Deck 11: Current Liabilities and Payroll

Question 1

Which of the following correctly describes Interest payable?

A)Interest payable is shown on the balance sheet as a current asset.
B)Interest payable is shown on the balance sheet as a non- current liability.
C)Interest payable is shown on the income statement as an operating expense.
D)Interest payable is shown on the balance sheet as a current liability.

Answer 1

D

Question 2

Which of the following correctly describes the unearned revenue account?

A)The unearned revenue account represents revenue that has neither been earned nor collected.
B)The unearned revenue account represents revenue that has been earned and collected.
C)The unearned revenue account represents revenue that has been earned, but not yet collected.
D)The unearned revenue account represents revenue that has been collected, but not yet earned.

Answer 2

D

Question 3

ABC Company signed a 5- year note payable for $80 000 at 9% annual interest. What is the interest expense for 31 December 2014 if the note was signed on 1 May 2014?

A)$2 400
B)$4 800
C)$7 200
D)$36 000

Answer 3

B

Question 4

Unearned revenue is an obligation to provide goods or services to the customer.

Question 5

Where does Unearned subscription revenue appear on the balance sheet?

A)Under Current liabilities
B)Under Current assets or Long- term investments
C)Under Non- current assets
D)Under Long- term investments

Question 6

Joe signs a $5 000, 8%, 6- month note dated 1 September 2014. What is Joe's 2015 interest expense for this note?

A)$400
B)$133
C)$67
D)$200

Question 7

A $20 000, 3- month, 8% note payable was issued on 1 November 2015. What is the amount of interest expense recorded in the year 2016?

A)$200
B)$133
C)$800
D)$267

Question 8

The journal entry for accrued interest on a note payable includes:

A)debiting Interest expense and crediting Interest payable.
B)debiting Accrued interest expense and crediting Cash.
C)debiting Interest expense and crediting Cash.
D)crediting Accrued interest expense.

Question 9

ABC signed a 5- year, 9% note payable for $80 000 on 1 May 2014. Which account will be credited when the note paid at maturity?

A)Interest payable
B)Cash
C)Interest expense
D)Note payable

Question 10

A $20 000, 3- month, 8% note payable was issued on 1 November 2015. Which of the following would be included in the journal entry required on the note's maturity date?

A)A debit to Interest expense for $133
B)A credit to Cash for $10 000
C)A credit to Note payable for $20 400
D)A debit to Interest payable for $133

Question 11

Notes payable are considered short- term if they are due within one year.

Question 12

Amounts owed for products or services purchased on account are non- current liabilities.

Question 13

Which of the following occurs when a company records accrued interest expense on a note payable?

A)Cash is debited.
B)Interest expense is credited.
C)Interest payable is credited.
D)Note payable is credited.

Question 14

Which of the following is a liability, created when a company receives cash for services to be provided in the future?

A)Estimated warranty payable
B)Accrued liability
C)Service revenue
D)Unearned revenue

Question 15

Which of the following is an amount for products or services purchased on account?

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

Question 16

Sales revenue for a sporting goods store amounted to $215 000 for the current period. All sales are on account and are subject to additional GST of 10%. Which of the following would be included in the journal entry to record these sales?

A)A credit to Accounts receivable for $215 000
B)A debit to Sales revenue for $215 000
C)A debit to Accounts receivable for $236 500
D)A debit to GST Clearing for $21 500

Question 17

An accrued expense is an expense that has been incurred, but has not yet been paid.

Question 18

Which of the following is a characteristic of a current liability?

A)A current liability is a liability that is due within 10 days.
B)A current liability is a liability that is due within 30 days.
C)A current liability is a liability that is due within one year or one operating cycle, whichever is longer.
D)A current liability is a liability that is due in longer than a one- year period, or one operating cycle.

Question 19

A $20 000, 3- month, 8% note payable was issued on 1 November 2015. What is the amount of accrued interest on 31 December 2015?

A)$133
B)$800
C)$267
D)$200

Question 20

Which of the following is associated with cash received in advance for services to be performed in the future?

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

Question 21

On 20 June 2013, Parker Services received $2 400 in advance from a customer for one month's service. The journal entry to adjust the accounts at the end of June would be which of the following?

A)Debit Unearned service revenue $2 400 and credit Service revenue $2 400.
B)Debit Service revenue $1 600 and credit Unearned service revenue $1 600.
C)Debit Service revenue $800 and credit Accounts receivable $800.
D)Debit Unearned service revenue $800 and credit Service revenue $800.

Question 22

Estimated warranty payable would be included in the liability section of the balance sheet.

Question 23

Estimated warranty payable would be included in the operating expense section of the income statement.

Question 24

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 more than remote, but less than probable, that the lawsuit will result in an actual liability. Which of the following actions should be taken by the company's management?

A)Management should consider resigning.
B)The possible liability should be ignored.
C)The liability should be estimated and recorded as an expense.
D)The situation should be described in a note to the financial statements.

Question 25

Warranty expense would be included in the operating expense section of the income statement.

Question 26

A certain contingent liability was evaluated at year- end, and considered to have a remote possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, this could be considered unethical behaviour.

