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63. The times interest earned ratio reflects:
A. A company's ability to pay its operating expenses on time.
B. A company's ability to pay interest even if sales decline.
C. A company's profitability.
D. The relation between income and debt.
E. The relation between assets and liabilities.
64. Fixed expenses:
A. Create risk.
B. Can be an advantage when a company is growing.
C. Include interest expense.
D. Do not fluctuate with changes in sales.
E. All of the choices are correct.
65. 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 income taxes by interest expense.
D. Multiplying interest expense by income before interest expense.
E. Dividing income before interest expense by interest expense and income taxes.
66. 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 3.0, the company is likely carrying too much debt.
67. A company's had fixed interest expense of $6,000, its income before interest expense and
any income taxes is $18,000, and its net income is $8,400. The company's times interest
earned ratio equals:
A. 0.33.
B. 0.71.
C. 1.40.
D. 3.00.
E. 12,000.
68. 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).
69. A company's income before interest expense and taxes is $250,000 and its interest
expense is $100,000. Its times interest earned ratio is:
A. 0.40
B. 2.50
C. 1:2.5
D. 2.5:1
E. 0.50
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70. A company's fixed interest expense is $8,000, its income before interest expense and
income taxes is $32,000. Its net income is $9,600. The company's times interest earned ratio
equals:
A. 0.25.
B. 0.30.
C. 0.83.
D. 3.33.
E. 4.0.
71. 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.
72. 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.
73. Short-term notes payable:
A. Can replace an account payable.
B. Can be issued in return for money borrowed from a bank.
C. Are negotiable.
D. Are an unconditional promise to pay.
E. All of the choices are correct.
74. On December 1, Martin Company signed a 90-day, 6% note payable, with a face value of
$5,000. What amount of interest expense is accrued at December 31 on the note?
A. $0
B. $25
C. $50
D. $75
E. $300
75. On November 1, Carter Company signed a 120-day, 10% note payable, with a face value
of $9,000. What is the adjusting entry for the accrued interest at December 31 on the note?
A. Debit interest expense, $0; credit interest payable, $0.
B. Debit interest expense, $100; credit interest payable, $100.
C. Debit interest expense, $150; credit interest payable, $150.
D. Debit interest expense, $200; credit interest payable, $200.
E. Debit interest expense, $300; credit interest payable, $300.
76. On November 1, Carter Company signed a 120-day, 10% note payable, with a face value
of $9,000. What is the maturity value of the note on March 1?
A. $9,000
B. $9,100
C. $9,150
D. $9,200
E. $9,300
77. On November 1, Carter Company signed a 120-day, 10% note payable, with a face value
of $9,000. Carter made the appropriate year-end accrual. What is the journal entry as of
March 1 to record the payment of the note assuming no reversing entry was made?
A. Debit Notes Payable $9,000; debit Interest Payable $150; credit Cash $9,150.
B. Debit Cash $9,300; credit Notes Payable $9,300.
C. Debit Notes Payable $9,300; credit Interest Payable $150; credit Interest Expense $150;
credit Cash $9,000.
D. Debit Notes Payable $9,000; debit Interest Payable $150; debit Interest Expense $150;
credit Cash $9,300.
E. Debit Notes Payable $9,000; debit Interest Expense $300; credit Cash $9,300.
78. Employers' responsibilities for payroll include:
A. Providing each employee with an annual report of his or her wages subject to FICA and
federal income taxes along with the amount of these taxes withheld.
B. Filing Form 941, the Employer's Quarterly Federal Tax Return.
C. Filing Form 940, the Annual Federal Unemployment Tax Return.
D. Maintaining individual earnings records for each employee.
E. All of the choices are correct.
79. 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.
80. The employer should record payroll deductions as:
A. Employee receivables.
B. Payroll taxes.
C. Current liabilities.
D. Wages payable.
E. Employee payables.
81. FICA taxes include:
A. Social Security taxes.
B. Charitable giving.
C. Employee income taxes.
D. Unemployment taxes.
E. All of the choices are correct.
82. The amount of federal income taxes withheld from an employee's paycheck is determined
by:
A. The amount of the employee's current earnings for the pay period and number of
withholding allowances the employee claims.
B. The employer's merit rating.
C. The amount of social security taxes.
D. Multiplying the gross pay by 6.2%.
E. All of the choices are correct.
83. Recording employee payroll deductions may involve:
A. Liabilities to individual employees.
B. Liabilities to federal and state governments.
C. Liabilities to insurance companies.
D. Liabilities to labor unions.
E. All of the choices are correct.
84. 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. All of the choices are correct.
85. An employee earned $47,000 during the year working for an employer. The FICA tax rate
for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The employee's
annual FICA taxes amount 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.
