Title | Chapter 11-Current Liabilities |
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Author | Aleena Mazhar |
Course | Financial accounting 1 |
Institution | Lahore School of Economics |
Pages | 104 |
File Size | 1.2 MB |
File Type | |
Total Downloads | 17 |
Total Views | 188 |
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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. True False
3. All long-term liabilities eventually become current liabilities. True False
4. The borrower is the one who issues a note payable to a creditor. True False
5. Notes payable may be issued to creditors to satisfy accounts payable created earlier. True False
6. Interest expense is reported in the operating expense section of the income statement. True False
7. A loan in which the lender deducts interest from the amount borrowed before the money is advanced to the borrower is called an interest bearing note. True False
8. For an interest bearing note payable, the amount borrowed is equal to the face amount of the note. True False
9. The amount of money a borrower receives from the lender is called discount rate. True False
10. The proceeds of a discounted note are equal to the face value of the note. True False
11. The discount on a note payable is charged to an account that has a normal credit balance. True False
12. The proceeds from discounting a $20,000, 60-day, note payable at 6% is $20,200. True False
13. Amounts withheld from each employee for Social Security and Medicare varies by state. True False
14. Form W-4 is a form authorizing employers to withhold a portion of employee earnings for payment of an employee’s federal income taxes. True False
15. Form W-2 is called the Wage and Tax Statement. True False
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. True False
17. An employee's take home pay is equal to gross pay less all voluntary deductions. True False
18. Taxes deducted from an employee's earnings to finance social security and Medicare benefits are called FICA taxes. True False
19. Generally, all deductions made from an employee's gross pay are required by law. True False
20. Payroll taxes are based on the employee's net pay. True False
21. Most employers are required to withhold federal unemployment taxes from employee earnings. True False
22. FICA tax is a payroll tax that is paid only by employers. True False
23. Medicare taxes are withheld from an employee's pay only until the employee has earned a specific amount each year. True False
24. Medicare taxes are paid by both the employee and the employer. True False
25. Federal unemployment taxes are paid by the employer and the employee. True False
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. True False
28. Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid. True False
29. FICA tax becomes a liability to the federal government at the time an employee's payroll is prepared. True False
30. Payroll taxes only include social security taxes and federal unemployment and state unemployment taxes. True False
31. Federal income taxes withheld increase the employer's payroll tax expense. True False
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. True False
33. Employers are required to compute and report payroll taxes on a calendar-year basis, even if a different fiscal year is used for financial reporting and income tax purposes. True False
34. Payroll taxes levied against employers become an employer liability at the time the employee wages are incurred. True False
35. For paying their payroll, most employers use payroll checks drawn on a special bank account. True False
36. The payroll register is a multicolumn form used to assemble the data related for all employees. True False
37. The total net pay for a period is determined from the payroll register. True False
38. Internal controls for cash payments also apply to payrolls. True False
39. While separation of duties may play a strong role in the internal control of inventory, it is not significant in controlling payroll. True False
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. True False
43. One of the more popular defined contribution plans is the 401k plan. True False
44. A defined contribution plan promises employees a fixed annual pension benefit. True False
45. In a defined benefits plan, the employer bears the investment risks in funding a future retirement income benefit. True False
46. The accounting for defined benefit plans is usually very easy and straight forward. True False
47. During the first year of operations, a company granted warranties on its products. The estimated cost of the product warranty liability at the end of the year is $8,500. The product warranty expense of $8,500 should be recorded in the years of the expenditures to repair the products covered by the warranty payments. True False
48. Obligations that depend on past events and that are based on future possible events are contingent liabilities. True False
49. In order to be a recorded contingent liability, the liability must be possible and easily estimated. True False
50. The journal entry to record the cost of warranty repairs that were incurred during the current period, but related to sales made in prior years, includes a debit to Warranty Expense. True False
