs are expected to be made within one year.

Question 69

Interest expense on an interest-bearing note is

A) always equal to zero.
B) accrued over the life of the note.
C) only recorded at the time the note is issued.
D) only recorded at maturity when the note is paid.

Question 70

Cameron Company sells 2,000 units of its product for $500 each in 2017. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $100 per unit. In 2017, warranty contracts are honoured on 40 units for a total cost of $4,000. What amount will be reported on Cameron Company's balance sheet as Estimated Warranty Liability on December 31, 2017?

A) $4,000
B) $6,000
C) $2,000
D) cannot be determined

Question 71

Cameron Company sells 2,000 units of its product for $500 each in 2017. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $100 per unit. In 2017, warranty contracts are honoured on 40 units for a total cost of $4,000. What amount should Cameron Company accrue on December 31, 2017 for estimated warranty expense?

A) $6,000
B) $4,000
C) $2,000
D) $30,000

Question 72

Fees accepted in advance from a client

A) are considered earned revenues.
B) increase income.
C) are recorded as liabilities.
D) have no impact on assets.

Question 73

HST (harmonized sales tax) collected by a retailer is recorded by

A) crediting HST Recoverable.
B) debiting HST Expense.
C) crediting HST Payable.
D) debiting HST Payable.

Question 74

Property taxes are generally based on

A) income before tax.
B) property values.
C) gross sales.
D) gross wages.

Question 75

Examples of determinable current liabilities include all of the following EXCEPT

A) current maturities of long-term debt.
B) bank indebtedness from operating lines of credit.
C) unearned revenues.
D) contingencies.

Question 76

Davis Company has a December 31 year end. The company received its property tax bill for 2017 on March 1, 2017. According to the bill, taxes of $24,000 for the year ended December 31, 2017 are due by April 30, 2017. On April 30, 2017, Davis will record which of the following entries?

A) Dr. Cash; Cr. Property Tax Payable
B) Dr. Property Tax Payable; Dr. Prepaid Property Tax; Cr. Cash
C) Dr. Property Tax Expense; Cr. Property Tax Payable
D) Dr. Property Tax Expense; Cr. Cash

Question 77

Unearned revenue is initially recognized with a

A) debit to cash and credit to revenue.
B) debit to cash and credit to unearned revenue.
C) debit to revenue and credit to cash.
D) debit to unearned revenue and credit to cash.

Question 78

The amount of sales tax (GST and PST, or HST) collected by a retail store when making sales is

A) a miscellaneous revenue for the store.
B) a current liability.
C) not recorded because it is a tax paid by the customer.
D) will increase the profit of the company.

Question 79

Davis Company has a December 31 year end. The company received its property tax bill for 2017 on March 1, 2017. According to the bill, taxes of $24,000 for the year ended December 31, 2017 are due by April 30, 2017. On March 1, Davis will record property tax expense of

A) $4,000.
B) $8,000.
C) $12,000.
D) $24,000.

Question 80

Sales taxes collected by a retailer are reported as

A) a contingent loss.
B) revenues.
C) expenses.
D) current liabilities.