ACC 206 Week 3 Quiz – Strayer

 

 

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CHAPTER11

 

 

CURRENTLIABILITIESANDPAYROLLACCOUNTING

 

 

CHAPTERSTUDYOBJECTIVES

 

 

1.Explainacurrentliability,andidentifythemajortypesofcurrentliabilities.

 

2.Describetheaccountingfornotespayable.

 

3.Explaintheaccountingforothercurrentliabilities.

 

4.Explainthefinancialstatementpresentationandanalysisofcurrentliabilities.

 

5.Describetheaccountinganddisclosurerequirementsforcontingentliabilities.

 

6.Computeandrecordthepayrollforapayperiod.

 

7.Describeandrecordemployerpayrolltaxes.

 

8.Discusstheobjectivesofinternalcontrolforpayroll.

 

9.Identifyadditionalfringebenefitsassociatedwithemployeecompensation.

 

 

 

TRUE-FALSESTATEMENTS

 

  1. A currentliability must bepaidoutof currentearnings.

 

  1. Currentliabilitiesareexpectedtobepaidwithinoneyearortheoperatingcycle, whichever islonger.

 

  1. Therelationshipbetweencurrentliabilitiesandcurrentassetsisimportantinevaluatinga company’sabilityto payoffits long-termdebt.

 

  1. Acompanywhosecurrentliabilitiesexceeditscurrentassetsmayhavealiquidity problem.

 

  1. Notespayableusuallyrequiretheborrowerto payinterest.

 

  1. Notespayableare oftenusedinsteadofaccountspayable.

 

  1. A notepayablemustalwaysbepaidbeforeanaccountpayable.

 

  1. A $30,000,8%,9-monthnotepayablerequiresaninterestpayment of$1,800 atmaturity.

 

  1. Mostnotesarenotinterest bearing.

 

  1. Withaninterest-bearingnote,theamountofcashreceiveduponissuanceofthenote generallyexceedsthenote’sfacevalue.

 

  1. Interestexpenseonanote payableis onlyrecordedatmaturity.

 

  1. Interestexpenseis reportedunderOtherExpensesandLossesinthe incomestatement.

 

  1. UnearnedrevenuesshouldbeclassifiedasOtherRevenuesandGainsontheIncome Statement.

 

  1. Thehigherthesalestaxrate,themoreprofitaretailercanearn.

 

  1. MetropolitanSymphonysells200seasonticketsfor$60,000thatincludesafiveconcert season. TheamountofUnearnedTicketRevenueafterthesecondconcertis$24,000.

 

  1. Duringthemonth,acompanysellsgoodsforatotalof$108,000,whichincludessales taxesof$8,000;therefore,thecompanyshouldrecognize$100,000inSalesRevenues and $8,000in SalesTaxExpense.

 

  1. Current maturitiesoflong-termdebtreferstotheamountofinterestonanotepayable that must be paidinthecurrent year.

 

  1. Thecurrentratiopermitsanalyststocomparethe liquidityofdifferent sizedcompanies.

 

  1. Workingcapital is currentassetsdivided bycurrentliabilities.

 

  1. Contingentliabilitiesshouldberecordedintheaccountsifthereisaremotepossibility that thecontingencywillactuallyoccur.

 

  1. A contingentliabilityisa liabilitythatmayoccur ifsomefutureeventtakesplace.

 

  1. Inconcept,theestimatingofWarrantyExpensewhenproductsaresoldunderwarrantyis similar to theestimatingofBadDebtsExpensebasedon creditsales.

 

  1. FICAtaxesandfederalincometaxesare leviedonemployees’earningswithoutlimit.

 

  1. FICAtaxeswithheldandfederalincometaxes withheldaremandatorypayrolldeductions.

 

  1. Theemployerincursapayrolltaxexpenseequaltotheamountwithheldfromthe employees’wagesforfederalincometaxes.

 

  1. Internalcontroloverpayrollisnotnecessarybecauseemployeeswillcomplainiftheydo not receivethecorrectamount ontheirpayrollchecks.

 

  1. Thetimekeepingfunctionincludessupervisorsmonitoringhoursworkedthroughtime cardsandtimereports.

 

  1. Thehumanresourcesdepartmentdocumentsandauthorizesemploymentofnew employees.

 

  1. Payrollactivitiesinvolvethreefunctions:hiringemployees,preparingthepayroll,and payingthepayroll.

 

a30.     Post-retirementbenefitsconsistofpaymentsbyemployerstoretiredemployees forhealth care, life insurance,andpensions.

 

Additional True-FalseQuestions

 

  1. A debt that isexpectedto be paidwithinone yearthroughthecreationof long-termdebt is a current liability.

 

  1. Notespayableusuallyareissuedtomeet long-termfinancingneeds.

 

  1. Currentmaturitiesoflong-termdebtareoftenidentifiedaslong-termdebtduewithinone yearon thebalancesheet.

 

  1. Inagivenyear,totalwarrantyexpenseisthesumofactualwarrantycostsincurredon unitssoldplustheestimatedcostofservicingthose unitsinthefuture.

 

  1. FICAtaxesarea voluntarydeductionfromemployeeearnings.

 

  1. FICAtaxesareadeductionfromemployeeearningsandarealsoimposedupon employersas an expense.

 

  1. Theobjectivesofinternalaccountingcontrolforpayrollsare(a)tosafeguardcompany assetsfromunauthorizedpaymentsofpayrollsand(b)toassureaccuracyandreliability oftheaccountingrecordspertainingto payroll.

 

a38.     Whenacompanygivesemployeesrightstoreceivecompensationforabsencesandthe paymentforsuchabsencesisprobableandtheamountcanbereasonablyestimated, the companyshould accruea liability.

 

 

 

 

 

 

 

 

MULTIPLECHOICEQUESTIONS

 

  1. Allof thefollowingarereportedascurrent liabilitiesexcept a.accountspayable.

b.bonds payable. c.notespayable.

d.unearnedrevenues.

 

  1. Therelationshipbetweencurrentliabilitiesandcurrentassets is a.usefulindetermining income.

b.usefulinevaluatinga company’sliquidity. c.calledthematchingprinciple.

d.usefulindeterminingtheamountof acompany’slong-termdebt.

 

  1. Mostcompaniespaycurrent liabilities a.outof currentassets.

b.by issuinginterest-bearing notespayable. c.byissuingstock.

d.bycreatinglong-term liabilities.

 

  1. A currentliability isadebt thatcanreasonably beexpectedtobepaid a.withinoneyear.

b.between6monthsand 18months.

c.outof currentlyrecognizedrevenues. d.outof cashcurrentlyonhand.

 

  1. Liabilitiesare classifiedon thebalancesheetascurrentor a.deferred.

b.unearned. c.long-term. d.accrued.

 

  1. Froma liquiditystandpoint,itismoredesirablefora companytohavecurrent a.assetsequalcurrentliabilities.

b.liabilitiesexceedcurrentassets. c.assetsexceedcurrentliabilities.

d.liabilitiesexceed long-termliabilities.

 

  1. Therelationshipof current assetstocurrentliabilitiesisusedinevaluatinga company’s a.operatingcycle.

b.revenue-producingability.

c.short-termdebtpayingability. d.long-rangesolvency.

 

  1. Whichofthefollowingisusuallynotan accruedliability? a.Interestpayable

b.Wagespayable c.Taxespayable d.Notespayable

 

  1. Inmostcompanies,current liabilitiesarepaidwithin

a.oneyearthroughthecreationof othercurrentliabilities.

b.theoperatingcyclethroughthecreationof othercurrentliabilities. c.oneyearout of currentassets.

d.theoperatingcycle out of currentassets.

 

  1. Theentrytorecord theissuance ofaninterest-bearingnotecreditsNotesPayable forthe note’s

a.maturityvalue. b.marketvalue. c.facevalue.

d.cashrealizablevalue.

 

  1. Withaninterest-bearingnote,theamountofassets receiveduponissuanceofthenoteis generally

a.equaltothenote’sface value.

b.greaterthanthe note’sface value. c.lessthanthenote’sfacevalue.

d.equaltothenote’smaturityvalue.