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? A. October 8 B. October 7 C. October 6 D. October 5
54. On June 8, Alton Co. issued an $90,000, 6%, 120-day note payable to Seller Co. Assuming a 360-day year for your calculations, what is the maturity value of the note? A. $90,450 B. $90,000 C. $91,800 D. $95,400
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? A. $1,200.00 B. $106.67 C. $306.67 D. $400.00
56. On June 8, Alton Co. issued an $80,000, 6%, 120-day note payable to Seller Co. Assume that the fiscal year of Seller Co. ends June 30. Using the 360-day year in your calculations, what is the amount of interest revenue recognized by Seller in the following year? A. $1,200.00 B. $1,208.89 C. $1,306.67 D. $1,600.00
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
60. Assuming a 360-day year, the interest charged by the bank, at the rate of 9%, on a 90-day, discounted note payable of $100,000 is A. $9,000 B. $2,250 C. $750 D. $1,000
61. Assuming a 360-day year, when a $40,000, 90-day, 9% interest-bearing note payable matures, total payment will amount to: A. $40,900 B. $43,600 C. $900 D. $3,600
62. Assuming a 360-day year, proceeds of $48,750 were received from discounting a $50,000, 90-day note at a bank. The discount rate used by the bank in computing the proceeds was A. 6.25% B. 10.00% C. 10.26% D. 9.75%
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: A. $45,450 B. $42,300 C. $45,000 D. $44,550
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. $49,750 B. $47,000 C. $49,000 D. $51,000
65. The journal entry a company uses to record the issuance of a note for the purpose of converting an existing account payable would be 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: A. Interest Expense 9,600 Cash 110,400 Notes Payable 120,000 B. Cash Notes Payable
120,000 120,000
C. Cash Interest Expense Notes Payable
129,600
D. Notes Payable Interest Payable Cash Interest Expense
120,000 7,200 120,000 7,200
9,600 120,000
72. The journal entry to record the conversion of an $4,700 accounts payable to a notes payable would be: A. Cash Notes Payable
4,700 4,700
B. Notes Receivable 4,700 Notes Payable 4,700 C. Notes Payable Cash
4,700 4,700
D. Accounts Payable 4,700 Notes Payable 4,700
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 B. Bonds Payable C. Mortgage Payable D. Unearned Rent
75. Assuming a 360-day year, when a $30,000, 90-day, 5% interest-bearing note payable matures, total payment will amount to: A. $31,500 B. $1,500 C. $30,375 D. $375
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 A. Current Liabilities, $1,000,000. B. Current Liabilities, $200,000; Long-term Debt, $800,000. C. Long-term Debt, $1,000,000 D. Current Liabilities, $800,000; Long-term Debt, $200,000.
78. On October 30, Seba Salon, Inc. issued a 90-day note with a face amount of $60,000 to Reyes Products, Inc. for merchandise inventory. Assuming a 360-day year, determine the proceeds of the note assuming the note is discounted at 8%. A. $55,200 B. $64,800 C. $58,800 D. $61,200
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 agencies. D. payroll and related payroll taxes have a significant effect on the net income of most businesses.
80. The amount of federal income taxes withheld from an employee's gross pay is recorded as a(n) A. payroll expense B. contra account C. asset D. liability
81. Which statement below is not a determinate in calculating the amount of federal income taxes withheld from an individuals pay? A. filing status B. types of earnings C. gross pay D. number of exemptions
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
83. Which of the following taxes would be deducted in determining an employee's net pay? A. FUTA taxes B. SUTA taxes C. FICA taxes D. all of the above
84. For which of the following taxes is there no ceiling on the amount of employee annual earnings subject to the tax? 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? A. $775.00 B. $1,840.00 C. $1,960.00 D. $1,562.60
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? A. $713.75 B. $935.15 C. $764.75 D. $873.77
88. Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $99,350 and $91,000 respectively. Their earnings for the last completed payroll period of the year are $850 each. The maximum amount of earnings subject to social security tax at 6% is $100,000. All earnings are subject to Medicare tax of 1.5%. Assuming that the payroll will be paid on December 29, what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each? A. $127.50 B. $115.50 C. $112.50 D. $0
89. The total earnings of an employee for a payroll period is referred to as A. take-home pay B. pay net of taxes C. net pay D. gross pay
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? A. $1,032.00 B. $1,143.00 C. $1,053.60 D. $1,166.40
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:
Salaries expense Social security and Medicare Taxes withheld Income Taxes withheld Retirement Savings
$14,000 1,050 2,600 1,000
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 B. Unemployment tax C. Marital status D. Number of exemptions claimed
94. Which of the following are included in the employer's payroll taxes? A. SUTA taxes B. FUTA taxes C. FICA taxes D. all of the above
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...