Name:
Class:
Date:
Indicate whether the statement is true or false.
1. One of the more popular defined contribution plans is the 401k plan.
a.
True
b.
False
2. Federal income taxes withheld increase the employer’s payroll tax expense.
a.
True
b.
False
3. The total net pay for a period is determined from the payroll register.
a.
True
b.
False
4. Form W-2 is called the Wage and Tax Statement.
a.
True
b.
False
5. For a current liability to exist, the liability must be due usually within a year and must be paid out of current assets.
a.
True
b.
False
6. The amount borrowed is equal to the face amount of the note on an interest-bearing note payable.
a.
True
b.
False
7. The proceeds of a discounted note are equal to the face value of the note.
a.
True
b.
False
8. Federal unemployment compensation tax becomes an employer’s liability at the time the employee is paid.
a.
True
b.
False
9. During the first year of operations, a company granted warranties on its products at an estimated cost of $8,500. The
product warranty expense should be recorded in the years of the expenditures to repair the products covered by the
warranty payments.
a.
True
b.
False
10. The payroll register is a multicolumn form used to assemble the payroll-related data for all employees.
a.
True
b.
False
11. 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.
Name:
Class:
Date:
a.
True
b.
False
12. Most employers use payroll checks drawn on a special bank account for paying the payroll.
a.
True
b.
False
13. FICA tax is a payroll tax that is paid only by employers.
a.
True
b.
False
14. 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.
a.
True
b.
False
15. Payroll taxes are based on the employee’s net pay.
a.
True
b.
False
16. A defined contribution plan promises employees a fixed annual pension benefit.
a.
True
b.
False
17. Taxes deducted from an employee’s earnings to finance social security and Medicare benefits are called FICA taxes.
a.
True
b.
False
18. Generally, all deductions made from an employee’s gross pay are required by law.
a.
True
b.
False
19. In a defined benefits plan, the employer bears the investment risks in funding a future retirement income benefit.
a.
True
b.
False
20. An employee’s take-home pay is equal to gross pay less all voluntary deductions.
a.
True
b.
False
21. The borrower issues a note payable to a creditor.
a.
True
b.
False
22. Interest expense is reported in the Operating Expense section of the income statement.
a.
True
Name:
Class:
Date:
b.
False
23. An interest-bearing note is a loan in which the lender deducts interest from the amount loaned before the money is
advanced to the borrower.
a.
True
b.
False
24. The journal entry for 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.
a.
True
b.
False
25. 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.
a.
True
b.
False
26. Internal controls for cash payments apply to payrolls.
a.
True
b.
False
27. For most companies, notes payable is the largest current liability.
a.
True
b.
False
28. The amount of money a borrower receives from the lender is called the discount rate.
a.
True
b.
False
29. All long-term liabilities eventually become current liabilities.
a.
True
b.
False
30. The proceeds from discounting a $20,000, 60-day note payable at 6% are $20,200.
a.
True
b.
False
31. Most employers are required to withhold federal unemployment taxes from employee earnings.
a.
True
b.
False
32. Federal unemployment taxes are paid by the employer and the employee.
a.
True
b.
False
33. Federal unemployment compensation taxes that are collected by the federal government are not paid directly to the
Name:
Class:
Date:
unemployed but are allocated among the states for use in state programs.
a.
True
b.
False
34. Depending on 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.
a.
True
b.
False
35. The accounting for defined benefit plans is usually very easy and straightforward.
a.
True
b.
False
36. The discount on a note payable is charged to an account that has a normal credit balance.
a.
True
b.
False
37. Amounts withheld from each employee for social security and Medicare vary by state.
a.
True
b.
False
38. Obligations that may arise from past transactions only if certain events occur in the future are contingent liabilities.
a.
True
b.
False
39. Medicare taxes are paid by both the employee and the employer.
a.
True
b.
False
40. Form W-4 is a form authorizing employers to withhold a portion of employee earnings for payment of an employee’s
federal income taxes.
a.
True
b.
False
41. In order to be a recorded contingent liability, the liability must be possible and easily estimated.
a.
True
b.
False
42. Payroll taxes only include social security taxes and federal unemployment and state unemployment taxes.
a.
True
b.
False
43. FICA tax becomes a liability to the federal government at the time an employee’s payroll is prepared.
a.
True
b.
False
Name:
Class:
Date:
44. Payroll taxes levied against employers become an employer liability at the time the employee wages are incurred.
a.
True
b.
False
45. Notes payable may be issued to creditors to satisfy previously created accounts payable.
a.
True
b.
False
46. 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.
a.
True
b.
False
47. Federal income taxes are subject to a maximum amount per employee per year.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
48. When a borrower receives the face amount of a discounted note less the discount, the amount is known as the
a.
note proceeds
b.
note discount
c.
note deferred interest
d.
note principal
49. Martinez Co. borrowed $50,000 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 for the payment should include a
a.
debit to Interest Payable for $750
b.
debit to Interest Expense for $750
c.
credit to Cash for $50,000
d.
credit to Cash for $54,500
50. The journal entry a company uses for partially funded pension rights for its salaried employees at the end of the year is
a.
debit Salaries 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
51. Thomas Martin receives an hourly wage rate of $40, with time-and-a-half pay for all hours worked in excess of 40
hours during a week. Payroll data for the current week are as follows: hours worked, 48; federal income tax withheld,
$350; social security tax rate, 6.0%; and Medicare tax rate, 1.5%. What is the gross pay for Martin?
a.
$449
b.
$1,730
c.
$2,080
d.
$1,581
Name:
Class:
Date:
52. 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
53. The journal entry for 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
54. Which of the following is not a determinant in computing federal income taxes withheld from an individual’s pay?
a.
filing status
b.
type of earnings
c.
gross pay
d.
number of exemptions
55. The journal entry a company uses for fully funded pension rights for its salaried employees at the end of the year is
a.
debit Salaries 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
56. Notes may be issued
a.
when assets are purchased
b.
to creditors to temporarily satisfy an account payable created earlier
c.
when borrowing money
d.
All of these choices
57. Which of the following is an example of a variable component of a payroll system?
a.
hours worked
b.
