Test bank accounting 25th editon warren chapter 11 current liabili

The following totals for the month of June were taken from the payroll register of Arcon Company: Social security and Medicare Taxes withheld 1,050 The entry to record the payment of ne

Chapter 11 Current Liabilities and Payroll

Student: _

1 Receiving payment prior to delivering goods or services causes a current liability to be incurred

True False

2 For a current liability to exist, the following two tests must be met The liability must be due usually within

a year and must be paid out of current assets

9 The amount of money a borrower receives from the lender is called discount rate

16 If, prior to the last weekly payroll period of the calendar year, the cumulative earnings for an employee are

$98,800, earnings subject to social security tax are $100,000, and the tax rate is 6.0%, the employer's social security tax on the $2,000 gross earnings paid on the last day of the year is $120

18 Taxes deducted from an employee's earnings to finance social security and Medicare benefits are called FICA taxes

26 Federal unemployment compensation taxes that are collected by the federal government are not paid

directly to the unemployed but are allocated among the states for use in state programs

True False

27 Like many taxes deducted from employee earnings, federal income taxes are subject to a maximum amount per employee per year

32 The use of a separate payroll bank account is not an advantageous control, because it creates more

complexity in reconciliation functions for a company and invites theft

36 The payroll register is a multicolumn form used to assemble the data related for all employees

40 For proper matching of revenues and expenses, the estimated cost of fringe benefits must be recognized as

an expense of the period during which the employee earns the benefits

True False

41 Depending upon when an unfunded pension liability is to be paid, it will be classified on the balance sheet

as either a long-term or a current liability

True False

42 During the first year of operations, employees earned vacation pay of $35,000 The vacations will be taken during the second year The vacation pay expense should be recorded in the second year as the vacations are taken by the employees

45 In a defined benefits plan, the employer bears the investment risks in funding a future retirement income benefit

51 Current liabilities are

A due, but not receivable for more than one year

B due, but not payable for more than one year

C due and receivable within one year

D due and payable within one year

52 Notes may be issued

A when assets are purchased

B to creditor's to temporarily satisfy an account payable created earlier

C when borrowing money

D all of the above

53 On June 8, Alton Co issued an $95,000, 6%, 120-day note payable to Seller Co What is the due date of the note?

55 On July 8, Alton Co issued an $80,000, 6%, 120-day note payable to Seller Co Assume that the fiscal year

of Alton Co ends July 31 Using the 360-day year in your calculations, what is the amount of interest expense recognized by Alton in the current fiscal year?

57 On June 8, Alton Co issued an $80,000, 6%, 120-day note payable on an overdue account payable to Seller

Co Assume that the fiscal year of Alton Co ends June 30 Which of the following relationships is true?

A Alton is the creditor and credits Accounts Receivable

B Seller is the creditor and debits Accounts Receivable

C Seller is the borrower and credits Accounts Payable

D Alton is the borrower and debits Accounts Payable

58 A business borrowed $40,000 on March 1 of the current year by signing a 60-day, 9% interest bearing note Assuming a 360-day year, when the note is paid on April 30, the entry to record the payment should include a

A debit to Interest Payable $600

B debit to Interest Expense $600

C credit to Cash for $40,000

D credit to Cash for $46,300

59 When a borrower receives the face amount of a discounted note less discount, this amount is known as:

A the note proceeds

B the note discount

C the note deferred interest

D the note principal

63 Mobile Co issued a $45,000, 60-day, discounted note to Guarantee Bank The discount rate is 6% At maturity, assuming a 360-day year, the borrower will pay:

64 Chang Co issued a $50,000, 120-day, discounted note to Guarantee Bank The discount rate is

6% Assuming a 360-day year, the cash proceeds to Chang Co are

A debit Cash; credit Accounts Payable

B debit Accounts, Payable; credit Cash

C debit Cash; credit Notes Payable

D debit Accounts Payable; credit Notes Payable

66 The journal entry a company uses to record the issuance of an interest-bearing note for the purpose of borrowing funds for the business is