11-8

 

  1. A notepayableis intheformof

a.a contingencythat isreasonablylikelyto occur. b.awrittenpromissorynote.

c.anoralagreement.

d.a standingagreement.

 

  1. Theentrytorecordthe proceedsuponissuinganinterest-bearingnoteis a.InterestExpense

Cash

NotesPayable b.Cash

NotesPayable c.NotesPayable

Cash d.Cash

NotesPayable InterestPayable

 

Usethefollowing informationforquestions52–54.

 

CoffeyCounty Bank agrees tolend Adcock BrickCompany$200,000on January1.Adcock Brick Companysignsa$200,000,8%,9-monthnote.

 

  1. TheentrymadebyAdcockBrickCompanyonJanuary1torecordtheproceedsand issuance ofthenote is

a.InterestExpense…………………………………………………………              12,000 Cash…………………………………………………………………………     188,000

NotesPayable……………………………………………………                               200,000 b.Cash…………………………………………………………………………     200,000

NotesPayable……………………………………………………                               200,000 c.Cash…………………………………………………………………………      200,000

InterestExpense…………………………………………………………           12,000

NotesPayable……………………………………………………                               212,000 d.Cash…………………………………………………………………………     200,000

InterestExpense…………………………………………………………           12,000

NotesPayable……………………………………………………                               200,000 InterestPayable………………………………………………….                            12,000

 

  1. WhatistheadjustingentryrequiredifAdcockBrickCompanypreparesfinancial statements onJune30?

a.InterestExpense…………………………………………………………                8,000

InterestPayable………………………………………………….                                  8,000 b.InterestExpense…………………………………………………………         8,000

Cash…………………………………………………………………                                  8,000 c.InterestPayable………………………………………………………….         8,000

Cash…………………………………………………………………                                  8,000 d.InterestPayable………………………………………………………….         8,000

InterestExpense…………………………………………………                                  8,000

CurrentLiabilitiesandPayroll Accounting       11-9

 

  1. WhatentrywillAdcockBrickCompanymaketopayoffthenoteandinterestatmaturity assumingthat interesthas beenaccruedtoSeptember30?

a.NotesPayable…………………………………………………………….            212,000 Cash………………………………………………………………….                         212,000

b.NotesPayable…………………………………………………………….           200,000 InterestPayable………………………………………………………….       12,000

Cash………………………………………………………………….                            212,000 c.InterestExpense…………………………………………………………       12,000

NotesPayable…………………………………………………………….        200,000 Cash………………………………………………………………….                         212,000

d.InterestPayable………………………………………………………….               8,000 NotesPayable…………………………………………………………….     200,000 InterestExpense…………………………………………………………             4,000

Cash………………………………………………………………….                            212,000

 

  1. As interestisrecordedon an interest-bearingnote, theInterestExpenseaccountis a.increased;the NotesPayableaccountis increased.

b.increased;the NotesPayableaccountisdecreased.c. increased;theInterestPayableaccountisincreased.d. decreased;theInterestPayableaccountis increased.

 

  1. Whenaninterest-bearing notematures,thebalance intheNotes Payableaccountis a.lessthanthetotalamountrepaidbythe borrower.

b.thedifferencebetweenthematurityvalueof thenoteandthefacevalueof thenote. c.equal to thetotalamountrepaidbytheborrower.

d.greaterthanthetotalamountrepaidbytheborrower.

 

Usethefollowing informationforquestions57–58.

 

OnOctober1,Jerry’sCarpetServiceborrows$250,000fromFirstNationalBankona3-month, $250,000,8% note.

 

  1. WhatentrymustJerry’sCarpetServicemakeonDecember31beforefinancial statements are prepared?

 

a.InterestPayable………………………………………………………….                5,000

InterestExpense………………………………………………….                                 5,000

 

b.InterestExpense…………………………………………………………             20,000

InterestPayable…………………………………………………..                               20,000

 

c.InterestExpense…………………………………………………………                5,000

InterestPayable…………………………………………………..                                 5,000

 

d.InterestExpense…………………………………………………………               5,000

NotesPayable…………………………………………………….                                 5,000

 

 

  1. Theentry by Jerry’s Carpet Serviceto recordpaymentof thenoteandaccrued intereston January1 is

 

a.NotesPayable……………………………………………………………. Cash………………………………………………………………….

 

b.NotesPayable……………………………………………………………. InterestPayable………………………………………………………….

Cash………………………………………………………………….

255,000

 

 

250,000 5,000

 

255,000

 

 

 

255,000

11-10

 

  1. (cont.)

 

c.NotesPayable…………………………………………………………… InterestPayable…………………………………………………………. Cash…………………………………………………………………

 

d.NotesPayable…………………………………………………………… InterestExpense………………………………………………………… Cash…………………………………………………………………

250,000 20,000

 

 

250,000 5,000

 

 

 

270,000

 

 

 

255,000

 

  1. Interestexpenseonaninterest-bearingnoteis a.alwaysequaltozero.

b.accruedoverthelifeof thenote.

c.onlyrecordedatthetimethenoteisissued.

d.onlyrecordedatmaturitywhenthenoteispaid.

 

  1. Theentrytorecordthepaymentofaninterest-bearingnoteatmaturityafterallinterest expense has beenrecognizedis

a.NotesPayable InterestPayable

Cash

b.NotesPayable Interest Expense Cash

c.NotesPayable Cash

 

d.NotesPayable Cash

InterestPayable

 

  1. Salestaxescollectedbya retailerarerecordedby a.creditingSalesTaxesRevenue.

b.debitingSalesTaxesExpense. c.creditingSales TaxesPayable. d.debitingSalesTaxesPayable.

 

  1. UnearnedRentalRevenueis

a.a contraaccounttoRentalRevenue. b.a revenueaccount.

c.reportedasacurrentliability.

d.debitedwhenrentis receivedinadvance.

 

  1. Salestaxescollectedbytheretailerare recordedasa(n) a.revenue.

b.liability.c.expense. d.asset.

 

Usethefollowing informationforquestions64–65.

 

OnSeptember1,Ken’sPaintingServiceborrows$50,000fromNationalBankona4-month, $50,000,6%note.

CurrentLiabilitiesandPayroll Accounting       11-11

 

  1. WhatentrymustKen’sPaintingServicemakeonDecember31before statements are prepared?

a.InterestPayable………………………………………………………….                1,000 InterestExpense………………………………………………….

b.InterestExpense…………………………………………………………                3,000 InterestPayable…………………………………………………..

c.InterestExpense…………………………………………………………                1,000 InterestPayable…………………………………………………..

d.InterestExpense…………………………………………………………               1,000 NotesPayable…………………………………………………….

financial

 

 

 

1,000

 

3,000

 

1,000

 

1,000

 

 

  1. The entrybyKen’sPainting Serviceto recordpayment of thenoteandaccrued intereston January1 is

a.NotesPayable…………………………………………………………….              51,000 Cash………………………………………………………………….                           51,000

b.NotesPayable…………………………………………………………….              50,000 InterestPayable………………………………………………………….         1,000

Cash………………………………………………………………….                              51,000 c.NotesPayable…………………………………………………………….       50,000

InterestPayable………………………………………………………….             3,000 Cash………………………………………………………………….                           53,000

d.NotesPayable…………………………………………………………….             50,000 InterestExpense…………………………………………………………         1,000

Cash………………………………………………………………….                              51,000

 

  1. Theinterestchargedona$100,000notepayable,attherateof8%,ona90-daynote would be

a.$8,000. b.$4,444. c.$2,000. d.$667.

 

  1. Theinterestchargedona$100,000notepayable,attherateof6%,ona60-daynote would be

a.$6,000. b.$3,333. c.$1,500. d.$1,000.

 

  1. Theinterestchargedona$50,000notepayable,attherateof8%,ona3-monthnote would be

a.$4,000. b.$2,000. c.$1,000. d.$667.