Medicare tax rate
c.
rate of pay
d.
social security number
58. 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
59. Davis and Thompson have earnings of $850 each. The social security tax rate is 6.0%, and the Medicare tax rate is
1.5%. Assuming that these are the only two employees and that neither have reached the maximum earnings subject to
Name:
Class:
Date:
FICA taxes, what will be the employer’s total FICA taxes for this payroll period?
a.
$102.00
b.
$127.50
c.
$96.00
d.
$25.50
60. Proper payroll accounting methods are important for a business for all of the following reasons 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
61. The detailed record indicating the data for each employee for each payroll period and the cumulative total earnings for
each employee is called the
a.
payroll register
b.
payroll check
c.
employee’s earnings record
d.
employer’s earnings record
62. The journal entry for 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
63. The employee’s earnings record would contain which of the following data that the payroll register would probably
not contain?
a.
deductions
b.
net pay
c.
overtime earnings
d.
cumulative earnings
64. Each year, there is a maximum for the amount of earnings subject to all of the following taxes except
a.
social security tax
b.
federal income tax
c.
federal unemployment tax
d.
state unemployment tax
65. Based on the following data, what is the quick ratio (rounded to one decimal place)?
Accounts payable
$ 30,000
Accounts receivable
60,000
Accrued liabilities
5,000
Cash
30,000
Intangible assets
50,000
Inventory
69,000
Name:
Class:
Date:
Long-term investments
80,000
Long-term liabilities
100,000
Marketable securities
30,000
Fixed assets
670,000
Prepaid expenses
1,000
a.
3.4
b.
3.0
c.
2.2
d.
1.8
66. Zennia Company provides its employees with varying amounts of vacation per year, depending on their 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
67. Taylor Bank lends Guarantee Company $150,000 on January 1. Guarantee Company signs a $150,000, 8%, nine-
month note. The journal entry made by Guarantee Company on January 1 for the proceeds and issuance of the note is
a.
Interest Expense 12,000
Cash 138,000
Notes Payable 150,000
b.
Cash 150,000
Notes Payable 150,000
c.
Cash 162,000
Interest Expense 12,000
Notes Payable 150,000
d.
Notes Payable 120,000
Interest Payable 7,200
Cash 120,000
Interest Expense 7,200
68. The following totals for the month of April were compiled from the payroll data of Magnum Company:
Salaries
$10,000
FICA taxes withheld
750
Income taxes withheld
2,000
Medical insurance deductions
450
Unemployment taxes
420
The journal entry for the accrual of the employer’s payroll taxes would include a
a.
debit to Payroll Tax Expense for $1,170
b.
debit to FICA Taxes Payable for $1,500
c.
credit to Payroll Tax Expense for $420
d.
debit to Payroll Tax Expense for $1,620
Name:
Class:
Date:
69. Quick assets include
a.
cash, cash equivalents, receivables, prepaid expenses, and inventory
b.
cash, cash equivalents, receivables, and prepaid expenses
c.
cash, cash equivalents, receivables, and inventory
d.
cash, cash equivalents, and receivables
70. Estimating and recording product warranty expense in the period of the sale best follows the
a.
cost concept
b.
business entity concept
c.
matching concept
d.
materiality concept
71. During its first year of operations, a company granted its employees vacation privileges and pension rights estimated
at a cost of $21,500 and $15,000, respectively. The vacations are expected to be taken in the next year, and the pension
rights are expected to be paid in the future 5–30 years. What is the total cost of vacation pay and pension rights to be
recognized in the first year?
a.
$15,000
b.
$36,500
c.
$6,500
d.
$21,500
72. 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
73. Young Company has the following assets and liabilities:
Assets
Cash
$35,000
Accounts receivable
15,000
Inventory
30,000
Equipment
50,000
Liabilities
Current portion of long-term debt
$10,000
Accounts payable
2,000
Long-term debt
25,000
Determine the quick ratio (rounded to one decimal place).
a.
6.7
b.
13.0
c.
4.2
d.
3.5
Name:
Class:
Date:
74. 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 these choices
75. Vacation pay payable is reported on the balance sheet as a(n)
a.
current liability or long-term liability, depending on when the vacations will be taken by employees
b.
current liability
c.
expense
d.
long-term liability
76. On January 5, Thomas Company, which follows a calendar year, issued $1,000,000 of notes payable, of which
$250,000 is due on January 1 each of the next four years. The proper balance sheet presentation on December 31 is
a.
Current liabilities, $1,000,000
b.
Current liabilities, $250,000; Long-term debt, $750,000
c.
Long-term debt, $1,000,000
d.
Current liabilities, $750,000; Long-term debt, $250,000
Use this information for Harris Company to answer the following questions.
Harris Company has the following information for the pay period of January 15–31:
Gross payroll
$10,000
Federal income tax withheld
$1,800
Social security rate
6.0%
Federal unemployment tax rate
0.8%
Medicare rate
1.5%
State unemployment tax rate
5.4%
Assume that for the year to date no employees have reached the maximum earnings subject to FICA taxes.
77. Assuming that all wages are subject to federal and state unemployment taxes, the employer’s payroll tax expense
would be
a.
$1,370
b.
$750
c.
$620
d.
$2,870
78. Scott Company sells merchandise with a one-year warranty. Sales consisted of 2,500 units in Year 1 and 2,000 units in
Year 2. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in Year 1
and 70% in Year 2 for the Year 1 sales. Similarly, 30% of repairs will be made in Year 2 and 70% in Year 3 for the Year
2 sales. On the Year 3 income statement, how much of the warranty expense shown will be due to Year 1 sales?
a.
$6,000
b.
$14,000
c.
$20,000
d.
$0
79. Current liabilities are due
a.
but not receivable for more than one year
Name:
Class:
Date:
b.
but not payable for more than one year
c.
and receivable within one year
d.
and payable within one year
80. An employee receives an hourly wage rate of $15, with time and a half for all hours worked in excess of 40 during the
week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $110; cumulative
earnings for the year prior to this week, $24,500; social security tax rate, 6.0%; Medicare tax rate, 1.5%; state
unemployment compensation tax, 3.4% on the first $7,000; and federal unemployment compensation tax, 0.8% on the
first $7,000. What is the net amount to be paid to the employee?
a.
