30) Arc Digital starts the year with balances in its Estimated warranty payable account and Warranty expense
account as shown below. During the year, there were $190,000 of sales and $3,200 of warranty repair payments.
Arc Digital estimates warranty expense at 1.5% of sales.
At the end of the year, what was the balance in the Warranty expense account?
A) $2,850 debit
B) $1,250 credit
C) $3,200 debit
D) $1,420 debit
31) Arc Digital starts the year with balances in its Estimated warranty payable account and Warranty expense
account as shown below. During the year, there were $190,000 of sales and $3,200 of warranty repair payments.
Arc Digital estimates warranty expense at 1.5% of sales.
At the end of the year, what was the balance in the Estimated warranty payable account?
A) $2,850 debit
B) $1,050 credit
C) $3,200 debit
D) $1,420 debit
32) Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% of sales. At the
beginning of 2013, the Estimated warranty payable account had a credit balance of $900. During the year, Tractor
World had $285,000 of sales, and had to pay out $5,100 in warranty payments. At the end of the year, how much
Warranty expense was reported on the income statement?
A) $2,640
B) $5,100
C) $4,200
D) $6,840
33) Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% of sales. At the
beginning of 2013, the Estimated warranty payable account had a credit balance of $900. During the year, Tractor
World had $285,000 of sales, and had to pay out $5,100 in warranty payments. At the end of the year, what balance
in Estimated warranty payable would be included in the balance sheet?
A) $2,640
B) $5,100
C) $4,200
D) $6,840
34) A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of
becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the
financial statement, what effect would this have on the financial reporting of the company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
35) A certain contingent liability was evaluated at year-end, and considered to have a remote possibility of
becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the
notes to the financial statement, what effect would this have on the financial reporting of the company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
36) A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become
an actual liability, and the amount could be reasonably estimated. If the accountant decided NOT to report it on the
balance sheet or in the notes to the financial statement, what effect would it have on the financial reporting of the
company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
37) Southwest Company’s records indicate that February sales on account were $111,000. The company’s
management estimates the liability for warranties to be 4.0% of sales. Please provide the journal entry to record
warranty expense.
Warranty expense
38) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales
revenue. In 2014, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty
payments. Please provide the journal entry to record the warranty expense.
Warranty expense
39) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales
revenue. In 2014, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty
payments. Please provide the journal entry to record the disbursement of warranty payments.
Estimated warranty payable
Learning Objective 10-3
1) Gross pay is the total amount of salary, wages, commissions, and bonuses earned by an employee during a pay
period.
2) The old age, survivors, and disability insurance portion of FICA taxes is imposed on all of an individual
employee’s earnings.
3) Payroll tax expense includes the employer’s portion of FICA taxes, state unemployment taxes, and federal
unemployment taxes.
4) State and federal unemployment taxes are withheld from each employee’s paycheck.
5) FUTA (federal unemployment compensation) tax is paid by the employee and deducted from gross pay.
6) SUTA (state unemployment compensation) tax is paid by the employee and deducted from gross pay.
7) SUTA (state unemployment compensation) tax is paid by the employer only and is not deducted from gross pay.
8) FUTA (federal unemployment compensation) tax is paid by the employer only and is not deducted from gross
pay.
9) FICA tax is paid by the employer only and is not deducted from gross pay.
10) FICA tax is paid by both the employer and the employee.
11) Gross pay is the total amount of compensation earned by an employee, before any deductions are made.
12) Net pay is the total amount of compensation earned by an employee, before any deductions are made.
13) Federal unemployment tax is a tax expense that is borne by the employer alone, and is not deducted from the
employee’s pay.
14) Employer FICA is a tax expense that is paid out by the employer and recorded as a payroll tax expense.
15) FICA tax is a tax which is paid both by the employer and the employee in equal amounts.
16) FICA tax is a tax which is paid by the employer only and is not deducted from the employee’s pay.
17) FICA tax is a tax which is paid by the employee only.
18) Which of the following is paid by the employee only?
A) FICA
B) FUTA
C) Employee income tax
D) State unemployment tax
19) Which of the following is paid by both the employee and the employer?
A) FICA
B) FUTA
C) Employee income tax
D) State unemployment tax
20) Sue works 46 hours at her job during the week. She is paid $13.30/hour and receives overtime at the rate of
time-and-one-half for hours worked over forty. What is Sue’s gross pay for the week?
A) $611.80
B) $917.70
C) $651.70
D) Some other amount
21) Sue works 46 hours at her job during the week. She is paid $13.30/hour and receives overtime at the rate of
time-and-one-half for hours worked over forty. Sue is taxed for federal income taxes at 15% and 7.65% for OASDI
and Medicare. All of her income is taxable. What is Sue’s net pay?