 

  1. Theinterestchargedona$50,000notepayable,attherateof6%,ona2-monthnote would be

a.$3,000. b.$1,500. c.$750.d.$500.

11-12

 

  1. Acompanyreceives$132,ofwhich$12isforsalestax.Thejournalentrytorecordthe sale wouldincludea

a.debittoSales TaxExpensefor$12. b.credit toSales TaxPayable for$12. c.debit to Salesfor $132.

d.debitto Cashfor $120.

 

  1. Acompanyreceives$174,ofwhich$14isforsalestax.Thejournalentrytorecordthe sale wouldincludea

adebittoSalesTaxExpensefor$14. b.debittoSalesTaxPayablefor$14. c.debit to Salesfor $174.

d.debitto Cashfor $174.

 

  1. A retailstore creditedtheSalesaccountforthesales priceandtheamount ofsalestaxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $315,000,whatisthe amount of thesalestaxesowedto thetaxingagency?

a.$300,000 b.$315,000 c.$15,750 d.$15,000

 

  1. OnJanuary1,2008,DunnonCompany,acalendar-yearcompany,issued$600,000of notespayable, ofwhich$150,000 isdueonJanuary 1foreachofthenextfouryears. The properbalancesheetpresentation on December31,2008,is

a.CurrentLiabilities,$600,000. b.Long-termDebt,$600,000.

c.CurrentLiabilities,$300,000;Long-termDebt,$300,000. d.CurrentLiabilities,$150,000;Long-termDebt,$450,000.

 

  1. OnJanuary1,2008,BrunsonCompany,acalendar-yearcompany,issued$400,000of notespayable, ofwhich$100,000 isdueonJanuary1foreachofthenextfouryears. The properbalancesheetpresentation on December31,2008,is

a.CurrentLiabilities,$400,000. b.Long-termDebt, $400,000.

c.CurrentLiabilities,$100,000;Long-termDebt,$300,000. d.CurrentLiabilities,$300,000;Long-termDebt,$100,000.

 

  1. Acashregistertapeshowscashsalesof$1,500andsalestaxesof$120.Thejournal entry torecordthis information is

a.Cash…………………………………………………………………………                1,620 Sales…………………………………………………………………                              1,620

b.Cash…………………………………………………………………………                1,620

SalesTaxPayable………………………………………………                                       120 Sales…………………………………………………………………                              1,500

c.Cash…………………………………………………………………………                1,500 SalesTaxExpense……………………………………………………..            120

Sales…………………………………………………………………                                 1,620 d.Cash…………………………………………………………………………         1,620

Sales…………………………………………………………………                                 1,500 SalesTaxesRevenue………………………………………….                                 120

CurrentLiabilitiesandPayroll Accounting       11-13

 

  1. Jo’sBookstorehascollected$750insalestaxesduringApril.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillJo’sBookstoremaketoshow theAprilremittance?

a.SalesTaxesPayable……………………………………………………                      750 Cash………………………………………………………………….                                750

b.SalesTaxExpense…………………………………………………….                      750 Cash………………………………………………………………….                                750

c.SalesTaxExpense……………………………………………………..                     750

SalesTaxesPayable……………………………………………                                       750 d.Noentryrequired.

 

  1. JordonCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforOctoberamountedto$18,900.Ifthesalestaxrateis5%,whatamountmust be remittedtothestateforOctober’ssalestaxes?

a.$900 b.$945 c.$45

d.Itcannotbedetermined.

 

  1. Enrique’sSalonhastotalreceiptsforthemonthof$16,430includingsalestaxes.Ifthe sales taxrateis 6%,whatareEnrique’ssalesfor themonth?

a.$15,444.20 b.$17,415.80 c.$15,500.00

d.Itcannotbedetermined.

 

  1. Theamountof salestaxcollectedbyaretailstore whenmakingsalesis a.amiscellaneousrevenuefor thestore.

b.a currentliability.

c.notrecordedbecauseit isataxpaidbythecustomer. d.recordedasanoperatingexpense.

 

  1. Aretailstorecredited theSalesaccount forthesalesprice andtheamountofsales taxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $189,000,whatisthe amount of thesalestaxesowedto thetaxingagency?

a.$180,000 b.$189,000 c.$9,450d.$9,000

 

  1. Advancesfromcustomersareclassifiedasa(n) a.revenue.

b.expense.

c.currentasset.d.currentliability.

 

  1. Thecurrentportionof long-term debtshould a.bepaidimmediately.

b.be reclassifiedasa currentliability. c.beclassifiedasa long-termliability.

d.notbeseparatedfromthelong-termportionof debt.

11-14

 

  1. Salestaxescollectedbya retailerareexpenses a.of theretailer.

b.of thecustomers.c.ofthegovernment.

d.that arenotrecognizedbythe retaileruntiltheyaresubmittedtothegovernment.

 

  1. Salestaxescollectedbya retailerarereportedas a.contingentliabilities.

b.revenues. c.expenses.

d.currentliabilities.

 

  1. Linda’sBoutiquehastotalreceiptsforthemonthof$29,295includingsalestaxes.Ifthe sales taxrateis 5%,whatareLinda’ssalesforthemonth?

a.$27,831 b.$27,900 c.$29,295

d.Itcannotbedetermined.

 

  1. A cashregistertapeshowscashsalesof$1,500and salestaxesof $90.Thejournalentry to recordthisinformationis

 

a.Cash…………………………………………………………………………                1,500 Sales…………………………………………………………………                              1,500

 

b.Cash…………………………………………………………………………                1,590

SalesTaxRevenue……………………………………………..                                         90 Sales…………………………………………………………………                              1,500

 

c.Cash…………………………………………………………………………                1,500 SalesTaxExpense……………………………………………………..              90

Sales…………………………………………………………………                                 1,590

 

d.Cash…………………………………………………………………………               1,590 Sales…………………………………………………………………                              1,500 SalesTaxesPayable…………………………………………..                                   90

 

  1. Tim’sPharmacyhascollected$600insalestaxesduringMarch.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillTim’sPharmacymaketoshow theMarch remittance?

a.SalesTaxExpense……………………………………………………..                      600

Cash…………………………………………………………………                                     600 b.SalesTaxesPayable…………………………………………………..             600

Cash…………………………………………………………………                                     600 c.SalesTaxExpense……………………………………………………..            600

SalesTaxesPayable…………………………………………..                                        600 d.Noentryrequired.

 

  1. LangerCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforFebruaryamountedto$28,600.Ifthesalestaxrateis4%,whatamountmust be remittedtothestatefor February’ssalestaxes?

a.$1,144 b.$1,100 c.$1,716

d.Itcannotbedetermined.

CurrentLiabilitiesandPayroll Accounting       11-15

 

  1. Anybalanceinanunearnedrevenueaccountisreportedasa(n) a.currentliability.

b.long-termdebt. c.revenue.

d.unearnedliability.

 

  1. StanleyCompany typicallysellssubscriptionsonanannualbasis,andpublishessixtimes ayear.Themagazinesells60,000subscriptionsinJanuaryat$15each.Whatentryis made inJanuary torecordthesaleof thesubscriptions?

 

a.SubscriptionsReceivable…………………………………………….. SubscriptionRevenue………………………………………….

 

b.Cash…………………………………………………………………………. UnearnedSubscriptionRevenue……………………………

 

c.SubscriptionsReceivable…………………………………………….. UnearnedSubscriptionRevenue……………………………

 

d.PrepaidSubscriptions…………………………………………………. Cash………………………………………………………………….

900,000

 

 

900,000

 

 

150,000

 

 

900,000

 

900,000

 

 

900,000

 

 

150,000

 

 

900,000

 

  1. Milton Companyissuedafour-year interest-bearingnotepayablefor$300,000on January 1,2007.EachJanuarythecompany isrequiredtopay$75,000onthenote.Howwillthis note be reportedontheDecember31,2008balancesheet?

a.Long-termdebt,$300,000. b.Long-termdebt,$225,000.

c.Long-termdebt,$150,000;Long-termdebtduewithinone year,$75,000. d.Long-termdebt,$225,000;Long-termdebtduewithinone year,$75,000.