Question 27

RGF Manufacturing recently signed a $200 000, 4- month note on 22 June. The interest rate is 5%. How much total interest will be due on the note?

A)$3 833
B)$10 000
C)$203 780
D)$3 333

Question 28

On 20 June 2013, Parker Services received $2 400 in advance from a customer for one month's service. The journal entry to record the receipt of cash would be which of the following?

A)Debit Cash $2 400 and credit Unearned service revenue $2 400.
B)Debit Unearned service revenue $2 400 and credit Service revenue $2 400.
C)Debit Cash $2 400 and credit Service revenue $2 400.
D)Debit Unearned service revenue $2 400 and credit Cash $2 400.

Question 29

Archie's has a $12 000 credit balance in the GST Clearing account. Which of the following statements is CORRECT?

A)This is an amount owing by the government to the business.
B)There is a $12 000 current liability to report on the balance sheet.
C)The tax paid to suppliers has exceeded the tax collected from customers for the period.
D)GST Clearing is a tax expense.

Question 30

Contingent liabilities sometimes pose an ethical challenge because they are not real liabilities and are easy to overlook.

Question 31

A restaurant has been sued because a customer claims to have found a bug in her chili. The company's lawyers believe there is only a remote possibility that the lawsuit will result in an actual liability. Which of the following actions should be taken by the company's management?

A)The situation should be described in a note to the financial statements.
B)The liability should be estimated and recorded as an expense.
C)The possible liability should be ignored.
D)Management should consider resigning.

Question 32

Which of the following principles requires that warranty expense be recorded in the period that revenue is recorded?

A)Materiality concept
B)Profit recognition principle
C)Consistency principle
D)Matching principle

Question 33

Warranties pose an accounting challenge because a company does not know which or how many products will have to be repaired.

Question 34

A certain contingent liability was evaluated at year- end; the company felt it was probable that it would become an actual liability, and the amount could be reasonably estimated. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, this could be considered unethical behaviour.

Question 35

A contingent liability that has a remote possibility of becoming an actual loss is included in a note to the financial statements.

Question 36

When the likelihood of an actual loss is probable, and the amount can be estimated, it should be recorded as an expense and as a liability.

Question 37

Warranty expense would be included in the liability section of the balance sheet.

Question 38

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

Question 39

The entry to estimate warranty payable includes a credit to Warranty expense.

Question 40

A certain contingent liability was evaluated at year- end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, this could be considered unethical behaviour.

Question 41

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

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

Question 42

Which of the following is NOT a liability of known amount?

A)Accounts payable
B)Income tax payable
C)Warranty payable
D)GST payable

Question 43

Booker Company reported sales revenue for 2013 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 actual amounts paid out as a result of warranty claims?

A)A debit to Estimated warranty payable for $24 000
B)A credit to Estimated warranty payable for $24 000
C)A debit to Estimated warranty payable for the actual amount of payments
D)A debit to Warranty expense for the actual amount of payments

Question 44

In which of the following periods should the estimated warranty liability be debited?

A)The period when the product is sold
B)The period when the product is shipped to the customer
C)The period when cash is collected for the sale of the product
D)The period when cash is paid to repair or replace the product

Question 45

Which of the following is TRUE of a contingent liability?

A)It is a liability resulting from a lawsuit settled in court.
B)It is an actual liability that depends on a past event.
C)It is an actual liability that is difficult to estimate.
D)It is a potential liability that depends on a future event.

Question 46

Payroll tax is paid by the employee and deducted from gross pay.

Question 47

Which of the following accounting principles requires that warranty expenses must be estimated and recognised in the same period as the related sales revenue is recognised?

A)The matching principle
B)The consistency principle
C)The disclosure principle
D)The profit recognition principle

Question 48

Payroll taxes are withheld from each employee's pay cheque.

Question 49

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

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

Question 50

Ace Appliances sells dishwashers with a 3- year warranty. In 2013, there are $90 000 of sales revenues for dishwashers. The company estimates warranty expense at 3% of revenues. What is the total estimated warranty payable for Ace regarding the sales in 2013?

A)$2 700
B)$1 400
C)$600
D)$3 000

Question 51

A certain contingent liability was evaluated at year- end, and considered to have a remote possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would this have on the financial reporting of the company?

A)There would be no effect.
B)The net profit of the company would be understated.
C)The liabilities on the balance sheet would be understated.
D)The information about the transaction would be inadequately disclosed in the notes.

Question 52

In which of the following periods should the expense for warranty costs be recorded?

A)The period when cash is paid to repair or replace the product
B)The period when cash is collected for the sale of the product
C)The period when the product is repaired or replaced
D)The period when the product is sold

Question 53

Gross pay is the total amount of salary, wages, commissions, and bonuses earned by an employee during a pay period.

Question 54

Which of the following is the proper treatment for a liability that exists, but the exact amount of which is not known?

A)The liability should be ignored.
B)The liability should be treated as a contingent liability.
C)The liability should be reported in the notes to the financial statements.
D)The amount of the liability should be estimated and recorded.