$569.88
b.
$539.00
c.
$625.00
d.
$544.88
81. 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
82. Payroll entries are made with data from the
a.
wage and tax statement
b.
employee’s earnings record
c.
employer’s quarterly federal tax return
d.
payroll register
83. The journal entry a company uses for pension rights that have not been funded for its salaried employees at the end of
the year is
a.
debit Salaries 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
84. Most employers are levied a tax on payrolls for
a.
sales tax
b.
medical insurance premiums
c.
federal unemployment compensation tax
d.
union dues
85. On May 18, Rodriguez Co. issued an $84,000, 6%, 120-day note payable on an overdue account payable to Wilson
Company. Assume that the fiscal year of Rodriguez ends on June 30. Which of the following relationships is true?
a.
Rodriguez is the creditor and credits Accounts Receivable.
b.
Wilson is the creditor and debits Accounts Receivable.
c.
Wilson is the borrower and credits Accounts Payable.
Name:
Class:
Date:
d.
Rodriguez is the borrower and debits Accounts Payable.
86. An unfunded pension liability is reported on the balance sheet as
a.
a current liability
b.
owner’s equity
c.
a long-term liability
d.
a current liability or long-term liability, depending on when the pension liability is to be paid
87. According to a summary of the payroll of Scotland Company, $500,000 was subject to the 6.0% social security tax
and to the 1.5% Medicare tax. Federal income tax withheld was $98,000. Also, $15,000 was subject to state (4.2%) and
federal (0.8%) unemployment taxes. The journal entry for accrued salaries would include a
a.
debit to Salaries Payable of $450,000
b.
credit to Salaries Payable of $500,000
c.
debit to Salaries Expense of $500,000
d.
credit to Salaries Expense of $450,000
88. Assuming a 360-day year, the interest charged by the bank at the rate of 6% on a 90-day, discounted note payable of
$100,000 is
a.
$6,000
b.
$1,500
c.
$500
d.
$3,000
89. Martin Jackson receives an hourly wage rate of $30, with time-and-a-half pay for all hours worked in excess of 40
hours during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld,
$350; social security tax rate, 6.0%; and Medicare tax rate, 1.5%. What is the net amount to be paid to Jackson?
a.
$1,470.00
b.
$1,009.75
c.
$1,097.95
d.
$460.25
90. Which of the following is the most desirable quick ratio?
a.
2.20
b.
1.80
c.
1.95
d.
1.50
91. A current liability is a debt that is reasonably expected to be paid
a.
between 6 and 18 months
b.
out of currently recognized revenues
c.
within one year
d.
out of cash currently on hand
92. Wright Company sells merchandise with a one-year warranty. In the current year, sales consisted of 2,000 units. It is
estimated that warranty repairs will average $15 per unit sold and 30% of the repairs will be made in the current year and
Name:
Class:
Date:
70% in the next year. On the current year’s income statement, Wright should show warranty expense of
a.
$9,000
b.
$21,000
c.
$30,000
d.
$0
93. McKay Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 1,200 units. It is estimated
that warranty repairs will average $10 per unit sold and 30% of the repairs will be made in Year 1 and 70% in Year 2. On
the Year 1 income statement, McKay should show warranty expense of
a.
$3,600
b.
$8,400
c.
$12,000
d.
$0
94. Which of the following is included in the employer’s payroll taxes?
a.
SUTA tax
b.
FUTA tax
c.
social security tax
d.
All of these choices
95. Assume that social security taxes are payable at a 6.0% rate and Medicare taxes are payable at a 1.5% rate with no
maximum earnings, and federal and state unemployment compensation taxes total 4.6% on the first $7,000 of earnings. If
an employee earns $2,500 for the current week and the employee’s year-to-date earnings before this week were $6,800,
what is the total payroll tax related to the current week?
a.
$187.50
b.
$196.70
c.
$344.50
d.
$9.20
96. 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
97. The journal entry for 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
98. An aid in internal control over payrolls that indicates employee attendance is the
a.
time card
b.
voucher system
c.
payroll register
Name:
Class:
Date:
d.
employee’s earnings record
99. The following totals for the month of June were taken from the payroll register of Arcon Company:
Salaries expense
$14,000
Social security and Medicare taxes withheld
1,050
Income taxes withheld
2,600
Retirement savings
1,000
The journal entry for 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
100. The following totals for the month of June were compiled from the payroll data of Young Company:
Salaries expense
$15,000
Social security and Medicare taxes withheld
1,125
Income taxes withheld
3,000
Retirement savings
500
Salaries subject to federal and state unemployment taxes of
6.2%
4,000
The journal entry for the accrual of the employer’s payroll taxes would include a debit to
a.
Payroll Tax Expense for $2,498
b.
Social Security and Medicare Tax Payable for $2,250
c.
Payroll Tax Expense for $1,373
d.
Payroll Tax Expense for $3,000
101. The journal entry a company uses for accrued vacation privileges for its employees at the end of the year is
a.
debit Vacation Pay Expense; credit Vacation Pay Payable
b.
debit Vacation Pay Payable; credit Vacation Pay Expense
c.
debit Salaries Expense; credit Cash
d.
debit Salaries Expense; credit Salaries Payable
102. According to a summary of the payroll of Scotland Company, $500,000 was subject to the 6.0% social security tax
and to the 1.5% Medicare tax. Federal income tax withheld was $98,000. Also, $15,000 was subject to state (4.2%) and
federal (0.8%) unemployment taxes. The journal entry for the accrued payroll taxes would include a
a.
debit to SUTA Payable for $630
b.
debit to SUTA Payable for $18,900
c.
credit to SUTA Payable for $630
d.
credit to SUTA Payable for $18,900
Use this information for Magnum Company to answer the following questions.