 

  1. JanisKnothasalargeconsultingpractice.Newclientsarerequiredtopayone-halfofthe consultingfeesupfront.Thebalanceispaidattheconclusionoftheconsultation.How does Knotaccountforthe cashreceivedattheend of theengagement?

a.Cash

UnearnedConsultingRevenue b.Cash

EarnedConsultingRevenue c.PrepaidConsultingFees

EarnedConsultingRevenue

d.Noentryisrequiredwhentheengagementisconcluded.

 

  1. Whichoneofthefollowingisshownfirstundercurrentliabilitiesbymanycompaniesasa matter ofcustom?

a.Accruedexpenses

b.Currentmaturities of long-term debt c.Salestaxespayable

d.Notespayableandaccountspayable

 

  1. Workingcapital is

a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.

c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.

11-16

 

  1. Thecurrentratiois

a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.

c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.

 

  1. Acontingentliabilityneedonlybedisclosedinthefinancialstatementnoteswhenthe likelihood of thecontingencyis

a.reasonablypossible. b.probable.

c.remote. d.unlikely.

 

  1. Ifacontingentliabilityisreasonablyestimableanditisreasonablypossiblethatthe contingencywilloccur,thecontingentliability

a.shouldberecorded intheaccounts.

b.shouldbedisclosedin the notesaccompanyingthefinancialstatements.

c.shouldnotberecordedordisclosedinthenotesuntilthecontingencyactually happens.

d.mustbepaidforthe amountestimated.

 

  1. Theaccountingforwarrantycostisbasedonthematchingprinciple,whichrequiresthat theestimatedcost of honoring warrantycontractsshouldberecognizedasanexpense

a.whenthe productisbrought inforrepairs.b.intheperiodinwhichtheproductwassold. c.attheendofthewarrantyperiod.

d.onlyif therepairsareexpectedtobemadewithinone year.

 

  1. Ifa liabilityis dependentonafutureevent,it iscalleda a.potentialliability.

b.hypotheticalliability. c.probabilisticliability. d.contingentliability.

 

  1. 100. Currentmaturities of long-termdebt a.requireanadjustingentry.

b.areoptionallyreportedonthebalancesheet.

c.canbeproperlyclassifiedduringbalancesheetpreparation,withnoadjustingentry required.

d.arenotconsideredtobecurrentliabilities.

 

  1. 101. A contingencythatisremote

a.shouldbedisclosedinthefinancialstatements. b.mustbeaccruedasa loss.

c.doesnotneedto bedisclosed.

d.isrecordedasacontingentliability.

 

  1. 102. Theaccountingfor warrantycostsisbasedonthe a.goingconcernprincipl

b.matchingprinciple.

c.conservatismprinciple. d.objectivityprinciple.

CurrentLiabilitiesandPayroll Accounting       11-17

 

  1. 103. Warrantyexpensesarereported ontheincomestatementas a.administrativeexpense

b.part of costofgoodssold. c.contra-revenues.

d.sellingexpenses.

 

Usethefollowing informationforquestions104–105.

 

NeerCompanysells2,000unitsofitsproductfor$500each.Thesellingpriceincludesaone-yearwarrantyonparts.Itisexpectedthat3%oftheunitswillbedefectiveandthatrepaircosts willaverage$50perunit.Intheyearofsale,warrantycontractsarehonoredon40unitsfora totalcostof$2,000.

 

  1. 104. WhatamountshouldNeerCompanyaccrueonDecember31forestimatedwarranty costs?

a.$3,000 b.$2,000 c.$1,000 d.$15,000

 

  1. 105. WhatamountwillbereportedonNeerCompany’sbalancesheetasEstimatedWarranty Liabilityon December31,2008?

a.$2,000 b.$3,000 c.$1,000

d.Itcannotbedetermined.

 

  1. 106. Whichofthefollowingitemswouldnotbeidentifiedifacontingentliabilityweredisclosed in a financialstatementfootnote?

a.Thenatureof theitem

b.Theexpectedoutcomeof thefutureeventc.Anumericalprobabilityof theexpectedloss d.Theamountofthecontingency,if known

 

  1. 107. Disclosureofa contingentliabilityisusuallymade

a.parenthetically,inthebodyofthebalancesheet.

b.parenthetically,inthebodyoftheincomestatement. c.in anotetothefinancialstatements.

d.inthemanagementdiscussionsectionofthefinancial statement.

 

  1. 108. Currentliabilitiesgenerallyappear

a.after long-termdebtonthebalancesheet.

b.indecreasingorderofmagnitudeonthebalancesheet. c.in orderofmaturityonthebalancesheet.

d.in increasingorderofmagnitudeonthe balancesheet.

 

  1. 109. Whichofthefollowingemployees wouldlikelyreceivea salaryinsteadofwages? a.Storeclerk

b.Factoryemployee c.Salesmanager

d.Manuallaborer

11-18

 

  1. 110. Thetotalcompensationearnedbyanemployeeis called a.take-homepay.

b.netpay.

c.netearnings.d.grossearnings.

 

  1. 111. Whichoneofthefollowingpayrolltaxesdoesnotresultinapayrolltaxexpenseforthe employer?

a.FICAtax

b.Federalincometax

c.Federalunemployment tax d.Stateunemploymenttax

 

  1. 112. SueStein’sregularrateofpayis$12perhourwithoneandone-halftimesherregular rateforanyhourswhichexceed40hoursperweek.Sheworked48hourslastweek. Therefore, hergross wageswere

a.$576. b.$480. c.$624. d.$864.

 

  1. 113. AssumingaFICAtaxrateof8%onthefirst$90,000inwages,andafederalincometax rateof20%onallwages,whatwouldbeanemployee’snetpay fortheyearifheearned $100,000for theyear?

a.$92,800 b.$72,000 c.$80,000 d.$72,800

 

  1. 114. Mostcompaniesinvolvedin interstatecommercearerequiredtocomputeovertimeat a.theworker’sregularhourlywag

b.1.25timestheworker’sregularhourlywage. c.1.5timestheworker’sregularhourlywage. d.2.5timesthe worker’sregularhourlywage.

 

  1. 115. SueRicehasworked44hoursthisweek.Sheworkedinexcessof8hourseachday.Her regularhourlywageis$15perhour.WhatareSue’sgrosswagesfortheweek?(The company Sue worksfor is incompliancewiththeFair LaborStandardsAct.)

a.$660 b.$690 c.$990 d.$720

 

  1. 116. FICAtaxesdonotprovideworkerswith a.lifeinsurance.

b.supplementalretirement. c.employmentdisability.d.medicalbenefits.

CurrentLiabilitiesandPayroll Accounting       11-19

 

  1. 117. Employeepayroll deductionsincludeeachofthefollowingexceptfederalunemployment taxes.

b.federalincometaxes. c.FICAtaxes.

d.insurance,pension plans,anduniondues.

 

  1. 118. ThejournalentrytorecordthepayrollforaperiodwillincludeacredittoWagesand SalariesPayableforthegross

a.amountlessallpayrolldeductions. b.amountof allpaychecksissued.c.paylesstaxespayable.

d.paylessvoluntarydeductions.

 

  1. 119. Theamountofincometaxeswithheldfromemployeesisdependentoneachofthe followingexceptthe

a.employee’sgrossearnings. b.employee’snetpay.

c.length ofthepayperiod.

d.numberof allowancesclaimedbytheemployee.

 

Use thefollowing informationforquestions120–123.

 

 

Thefollowingtotalsforthemonthof Aprilweretakenfromthepayrollregisterof MainCompany.

 

Salaries

FICAtaxeswithheld IncometaxeswithheldMedicalinsurancedeductions Federalunemploymenttaxes Stateunemploymenttaxes

$24,000 1,100 5,000 900

64 432

 

 

  1. 120. Thejournalentrytorecordthemonthlypayrollon April30wouldincludea a.debit toSalariesExpensefor $24,000.

b.credittoSalariesPayablefor$24,000. c.debittoSalariesPayablefor$24,000. d.debit to Salaries Expensefor $17,000.