A debit Accounts Payable; credit Notes Payable

B debit Cash; credit Notes Payable

C debit Notes Payable; credit Cash

D debit Cash and Interest Expense; credit Notes Payable

67 The journal entry a company uses to record the issuance of a discounted note for the purpose of borrowing funds for the business is

A debit Cash and Interest Expense; credit Notes Payable

B debit Cash and Interest Payable; credit Notes Payable

C debit Accounts Payable; credit Notes Payable

D debit Notes Payable; credit Cash

68 The journal entry a company uses to record the payment of a discounted note is

A debit Notes Payable and Interest Expense; credit Cash

B debit Notes Payable; credit Cash

C debit Cash; credit Notes Payable

D debit Accounts Payable; credit Cash

69 The journal entry a company uses to record the payment of an interest-bearing note is

A debit Cash; credit Notes Payable

B debit Accounts Payable; credit Cash

C debit Notes Payable and Interest Expense; credit Cash

D debit Notes Payable and Interest Receivable; credit Cash

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

A between 6 months and 18 months

B out of currently recognized revenues

C within one year

D out of cash currently on hand

71 Grayson Bank agrees to lend the Trust Company $120,000 on January 1 Trust Company signs a $120,000, 8%, 9-month note The entry made by Trust Company on January 1 to record the proceeds and issuance of the note is:

72 The journal entry to record the conversion of an $4,700 accounts payable to a notes payable would be:

73 Current liabilities are:

A due and receivable within one year

B due and to be paid out of current assets within one year

C due, but not payable for more than one year

D payable if a possible subsequent event occurs

74 Which of the following would most likely be classified as a current liability?

A Two-year Notes Payable

76 The current portion of long-term debt should

A be classified as a long-term liability

B not be separated from the long-term portion of debt

C be paid immediately

D be reclassified as a current liability

77 On January 5, 2014, Garrett Company, a calendar-year company, issued $1,000,000 of notes payable, of which $200,000 is due on January 1 for each of the next five years The proper balance sheet presentation on December 31, 2014, is

79 Proper payroll accounting methods are important for a business for all the reasons below except

A good employee morale requires timely and accurate payroll payments

B payroll is subject to various federal and state regulations

C to help a business with cash flow problems by delayed payments of payroll taxes to federal and state

81 Which statement below is not a determinate in calculating the amount of federal income taxes withheld

from an individuals pay?

82 Which of the following would be used to compute the federal income taxes to be withheld from an

employee's earnings?

A FICA tax rate

B wage and tax statement

C FUTA tax rate

D wage bracket and withholding table

A only Social Security tax

B only Medicare tax

C only unemployment compensation tax

D none of the above

85 Most employers are required to withhold from employees which of the following employment taxes?

A FICA tax

B FICA tax, state and federal unemployment compensation tax

C only state unemployment compensation tax

D only federal unemployment compensation tax

86 An employee receives an hourly rate of $40, with time and a half for all hours worked in excess of 40 during

a week Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of

$100,000; and Medicare tax rate, 1.5% on all earnings What is the gross pay for the employee?

87 An employee receives an hourly rate of $27, with time and a half for all hours worked in excess of 40 during

a week Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of

$100,000; and Medicare tax rate, 1.5% on all earnings What is the net amount to be paid to the employee?

90 An employee receives an hourly rate of $30, with time and a half for all hours worked in excess of 40 during

a week Payroll data for the current week are as follows: hours worked, 48; federal income tax withheld, $300; cumulative earnings for year prior to current week, $90,700; social security tax rate, 6.0% on maximum of

$100,000; and Medicare tax rate, 1.5% on all earnings What is the net amount to be paid to the employee?