The following totals for the month of April were compiled from the payroll data of Magnum Company:
Salaries
$12,000
Name:
Class:
Date:
FICA taxes withheld
900
Income taxes withheld
2,500
Medical insurance deductions
450
Federal unemployment taxes
32
State unemployment taxes
216
103. The journal entry for the monthly payroll on April 30 would include a
a.
credit to Salaries Payable for $8,150
b.
debit to Salaries Expense for $7,902
c.
debit to Salaries Payable for $8,150
d.
debit to Salaries Payable for $7,902
104. The journal entry a company uses for the estimated product warranty expense is
a.
debit Product Warranty Expense; credit Product Warranty Payable
b.
debit Product Warranty Payable; credit Cash
c.
debit Product Warranty Expense; credit Cash
d.
debit Product Warranty Payable; credit Product Warranty Expense
105. The cost of a product warranty should be included as an expense in the
a.
period the cash is collected for a product sold on account
b.
future period when the cost of repairing the product is paid
c.
period of the sale of the product
d.
future period when the product is repaired or replaced
106. An employee receives an hourly wage rate of $15, with time-and-a-half for all hours worked in excess of 40 during
the week. Payroll data for the current week are as follows: hours worked, 48; federal income tax withheld, $120; social
security tax rate, 6.0%; Medicare tax rate, 1.5%; state unemployment compensation tax, 3.4% on the first $7,000; and
federal unemployment compensation tax, 0.8% on the first $7,000. What is the net amount to be paid to the employee?
a.
$568.74
b.
$601.50
c.
$660.00
d.
$574.90
107. Which of the following would most likely be classified as a current liability?
a.
two-year note payable
b.
bond payable
c.
mortgage payable
d.
unearned rent
108. Hall Company sells merchandise with a one-year warranty. In the current year, sales consist 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. On the current year’s income statement, Hall should show warranty expense of
a.
$45,000
b.
$13,500
c.
$31,500
Name:
Class:
Date:
d.
$0
109. Sadie White receives an hourly wage rate of $30, with time-and-a-half pay 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;
social security tax rate, 6.0%; and Medicare tax rate, 1.5%. What is the net amount to be paid to White?
a.
$1,443
b.
$1,143
c.
$1,260
d.
$1,000
110. Assuming a 360-day year, when a $20,000, 90-day, 5% interest-bearing note payable matures, total payment will be
a.
$21,000
b.
$1,000
c.
$20,250
d.
$250
111. On June 1, Davis Inc. issued an $84,000, 5%, 120-day note payable to Garcia Company. Assume that the fiscal year
of Garcia ends June 30. Using the 360-day year, what is the amount of interest revenue recognized by Garcia in the
following year, rounded to the nearest dollar?
a.
$700
b.
$1,600
c.
$1,062
d.
$4,200
112. The journal entry for the conversion of a $6,300 account payable to a note payable would be
a.
Cash 6,300
Notes Payable 6,300
b.
Notes Receivable 6,300
Notes Payable 6,300
c.
Notes Payable 6,300
Cash 6,300
d.
Accounts Payable 6,300
Notes Payable 6,300
113. Which of the following taxes are employers required to withhold from employees?
a.
FICA tax
b.
FICA tax and state and federal unemployment tax
c.
state unemployment tax
d.
federal unemployment tax
114. Anderson Co. issued a $50,000, 60-day, discounted note to National Bank. The discount rate is 6%. At maturity,
assuming a 360-day year, the borrower will pay
a.
$53,000
b.
$50,500
Name:
Class:
Date:
c.
$50,000
d.
$49,500
115. A pension plan that promises employees a fixed annual pension benefit, based on years of service and compensation,
is called a(n)
a.
defined contribution plan
b.
defined benefit plan
c.
unfunded plan
d.
compensation plan
116. Which of the following forms is typically given to employees at the end of the calendar year so that employees can
file their individual income tax forms?
a.
Employee’s Withholding Allowance Certificate (Form W-4)
b.
Wage and Tax Statement (Form W-2)
c.
Employer’s Quarterly Federal Tax Return (Form 941)
d.
401k plans
117. A pension plan that requires the employer to make annual pension contributions, with no promise to employees
regarding future pension payments, is termed
a.
funded
b.
unfunded
c.
defined benefit
d.
defined contribution
118. The journal entry for 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
119. Assuming a 360-day year, when a $50,000, 90-day, 9% interest-bearing note payable matures, the total payment will
be
a.
$51,125
b.
$54,500
c.
$1,125
d.
$4,500
Use this information for Magnum Company to answer the following questions.
The following totals for the month of April were compiled from the payroll data of Magnum Company:
Salaries
$12,000
FICA taxes withheld
900
Income taxes withheld
2,500
Medical insurance deductions
450
Federal unemployment taxes
32
Name:
Class:
Date:
State unemployment taxes
216
120. The journal entry for the accrual of the employer’s payroll taxes would include a
a.
debit to Payroll Tax Expense for $2,500
b.
debit to FICA Taxes Payable for $1,800
c.
credit to Payroll Tax Expense for $248
d.
debit to Payroll Tax Expense for $1,148
121. Excom sells radios, and each unit carries a two-year replacement warranty. The cost to 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
122. 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
Determine the quick ratio (rounded to one decimal place).
a.
5.3
b.
3.6
c.
3.3
d.
2.3
123. Lee Company has the following information for the pay period of December 15–31:
Gross payroll
$16,000
Federal income tax withheld
$4,000
Social security rate
6.0%
Federal unemployment tax rate
0.8%
Medicare rate
1.5%
State unemployment tax rate
5.4%
Assuming that for the year to date no employees have reached the maximum earnings subject to FICA or unemployment
taxes, salaries payable would be recorded for
a.
$16,000
b.
$9,808
c.
$10,800
d.
$11,040
Name:
Class:
Date:
124. On June 8, Smith Technologies issued a $75,000, 6%, 140-day note payable to Johnson Company. What are the
proceeds of the note on June 8?
a.
0
b.
$70,500
c.
$75,000
d.
$76,750
125. Payroll taxes levied against employees become liabilities
a.
the first of the following month
b.
when the payroll is paid to employees
c.
when data are entered in a payroll register
d.
at the end of an accounting period
126. On July 8, Jones Inc. issued an $80,000, 6%, 120-day note payable to Miller Company. Assume that the fiscal year
of Jones ends on July 31. Using the 360-day year, what is the amount of interest expense recognized by Jones in the
current fiscal year, rounded to the nearest dollar?
a.