 

  1. 121. Theentrytorecordthe paymentofnetpayroll wouldincludea a.debit toSalariesPayablefor$16,50

b.debittoSalariesPayable for$17,000. c.debittoSalariesPayablefor$15,900. d.credit to Cashfor $18,100.

 

  1. 122. TheentrytorecordaccrualofMainCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$496.

b.debittoPayrollTaxExpensefor$1,596. c.credit toFICA Taxes Payablefor$2,200. d.credit to PayrollTaxExpensefor $496.

11-20

 

  1. 123. Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea a.credit to FederalUnemploymentTaxes Payablefor $64.

b.debitto Federal UnemploymentTaxes Expensefor $64. c.creditto PayrollTaxExpensefor$64.

d.debitto Federal UnemploymentTaxes Payablefor $64

 

Usethefollowing informationforquestions124–127.

 

Thefollowingtotalsforthemonthof June weretakenfromthepayrollregisterof LaneCompany.

 

Salaries

FICAtaxeswithheld IncometaxeswithheldMedicalinsurancedeductions Federalunemploymenttaxes Stateunemploymenttaxes

$20,000 1,533 4,400 800

160 1,000

 

 

  1. 124. Thejournalentrytorecordthemonthlypayrollon June30wouldincludea a.debit toSalariesExpensefor $20,000.

b.credittoSalariesPayablefor$20,000. c.debittoSalariesPayablefor$20,000. d.debit to Salaries Expensefor $13,267

 

  1. 125. Theentrytorecordthe paymentofnetpayroll wouldincludea a.debitto SalariesPayablefor$12,10

b.debittoSalariesPayable for$13,267. c.debittoSalariesPayablefor$12,267. d.credit to Cashfor $12,267.

 

  1. 126. TheentrytorecordaccrualofLaneCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$2,693

b.credittoPayrollTaxExpensefor$2,693 c.credit toFICA TaxesPayablefor$1,160. d.credit to PayrollTaxExpensefor $1,160.

 

  1. 127. Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea a.credit to FederalUnemploymentTaxes Payablefor $16

b.creditto Federal UnemploymentTaxes Expensefor $160. c.creditto PayrollTaxExpensefor$160.

d.debitto Federal UnemploymentTaxes Payablefor $160.

 

  1. 128. Whichoneofthefollowingpayrolltaxesisnotwithheldfromanemployee’swages because it is notleviedontheemployee?

a.Federalincometax

b.Federalunemployment tax c.State incometax

d.FICAtax

CurrentLiabilitiesandPayroll Accounting       11-21

 

  1. 129. ByJanuary31followingtheendofacalendaryear,anemployerisrequiredtoprovide each employeewitha(n)

a.stateunemploymenttaxform.

b.federalunemployment taxform940. c.wageandtaxstatementformW-2.

d.employee’swithholdingallowancecertificateformW-4.

 

  1. 130. Whichofthefollowingpayroll taxesareusuallyfiledandremittedannually? a.Federalunemployment taxes

b.FICAtaxes

c.Stateunemploymenttaxes

d.Federalandstateunemploymenttaxes

 

  1. 131. Thetaxthatispaidequallybytheemployerand employeeis the a.federalincometax.

b.federalunemployment tax. c.stateunemploymenttax.d.FICAtax.

 

 

  1. 132. The effectivefederalunemploymenttaxrateisusually a.6.2%.

b.0.8%. c.5.4%. d.8.0%.

 

  1. 133. Thetreasurer’sdepartmentisresponsiblefor a.approvingthepayroll.

b.maintainingpayrollrecords.c.preparingpayroll taxreturns. d.signingpayrollchecks.

 

  1. 134. Thepayrollis paidbpersonneldepartment. b.payrolldepartment.

c.cashier.

d.treasurer’sdepartment.

 

a135.Post-retirementbenefitsconsistof payments byemployerstoretiredemployeesfor a.healthcareand lifeinsuranceonly.

b.healthcareandpensionsonly.c.lifeinsuranceandpensionsonly.

d.healthcare,lifeinsurance,andpensions.

 

a136.Thepaidabsencethat ismostcommonlyaccruedis a.votingleave.

b.vacationtime.c.maternityleave. d.disabilityleave.

11-22

 

a137.BlakeCompanyhastenemployeeswhoeachearn$160perday.Iftheyaccumulate vacationtimeattherateof1.5vacationdaysforeachmonthworked,theamountof vacation benefitsthatshouldbeaccruedatthe end of themonthis

a.$160.b.$1,600. c.$2,400. d.$240.

 

a138.Anemployer’sestimatedcostfor post-retirement benefitsforitsemployeesshouldbe a.recognizedas anexpensewhenpaid.

b.recognizedasanexpenseduringtheemployees’workyears.

c.recognizedas an expenseduringtheemployees’retirementyears.

d.chargedto thegoodwillaccount because providingemployees with benefits generates employee goodwill.

 

Additional MultipleChoiceQuestions

 

  1. 139. Acurrentliabilityisadebtthecompanyreasonablyexpectstopayfromexistingcurrent assetswithin

a.oneyear.

b.theoperatingcycle.

c.one yearor theoperatingcycle, whicheverislonger. d.oneyearor theoperatingcycle, whicheveris shorter.

 

  1. 140. Whichofthefollowingstatements concerningcurrent liabilitiesis incorrect?Currentliabilitiesincludeunearnedrevenues.

b.Acompanythat hasmore currentliabilities thancurrentassets is usuallythesubjectof someconcern.

c.Currentliabilitiesincludeprepaidexpenses.

d.Acurrentliabilityisadebtthatcanreasonablybeexpectedtobepaidoutofexisting currentassetsorresult inthecreationof other currentliabilities.

 

  1. 141. OnAugust1,2008,acompanyborrowedcashandsignedaone-yearinterest-bearing noteonwhichboththefacevalueandinterestarepayableonAugust1,2009.Howwill thenotepayableandtherelatedinterestbeclassifiedintheDecember31,2008,balance sheet?

NotePayable                                  Interest Payablea.Currentliability                     Noncurrentliability b.Noncurrentliability                          Currentliability

c.Currentliability                                 Currentliability d.Noncurrentliability                          Notshown

 

  1. 142. Companiesreportcurrentliabilitiesonthebalancesheetin a.alphabeticalorder.

b.order ofmaturity. c.randomorder.

d.order ofmagnitude.

CurrentLiabilitiesandPayroll Accounting       11-23

 

  1. 143. A contingencyneednotberecordednordisclosedwhen

a.itisprobablethecontingencywillhappenandtheamountcanbereasonably estimated.

b.itisprobablethecontingencywillhappenbuttheamountcannotbereasonably estimated.

c.itisreasonablypossiblethecontingencywillhappenandtheamountcanbe reasonablyestimated.

d.thepossibilityof the contingencyhappeningisremote.

 

  1. 144. A contingentliabilityis recordedwhenthe likelihoodof thecontingency is a.remote.

b.reasonablypossible. c.probable.

d.nil or zero.

 

  1. 145. MikeKohl,anemployeeofSpottswoodCompany,hasgrossearningsforthemonthof Octoberof$6,000.FICAtaxesare8%ofgrossearnings, federalincometaxesamount to $952forthemonth,stateincometaxesare2%ofgrossearnings,andMikeauthorizes voluntarydeductionsof$15permonthtotheUnitedFund.WhatisthenetpayforMike Kohl?

a.$4,442 b.$4,433 c.$4,448 d.$4,452

 

  1. 146. Apayrollrecordthataccumulatesthegrossearnings,deductions,andnetpayby employeefor eachpayperiodis the

a.withholdingtaxtable.

b.employeeearningsrecord. c.payrollregister.

d.WageandTaxStatement.

 

  1. 147. ThejournalentrytorecordthepayrollforMarcusGarveyCompanyfortheweekending January8,wouldprobablyincludea

a.creditto OfficeSalaries.b.credittoWages Expense.

c.debittoFederalIncomeTaxesPayable. d.creditto FICATaxesPayable.