91 Payroll taxes levied against employees become liabilities

A the first of the following month

B when salary is accrued

C when data is entered in a payroll register

D at the end of an accounting period

92 The following totals for the month of June were taken from the payroll register of Arcon Company:

Social security and Medicare Taxes withheld 1,050

The entry to record the payment of net pay would include a

A debit to Salaries Payable for $14,000

B Debit to Salaries Payable for $9,350

C Credit to Salaries Expense for $9,350

D Credit to Salaries Payable for $9,350

93 Which of the following will have no effect on an employee’s take-home pay?

A Social security tax

95 Which of the following is required to be withheld from employee's gross pay?

A both federal and state unemployment compensation

B only federal unemployment compensation tax

C only federal income tax

D only state unemployment compensation tax

96 Each year there is a ceiling for the amount that is subject to all of the following except

A social security tax

B federal income tax

C federal unemployment tax

D state unemployment tax

97 Assuming no employees are subject to ceilings for their earnings, Moore Company has the following information for the pay period of December 15 - 31, 20xx

Gross payroll $16,000 Federal income tax withheld $4,000

Social security rate 6% Federal unemployment tax rate 8%

Medicare rate 1.5% State unemployment tax rate 5.4%

Salaries Payable would be recorded for

B medical insurance premiums

C federal unemployment compensation tax

D union dues

99 Payroll entries are made with data from the

A wage and tax statement

B employee's earning record

C employer's quarterly federal tax return

D payroll register

100 Which of the following forms is typically given to employees at the end of the calendar year so that employees can file their individual income tax forms?

A Employee’s Withholding Allowance Certificate (W-4)

B Wage and Tax Statement (Form W-2)

C Employer's Quarterly Federal Tax Return (Form 941)

102 The detailed record indicating the data for each employee for each payroll period and the cumulative total earnings for each employee is called the

A payroll register

B payroll check

C employee's earnings record

D employer's earnings record

104 Use the following information to answer the following questions

The following totals for the month of April were taken from the payroll register of Magnum Company

The journal entry to record the monthly payroll on April 30 would include a

A credit to Salaries Payable for $8,150

B debit to Salaries Expense for $7,902

C debit to Salaries Payable for $8,150

D debit to Salaries Payable for $7,902

105 Use the following information to answer the following questions

The following totals for the month of April were taken from the payroll register of Magnum Company

The entry to record accrual of employer’s payroll taxes would include a

A debit to Payroll Tax Expense for $248

B debit to FICA Taxes Payable for $1,800

C credit to Payroll Tax Expense for $248

D debit to Payroll Tax Expense for $1,148

106 The following totals for the month of April were taken from the payroll register of Magnum Company

Medical insurance deductions 450

The entry to record accrual of employer’s payroll taxes would include a

A debit to Payroll Tax Expense for $1,170

B debit to FICA Taxes Payable for $1,500

C credit to Payroll Tax Expense for $420

D debit to Payroll Tax Expense for $1,620

107 An employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40 during the week Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $110; cumulative earnings for the year prior to this week, $24,500; Social security tax rate, 6% on maximum of $100,000; and Medicare tax rate, 1.5% on all earnings; state unemployment compensation tax, 3.4% on the first $7,000; federal unemployment compensation tax, 8% on the first $7,000 What is the net amount to be paid to the employee?

Salaries subject to

federal and state

unemployment taxes of 6.2 percent 4,000

The entry to record the accrual of employer’s payroll taxes would include a

A debit to Payroll Taxes Expense for $2,498

B debit to Social Security and Medicare Tax Payable for $2,250

C debit to Payroll Taxes Expense for $1,373

D Debit to Payroll Tax Expense for $1,125

109 Use the following information to answer the following questions

Assuming no employees are subject to ceilings for their earnings, Jensen Company has the following information for the pay period of January 15 - 31, 20xx

Gross payroll $10,000 Federal income tax withheld $1,800 Social security rate 6% Federal unemployment tax rate 8% Medicare rate 1.5% State unemployment tax rate 5.4%