$700
b.
$4,200
c.
$307
d.
$1,400
127. 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
128. 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%
c.
10.26%
d.
9.75%
129. Blast Company sells portable CD players, and each unit carries a one-year replacement warranty. The cost to repair
defects under the warranty is estimated at 10% of the sales price. During May, Blast sells 650 portable CD players for $50
each. For what amount in May would Blast debit Product Warranty Expense?
a.
$3,250
b.
$1,625
c.
$650
d.
$1,300
130. The journal entry for the payment of a discounted note is
a.
debit Notes Payable and Interest Expense; credit Cash
b.
debit Notes Payable; credit Cash
Name:
Class:
Date:
c.
debit Cash; credit Notes Payable
d.
debit Accounts Payable; credit Cash
131. Which of the following is required to be withheld from an employee’s gross pay?
a.
both federal and state unemployment compensation taxes
b.
only federal unemployment compensation tax
c.
only federal income tax
d.
only state unemployment compensation tax
132. On June 8, Williams Company issued an $80,000, 5%, 120-day note payable to Brown Industries. Assuming a 360–
day year, what is the maturity value of the note?
a.
$82,600
b.
$84,000
c.
$81,333
d.
$88,200
133. 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
Use this information for Harris Company to answer the following questions.
Harris Company has the following information for the pay period of January 15–31:
Gross payroll
$10,000
Federal income tax withheld
$1,800
Social security rate
6.0%
Federal unemployment tax rate
0.8%
Medicare rate
1.5%
State unemployment tax rate
5.4%
Assume that for the year to date no employees have reached the maximum earnings subject to FICA taxes.
134. Salaries Payable would be recorded for
a.
$8,200
b.
$6,830
c.
$8,630
d.
$7,450
135. According to a summary of the payroll of Scotland Company, $500,000 was subject to the 6.0% social security tax
and to the 1.5% Medicare tax. Federal income tax withheld was $98,000. Also, $15,000 was subject to state (4.2%) and
federal (0.8%) unemployment taxes. The journal entry for the accrued salaries would include a
a.
debit to Salaries Payable for $313,000
b.
credit to Salaries Payable for $364,500
c.
debit to Salaries Expense for $364,500
d.
credit to Salaries Expense for $313,000
136. Which of the following is the most desirable quick ratio?
Name:
Class:
Date:
a.
1.20
b.
1.00
c.
0.95
d.
0.50
Match each of the following items with the term or phrase (a–g) that best describes it. Terms or phrases may be used
more than once.
a.
Current ratio
b.
Working capital
c.
Quick assets
d.
Quick ratio
e.
Record an accrual and disclose in the notes to the financial statements
f.
Disclose only in notes to financial statements
g.
No disclosure needed in notes to financial statements
137. Current Assets ÷ Current Liabilities
138. Remote contingent liability
139. Current Assets – Current Liabilities
140. Cash + Temporary Investments + Accounts Receivable
141. (Cash + Temporary Investments + Accounts Receivable) ÷ Current Liabilities
142. Probable likelihood and estimable liability
143. Probable likelihood of a liability but cannot be estimated
144. Reasonably possible likelihood of a liability
145. Measures the “instant” debt-paying ability of a company
Match each of the following contingent liability scenarios to its proper accounting treatment (a–d). Each treatment may
be used more than once, and some treatments may not be used.
a.
Record only
b.
Record and disclose
c.
Disclose only
d.
Do not record or disclose
146. Event is reasonably possible and amount is estimable.
147. Event is reasonably possible but amount is not estimable.
148. Event is probable and amount is estimable.
Name:
Class:
Date:
149. Event is probable but amount is not estimable.
150. Event is remote and amount is estimable.
151. Event is remote and amount is not estimable.
Match each of the following payroll terms to the description (a–f) that best applies. Each description may be used more
than once, and some descriptions may not be used.
a.
Amount is limited, withheld from employee only
b.
Amount is limited, withheld from employee and matched by employer
c.
Amount is limited, paid by employer only
d.
Amount is not limited, withheld from employee only
e.
Amount is not limited, withheld from employee and matched by employer
f.
Amount is not limited, paid by employer only
152. Federal income tax
153. FICA—Social security
154. FICA—Medicare
155. Federal unemployment compensation tax (FUTA)
156. State unemployment compensation tax (SUTA)
157. The summary of the payroll for the monthly pay period ending July 15 indicated the following:
Sales salaries
$125,000
Federal income tax withheld
32,300
Office salaries
35,000
Medical insurance withheld
7,370
Social security tax withheld
10,200
Medicare tax withheld
2,550
Journalize the entries for (a) the payroll and (b) the employer’s payroll tax expense for the month. The state
unemployment tax rate is 3.1%, and the federal unemployment tax rate is 0.8%. Only $25,000 of salaries is subject to
unemployment taxes.
158. An employee earns $40 per hour and 1.5 times that rate for all hours in excess of 40 hours per week. Assume that the
employee worked 60 hours during the week and that earnings to date have not reached the maximum subject to FICA
taxes. Assume further that the social security tax rate is 6.0%, the Medicare tax rate is 1.5%, and the federal income tax to
be withheld is $614.
a. Determine the gross pay for the week.
b. Determine the net pay for the week.
159. Journalize the following entries on the books of Winston Co. for August 1, September 1, and November 30. (Assume
a 360-day year is used for interest computations.)
Name:
Class:
Date:
Aug. 1
Winston Co. purchased merchandise for $75,000 on account from Bagley Co., terms n/30.
Sept. 1
Winston Co. issued a 90-day, 6% note for $75,000 on account.
Nov. 30
Winston Co. paid the amount due.
160. Journalize the following, assuming a 360-day year is used for interest computations:
Apr. 30
Issued a $150,000, 30-day, 6% note dated April 30 to Misner Co. on account.
May 30
Paid Misner Co. the amount owed on the note dated April 30.