 

  1. 148. Employerpayroll taxesincludeallofthefollowingexceptFICAtaxes.

b.federalunemployment taxes. c.stateunemploymenttaxes.d.federalincometaxes.

 

  1. 149. Therecordthatprovidesacumulativesummaryofeachemployee’sgrossearnings, payrolldeductions, and netpayduring theyearandisrequiredtobemaintainedtocomply with stateandlocalfederallawisthe

a.register.

b.employeeearningsrecord. c.statementofearnings.

d.wageandtaxstatement.

11-24

 

a150.Post-retirementbenefitsincludeallofthefollowingexcept a.healthcare.

b.lifeinsurance. c.pensions.

d.vacationbenefits.

 

 

 

 

 

 

 

 

BRIEFEXERCISES

 

 

BE151

 

SaldanaSalesCompanyhasthefollowingselectedaccountsafterpostingadjustingentries:

 

AccountsPayableNotesPayable,3-month

AccumulatedDepreciation—Equipment NotesPayable,5-year,6%

PayrollTax Expense InterestPayable MortgagePayable SalesTaxPayable

$62,000 50,000 14,000 80,000 4,000 3,000 120,000 38,000

 

 

Instructions

PreparethecurrentliabilitysectionofSaldanaSalesCompany’sbalancesheet,assuming $20,000of themortgageispayablenextyear.

 

 

BE152

 

Identifywhichof thefollowingwouldbeclassifiedas currentliabilitiesasof December31,2008: 1.WagesPayable

2.BondsPayable, maturingin 2013 3.InterestPayable,dueJuly1,2009 4.TaxesPayable

5.NotesPayable, dueJanuary30,2010

 

 

 

 

BE153

 

OnDecember1,DestinCorporationborrowed$5,000ona90-day,6%note.Preparetheentries torecordtheissuanceofthenote,theaccrualofinterestatyearend,andthepaymentofthe note.

 

 

 

BE154

DuringDecember2008,FashionVixenPublishingsold2,50012-monthannualmagazine subscriptionsatarateof$30each.ThefirstissuesweremailedinFebruary2009.Preparethe entriesonFashionVixen’sbookstorecordthesaleofthesubscriptionsandthemailingofthe first issues.

 

 

BE155

 

Landen Companyhadcashsalesof$54,250(includingtaxes)forthemonthofJune.Salesare subjectto8.5%salestax.Preparetheentryto recordthesale.

 

 

 

 

BE156

 

OnDecember1, WynnCompanyintroducesanewproductthatincludesaone-yearwarrantyon parts.InDecember,500unitsaresold.Managementbelievesthat5%oftheunitswillbe defectiveandthattheaveragewarrantycostswillbe$60perunit.Preparetheadjustingentryat December31toaccruethe estimatedwarrantycost.

 

 

 

BE157

 

MaryStine’sregularhourlywagerateis$12,andshereceivesanhourlyrateof$18forworkin excessof40hours.DuringaMarchpayperiod,Maryworks47hours.Mary’sfederalincometax withholdingis$70,andshehasnovoluntarydeductions.ComputeMaryStine’sgrossearnings and netpayforthepayperiod.

 

 

 

BE158

 

Data forMaryStinearepresentedinBE157.PreparethejournalentrytorecordMary’spayfor theperiod.Use March15fortheendof thepayperiod.

 

 

 

 

BE159

 

InFebruary,grossearningsinZennCompanytotaled$50,000.Allearningsaresubjectto8% FICAtaxes,5.4%stateunemploymenttaxes,and0.8%federalunemploymenttaxes.Prepare theentrytorecordJanuarypayrolltaxexpense.

 

 

 

 

*BE160

 

WeaverCompanyemployeesareentitledtooneday’svacationforeachmonthworked.In February,60employeesworkedthefullmonth.RecordthevacationpayliabilityforFebruary assuming theaveragedailypayfor eachemployeeis$90.

 

 

 

EXERCISES

Ex.161

StinerCompanyhasthefollowingselectedaccounts afterpostingadjustingentries:

 

AccountsPayableNotesPayable,3-month

AccumulatedDepreciation—Equipment PayrollandBenefitsPayable

NotesPayable,5-year,8% EstimatedWarrantyLiability PayrollTax ExpenseInterestPayable MortgagePayable

SalesTaxPayable

$45,000 80,000 14,000 27,000 30,000 34,000 6,000 3,000 200,000 16,000

 

 

Instructions

(a)PreparethecurrentliabilitysectionofStinerCompany’sbalancesheet,assuming$25,000 of themortgageispayablenextyear. (Listliabilities inmagnitudeorder,withlargestfirst.)

 

(b)Commenton Stiner’s liquidity,assumingtotalcurrentassetsare$450,000.

 

 

 

 

Ex.162

 

Preparethenecessaryjournalentriesforthefollowingtransactions:

(a)On September1,LoreCompanyborrowed$150,000fromNationalBankona6-month,8% note.

(b)On December31, LoreCompanyaccruedinterest(assumeadjustingentries areonlymade at theendoftheyear).

CurrentLiabilitiesandPayroll Accounting       11-29

 

 

Ex.163

 

OnMarch1,FeltonCompanyborrows$90,000fromOttawaStateBankbysigninga6-month, 8%,interest-bearingnote.

 

Instructions

PreparethenecessaryentriesbelowassociatedwiththenotepayableonthebooksofFelton Company.

(a)Preparetheentryon March 1whenthe notewasissued.

(b)PrepareanyadjustingentriesnecessaryonJune30inordertopreparethesemi-annual financialstatements. Assumenootherinterestaccrualentrieshavebeenmade.

(c)Preparetheadjustingentry at August31to accrueinterest. (d)Preparetheentryto recordpaymentof thenote atmaturity.

 

 

 

 

Ex.164

 

TomByerssellstelevisionswitha2-yearwarranty.Pastexperienceindicatesthat2%oftheunits soldwillbereturnedduringthewarrantyperiodforrepairs.Theaveragecostofrepairsunder warrantyisestimatedtobe$50perunit.During2008,7,000unitsweresoldatanaverageprice of$400.Duringtheyear,repairsweremadeon55unitsatacost of $2,400.

 

Instructions

Preparejournalentriestorecordtherepairsmadeunderwarrantyandestimatedwarranty expense fortheyear.

 

 

Ex.165

 

SommersCompanybilleditscustomersatotalof$1,575,000forthemonthofNovember.The totalincludesa 5% statesalestax.

 

Instructions

(a)Determinetheproperamountof revenuetoreportforthemonth.

(b)Preparethegeneraljournalentrytorecordtherevenue andrelatedliabilitiesforthemonth.

 

 

 

Ex.166

 

StevensCompany does notsegregatesales andsales taxes onitscashregister.Its registertotal for themonthis$259,700, whichincludesa 6%salestax.

 

Instructions

 

Computesalestaxespayable,andmaketheentrytorecordsalesandsalestaxespayable.

 

 

 

Ex.167

 

SuttonCoatCompany,whichpreparesannualfinancialstatements,ispreparingadjustingentries on December31. Analysisindicatesthefollowing:

 

1.Thecompanyisthedefendantinanemployeediscriminationlawsuitinvolving$50,000of damages.Legalcounselbelievesitisunlikelythatthecompanywillhavetopayany damages.

 

2.December31stisaFriday.TheemployeesofthecompanyhavebeenpaidonMonday, December27thforthepreviousweekwhichendedonFriday,December24th.Thecompany employs30peoplewhoearn$100perdayand15peoplewhoearn$150perday.All employees work5-day weeks.

 

3.Thecompany isadefendantina$500,000productliability lawsuit.Legal counsel believesthe companyprobablywill havetopaytheamountrequested.

 

a4.Employeesareentitledtooneday’svacationforeachmonthworked.Allemployees describedabove in(2.) workedthemonthof December.

 

Instructions

Prepareanyadjustingentriesnecessaryattheendof theyear.