A) $651.70
B) $147.61
C) $504.08
D) $532.00
22) Which of the following are NOT required to be deducted from employees’ paychecks?
A) Federal income tax
B) FICA
C) State income tax
D) Charitable contributions
23) For which of the following taxes is there a ceiling on the amount of annual earnings subject to the tax?
A) FICA
B) Medicare
C) Federal income tax
D) State income tax
24) Which of the following taxes does NOT have a limit on the amount of tax paid per individual?
A) Federal income taxes
B) FICA taxes
C) Federal unemployment taxes
D) State unemployment taxes
25) Which of the following is NOT an expense of the employer?
A) State unemployment taxes
B) FICA taxes—employer’s portion
C) Employee income taxes
D) Federal unemployment taxes
26) Which of the following is pay over and above base salary, usually paid for exceptional performance?
A) Commissions
B) Benefits
C) Wages
D) Bonuses
27) Which of the following is pay stated as a percentage of a sale amount?
A) Bonuses
B) Benefits
C) Wages
D) Commissions
28) Which of the following are deducted to arrive at an employee’s net pay?
A) Federal income taxes
B) FICA taxes—employer’s portion
C) Federal unemployment taxes
D) State unemployment taxes
29) Which of the following deductions must be matched by the employer, resulting in both a deduction from gross
pay and an expense to the employer?
A) Federal income taxes
B) Federal unemployment taxes
C) FICA taxes
D) Charitable deductions
30) Which of the following are pay amounts stated at an hourly rate?
A) Bonuses
B) Commissions
C) Wages
D) Benefits
31) Tom’s gross pay for the week is $800. Tom’s deduction for federal income tax is based on a rate of 18%. Tom
has no voluntary deductions. Tom’s yearly pay is under the limit for OASDI. What is the amount of Tom’s net pay?
A) $594.80
B) $738.80
C) $656.00
D) $533.60
32) Mary’s gross pay for the week is $1,000. Mary’s deduction for federal income tax is based on a rate of 20%.
Mary has voluntary deductions of $150. Her yearly pay is under the limit for OASDI. What is the amount of her
net pay?
A) $594.80
B) $773.50
C) $650.00
D) $573.50
33) Tom’s gross pay for the week is $800. Tom’s deduction for federal income tax is based on a rate of 18%. Tom
has no voluntary deductions. Tom’s yearly pay is under the limit for OASDI. What is the amount of FICA withheld
from Tom’s pay?
A) $67.80
B) $61.20
C) $65.00
D) $533.60
34) Mary’s gross pay for the week is $1,000. Mary’s deduction for federal income tax is based on a rate of 20%.
Mary has voluntary deductions of $150. Her yearly pay is under the limit for OASDI. What is the amount of FICA
deducted from her pay?
A) $59.80
B) $76.50
C) $65.00
D) $153.00
35) Tom’s gross pay for this month is $8,150. His gross pay year–to-date, prior to this month totaled $101,000.
What is the amount of FICA withheld from Tom’s pay for this month?
A) $623.48
B) $359.60
C) $477.78
D) $118.18
36) Tom’s gross pay for this month is $8,150. His gross pay year–to-date, prior to this month totaled $101,000.
Tom’s rate for federal income tax is 24%. His voluntary deductions total $900. What is the amount of Tom’s net
pay?
A) $4,816.22
B) $5,716.00
C) $4,670.52
D) $4,290.65
37) Tom’s gross pay for the week is $800. Tom’s deduction for federal income tax is based on a rate of 18%. Tom
has no voluntary deductions. Tom’s yearly pay is under the limit for OASDI. How much is the amount of FICA tax
that Tom’s employer must record as payroll tax expense and pay to Social Security?
A) $68.00
B) $61.20
C) $122,40
D) $144.00
38) Tom’s gross pay for the week is $800. Tom’s yearly pay is under the limit for OASDI. Assume that the rate for
state and federal unemployment compensation taxes is 6.2%, and that Tom’s pay year–to-date has not yet exceeded
the $7,000 cap. How much is the amount of state and federal unemployment tax that Tom’s employer must record
as payroll tax expense and pay to the federal and state governments?
A) $61.20
B) $38.80
C) $99.20
D) $49.60
39) Tom’s gross pay for the week is $800. Tom’s yearly pay is under the limit for OASDI. Assume that the rate for
state and federal unemployment compensation taxes is 6.2%, and that Tom’s pay year-to-date has previously
exceeded the $7,000 cap. How much is the amount of state and federal unemployment tax that Tom’s employer
must record as payroll tax expense and pay to the federal and state governments?
A) $0
B) $38.80
C) $99.20
D) $49.60