161. On August 1, Batson Company issued a 60-day note with a face amount of $140,000 to Jergens Company for
merchandise inventory. (Assume a 360-day year is used for interest computations.)
a. Determine the proceeds of the note assuming the note carries an interest rate of 6%.
b. Determine the proceeds of the note assuming the note is discounted at 6%.
162. The payroll summary for December 31 for Waters Co. revealed total earnings of $80,000. Assume all earnings were
subject to 6.0% social security tax and 1.5% Medicare tax, and earnings of $3,000 were subject to 4.3% state and 0.8%
federal unemployment compensation tax. Journalize the entry for the employer’s payroll tax expense.
163. Journalize the following transactions for Riley Corporation:
Dec. 31
The accrued product warranty expense for the year is estimated to be 2.5% of sales.
Sales for the year totaled $8,850,000.
31
The accrued vacation pay for the year is estimated to be $75,000.
31
Paid First Insurance Co. $55,000 as fund trustee for the pension plan. The annual
pension cost is $87,000.
164. Journalize the following entries on the books of the borrower and creditor. (Assume a 360-day year is used for
interest computations.)
June 1
James Co. purchased merchandise on account from O’Leary Co., $90,000, terms n/30.
The cost of merchandise sold was $54,000.
30
James Co. issued a 60-day, 5% note for $90,000 on account.
Aug. 29
James Co. paid the amount due.
165. According to a summary of the payroll of Scotland Company, total gross pay was $500,000, all earnings were subject
to the 6.0% social security tax and 1.5% Medicare tax, and federal income tax withheld was $98,000. Also, $15,000 was
subject to state (4.2%) and federal (0.8%) unemployment taxes
a. Journalize the entry for the payroll.
b. Journalize the entry for the employer’s payroll tax expense.
166. Townson Company had gross wages of $200,000 during the week ended December 10. The amount of wages subject
to federal and state unemployment taxes was $24,000. Assume all wages were subject to FICA taxes. Tax rates are as
follows:
Social security
6.0%
Medicare
1.5
State unemployment
5.3
Federal unemployment
0.8
The total amount withheld from employee wages for federal income taxes was $32,000.
Name:
Class:
Date:
a. Journalize the entry for the payroll for the week of December 10.
b. Journalize the entry for the employer’s payroll tax expense for the week of December 10.
167. Davis Company and Bender Inc. had the following summary balances as of December 31:
Davis Company
Bender Inc.
Account
Dr.
Cr.
Dr.
Cr.
Cash
$ 321
$ 425
Cash equivalents
88
95
Current notes receivable
56
46
Accounts receivable
603
307
Prepaid expenses
55
85
Merchandise inventory
714
898
Fixed assets
920
755
Accumulated depreciation—fixed assets
$ 415
$ 225
Accounts payable
260
198
Current accrued liabilities
213
149
Mortgage payable
917
824
Owner’s equity
952
1,215
Totals
$2,757
$2,757
$2,611
$2,611
a. Compute the quick ratio for each company. Round to two decimal places.
b. Comment on which company is more able to meet current liabilities.
168. Mobile Sales has five sales employees that receive weekly paychecks. Each employee earns $11.50 per hour and has
worked 40 hours in the pay period. Total federal income tax withholdings are $276.00. Each employee pays 3.0% in state
income tax, 6.0% in social security tax, 1.5% in Medicare tax, and 0.5% toward retirement savings. Journalize the pay
period ending January 19 that will be paid to the employees on January 26.
169. A borrower has two alternatives for a loan: (1) issue a $480,000, 60-day, 8% note or (2) issue a $480,000, 60-day
note that the creditor discounts at 8%. (Assume a 360-day year is used for interest computations.)
a. Compute the amount of the interest expense for each option.
b. Determine the proceeds received by the borrower in each situation.
170. Martin Services Company provides its employees vacation benefits and a defined contribution pension
plan. Employees earned vacation pay of $39,500 for the period. The pension plan requires a contribution to the plan
administrator equal to 9% of employee salaries. Salaries were $750,000 during the period. Journalize the entries for (a) the
accrued vacation pay and (b) the payment to the pension plan administrator.
171. Several months ago, Jones Company experienced a spill of hazardous materials into the White River from one of its
plants. As a result, the Environmental Protection Agency (EPA) fined the company $405,000. The company contested the
fine. In addition, an employee is seeking $180,000 damages related to the spill. Finally, a homeowner has sued the
company for $260,000. Although the homeowner lives 30 miles downstream from the plant, he believes that the spill has
reduced his home’s resale value by $260,000.
Jones’ legal counsel believes the following will happen in relationship to these incidents:
• It is probable that the EPA fine will stand.
• An out–of-court settlement for $165,000 has recently been reached with the employee, with the final papers to be
signed next week.
Name:
Class:
Date:
• Counsel believes that the homeowner’s case is weak and will be decided in favor of Jones Company.
• Other litigation related to the spill is possible, but the damage amounts are uncertain.
a.
Based on this information, journalize the contingent liabilities associated with the spill.
Use the account “Damage Awards and Fines” to recognize the expense for the period.
b.
Prepare a note disclosure related to the spill.
172. Nelson Industries warrants its products for one year. The estimated product warranty is 4.3% of sales. Sales were
$475,000 for September. In October, a customer received warranty repairs requiring $215 of parts and $65 of labor.
a.
Journalize the adjusting entry required at September 30, the end of the first month of
the current fiscal year, for the estimated product warranty expense.
b.
Journalize the entry for the warranty work provided in October.
173. The following two independent sets of transactions are for Welcott Company:
a. Welcott 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 pay is $78,000. Journalize the adjusting entry required
on January 31, the end of the first month of the year, for the accrued vacation pay.
b. Welcott maintains a defined contribution pension plan for its employees. The plan requires quarterly installments to be
paid to the funding agent, Northern Trust, by the fifteenth of the month following the end of each quarter. Assuming that
the pension cost is $119,600 for the quarter ended December 31, journalize entries for (1) the accrued pension liability on
December 31 and (2) the payment to the funding agent on January 15.