 

 

 

 

Ex.168

 

Basedonthefollowinginformation,computethe(1) currentratioand(2) workingcapital.

 

Currentassets Totalassets Currentliabilities Totalliabilities

$240,000 900,000 80,000 500,000

 

 

Ex.169

 

LindaEstessellsexercisemachinesforhomeuse.Themachinescarrya2-yearwarranty.Past experienceindicatesthat6%oftheunitssoldwillbereturnedduringthewarrantyperiodfor repairs.Theaveragecostofrepairsunderwarrantyis$60forlaborand$90forpartsperunit. During2008,2,500exercise machines weresoldatanaverageprice of$800.Duringtheyear,60 of themachinesthat weresold wererepairedattheaveragepriceper unit.

 

Instructions

(a)     Preparethejournalentrytorecordtherepairsmadeunderwarranty.

(b)    Preparethejournalentrytorecordtheestimatedwarrantyexpense fortheyear.

 

 

 

 

Ex.170

 

GolfWorldPublicationspublishesagolfmagazineforwomen.Themagazinesellsfor$3acopy onthenewsstand.Yearlysubscriptionstothemagazinecost$24peryear(12issues).During December2008,GolfWorldPublicationssells9,000copiesofthegolfmagazineatnewsstands andreceivespaymentfor15,000subscriptionsfor2009.Financialstatementsareprepared monthly.

 

Instructions

(a)Preparethe December2008journalentriesto record the newsstandsales and subscriptions received.

 

(b)PreparethenecessaryadjustingentryonJanuary31,2009.TheJanuary2009issuehas been mailedto subscribers.

CurrentLiabilitiesandPayroll Accounting       11-33

 

 

Ex.171

 

PresleyCompanysellsaproduct thatincludesaone-yearwarrantyonpartsandlabor.During the year,10,000unitsaresold.Presleyexpectsthat3%oftheunitswillbedefectiveandthatthe averagewarrantycostwillbe$50perunit.Actualwarrantycostsincurredduringtheyearwere $14,000.

 

Instructions

 

Preparethejournalentriestorecord(a)theestimatedwarrantycostsand(b) theactualcosts incurred.

 

 

 

 

Ex.172

 

DobsonCompanyispreparingadjustingentriesatDecember31.Ananalysisrevealsthe following:

 

1.DuringDecember,DobsonCompanysold2,000unitsofaproductthatcarriesa60-day warranty.Thesalesforthisproducttotaled$100,000.Thecompanyexpects4%oftheunits toneedrepairunderthe warrantyanditestimates thattheaveragerepaircostperunitwillbe $15.

 

2.Thecompanyhasbeensuedbyadisgruntledemployee.Legalcounselbelievesthatitis reasonablypossiblethatthecompanywillhaveto pay$200,000indamages.

 

3.Thecompanyhasbeennamedasoneofseveraldefendantsina$400,000damagesuit. Legalcounselbelievesit is unlikelythatthecompanywillhavetopayanydamages.

 

a4.Employeesearnvacationpayatarateof1daypermonth.DuringDecember,tenemployees qualifyforvacationpay.Theiraveragedailywageis $90per employee.

 

Instructions

 

Prepareadjustingentries,if required,for eachofthefouritems.

 

 

Ex.173

 

Matchthecodesassignedtothefollowingpayrollfunctionstotheprocedureslistedbelow:

 

H          HiringEmployees T          Timekeeping

PRE        PreparingthePayroll PAY                Payingthe Payroll

 

1.Distributionof checksbythetreasurer 2.Supervisorapproveshoursworked

3.Documentationof employeehiring 4.Maintenanceofpayrollrecords

5.Verificationof payrollcalculations

 

6.Screeningand interviewingofjobapplicants 7.Useofatimeclock

8.Signingprenumberedpayrollchecks

 

 

 

 

Ex.174

 

SueWiebe’sregularhourlywageis$14anhour.Shereceivesovertimepayattherateoftime andahalf.TheFICAtaxrateis8%.Sueispaideverytwoweeks.Forthefirstpayperiodin January,Sueworked86hoursofwhich6wereovertimehours.Sue’sfederalincometax withholdingis$300andherstateincometaxwithholding is$100.Suehasauthorizedthat$50be withheldfrom hercheckeachpayperiodforsavingsbonds.

 

Instructions

 

ComputeSueWiebe’sgrossearningsandnetpayforthepayperiodshowingeachpayroll deductioninarrivingatnet pay.

 

 

 

 

Ex.175

 

StacyCooper’sregularhourlywagerateis$12,andshereceivesawageof11/2timesher regularrateforworkinexcessof40hours.DuringaJunepayperiod,Stacyworked46hours. Stacy’sfederalincometaxwithholdingis$58,andheronlyvoluntarydeductionis$25forgroup hospitalization insurance.

 

Instructions

ComputeStacy’s(a)grossearningsand(b) net payforthepayperiod.

 

 

 

Ex.176

 

OatesCompany’spayrollfortheweekendingJanuary15amountedto$95,000forOffice Salariesand$150,000forStoreWages.Noneoftheemployeeshasreachedtheearningslimits specifiedforfederalorstateemployerpayrolltaxes.Thefollowingdeductionswerewithheldfrom employees’salaries andwages:

 

FederalIncomeTax StateIncomeTax FICATaxes

UnionDues UnitedFund

$50,000 9,000 19,600 2,700 1,800

 

 

Federalunemploymenttax(FUTA)rateis6.2%lessacreditequaltotheratepaidforstate unemployment taxes.Thestateunemploymenttax(SUTA)rateis5.4%.

 

Instructions

 

Preparethe journal entrytorecord theweeklypayroll endingJanuary 15 andalsothe employer’s payroll taxexpenseonthe payroll.

 

 

 

 

Ex.177

 

AnnFinleyhadearned(accumulated)salaryof$86,000throughNovember30.HerDecember salaryamounted to$7,800.JimLanebeganemploymentonDecember1andwillbepaidhisfirst month’ssalaryof$5,000onDecember31.IncometaxwithholdingforDecemberforeach employee isasfollows:

Ann Finley                         JimLane FederalIncomeTax                              $2,180                                 $990 StateIncomeTax                                    390                                   180

CurrentLiabilitiesandPayroll Accounting       11-37

 

Ex.177         (cont.)

 

Thefollowingpayrolltaxratesareapplicable:

FICAtaxonfirst $90,000                          8% FUTAtaxonfirst $7,000                     6.2%* SUTAtaxonfirst$7,000                     5.4%

 

*Lessacredit equaltothe stateunemploymentcontribution

 

Instructions

 

RecordthepayrollforthetwoemployeesatDecember31andrecordtheemployer’sshareof payroll taxexpenseforthe December31payroll.

 

 

 

Ex.178

 

AssumethatthepayrollrecordsofGibbsOilCompanyprovidedthefollowinginformationforthe weeklypayrollendedNovember30, 2008.

Year-to-Date Hourly                        Federal                                      EarningsThrough

Employee     HoursWorked      PayRate         Income Tax        Union Dues      PreviousWeek

 

C.White                 44 J.Ward  46 K.Hurt        39 M.King       42

$45                  $362 10                     65 20                   118 22                   169

$9                      $91,000 5                        23,200 —                          5,700 7                        49,500

 

Ex.178         (cont.)

 

Additionalinformation:Allemployeesarepaidovertimeattimeandahalfforhoursworkedin excessof40perweek.TheFICAtaxrateis8%forthefirst$90,000ofeachemployee’sannual earnings.Theemployerpaysunemploymenttaxesof6.2%(5.4%forstateand.8%forfederal) on thefirst $7,000ofeachemployee’sannualearnings.

 

Instructions

(a)     Preparethepayrollregisterforthepayperiod.

(b)    Preparegeneraljournalentriestorecordthepayrollandpayrolltaxes.