Question 55

Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% of sales. At the beginning of 2013, the Estimated warranty payable account had a credit balance of $900. During the year, Tractor World had $285 000 of sales, and had to pay out $5 100 in warranty payments. At the end of the year, what balance in Estimated warranty payable would be included in the balance sheet?

A)$6 840
B)$4 200
C)$2 640
D)$5 100

Question 56

Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% of sales. At the beginning of 2013, the Estimated warranty payable account had a credit balance of $900. During the year, Tractor World had $285 000 of sales, and had to pay out $5 100 in warranty payments. At the end of the year, how much Warranty expense was reported on the income statement?

A)$5 100
B)$2 640
C)$4 200
D)$6 840

Question 57

Employers must deduct income tax from an individual employee's earnings.

Question 58

A certain contingent liability was evaluated at year- end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would this have on the financial reporting of the company?

A)The information about the transaction would be inadequately disclosed in the notes.
B)There would be no effect.
C)The liabilities on the balance sheet would be understated.
D)The net profit of the company would be understated.

Question 59

A certain contingent liability was evaluated at year- end; the company felt it was probable that it would become an actual liability, and the amount could be reasonably estimated. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would it have on the financial reporting of the company?

A)There would be no effect.
B)The liabilities on the balance sheet would be understated.
C)The net profit of the company would be understated.
D)The information about the transaction would be inadequately disclosed in the notes.

Question 60

Ace Appliances sells dishwashers with a 3- year warranty. In 2013, there are $90 000 of sales revenues for dishwashers. The company estimates warranty expense at 3% of revenues. What is the 2013 warranty expense?

A)$3 000
B)$0
C)$800
D)$2 700

Question 61

PAYG tax is paid by the employer only and is not deducted from gross pay.

Question 62

Net pay is the total amount of compensation earned by an employee, before any deductions are made.

Question 63

Parrish Sales withholds $720 from Art Parrish's pay cheque for income tax. This amount is part of the company's payroll tax expense.

Question 64

Which of the following is pay over and above base salary, usually paid for exceptional performance?

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

Question 65

Sue works 46 hours at her job during the week. She is paid $13.30 per hour and receives overtime at the rate of time- and- a- half for hours worked over forty. What is Sue's gross pay for the week?

A)$917.70
B)$651.70
C)$611.80
D)Some other amount

Question 66

Which of the following are pay amounts stated at an hourly rate?

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

Question 67

Sue works 46 hours at her job during the week. She is paid $13.30 per hour and receives overtime at the rate of time- and- a- half for hours worked over forty. Sue has an income tax rate of 15% and pays a superannuation contribution of $100. All of her income is taxable. What is Sue's net pay?

A)$453.95
B)$147.61
C)$532.00
D)$651.70

Question 68

Ensuring efficiency of the payroll process is one of the two key controls for payroll.

Question 69

Gross pay is the total amount of compensation earned by an employee, before any deductions are made.

Question 70

The Statewide Sales Company has gross pay for March of $45 000. Which of the following would be included in the first journal entry in the payroll cycle to record salary expense?

A)Debit Salary payable
B)Credit Salary expense
C)Debit Salary expense
D)Debit Cash

Question 71

Which of the following is an expense of the employer?

A)Employee income taxes
B)Employee benefits
C)Payroll tax
D)Deductions for union membership

Question 72

Which of the following are pay amounts stated at an hourly rate?

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

Question 73

Which of the following is pay stated as a percentage of a sale amount?

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

Question 74

The Statewide Sales Company has gross pay for March of $45 000. The first journal entry in the payroll cycle to record salary expense would include a credit to Cash for $45 000.

Question 75

Art Parrish is the sole employee of Parrish Sales. His company pays a portion of his health insurance premium, and also contributes to his superannuation. The company share of the health insurance premium is $400, and the company contribution to superannuation is $550. The second journal entry in the payroll cycle to record the employee benefits to be paid by the company should include a credit to Employee benefits payable for $950.

Question 76

Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January 2014, Dan's gross pay was $4 400 and Pat's gross pay was $5 200. All earnings are subject to income tax of 30% from the first dollar earned. Which of the following would be included in the entry to record the salary expense for January?

A)A credit to income tax payable for $2 880
B)A debit to income tax payable for $2 880
C)A credit to Salary expense for $9 600
D)A debit to Salary payable to employees for $2 880

Question 77

Tom's gross pay for this month is $8 150. Tom's income tax rate is 24% from the first dollar earned. His voluntary deductions total $900. What is the amount of Tom's net pay?

A)$4 670.52
B)$4 290.65
C)$5 294.00
D)$5 716.00

Question 78

Which of the following is included in the entry to record the employer's payroll taxes?

A)A credit to Income tax payable
B)A credit to Payroll tax expense
C)A debit to Payroll tax payable
D)A credit to Payroll tax payable

Question 79

Payroll tax is paid by the employer only and is not deducted from gross pay.

Question 80

Which of the following are deducted to arrive at an employee's net pay?

A)Income taxes
B)Commissions
C)Payroll tax
D)Bonuses