174. Excel Products Inc. pays its employees semimonthly. The summary of the payroll for December 31 indicated the
following:
Salaries expense
$120,000
Federal income tax withheld
20,000
Assume all salary amounts are subject to social security tax of 6.0% and Medicare tax of 1.5%, and $10,000 is subject to
state unemployment tax of 4.3% and federal unemployment tax of 0.8%.
Journalize the entry for the employer’s payroll tax expense
175. Core Company had the following assets and liabilities as of December 31:
Assets
Cash
$58,000
Accounts receivable
25,000
Inventory
20,000
Equipment
50,000
Liabilities
Current portion of long-term debt
$20,000
Accounts payable
12,000
Long-term debt
25,000
Compute the current ratio, working capital, and quick ratio.
176. The payroll register of Seaside Architecture Company indicates $990.00 of social security and $247.50 of Medicare
Name:
Class:
Date:
tax withheld on total salaries of $16,500.00 for the period. Federal withholding for the period totaled
$4,235.00. Journalize the entry for the payroll.
177. Hadley Industries warrants its products for one year. The estimated product warranty expense is 4% of sales. Assume
that sales were $210,000 for June. In July, a customer received warranty repairs requiring $205 of parts and $75 of labor.
a.
Journalize the adjusting entry required at June 30, the end of the first month of the
current fiscal year, for the estimated product warranty expense.
b.
Journalize the entry for the warranty work provided in July.
178. John Woods’ weekly gross earnings for the present week were $2,500.00. Woods has 2 exemptions. Using an $81.00
value for each exemption and the following tax rate schedule, what is Woods’ federal income tax withholding?
Single person (including head of household)
If amount of
wages (after
subtracting
withholding
allowance) is:
The amount of income tax
withholding is:
Not over $73 $0
Over–
But not over–
of excess over–
$73
$260…….$0.00 plus 10%
$73
$260
$832…….$18.70 plus 12%
$260
$832
$1,692….$87.34 plus 22%
$832
$1,692
$3,164….$276.54 plus 24%
$1,692
$3,164
$3,998….$629.82 plus 32%
$3,164
$3,998
$9,887….$896.70 plus 35%
$3,998
$9,887
……………$2,957.85 plus 37%
$9,887
179. The following totals for the month of February were taken from the payroll register of Arcon Company:
Salaries expense
$13,000
Social security and Medicare taxes withheld
975
Income taxes withheld
2,600
Retirement savings
500
Salaries subject to federal and state unemployment taxes of 6.2%
4,000
a. How much is the total employer’s payroll tax expense for Arcon Company for this payroll?
b. Assume that the monthly salaries expense remains the same for the entire year and no employees are hired or fired
during that time. Based on what you learned in Chapter 11 about payroll taxes, do you expect the total payroll tax expense
to stay the same every month? Explain.
180. Lamar Industries warrants its products for one year. The estimated product warranty expense is 3% of sales. Sales for
June were $190,000. In July, a customer received warranty repairs requiring $185 of parts and $50 of labor.
a.
Journalize the adjusting entry required at June 30, the end of the first month of the
current fiscal year, for the estimated product warranty expense.
b.
Journalize the entry for the warranty work provided in July.
181. The following information is for employee Ella Dodd for the week ended March 15:
Name:
Class:
Date:
Total hours worked: 48
Pay rate: $15 per hour, with double time for all hours in excess of 40
Federal income tax withheld: $200
United Fund deduction: $50
Cumulative earnings prior to current week: $6,400
Tax rates:
Social security: 6.0% on all earnings
Medicare tax: 1.5% on all earnings
State unemployment: 3.4% on maximum earnings of $7,000; paid by employer only
Federal unemployment: 0.8% on maximum earnings of $7,000; paid by employer only
a.
Determine (1) gross earnings, (2) total deductions, and (3) net pay for Ella Dodd.
b.
Determine each of the employer’s payroll taxes related to the earnings of Ella Dodd for the
week ended March 15.
182. On October 1, Ramos Co. signed a $90,000, 60-day note at the bank to be paid on November 30. (Assume a 360-day
year is used for interest computations.)
a. Journalize the entries for October 1 and November 30, assuming the note was discounted at 6%.
b. Journalize the entries for October 1 and November 30, assuming the note was interest-bearing at 6%.
183. Several months ago, Maximilien Company experienced a spill of radioactive materials into the Missouri River from
one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $1,750,000. The company
contested the fine. In addition, an employee is seeking $975,000 damages related to the spill. Finally, a homeowner has
sued the company for $580,000. Although the homeowner lives 15 miles downstream from the plant, he believes that the
spill has reduced his home’s resale value by $580,000.
Maximilien’s legal counsel believes the following will happen in relationship to these incidents:
• It is probable that the EPA fine will stand.
• An out–of-court settlement for $650,000 has recently been reached with the employee, with the final papers to be
signed next week.
• Counsel believes that the homeowner’s case is weak and will be decided in favor of Maximilien Company.
• Other litigation related to the spill is possible, but the damage amounts are uncertain.
a.
Based on this information, journalize the contingent liabilities associated with the spill.
Use the account “Damage Awards and Fines” to recognize the expense for the period.
b.
Prepare a note disclosure related to the spill.
184. Journalize the following entries on the books of the borrower and creditor. (Assume a 360-day year is used for
interest computations.)
June 1
Regis Co. purchased merchandise on account from Winthrop Co., $60,000, terms n/30. The cost of
merchandise sold was $36,000.
30
Regis Co. issued a 60-day, 5% note for $60,000 on account.
Aug. 29
Regis Co. paid the amount due.
185. An employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40 during the
week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $120; cumulative
earnings for the year prior to this week, $5,500; social security tax rate, 6.0%; Medicare tax rate, 1.5%; state
unemployment compensation tax rate, 3.4% on the first $7,000; federal unemployment compensation tax, 0.8% on the
first $7,000. Journalize the entries for the payroll and the employer’s payroll tax expense.
Name:
Class:
Date:
186. Aqua Construction installs swimming pools. It estimates warranty obligations to be 5% of sales. For the year just
ending, Aqua’s sales were $1,500,000. Previous quarterly entries debiting Warranty Expense totaled $48,700. Determine
the estimated warranty expense for the year, and journalize the entry necessary to bring the account to the needed balance.