Salaries Payable would be recorded in the amount of:

110 Use the following information to answer the following questions

Assuming no employees are subject to ceilings for their earnings, Jensen Company has the following information for the pay period of January 15 - 31, 20xx

Gross payroll $10,000 Federal income tax withheld $1,800 Social security rate 6% Federal unemployment tax rate 8% Medicare rate 1.5% State unemployment tax rate 5.4%

Assuming that all wages are subject to federal and state unemployment taxes, the Payroll Taxes Expense would be recorded as:

111 Assume that social security taxes are payable at a 6% rate on the first $100,000 of earnings and Medicare taxes are payable at a 1.5% rate with no maximum earnings, and that federal and state unemployment

compensation taxes total 4.6% on the first $7,000 of earnings If an employee, George Jones, earns $2,500 for the current week and Jones' year-to-date earnings before this week were $6,800, what is the total payroll taxes related to the current week?

114 Which of the following is not an internal control procedure for payroll?

A observe clocking in and out time for the employees

B payroll depends on a fired employee's supervisor to notify them when an employee has been fired

C payroll requires employees to show identification when picking up their paychecks

D changes in pay rates on a computerized system must be tested by someone independent of payroll

116 During its first year of operations, a company granted employees vacation privileges and pension rights estimated at a cost of $21,500 and $15,000 The vacations are expected to be taken in the next year and the pension rights are expected to be paid in the future 5-30 years What is the total cost of vacation pay and pension rights to be recognized in the first year?

A defined contribution plan

B defined benefit plan

C unfunded plan

D compensation plan

118 Vacation pay payable is reported on the balance sheet as a(n)

A current liability or long-term liability, depending upon when the vacations will be taken by employees

A debit Vacation Pay Expense; credit Vacation Pay Payable

B debit Vacation Pay Payable; credit Vacation Pay Expense

C debit Salary Expense; credit Cash

D debit Salary Expense; credit Salaries Payable

121 The journal entry a company uses to record fully funded pension rights for its salaried employees at the end of the year is

A debit Salary Expense; credit Cash

B debit Pension Expense; credit Unfunded Pension Liability

C debit Pension Expense; credit Unfunded Pension Liability and Cash

D debit Pension Expense; credit Cash

122 The journal entry a company uses to record partially funded pension rights for its salaried employees, at the end of the year is

A debit Salary Expense; credit Cash

B debit Pension Expense; credit Unfunded Pension Liability

C debit Pension Expense; credit Unfunded Pension Liability and Cash

D debit Pension Expense; credit Cash

123 The journal entry a company uses to record pension rights that have not been funded for its salaried

employees, at the end of the year is

A debit Salary Expense; credit Cash

B debit Pension Expense; credit Unfunded Pension Liability

C debit Pension Expense; credit Unfunded Pension Liability and Cash

D debit Pension Expense; credit Cash

124 Zennia Company provides its employees with varying amount of vacation per year, depending on the length of employment The estimated amount of the current year’s vacation cost is $135,000 The journal entry to record the adjusting entry required on December 31, the end of the current year, to record the current month’s accrued vacation pay is

125 Quick assets include

A cash; cash equivalents, receivables, prepaid expenses, and inventory

B cash; cash equivalents, receivables, and prepaid expenses

C cash; cash equivalents, receivables, and inventory

D cash; cash equivalents, and receivables

126 Which of the following is the most desirable quick ratio?

127 Another name for the quick ratio is

A quick cash ratio

130 During September, Excom sold 100 radios for $50 each Each radio cost Excom $30 to purchase, and carried a two-year warranty If 5% of the goods sold typically need to be replaced over the warranty period and one is actually replaced during September, for what amount in September would Excom debit Product Warranty Expense?