 

 

 

 

Ex.179

 

DianeJenksearnsasalaryof$8,000permonthduringtheyear.FICAtaxesare8%onthefirst $90,000ofgrossearnings.Federalunemploymentinsurancetaxesare6.2%ofthefirst$7,000; however,acreditisallowedequaltothestateunemploymentinsurancetaxesof5.4%onthe $7,000.During the year, $27,300waswithheldfor federal incometaxesand$5,700was withheld for state incometaxes.

CurrentLiabilitiesandPayroll Accounting       11-39

 

Ex.179         (cont.)

 

Instructions

(a)PrepareajournalentrysummarizingthepaymentofJenks’total salaryduringthe year.

 

(b)PrepareajournalentrysummarizingtheemployerpayrolltaxexpenseonJenks’salaryfor theyear.

 

(c)Determinethecostof employing Jenksfor theyear.

 

 

 

 

 

Ex.180

 

TolanCompanyhadthefollowingpayroll datafortheyear:

 

Grossearningsof employees Employeeearnings notsubjectto FICAtax

Employeeearnings notsubjecttoFUTAor SUTAtax

$640,000 140,000 490,000

 

Assumingthefollowing: FICAtaxrate

StateUnemploymenttaxrate Federal Unemploymenttaxrate

 

8%

5.4%(SUTA) .8%(FUTA)

 

Instructions

ComputeTolan’spayrolltaxexpensefortheyear.Makeasummaryjournalentrytorecordthe payroll taxexpense.

 

 

Ex.181

 

InMarch,grossearningsofMilnerCompanytotaled$150,000.AllearningsaresubjecttoFICA taxes,5.4%stateunemploymenttaxes,and0.8%federalunemployment taxes.

 

Instructions

 

(a)Computetheemployer’spayrolltaxexpense. (b)Preparetheentrytorecordpayrolltaxes.

 

 

 

 

Ex.182

 

ThefollowingpayrollliabilityaccountsareincludedintheledgerofClementsCompanyon January1,2008:

 

FICATaxes Payable                                                     $1,750 FederalIncomeTaxesPayable                                   4,000 StateIncomeTaxesPayable                                          665 FederalUnemploymentTaxesPayable                          175 StateUnemploymentTaxes Payable                           1,190 UnionDuesPayable                                                       400 HealthInsurancePremiumPayable                            5,000 ChristmasClubSavingsPayable                                 1,500

 

InJanuary,thefollowingtransactionsoccurred:

 

Jan.9          Sentacheckfor $5,000toBlueCrossandBlueShield.

11      Depositedacheckfor$5,750inFederalReserveBankforFICAtaxesandfederal incometaxeswithheld.

14      Sentacheckfor $400totheuniontreasurerforuniondues. 18          Paidstateincometaxeswithheldfromemployees.

21      Paidstateandfederalunemployment taxes.

22      Senta$1,500checktoaSavingsandLoanforthe ChristmasClubwithholdings.

 

Instructions

JournalizetheJanuarytransactions

 

 

 

 

COMPLETIONSTATEMENTS

 

 

183.Acurrentliabilityisadebtthatcanbeexpectedtobepaidwithin                                                 year or the                                       ,whicheveris longer.

 

184.Liabilitiesareclassifiedonthebalancesheetasbeing                                                      liabilitiesor

 

                              liabilities.

 

 

185.Obligationsinwrittenformarecalled                                       andusuallyrequiretheborrower topayinterest.

 

186.Withaninterest-bearingnote,aborrowermustpaythe                                                   ofthenote plus                                            atmaturity.

 

187.Salestaxescollectedfromcustomersarea                                             ofthebusinessuntilthey areremittedtothetaxing agency.

 

188.Thecurrentratioiscurrent assetsdivided by                                       .

 

 

189.Acontingentliabilityshouldberecordedintheaccountsifitis         thatthe contingencywilloccurand theamountis                                                                            .

 

190.Twofederaltaxeswhichareleviedagainstemployees’wagesthatmustbedeductedin arrivingatnetpay are(1)                                                                       taxesand(2)                                taxes.

 

191.Theemployerincursapayrolltaxexpenseequaltotheamountcontributedbyeach employeefor       taxes.

 

192.Apayrolltaxexpensewhichisborneentirelybytheemployeristhefederal

 

                                tax.

 

 

 

 

MATCHING

 

 

193.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

 

A.Currentliability B.NotesPayable

C.WageandTaxStatement D.Currentratio

E.Contingentliabilities

  1. Federalincometaxes G.FICAtaxes

H.Federalunemploymenttaxes aI.       Post-retirementbenefits

aJ.Pensionplan

 

 

1.Leviedagainstemployees’wageswithoutlimit.

 

2.Anobligationintheformofa writtenpromissorynote.

 

3.Anagreementwherebyanemployerprovidesbenefitsto employeesaftertheyretire.

 

4.Apayrolltaxexpenseleviedonlyagainstthe employerbasedonemployees’wages.

 

5.Ameasureofacompany’sliquidity.

 

6.Adebtthancanreasonablybeexpected tobepaidfromcurrentassets.

 

7.Aformshowinggrossearnings andincometaxeswithheld.

 

8.Leviedagainstemployees’wageswithamaximumlimit.

 

9.Paymentsbyemployerstoretiredemployees.

 

10.Apotentialliabilitythat maybecome anactualliability inthefuture.

 

 

 

 

 

SHORT-ANSWERESSAYQUESTIONS

S-AE194

Acompanywillincurproductrepaircostsinthefutureifproductsthatitsellscurrentlyunder warrantyarebroughtinforrepairduringthewarrantyperiod.Thecompanywillalsoincurbad debtsexpenseinthefutureifcustomerswhobuyoncreditcurrentlyareunabletopaytheir accounts.Aretheaccountingproceduresforthesetwocontingentcosts(warrantyexpenseand bad debtexpense)relatedorguidedbythesameaccountingprinciple?Brieflyexplain.

 

 

 

S-AE195

 

Anemployee’snetpayconsistsofgrosspaylessmandatoryandvoluntarypayrolldeductions. Identifythemandatorypayrolldeductionsandgivetwoorthreeexamplesofcommonvoluntary deductions.Arethesedeductionsrecognizedaspayrollexpensesbytheemployer? Whattypeof payroll expensesdoesthe employerincurrelatedto havingapayroll?

 

 

S-AE196(Ethics)

 

Quaney Companymaintainstwoseparateaccountspayablecomputersystems.Oneisknownto alltheusers,andisusedtoprocesspaymentstovendors.Employeesenterthevendorcode,or thenameandaddressofnewvendors,theamount,theaccount,andsoon.Theothersystemis asecretone.Itisusedtocross-checkthevendorsagainstanapprovedvendorlist.Ifavendoris notlistedasapproved, thepaymentprocessishalted.Internalauditemployeesseektoverifythe existenceofabonafideclaimbythevendor.Allinquiriesaremadeatthetopmanagement level, andverydiscreetly.Noonebuttopmanagement,theinternalauditstaff,andtheBoardof Directorsofthecompanyis evenawareof thesecondsystem.

 

Required:

Isit ethicalforacompanytohavea secretsystemliketheonedescribed?Explain.

 

 

S-AE197(Communication)

 

Al-Fabisamanufacturingcompanythatmakesvariousindustrialcomponentsoutofaluminum. Al-FabislocatedinalargecityinthenortheasternUnitedStates.Variouslabordisputeshave occurredinthecity,somewithacrimoniouspublicdebateconcerningthehonestyof management.DuringoneofAl-Fab’sroutineemployeemeetings,JackGrant,aproduction worker, broughtuptheissueof thecostof aworkerasreportedinthecompany’sannualreport.

 

Thecostwasgivenas$32,000peryear.Jackpointsoutthattheaveragewagerateof$12per hourisatmostaround$25,000ingrosswages.Heaskswhetherthecompanyisaddingin overtime,becauseifso,thefiguresaremisleadingbecausetheemployeesarenotallowedto workovertime.

 

Required:

 

PrepareanoteexplainingtoMr.GranthowAl-Fabmightcalculateacostperemployeethatis greater thangross wages.Explainingeneraltermsonly.Do notuseanycalculations.

 

 

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