14) Which of the following accounts is debited when employees take their paid vacations?
A) Vacation Benefits Expense
B) Vacation Benefits Payable
C) Salaries Expense
D) No entry is needed.
15) Which of the following statements regarding vacation benefits is correct?
A) No entry is needed until the employee takes a paid vacation.
B) The account, Vacation Expense is debited when the employee takes a paid vacation.
C) Health and pension benefits are recorded in the same manner as vacation benefits.
D) When an employee takes a paid vacation, the account, Vacation Benefits Payable is credited.
16) Sunset, Inc. has a policy of accruing $2300 for every employee as a vacation benefit. Sarah, an
employee, took a vacation. Which of the following is the correct journal entry for the vacation benefit
paid?
A)
Vacation Benefits Payable
1917
Vacation Benefits Expense
1917
B)
Vacation Benefits Expense
2300
Cash
2300
C)
Vacation Benefits Payable
2300
Cash
2300
D)
Vacation Benefits Expense
1917
Vacation Benefits Payable
1917
17) First Street Restaurant incurred salaries expense of $60,000 for 2018. The payroll tax expense includes
employer FICA tax, state unemployment tax and federal unemployment tax. Year-to–date earnings do
not exceed $118,500. Of the total salaries, $17,000 is subject to unemployment tax. Currently, state
unemployment tax is 5.4% and federal unemployment tax is 0.6%. Also, the company provides the
following benefits for employees: health insurance (cost to the company, $2,500), life insurance (cost to
the company, $700), and retirement benefits (cost to the company, 10% of salaries expense). Journalize
First Street‘s expenses for employee benefits and for payroll taxes. Explanations are not required.
18) Warranties pose an accounting challenge because a company does not know which or how many
products will have to be repaired.
19) The entry to accrue the warranty payable includes a credit to Warranty Expense.
20) Estimated Warranty Payable is included in the liability section of the balance sheet.
21) The matching principle requires businesses to record Warranty Expense when the warranty costs are
incurred.
22) Warranty Expense is shown on the income statement at the estimated amount.
23) The matching principle requires businesses to report Warranty Expense ________.
A) in the same period that the company records the revenue related to that warranty
B) in the period prior to which the company records the revenue related to that warranty
C) in the period after the related revenue is recorded
D) in the long-term assets section of the balance sheet
24) A Plus Appliances sells dishwashers with a four-year warranty. In 2019, sales revenue for
dishwashers is $94,000. The company estimates warranty expense at 4.5% of revenues. What is the total
estimated warranty payable of A Plus Appliances as of December 31,2019? A Plus Appliances began
operating in 2019. (Round your final answer to the nearest dollar.)
A) $4230
B) $1058
C) $1548
D) $3318
25) Lana Appliances sells dishwashers with a four-year warranty. In 2018, sales revenue for dishwashers
is $96,000. The company estimates warranty expense at 4.5% of revenues. What is the 2018 warranty
expense? (Round your final answer to the nearest dollar.)
A) $4320
B) $1080
C) $0
D) $3388
26) The expense for warranty costs is recorded in the period ________.
A) when the product is sold
B) when the product is repaired or replaced
C) when cash is paid to repair or replace the product
D) when cash is collected from the sale of the product
27) Which of the following accounting principles requires that warranty expense must be estimated and
recognized in the same period when the related sales revenue is recognized?
A) the matching principle
B) the disclosure principle
C) the revenue principle
D) the consistency principle
28) Rambler, Inc. reported sales revenue for 2019 of $903,000. The products were sold with a nine-month
warranty. Members of Rambler’s management estimate that the cost of the warranty will be equal to 7%
of sales revenue. Which of the following will be included in the entry to record the actual amounts paid
out as a result of warranty claims?
A) a debit to Estimated Warranty Payable for the actual amount of payments
B) a credit to Estimated Warranty Payable for $63,210
C) a debit to Estimated Warranty Payable for $63,210
D) a debit to Warranty Expense for the actual amount of payments
29) Which of the following is included in the entry to record accrual of warranty expense?
A) a debit to Warranty Expense
B) a credit to Merchandise Inventory
C) a credit to Warranty Expense
D) a debit to Estimated Warranty Payable
30) Which of the following is included in the entry to record estimated warranty payable?
A) a credit to Estimated Warranty Payable
B) a credit to Merchandise Inventory
C) a credit to Warranty Expense
D) a debit to Estimated Warranty Payable
31) Classic Sales Corporation offers warranties on all their electronic goods. Warranty expense is
estimated at 3% of sales revenue. In 2018, the company had $602,000 of sales. In the same year, it paid out
$12,000 of warranty payments. Which of the following is the entry needed to record the estimated
warranty expense?
A)
Estimated Warranty Payable
12,000
Cash
12,000
B)
Warranty Expense
12,000
Estimated Warranty Payable
12,000
C)
Warranty Expense
18,060
Estimated Warranty Payable
18,060
D)
Warranty Expense
18,060
Sales Revenue
18,060
32) Masterpiece Sales Corporation offers warranties on all their electronic goods. Warranty expense is
estimated at 3% of sales revenue. In 2019, the company had $603,000 in sales. In the same year,
Masterpiece Sales replaced defective goods with goods that had a cost of $16,500. Which of the following
is the entry needed to record the replacement of the defective goods?
A)
Estimated Warranty Payable
16,500
Merchandise Inventory
16,500
B)
Warranty Expense
16,500
Estimated Warranty Payable
16,500
C)
Warranty Expense
18,090
Estimated Warranty Payable
18,090
D)
Warranty Expense
18,090
Merchandise Inventory
18,090
33) State Street Digital, Inc. starts the year with $3500 in its Estimated Warranty Payable account. During
the year, there were $213,000 in sales and $4900 in warranty repair payments. State Street Digital
estimates warranty expense at 4% of sales. The Warranty Expense for the year is ________.
A) $8520
B) $4900
C) $3500
D) $7120
Warranty Expense
8520
Estimated Warranty Payable ($213,000 × 4%)
8520
Diff: 1
LO: 11-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Warranties
34) All Things Digital, Inc. starts the year with a credit balance of $3500 in its Estimated Warranty Payable
account. During the year, there were $224,000 in sales and $4800 in warranty repair payments. All Things
Digital estimates warranty expense at 2% of sales. At the end of the year, what is the balance in the
Estimated Warranty Payable account?
A) $4480 debit
B) $4800 credit
C) $3500 debit
D) $3180 credit
35) Cycle Sales, Inc. offers warranties on all their bikes. They estimate warranty expense at 3.5% of sales.
At the beginning of 2019, the Estimated Warranty Payable account had a credit balance of $1400. During
the year, Cycle Sales had $299,000 in sales and had to pay out $5900 in warranty payments. How much
Warranty Expense will be reported on the 2019 income statement?
A) $5965
B) $7300
C) $9065
D) $10,465