132 Garrett Company sells merchandise with a one year warranty In 2012, sales consisted of 3,500 units It

is estimated that warranty repairs will average $15 per unit sold, and 30% of the repairs will be made in 2012 and 70% in 2013 In the 2012 income statement, Garrett should show warranty expense of

134 The cost of a product warranty should be included as an expense in the

A period the cash is collected for a product sold on account

B future period when the cost of repairing the product is paid

C period of the sale of the product

D future period when the product is repaired or replaced

135 Power Company sells merchandise with a one year warranty In 2012, sales consisted of 1,600 units It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in 2012 and 70% in 2013 In the 2012 income statement, Power should show warranty expense of

Determine the quick ratio for the end of the year (rounded to one decimal point)

139 The journal entry a company uses to record the estimated accrued product warranty liability is

A debit Product Warranty Expense; credit Product Warranty Payable

B debit Product Warranty Payable; credit Cash

C debit Product Warranty Expense; credit Cash

D debit Product Warranty Payable; credit Product Warranty Expense

$98,000 Also, $15,000 was subject to state (4.2%) and federal (0.8%) unemployment taxes The journal entry

to record accrued salaries would include:

A a debit to Salary Payable of $313,000

B a credit to Salary Payable of $363,000

C a debit to Salary Expense of $363,000

D a credit to Salary Expense of $313,000

142 According to a summary of the payroll of Scotland Company, $450,000 was subject to the 7.0% social security tax and $500,000 was subject to the 1.5% Medicare tax Federal income tax withheld was

$98,000 Also, $15,000 was subject to state (4.2%) and federal (0.8%) unemployment taxes The journal entry

to record accrued salaries would include:

A a debit to Salary Payable of $450,000

B a credit to Salary Payable of $500,000

C a debit to Salary Expense of $500,000

D a credit to Salary Expense of $450,000

143 According to a summary of the payroll of Scotland Company, $450,000 was subject to the 7.0% social security tax and $500,000 was subject to the 1.5% Medicare tax Federal income tax withheld was

$98,000 Also, $15,000 was subject to state (4.2%) and federal (0.8%) unemployment taxes The journal entry

to record accrued payroll taxes would include:

A a debit to SUTA Payable of $630

B a debit to SUTA Payable of $18,900

C a credit to SUTA Payable of $630

D a credit to SUTA Payable of $18,900

144 A business issued a 120-day, 6% note for $10,000 to a creditor on account The company uses a 360-day year for interest calculations Journalize the entries to record (a) the issuance of the note and (b) the payment of the note at maturity, including interest

a Determine the proceeds of the note assuming the note carries an interest rate of 6%

b Determine the proceeds of the note assuming the note is discounted at 6%

146 Journalize the following, assuming a 360-day year is used for interest calculations:

Apr 30 Issued a $150,000, 30-day, 6% note dated April 30 to Misner Co on account

May 30 Paid Misner Co the amount owed on the note dated April 30

151 John Woods’ weekly gross earnings for the present week were $2,500 Woods has two

exemptions Using $80 value for each exemption, what is Woods’ federal income tax withholding?

Single person (including head

of household)

If amount of wages (after

subtracting

withholding allowance) is:

The amount of income tax withholding is: of excess over:

153 An employee earns $40 per hour and 1.5 times that rate for all hours in excess of 40 hours per

week Assume that the employee worked 60 hours during the week, and that the gross pay prior to the current week totaled $58,000 Assume further that the social security tax rate was 7.0% (on earnings up to $100,000), the Medicare tax rate was 1.5%, and the federal income tax to be withheld was $614

Required:

(1) Determine the gross pay for the week

(2) Determine the net pay for the week

The total amount withheld from employee wages for federal taxes was $32,000

161 Darius Company has the following information for the pay period of January 15 - 31, 20xx

Gross payroll $20,000 Federal income tax withheld $2,500

Social security rate 6% Federal unemployment tax rate 8%

Medicare rate 1.5% State unemployment tax rate 5.4%

Assuming no employees are subject to ceilings for their earnings, calculate Salaries Payable and Employer Payroll Taxes Payable

Calculate the employer's payroll tax expense if:

a this is the first payroll of the year and the employee has no cumulative earnings for the year to date

b the employee’s cumulative earnings for the year prior to this week equal $6,200

c the employee’s cumulative earnings for the year prior to this week equal $98,700

Social security and medicare taxes withheld 975

Salaries subject to federal and state unemployment

taxes of 6.2%

4,000

How much is the total payroll expense for Arcon Company for this payroll?

Assume that the monthly salaries expense remains the same for the entire year and no employees are hired or fired during that time Based on what you learned in Chapter 11 about payroll taxes, do you expect the total payroll expense to stay the same every month? Explain

166 Below are two independent sets of transactions for Welcott Company:

(1) Welcott provides its employees with varying amounts of vacation per year, depending on the length of employment The estimated amount of the current year’s vacation pay is $78,000 Journalize the adjusting entry required on January 31, the end of the first month of 2010, to record the accrued vacation pay

(2) Welcott maintains a defined contribution pension plan for its employees The plan requires quarterly installments to be paid to the funding agent, Northern Trust, by the fifteenth of the month following the end of each quarter Assuming that the pension cost is $119,600 for the quarter ended December 31, journalize entries

to record (a) the accrued pension liability on December 31 and (b) the payment to the funding agent on January

Provide the journal entry for (a.) the estimated expense on September 30 and (b.) the October 15 warranty work

recognitions, the Warranty Liability account has a credit balance of $28,700 Determine the year’s total

warranty liability and journalize any necessary value to establish the year’s liability at December 31st

169 Aqua Construction installs swimming pools They calculate that warranty obligations are 5% of gross sales For the year just ending Aqua’s gross sales were $1,500,000 Due to previous quarter recognitions, the Warranty Liability account has a credit balance of $48,700 Determine the year’s total warranty liability and journalize any necessary value to establish the year’s liability at December 31st

170 Lamar Industries warrants its products for one year The estimated product warranty is 3% of

sales Assume that sales were $190,000 for June In July, a customer received warranty repairs requiring $185

of parts and $50 of labor

171 Hadley Industries warrants its products for one year The estimated product warranty is 4% of

sales Assume that sales were $210,000 for June In July, a customer received warranty repairs requiring $205

of parts and $75 of labor

For the Year ending December 31,

Accrued and other current liabilities 3,329 6,361

*These represent prepaid expenses and other non-quick current assets

Required:

(1) Determine the quick ratio for both companies Round to two decimal places

(2) Interpret the quick ratio difference between the two companies

173 The Core Company had the following assets and liabilities as of December 31, 2012:

(a) Journalize the entries for October 1 and November 30

(b) Assume that Ramos Co signed a 6% note Journalize the entries for October 1 and November 30

Jun 1 Regis Co purchased merchandise on account from Winthrop Co., $60,000, terms n/30

Jun 30 Regis Co issued a 60-day, 5% note for $60,000 on account

Aug 29 Regis Co paid the amount due

176 Journalize the following entries on the books of Winston Co for August 1, September 1, and November

30 (Assume a 360-day year is used for interest calculations.)

Aug 1 Winston Co purchased merchandise for $75,000 on account from Bagley Co., terms n/30

177 The following information is for employee Ella Dodd for the week ended March 15

Total hours worked: 48

Rate: $15 per hour, with double time for all hours in excess of 40

Federal income tax withheld: $200

United Fund deduction: $50

Cumulative earnings prior to current week: $6,400

Tax rates:

Social security: 6% on maximum earnings of $100,000 Medicare tax:

1.5% on all earnings

State unemployment: 3.4% on maximum earnings of $7,000; on employer

Federal unemployment: 0.8% on maximum earnings of $7,000; on employer

(a) Determine (1) total earnings, (2) total deductions, and (3) cash paid

(b) Determine each of the employer's payroll taxes related to the earnings of Ella Dodd for the week ended March 15