187. A business issued a 120-day, 6% note for $10,000 to a creditor on account. The company uses a 360-day year for
interest computations. Journalize the entries for (a) the issuance of the note and (b) the payment of the note at maturity,
including interest.
188. The current assets and current liabilities for Kolbie Company and Newton Company are as follows at the end of a
recent fiscal period:
Kolbie Company
(in millions)
Newton Company
(in millions)
Current assets:
Cash and cash equivalents
$ 8,352
$ 8,546
Short-term investments
6,034
752
Accounts receivable
3,029
5,152
Inventories
446
660
Other current assets*
2,195
2,829
Total current assets
$20,056
$17,939
Current liabilities:
Accounts payable
$ 4,970
$10,430
Accrued and other current liabilities
3,329
6,361
Total current liabilities
$ 8,299
$16,791
*These represent prepaid expenses and other nonquick current assets.
a. Determine the quick ratio for both companies. Round to two decimal places.
b. Interpret the quick ratio difference between the two companies.
189. Journalize the following transactions for Howard Company:
Dec. 31
The accrued product warranty expense for the year is estimated to be 2.3% of sales. Sales for the
year totaled $6,005,000.
31
The accrued vacation pay for the year is estimated to be $75,225.
31
Paid Reliable Insurance Co. $275,000 as fund trustee for the pension plan. The annual pension
cost is $350,000.
190. Roseland Design borrowed $700,000 on a 90-day note from CorpOne Funding Company. CorpOne discounts the
note at 8%. (Assume a 360-day year is used for interest computations.)
a.
Journalize Roseland’s entries for:
(1) The issuance of the note.
(2) The payment of the note at maturity.
b.
Journalize CorpOne’s entries for:
(1) The receipt of the note.
Name:
Class:
Date:
(2) The receipt of the payment of the note at maturity.
191. Dixon Sales has seven sales employees that receive weekly paychecks. Each employee earns $10.25 per hour and has
worked 40 hours in the pay period. Total federal income tax withholdings are $344.40. Each employee pays 3.0% in state
income tax, 6.0% in social security tax, 1.5% in Medicare tax, and 0.5% toward retirement savings. Journalize the
recognition of the pay period ending January 19 that will be paid to the employees on January 26.
192. Ecco Company sold $150,000 of kitchen appliances with six-month warranties during September. The cost to repair
defects under the warranty is estimated at 6% of the sales price. On October 15, a customer required a $200 part
replacement, plus $85 labor under the warranty.
Journalize the entries for (a) the estimated expense on September 30 and (b) the October 15 warranty work.
193. An employee receives an hourly rate of $45, with time and a half for all hours worked in excess of 40 during the
week. Payroll data for the current week are as follows: hours worked, 48; federal income tax withheld, $950; social
security tax rate, 6.0%; Medicare tax rate, 1.5%; state unemployment compensation tax, 3.4% on the first $7,000; federal
unemployment compensation tax, 0.8% on the first $7,000.
Compute the employer’s payroll tax expense related to this employee’s earnings.
194. Florida Keys Construction installs swimming pools. It estimates warranty obligations to be 3% of sales. For the year
just ending, Florida Keys’ sales were $1,450,000. Previous quarterly entries debiting Warranty Expense totaled $28,700.
Determine the estimated warranty expense for the year, and journalize the entry necessary to bring the account to the
needed balance.
195. The payroll register of Seaside Architecture Company indicates $870.00 of social security and $217.50 of Medicare
tax withheld on total salaries of $14,500.00 for the period. Assume earnings subject to state and federal unemployment
compensation taxes are $5,250.00 at the federal rate of 0.8% and state rate of 5.4%. Journalize the entry for the
employer’s payroll tax expense for the period.
196. List five internal controls that relate directly to payroll.
197. Journalize the following transactions:
Dec. 31
The accrued product warranty expense for the year is estimated to be 1.5% of sales.
Sales for the year totaled $7,760,000.
31
The accrued vacation pay for the year is estimated to be $46,000.
31
Paid Reliable Insurance Co. $85,000 as fund trustee for the pension plan. The annual
pension cost is $109,000.
198. Blake Green’s weekly gross earnings for the week ending December 7 were $2,500, and her federal income tax
withholding was $525. Assuming the social security tax rate is 6.0%, the Medicare tax rate is 1.5%, and Green’s earnings
to date have not reached the maximum subject to FICA taxes, what is Green’s net pay?
199. According to a summary of the payroll of Sinclair Company, $505,000 was subject to the 6.0% social security tax
and $545,000 was subject to the 1.5% Medicare tax. Also, $10,000 was subject to state and federal unemployment taxes.
a.
Compute the employer’s payroll taxes using the following rates: State unemployment,
4.2%; Federal unemployment, 0.8%.
b.
Journalize the entry for the employer’s payroll tax expense.
Name:
Class:
Date:
200. Perez Company has the following information for the pay period of January 15–31:
Gross payroll
$20,000
Federal income tax withheld
$2,500
Social security rate
6.0%
Federal unemployment tax rate
0.8%
Medicare rate
1.5%
State unemployment tax rate
5.4%
Assuming no employees have reached the maximum earnings for any taxes, compute salaries payable and the employer’s
payroll tax expense.
201. Company A and Company B had the following summary balances as of December 31:
Company A
Company B
Account
Dr.
Cr.
Dr.
Cr.
Cash
$21
$25
Cash equivalents
8
10
Trade notes receivable
7
6
Accounts receivable
6
7
Prepaid expenses
5
5
Merchandise inventory
14
8
Fixed assets
20
55
Accumulated depreciation—fixed assets
$ 5
$25
Accounts payable
26
8
Current accrued liabilities
13
19
Mortgage payable
17
24
Owner’s equity
20
40
Total
$81
$81
$116
$116
a. Compute the quick ratio for each company. Round to two decimal places.
b. Comment on which company is more able to meet current liabilities.
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date:
Name:
Class:
Date: