Q&A Hero

Q: Define liabilities and explain the differences between current and long-term liabilities.

Q: Classify each of the following items as a contingent liability, estimated liability, or current liability: 1. Accrued wages payable. Contingent liability 2. Payroll taxes payable. Estimated liability 3. Lawsuit against the company. Current liability 4. Warranty on products sold this year. Estimated liability 5. Accounts payable. Estimated liability 6. Vacation benefits. Current liability 7. Property taxes payable. Contingent liability 8. Income taxes payable. Estimated liability 9. Unearned revenues. Current liability 10. Debt guarantees. Current liability

Q: Classify each of the following items as a current liability, long-term liability, or not a liability: 1. FICA taxes payable. Current liability 2. Payment of a 4-year loan due this year. Current liability 3. Payment of a 30-year loan due this year. Current liability 4. Amounts due from customers. Not a liability 5. 30-day promissory note. Current liability 6. Payment of a 30-year loan due next year (The company operating cycle is 2 months). Current liability 7. Accounts payable. Current liability 8. Income taxes payable. Long-term liability 9. Salaries payable. Not a liability 10. Warranty work completed this year. Current liability

Q: Match each of the following terms with the appropriate definitions: 1. A table of amounts of income tax to be withheld from employees' wages. Merit rating 2. A potential obligation that depends on a future event arising from a past transaction. FICA taxes 3. A seller's obligation to repair or replace a product or service that fails to perform as expected within a specified period. Estimated liability 4. Obligations of a company not requiring payment within one year or the operating cycle, whichever is longer. Long-term liability 5. Known obligations of an uncertain amount that can be reasonably estimated. Net pay 6. A number that is used to reduce the amount of federal income tax withheld from an employee's pay. Wage bracket withholding table 7. A rating assigned to an employer by a state based on the employer's past record regarding stable employment. Contingent liability 8. Payroll taxes on employers assessed by the federal government to support the federal unemployment insurance program. Warranty 9. Gross pay less all deductions. Withholding allowance 10. Taxes assessed on both employer and employees under the Federal Insurance Contributions Act. These taxes fund Social Security and Medicare. FUTA taxes

Q: Match each of the following terms with the appropriate definitions: 1. Additional compensation paid to or on behalf of employees, such as premiums for medical insurance and contributions to pension plans. Payroll register 2. A record for a pay period that shows the pay period dates, regular and overtime hours worked, gross pay, net pay, and deductions. Current liabilities 3. Total compensation earned by an employee. Payroll bank account 4. Income before interest expense and income taxes divided by interest expense. Warranty 5. A written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer. Gross pay 6. A bank authorized to accept deposits of amounts payable to the federal government, including payroll taxes. Employee benefits 7. A seller's obligation to repair or replace a product or service that fails to perform as expected within a specified period. Deferred income tax liability 8. A special bank account used solely for paying employees. Federal depository bank 9. Obligations due within one year or the company's operating cycle, whichever is longer. Times interest earned 10. Payments of income taxes that are not due until future years because of temporary differences between GAAP and tax accounting rules. Short-term note payable

Q: If a company had net income of $1,486,875, a times interest earned ratio of 4.0, a tax rate of 35%, and operating income of $3,050,000, what is the companys interest expense for the year? A.$1,067,500 B. $725,329 C. $371,719 D. $762,500 E. $1,564,000

Q: If a company had net income of $2,379,600, interest expense of 234,000, a tax rate of 40%, and operating income of $4,200,000, what is the times interest earned ratio? A.10.17 B. 17.95 C. 7.78 D. 7.18 E. 4.07

Q: If a company had income before interest and taxes in the amount of $2,345,540 and a times interest earned ratio of 5.2, what is the total amount of the companys interest expense? A. $451,065 B. $320,185 C. $121,968 D. $275,840 E. $230,000

Q: On October 10, 2013, Printfast Company sells a commercial printer for $2,350 with a one-year warranty that covers parts. Warranty expense is projected to be 4% of sales. On February 28, 2014, the printer requires repairs. The cost of the parts for the repair is $80 and Printfast pays their technician $150 to perform the repair. What is the warranty liability for this printer at the at the end of 2014? A. $14.00. B. $84.80. C. $94.00. D. $0, there is no liability at the end of 2014. E. $230.00.

Q: On October 10, 2013, Printfast Company sells a commercial printer for $2,350 with a one-year warranty that covers parts. Warranty expense is projected to be 4% of sales. On February 28, 2014, the printer requires repairs. The cost of the parts for the repair is $80 and Printfast pays their technician $150 to perform the repair. What warranty expense is recorded for this printer during 2014? A. $14.00. B. $84.80. C. $94.00. D. $0, there is no expense in 2014. E. $230.00.

Q: On October 10, 2013, Printfast Company sells a commercial printer for $2,350 with a one-year warranty that covers parts. Warranty expense is projected to be 4% of sales. On February 28, 2014, the printer requires repairs. The cost of the parts for the repair is $80 and Printfast pays their technician $150 to perform the repair. What is the warranty liability for this printer at the end of 2013? A. $49.00 B. $84.80 C. $94.00 D. $0, there is no liability at the end of 2013 E. $230.00

Q: Company A and Company B each borrow $2,000 from the bank. Company A signed a 60-day, 12% note. Company B signed a 90-day, 11% note. How will each of these companies record these events in their respective general journals on the day the money was borrowed? A. Company A Cash 2,000 Notes Payable 2,000 Company B Cash 2,000 Notes Payable 2,000 00 Notes Payableompany record this event in the general journal? B. Company A Cash 2,040 Interest Expense 40 Notes Payable 2,000 Company B Cash 2,055 Interest Expense 55 Notes Payable 2,000 C. Company A Notes Payable 2,000 Cash 2,000 Company B Notes Payable 2,000 Cash 2,000 D. Company A Interest Expense 40 Notes Payable 2,000 Cash 2,040 Company B Interest Expense 55 Notes Payable 2,000 Cash 2,055 E. . Company A Cash 2,040 Notes Payable 2,040 Company B Cash 2,055 Notes Payable 2,055

Q: Buyer Company asks to extend its past due $600 account payable to Seller Company. Seller Company agrees to accept $100 cash and a 60-day, 12%, $500 note payable to replace the account payable. How does Buyer Company record this event in the general journal? A. Accounts Payable 600 Cash 100 Notes Payable 500 00 Notes Payableompany record this event in the general journal? B. Notes Payable 500 Cash 100 Accounts Payable 600 C. Cash 100 Accounts Payable 100 D. Accounts Payable 100 Cash 100 E. Buyer Company has no entry to record for this transaction.

Q: Conner Company borrows $185,600 cash on November 1, 2013, by signing a 120-day, 8% note. What is the total amount of interest expense that Conner will recognize for this note? A. $4,949. B. $14,848. C. $2,467. D. $0, no interest expense is recognized. E. $1485.

Q: If Jefferson Company paid a bonus equal to 8% of net income after bonuses and the total bonus distributed was $420,000, how much was net income for the year? A. $5,250,000 B. $5,670,000 C. $6,250,000 D. $4,320,000 E. $4,875,000

Q: If a company paid $350,000 in bonuses, and net income prior to the bonus was $4,200,000, what was the bonus percentage offered to the employees during 2010? A. 6.2% B. 5.7% C. 9.1% D. 8.3% E. 6.8%

Q: Mission Company has three employees: Gross Pay through July Gross Pay for August Smith $3,200 $1,000 Cain 25,800 3,500 Clark 94,600 13,100 The company is subject to the following taxes: Tax Rate Applied to FICASocial Security 20 % First $106,800 FICAMedicare 1.45 All gross pay FUTA .80 First $7,000 SUTA 5.40 First $7,000 What is the amount that Mission Company will withhold from Smiths August gross pay? A. $ 62.00 B. $138.50 C. $443.20 D. $581.70 E. $76.50

Q: Mission Company has three employees: Gross Pay through July Gross Pay for August Smith $3,200 $1,000 Cain 25,800 3,500 Clark 94,600 13,100 The company is subject to the following taxes: Tax Rate Applied to FICASocial Security 20 % First $106,800 FICAMedicare 1.45 All gross pay FUTA .80 First $7,000 SUTA 5.40 First $7,000 What is the amount that Mission Company will withhold from Clarks August gross pay? A. $ 946.35 B. $1,002.15 C. $1,814.35 D. $6,234.75 E. $812.20

Q: For the year ended December 31, 2013, Mason Company has implemented an employee bonus program equal to 7% of Mason's net income, which employees will share equally. Mason's net income (pre-bonus) is expected to be $3,500,000, and bonus expense is deducted in computing net income. What is the amount that needs to be recorded for estimated bonus liability for 2013? A. $245,000 B. $144,118 C. $228,972 D. $50,000 E. $125,000

Q: If a company uses a special payroll bank account: A. The company does not need to issue paychecks. B. The company draws one check for the entire payroll on the regular bank account and deposits it in the payroll bank account. C. The company must use a federal depository bank for the payroll. D. There is no need for a payroll register. E. There is no need to issue W-2's.

Q: A special bank account used solely for the purpose of paying employees is created by depositing the amount of each employees net pay into the account every pay period. This account is referred to as a(n): A. Federal depository bank account. B. Employee's individual earnings account. C. Employees' bank account. D. Payroll register account. E. Payroll bank account.

Q: A table that shows the amount of federal income tax to be withheld from an employee's pay is the: A. Form 941. B. Tax table. C. Wage bracket withholding table. D. W-2. E. W-4.

Q: The main purpose of the wage bracket withholding table is to: A. Compute social security withholding. B. Compute Medicare withholding. C. Compute federal income tax withholding. D. Prepare the W-4. E. Compute gross earnings.

Q: An employee earnings report: A. Is the W-2. B. Is the W-4. C. Is the cumulative record of an employee's hours worked, gross earnings, deductions, and net pay. D. Shows the pay period dates, hours worked, gross pay, deductions, and net pay of each employee for every pay period. E. Is used to compute the federal income taxes withheld from each employee's gross pay.

Q: An employer's federal unemployment taxes (FUTA) are reported: A. Annually B. Semiannually C. Quarterly D. Monthly E. Weekly

Q: A bank that is authorized to accept amounts payable to the federal government is a: A. Credit union B. FDIC insured bank C. Federal depository bank D. National bank E. Federal reserve bank

Q: The wage and tax statement is: A. Form 940 B. Form 941 C. Form 1040 D. Form W-2 E. Form W-4

Q: The annual federal unemployment tax return is: A. Form 940 B. Form 1099 C. Form 104 D. Form W-2 E. Form W-4

Q: The Federal Insurance Contributions Act (FICA) requires that each employer file a: A. W-4 B. Form 941 C. Form 1040 D. Form 1099 E. Form 521B

Q: A company sells leaf blowers for $170 each. Each unit has a three-year warranty that covers replacement of defective parts. It is estimated that 4% of all leaf blowers sold will be returned under the warranty at an average cost of $30 each. During October, the company sold 400,000 leaf blowers; 800 leaf blowers were serviced under the warranty during October at a total cost of $25,000. The balance in the Estimated Warranty Liability account on October 1 was $12,500. What is the company's warranty expense for the month of October? A. $24,000 B. $25,000 C. $37,500 D. $467,500 E. $480,000

Q: Maryland Company offers a bonus plan to its employees equal to 3% of net income. Maryland's net income is expected to be $960,000. The amount of the employee bonus expense is estimated to be A. $27,961 B. $28,800 C. $29,000 D. $29,691 E. $30,000

Q: A company sells computers for $1,800 each. Each computer has a two-year warranty that covers replacement of defective parts. It is estimated that 2% of all computers sold will be returned under the warranty with an average cost of $150 each. During November, the company sold 30,000 computers;. 400 computers were serviced under the warranty during November at a total cost of $55,000. The balance in the Estimated Warranty Liability account at November 1 was $29,000. What is the company's warranty expense for the month of November? A. $26,000 B. $45,000 C. $55,000 D. $60,000 E. $90,000

Q: A company estimates that warranty expense will be 4% of sales. The company's sales for the current period are $185,000. The current period's entry to record the warranty expense is: A. Warranty Expense 7,400 Sales 7,400 B. Warranty Expense 7,400 Estimated Warranty Liability 7,400 C. Estimated Warranty Liability 7,400 Estimated Warranty Expense 7,400 D. Warranty Liability 7,400 Cash 7,400 E. No entry is recorded until the items are returned for warranty repairs.

Q: The deferred income tax liability: A. Represents income tax payments that are deferred until future years because of temporary differences between GAAP rules and tax accounting rules. B. Is a contingent liability. C. Can result in a deferred income tax asset. D. Is never recorded. E. Is recorded whether or not the difference between taxable income and financial accounting income is permanent or temporary.

Q: A company sold $12,000 worth of trampolines with an extended warranty. It estimates that 2% of these sales will result in warranty work. The company should: A. Consider the warranty expense a remote liability since the rate is only 2%. B. Recognize warranty expense at the time the warranty work is performed. C. Recognize warranty expense and liability in the year of the sale. D. Consider the warranty expense a contingent liability. E. Recognize warranty liability when the company purchases the trampolines.

Q: Employee vacation benefits: A. Are estimated liabilities. B. Are contingent liabilities. C. Are recorded as an expense when the employee takes a vacation. D. Are recorded as an expense when the employee retires. E. Increase net income.

Q: Employees earn vacation pay at the rate of one day per month. During July, 25 employees qualify for one vacation day each. Their average daily wage is $100 per day. What is the amount of vacation benefit expense for the month of July? A. $25 B. $100 C. $1,200 D. $2,500 E. $30,000

Q: An estimated liability: A. Is an unknown liability of a certain amount. B. Is a known obligation of an uncertain amount that can be reasonably estimated. C. Is a liability that may occur if a future event occurs. D. Can be the result of a lawsuit. E. Is not recorded until the amount is known for certain.

Q: Karen Cooper, the founder of SmartIT Staffing, realized that effectively managing payroll was crucial to the success of her business. If an employee of the company earns $50,500 per year, SmartIT Staffings total FICA payroll tax for this employee is: A. $3,863.25. B. $3,131.00. C. $732.25. D. $3,535. E. Zero because the employee has not earned more that the FICA earnings limitation.

Q: An employee earned $4,300 working for an employer. The current rate for FICA social security is 6.2% and the FICA Medicare rate is 1.45%. The employer's total FICA payroll tax for this employee is: A. $62.35. B. $266.60. C. $328.95. D. $657.90. E. Zero, since the FICA tax is a deduction from an employee's pay and not an employer tax.

Q: The current FUTA tax rate is 0.8% and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned $8,900. What is the amount of total unemployment taxes the employer must pay on this employee's wages? A. $322.00. B. $434.00. C. $480.60. D. $551.80. E. Zero, since the employee's wages exceed the maximum of $7,000.

Q: FUTA taxes are: A. Social Security taxes B. Medicare taxes C. Employee income taxes D. Unemployment taxes E. Employee deductions

Q: The FICA tax for Social Security is 6.2% and the FICA tax for Medicare is 1.45%. An employee's share of both FICA taxes was $3,901.50. Given that this employee did not exceed the FICA earnings limitation, compute gross pay. A. $269,068.96. B. $62,927.42. C. $29,846.48. D. $51,000. E. Zero, since the employee's pay did not exceed the FICA limit.

Q: An employee earned $47,000 during the year working for an employer. The FICA tax for social security is 6.2%, and the FICA tax for Medicare is 1.45%. The employee's share of FICA taxes is: A. $681.50. B. $2,914.00. C. $3,595.50. D. $7,191.00. E. Zero, since the employee's pay exceeds the FICA limit.

Q: The amount of federal income taxes withheld from an employee's paycheck is determined by: A. The employee's annual earnings rate and number of withholding allowances. B. The employer's merit rating. C. The employees annual earnings rate and merit rating. D. Multiplying gross pay by 6.2%. E. The employees credit rating.

Q: FICA taxes include: A. Social Security taxes B. Charitable giving C. Employee income taxes D. Unemployment taxes E. Federal taxes

Q: The employer should record payroll deductions as: A. Employee receivables B. Payroll taxes C. Current liabilities D. Wages payable E. Employee payables

Q: Gross pay is: A. Take-home pay. B. Total compensation earned by an employee before any deductions. C. Salaries after taxes are deducted. D. Deductions withheld by an employer. E. The amount of the paycheck.

Q: On December 1, Martin Company signed a $5,000, 3-month, 6% note payable, with the principle plus interest due on March 1 of the following year. What amount of interest expense is accrued at December 31 on the note? A. $0 B. $25 C. $50 D. $75 E. $300

Q: A short-term note payable: A. Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer. B. Is a contingent liability. C. Is an estimated liability. D. Is not a liability until the due date. E. Cannot be used to extend the payment period for an account payable.

Q: The difference between the amount received from issuing a note payable and the amount repaid is referred to as: A. Interest B. Principle C. Face value D. Cash E. Accounts payable

Q: Miller Company has a times interest earned ratio of 5. Sales and variable expenses were $57,290 and $40,105 respectively. Compute the company's fixed interest expense. A. $17,185 B. $3,437 C. $11,458 D. $8,021 E. $85,925

Q: Tree Frog Company is organized as a LLC and does not pay income taxes. The company has fixed interest expense of $5,750, sales of $253,000, and variable expenses of $189,750. What is the company's times interest earned ratio? A. 44 B. 33 C. 11 D. 10 E. $63,250

Q: The times interest earned computation is: A. (Net income + Interest expense + Income taxes)/Interest expense. B. (Net income + Interest expense - Income taxes)/Interest expense. C. (Net income - Interest expense - Income taxes)/Interest expense. D. (Net income - Interest expense + Income taxes)/Interest expense. E. Interest expense/(Net income + Interest expense + Income taxes expense).

Q: A company had a fixed interest expense of $6,000, its income before interest expense and any income taxes was $18,000 and its net income was $8,400. The company's times interest earned ratio is equals to A. 0.33 B. 0.71 C. 1.40 D. 3.00 E. 12,000

Q: If the times interest ratio: A. Increases, then risk increases. B. Increases, then risk decreases. C. Is greater than 1.5, then the company is in default. D. Is less than 1.5, the company is carrying too little debt. E. Is greater than 1.5, the company is likely carrying too much debt.

Q: Times interest earned is calculated by: A. Multiplying interest expense times income. B. Dividing interest expense by income before interest expense. C. Dividing income before interest expense and any income tax by interest expense. D. Dividing interest and income tax expense by income before interest and income tax expense. E. Dividing income before interest expense by interest expense and income taxes.

Q: The times interest earned ratio is a measure of: A. A company's ability to pay its operating expenses on time. B. A company's ability to pay interest incurred even if sales decline. C. A company's profitability. D. The relation between income and debt. E. The relation between assets and liabilities.

Q: Uncertainties such as natural disasters that could happen in the future: A. Are not contingent liabilities because they are future events not arising out of past transactions or events. B. Are contingent liabilities because they are future events arising from past transactions or events. C. Should be disclosed because of their usefulness to financial statements. D. Are estimated liabilities because the amounts are uncertain. E. Arise out of transactions such as debt guarantees.

Q: In the accounting records of a defendant, lawsuits: A. Are estimated liabilities, B. Should always be recorded, C. Should always be disclosed, D. Should be recorded if payment for damages is probable and the amount can be reasonably estimated, E. Should never be recorded,

Q: Which of the following is a true statement regarding the treatment of accounts payable, sales tax payable, and unearned revenues? A. Both GAAP and IFRS treat these accounts as estimated liabilities. B. GAAP treats them as estimated liabilities, while IFRS treats these accounts as contingent liabilities. C. IFRS treats them as estimated liabilities, while GAAP treats theses accounts as contingent liabilities. D. Both GAAP and IFRS treat these accounts as known liabilities. E. IFRS treats them as known liabilities, while GAAP treats these accounts as contingent liabilities.

Q: A contingent liability: A. Is always of a specific amount. B. Is a potential obligation that depends on a future event arising out of a past transaction or event. C. Is an obligation not requiring future payment. D. Is an obligation arising from the purchase of goods or services on credit. E. Is an obligation arising from a future event.

Q: Advance ticket sales totaling $6,000,000 cash would be recognized as follows: A. Debit Sales, credit Unearned Revenue. B. Debit Unearned Revenue, credit Sales. C. Debit Cash, credit Unearned Revenue. D. Debit Unearned Revenue, credit Cash. E. Debit Cash, credit Revenue Payable.

Q: Unearned revenue is initially recognized with a: A. Credit to unearned revenue. B. Credit to revenue. C. Debit to revenue payable. D. Debit to revenue. E. Debit to unearned revenue.

Q: Sales taxes payable: A. Is an estimated liability. B. Is a contingent liability. C. Is a current liability for retailers. D. Is a business expense. E. Is a long-term liability.

Q: Amounts received in advance from customers for future products or services: A. Are revenues. B. Increase income. C. Are liabilities. D. Are not allowed under GAAP. E. Require an outlay of cash in the future.

Q: Accounts payable: A. Are amounts owed to suppliers for products and/or services purchased on credit. B. Are long-term liabilities. C. Are estimated liabilities. D. Do not include specific due dates. E. Must be paid within 30 days.

Q: Liabilities: A. Must be certain. B. Must sometimes be estimated. C. Must be for a specific amount. D. Must always have a definite date for payment. E. Must involve an outflow of cash.

Q: Obligations not expected to be paid within one year (or the company's operating cycle if longer than one year) are reported as: A. Current assets B. Current liabilities C. Long-term liabilities D. Operating cycle liabilities E. Bills

Q: Obligations due to be paid within one year or within the company's operating cycle, whichever is longer, are: A. Current assets B. Current liabilities C. Earned revenues D. Operating cycle liabilities E. Bills

Q: Payments of FUTA are made quarterly to a federal depository bank if the total amount due exceeds $1,000.

Q: The Form W-2 must be given to employees before January 31 following the year covered by this report.

Q: When the number of withholding allowances increases, the amount of income tax withheld increases.

Q: An employee earnings report is a cumulative record of an employee's hours worked, gross earnings, deductions, and net pay.

Q: Employers must keep certain payroll records, including individual earnings reports for each employee.

Q: Federal depository banks are authorized to accept deposits of amounts payable to the federal government.

Q: Each employee records the number of withholding allowances claimed on form W-4, the withholding allowance certificate that is filed with the employer.

Q: Employers can use a wage bracket withholding table to compute federal income taxes withheld from each employee's gross pay.

Q: Payroll is usually paid with a check or with the use of an electronic funds transfer.

Q: A payroll register is a cumulative record of an employee's hours worked, gross earnings, deductions, and net pay.