86. Phil Phoenix is paid monthly. For the month of January of the current year, he earned a
total of $8,288. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare
is 1.45%. The FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment
taxes are applied to the first $7,000 of an employee's pay. The amount of federal income tax
withheld from his earnings was $1,375.17. His net pay for the month is:
A. $5,190.83
B. $5,844.79
C. $6,278.79
D. $6,566.00
E. $6,792.64
87. Phil Phoenix is paid monthly. For the month of January of the current year, he earned a
total of $8,288. The FICA tax rate for social security is 6.2% and the FICA tax rate for
Medicare is 1.45%. The FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both
unemployment taxes are applied to the first $7,000 of an employee's pay. The amount of
Federal Income Tax withheld from his earnings was $1,375.17. What is the total amount of
taxes withheld from the Phoenix's earnings?
A. $3,097.17
B. $2,443.21
C. $2,009.21
D. $1,722.00
E. $1,495.36
88. The annual Federal Unemployment Tax Return is:
A. Form 940.
B. Form 1099.
C. Form 104.
D. Form W-2.
E. Form W-4.
89. The Wage and Tax Statement is:
A. Form 940.
B. Form 941.
C. Form 1040
D. Form W-2.
E. Form W-4.
90. A bank that is authorized to accept deposits of 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.
91. An employer's federal unemployment taxes (FUTA) are reported:
A. Annually.
B. Semiannually.
C. Quarterly.
D. Monthly.
E. Weekly.
92. A merit rating:
A. Is assigned by the state.
B. Reflects a company's stability or instability in employing workers.
C. Adjusts the employer's SUTA tax rate.
D. Affects state unemployment taxes paid by an employer.
E. All of the choices are correct.
93. Employer payroll taxes:
A. Are an added expense beyond the wages and salaries earned by employees.
B. Represent the federal taxes withheld from employees.
C. Represent the social security taxes withheld from employees.
D. Are paid by the employee.
E. All of the choices are correct.
94. Employers:
A. Pay FICA taxes equal to the amount of FICA taxes withheld from the employees.
B. Withhold employees' FICA taxes.
C. Pay unemployment taxes to the federal government.
D. Pay unemployment taxes to both the state and federal governments.
E. All of the choices are correct.
95. FUTA taxes are:
A. Social Security taxes.
B. Medicare taxes.
C. Employee income taxes.
D. Unemployment taxes.
E. Employee deductions.
96. The unemployment insurance program:
A. Is a joint federal and state program.
B. Is administered by each state.
C. Provides unemployment benefits to qualified workers.
D. Adjusts rates paid by employers based on their merit rating.
E. All of the choices are correct.
97. 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.
98. An employee earned $4,300 working for an employer. The current rate for FICA Social
Security is 6.2% and the rate for FICA Medicare 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.
99. An employee earned $62,500 during the year working for an employer. The FICA tax rate
for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The current FUTA
tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the
first $7,000 of an employee's pay. What is the amount of total unemployment taxes the
employee must pay?
A. $101.50
B. $56.00
C. $378.00
D. $434.00
E. $0.00
100. Phil Phoenix is paid on a monthly basis. For the month of January of the current year, he
earned a total of $8,288. FICA tax for Social Security is 6.2% and the FICA tax for Medicare
is 1.45%. The FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment
taxes are applied to the first $7,000 of an employee's pay. The amount of Federal Income Tax
withheld from his earnings was $1,375.17. What is the amount of the employer's payroll taxes
expenses for this employee?
A. $56.00
B. $120.18
C. $378.00
D. $513.86
E. $1,068.04
101. 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.
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102. Estimated liabilities commonly arise from:
A. Warranties.
B. Vacation benefits.
C. Income taxes.
D. Employee benefits.
E. All of the choices are correct.
103. 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 to be recorded for the month of July?
A. $25
B. $100
C. $250
D. $2,500
E. $25,000
104. 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.
105. 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.
106. 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.
107. 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. Debit Warranty Expense $7,400; credit Sales $7,400.
B. Debit Warranty Expense $7,400; credit Estimated Warranty Liability $7,400.
C. Debit Estimated Warranty Liability $7,400; credit Warranty Expense $7,400
D. Debit Estimated Warranty Liability $7,400; credit Cash $7,400.
E. No entry is recorded until the items are returned for warranty repairs.
108. A company sells computers at a selling price of $1,800 each. Each computer has a 2 year
warranty that covers replacement of defective parts. It is estimated that 2% of all computers
sold will be returned under the warranty at an average cost of $150 each. During November,
the company sold 30,000 computers, and 400 computers were serviced under the warranty 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
