Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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ACCT.AICPA.FN.03 – Measurement
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
96. According to a summary of the payroll of Scotland Company, total salaries were $500,000. Assume that social
security taxes are payable at a 6% rate and Medicare taxes are payable at a 1.5% rate with no maximum earnings. Federal
income tax withheld was $98,000. Also, $15,000 was subject to state (5.4%) and federal (0.8%) unemployment
taxes. The journal entry to record accrued salaries would include a
a.
debit to Salaries Payable of $365,250
b.
credit to Salaries Payable of $364,500
c.
debit to Salaries Expense of $364,500
d.
credit to Salaries Expense of $365,250
ANSWER:
b
RATIONALE:
Salaries Payable = Gross pay – (Federal income tax + Social security tax + Medicare
tax) = $500,000 – [$98,000 + ($500,000 × 6.0%) + ($500,000 × 1.50%)] = $364,500
The journal entry to record the accrued salaries would include a credit to Salaries
Payable of $364,500.
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-02 – LO: 10–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.14 – Payroll/Other Compensation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
97. An aid in internal control over payrolls that indicates employee attendance is
a.
time card
b.
voucher system
c.
special payroll bank account
d.
fringe benefits
ANSWER:
POINTS:
DIFFICULTY:
QUESTION TYPE:
HAS VARIABLES:
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
DATE CREATED:
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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a.
defined contribution plan
b.
defined benefit plan
c.
unfunded plan
d.
compensation plan
ANSWER:
POINTS:
DIFFICULTY:
QUESTION TYPE:
HAS VARIABLES:
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
DATE CREATED:
DATE MODIFIED:
101. 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
b.
current liability
c.
expense
d.
long-term liability
ANSWER:
POINTS:
DIFFICULTY:
QUESTION TYPE:
HAS VARIABLES:
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
DATE CREATED:
DATE MODIFIED:
102. An unfunded pension liability is reported on the balance sheet as
a.
current liability
b.
owner’s equity
c.
long-term liability
d.
current liability or long-term liability, depending upon when the pension liability is to be paid
ANSWER:
POINTS:
DIFFICULTY:
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105. 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
ANSWER:
POINTS:
DIFFICULTY:
QUESTION TYPE:
HAS VARIABLES:
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
DATE CREATED:
DATE MODIFIED:
106. 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
ANSWER:
POINTS:
DIFFICULTY:
QUESTION TYPE:
HAS VARIABLES:
LEARNING OBJECTIVES:
ACCREDITING STANDARDS:
DATE CREATED:
DATE MODIFIED:
107. Zennia Company 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 cost is $135,000. On December 31, the end of the
current year, the current month’s accrued vacation pay is
a.
$135,000
b.
$67,500
c.
$0
d.
$11,250
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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ANSWER:
d
RATIONALE:
Current month’s accrued vacation pay = Current year’s vacation pay ÷ 12 months
Current month’s accrued vacation pay = $135,000 ÷ 12 = $11,250
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-03 – LO: 10–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.14 – Payroll/Other Compensation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
108. Hall Company sells merchandise with a one-year warranty. In the current year, sales consisted of 4,500 units. It is
estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in the current year and
70% in the next year. In the current year’s income statement, Hall should show warranty expense of
a.
$45,000
b.
$13,500
c.
$31,500
d.
$0
ANSWER:
a
RATIONALE:
Warranty expense = Sales units × Average warranty repairs = 4,500 units × $10 =
$45,000
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-05 – LO: 10–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
109. Excom sells radios and each unit carries a two-year replacement warranty. The cost of repair defects under the
warranty is estimated at 5% of the sales price. During September, Excom sells 100 radios for $50 each. One radio is
actually replaced during September. For what amount in September would Excom debit Product Warranty Expense?
a.
$50
b.
$250
c.
$30
d.
$120
ANSWER:
b
RATIONALE:
Product warranty expense = 5% × Sales = 5% × $5,000 = $250
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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Page 50
b.
debit Product Warranty Payable; credit Cash
c.
debit Product Warranty Expense; credit Cash
d.
debit Product Warranty Payable; credit Product Warranty Expense
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Applying
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-05 – LO: 10–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
117. Which of the following is the most desirable quick ratio?
a.
2.20
b.
1.80
c.
1.95
d.
1.50
ANSWER:
a
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-07 – LO: 10–07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
118. The Crafter Company has the following assets and liabilities:
ASSETS
Cash
$28,000
Accounts receivable
15,000
Inventory
20,000
Equipment
50,000
LIABILITIES
Current portion of long-term debt
10,000
Accounts payable
2,000
Long-term debt
25,000