145)
During June, Vixen Company sells $850,000 in merchandise that has a one year warranty.
Experience shows that warranty expenses average about 3% of the selling price. Customers
returned $14,000 of merchandise for warranty replacement during the month. The entry to settle
the customer warranties is:
A)
Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.
B)
Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000.
C)
Debit Estimated Warranty Liability $11,500; credit Merchandise Inventory $11,500.
D)
Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
E)
Debit Estimated Warranty Liability $25,500; credit Warranty Expense $25,500.
146)
If a company has advance subscription sales totaling $45,000 for the upcoming year when four
quarterly journals will mailed to customers, the receipt of cash would be journalized as:
A)
Debit Cash $45,000, credit Sales $45,000.
B)
Debit Sales $45,000, credit Unearned Revenue $45,000.
C)
Debit Prepaid Subscriptions $45,000, credit Sales $45,000.
D)
Debit Unearned Revenue $45,000; credit Sales $45,000.
E)
Debit Cash $45,000; credit Unearned Revenue $45,000.
147)
A company has advance subscription sales totaling $45,000 for the upcoming year when four
quarterly journals will mailed to customers. When the company mails the first quarterly journal to
customers, it should record:
A)
Debit Unearned Revenue $11,250, credit Sales $11,250.
B)
Debit Prepaid Subscriptions $33,750; credit Unearned Revenue $33,750.
C)
Debit Unearned Revenue $45,000; credit Cash $45,000.
D)
Debit Prepaid Subscriptions $11,250, credit Sales $11,250.
E)
Debit Cash $11,250, credit Sales $11,250.
148)
Carson Company faces a probable loss on a pending lawsuit where the amount of the loss is
estimated to be $500,000. The journal entry to recognize the potential loss is:
A)
Debit Lawsuit Payable $500,000, credit Contingent Legal Liability $500,000.
B)
Debit Legal Expense $500,000; credit Lawsuit Payable $500,000.
C)
Debit Contingent Legal Expense $500,000, credit Contingent Legal Liability $500,000.
D)
Debit Prepaid Legal Expense $500,000; credit Contingent Legal Liability $500,000.
E)
No journal entry is required.
149)
On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of
an account payable with Erikson Company. What amount of interest expense is accrued at
December 31 on the note? (Use 360 days a year.)
A) $320 B) $80 C) $0 D) $960 E) $160
150)
On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of
an account payable with Erikson Company. What is the journal entry that should be recorded upon
signing the note?
A)
Debit Notes Payable $24,000; debit Interest Expense $160; credit Accounts Payable $24,160.
B)
Debit Accounts Payable $24,160; credit Notes Payable $24,160.
C)
Debit Notes Payable $24,000; debit Interest Expense $160; credit Cash $24,160.
D)
Debit Accounts Receivable $24,000; credit Notes Receivable $24,000.
E)
Debit Accounts Payable $24,000; credit Notes Payable $24,000.
151)
On September 1, Knack Company signed a $50,000, 90-day, 5% note payable with Central Savings
Bank. What is the journal entry that should be recorded by Knack upon maturity of the note? (Use
360 days a year.)
A)
Debit Notes Payable $50,625; credit Cash $50,625.
B)
Debit Notes Payable $50,000; debit Interest Expense $625; credit Cash $50,625.
C)
Debit Interest Expense $625; credit Interest Payable $625.
D)
Debit Notes Payable $50,000; credit Interest Revenue $625; credit Cash $49,375.
E)
Debit Cash $50,625; credit Notes Receivable $50,625.
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152)
A company’s has fixed interest expense of $52,000, income taxes expense of $121,000, and net
income of $281,000. The company’s times interest earned ratio equals:
A) 7.73. B) 0.11. C) 2.33. D) 8.73. E) 5.40.
SHORT ANSWER QUESTIONS
153)
Match each of the following terms with the appropriate definitions.
a. Employee benefits f. Gross pay
b. Short-term note payable g. Times interest earned
c. Payroll bank account h. Warranty
d. Federal depository bank i. Deferred income tax liability
e. Payroll register j. Current liabilities
_____ 1. A record for a pay period that shows the pay period dates, regular and overtime hours
worked, gross pay, net pay and deductions.
_____ 2. Obligations due within one year or the company’s operating cycle, whichever is longer.
_____ 3. A special bank account used solely for paying employees; each pay period an amount equal
to the total employees’ net pay is deposited and the employees’ payroll checks are drawn on that
account.
_____ 4. A seller’s obligation to replace or correct a product or service that fails to perform as
expected within a specified period.
_____ 5. Total compensation earned by an employee.
86
6. Compensation provided to employees beyond salaries and wages, such as premiums for
medical insurance and contributions to pension plans.
_____ 7. Payments of income taxes that are deferred until future years because of temporary
differences between GAAP and tax accounting rules.
_____ 8. A bank authorized to accept deposits of amounts payable to the federal government,
including payroll taxes.
_____ 9. A calculation of a company’s risk of its ability to pay interest when due.
10. 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.
154)
Match each of the following terms a through j with the appropriate definitions 1 — 10.
a. FUTA taxes
b. Contingent liability
c. Merit rating
d. Long-term liability
e. Estimated liability
f. Net pay
g. Wage bracket withholding table
h. Warranty
i. Withholding allowance
j. FICA taxes
_____ 1. A measure provided by a state to employers that reflects a company’s stability in employing
workers.
_____ 2. Taxes that fund Social Security and Medicare, assessed on both employer and employees
under the Federal Insurance Contributions Act.
_____ 3. Known obligations of an uncertain amount that can be reasonably estimated.
_____ 4. Obligations of a company requiring payment in more than one year or operating cycle.
_____ 5. Gross pay less all tax and voluntary deductions.
_____ 6. A table of amounts of income tax to be withheld from employees’ wages.
_____ 7. A potential obligation that depends on a future event arising from a past transaction.
_____ 8. A seller’s obligation to replace or correct a product or service that fails to perform as
expected within a specified period.
_____ 9. A number indicated on an employee’s Form W-4 that is used to reduce the amount of
federal income tax withheld from an employee’s pay.
_____ 10. Payroll taxes on employers assessed by the federal government to support the federal
unemployment insurance program.
155)
Classify each of the following items as either:
A. Current liability
B. Long-term liability
C. Not a liability
1. 60-day promissory note
2. Payment of a 4-year term loan due this year
3. Salaries payable
4. Debt guarantees
5. FICA taxes payable
6. Income taxes payable
7. Payment of a 30-year term loan due this year
8. Payment of a 30-year term loan due next year. (The company’s operating cycle is 2
months.)
9. Warranty work completed this year
10. Accounts payable
156)
Classify each of the following items as either:
A. Estimated liability
B. Contingent liability
C. Known liability
1. Lawsuit against the company
2. Warranty on products sold this year
3. Accounts payable
4. Income taxes payable
5. Vacation benefits
6. Accrued wages payable
7. Debt guarantees
8. Sales taxes payable
9. Payroll taxes payable
10. Unearned revenues
ESSAY QUESTIONS
157)
Define liabilities and explain the difference between current and long-term liabilities.
158)
What are known current liabilities? Cite at least two examples of known current liabilities.
159)
Describe contingent liabilities and how to account for and/or report them.
160)
Describe employer responsibilities for reporting payroll taxes. (To the extent possible, reference
the form to be filed for each tax.)
161)
Explain how to calculate times interest earned and how it is used to analyze a company’s risk.
162)
What is a short-term note payable? Explain the accounting issues related to notes payable.
163)
Explain the responsibilities of and the accounting by employers for deductions from employee
payroll.
164)
Identify and explain the types of employer payroll taxes.
165)
What are estimated liabilities? Cite at least two examples and explain why they are classified as
estimated liabilities.
166)
Identify and discuss the factors involved in computing federal income taxes withheld from
employees.
SHORT ANSWER QUESTIONS
167)
A company had income before interest expense and income taxes of $186,000, and its interest
expense is $55,000. Calculate the company’s times interest earned ratio.
168)
A company’s income before interest expense and income taxes is $302,400, and its interest expense
is $62,000. Calculate the company’s times interest earned ratio.
ESSAY QUESTIONS
169)
A company’s income before interest expense and income taxes in 2014 and 2015 is $225,000 and
$250,000, respectively. Its interest expense was $45,000 for both years. Calculate the company’s
times interest earned ratio, and comment on its level of risk.
170)
A company’s income before interest expense and income taxes in 2014 and 2015 is $487,500 and
$427,000, respectively. Its fixed interest expense was $125,000 for both years. Calculate the
company’s times interest earned ratio, and comment on its level of risk.
SHORT ANSWER QUESTIONS
171)
Floral Depot’s income before interest expense and income taxes was $5,900 million, and interest
expense was $38 million. Calculate Floral Depot’s times interest earned.
172)
Kelso had income before interest expense and income taxes of $570 million and interest expense of
$37 million. Calculate Kelso’ times interest earned.
ESSAY QUESTIONS
173)
SaveMart had income before interest expense and income taxes of $12,581 million and interest
expense of $1,063 million. Valueland had income before interest expense and income taxes of
$3,596 million and interest expense of $1,143 million. Calculate the times interest earned for each
company and comment on the results.
174)
On November 1, Casey’s Snowboards signed a $12,000, 90-day, 5% note payable to cover a past
due account payable.
a. What amount of interest expense on this note should Casey’s Snowboards report on year-end
December 31?
b. Prepare Casey’s journal entry to record the issuance of the note payable.
c. Prepare Casey’s adjusting journal entry at the end of the year
d. Prepare Casey’s journal entry to record the payment of the note on February 1 of the following
year.
175)
On June 1, Jasper Company signed a $25,000, 120-day, 6% note payable to cover a past due
account payable.
a. What is the total amount of interest to be paid on this note?
b. Prepare Jasper Company’s general journal entry to record the issuance of the note payable.
c. Prepare Jasper Company’s general journal entry to record the payment of the note on September
29.
176)
On September 15, SkateWorld borrowed $70,000 cash from Mutual Bank by signing a 6%, 60-day
note payable.
a. Prepare SkateWorld’s journal entry to record the issuance of the note payable.
b. Prepare SkaetWorld’s journal entry to record the payment of the note at maturity.
177)
On December 1, Williams Company borrowed $45,000 cash from Second National Bank by signing
a 90-day, 9% note payable.
a. Prepare Williams’ journal entry to record the issuance of the note payable.
b. Prepare Williams’ journal entry to record the accrued interest due at December 31.
c. Prepare Williams’ journal entry to record the payment of the note on March 1 of the next year.
SHORT ANSWER QUESTIONS
178)
A company borrowed $60,000 by signing a 60-day, 5% note payable from its bank. Compute the
total cash payment due on the note’s maturity date.
ESSAY QUESTIONS
179)
Calculate the total amount of FICA withholding for an employee whose pay is $2,400 for the first
pay period of the year. The tax rate for FICA–Social Security is 6.2% and the tax rate for FICA
–Medicare is 1.45%.
180)
An employee earns $9,450 for the current period. The cumulative earnings of previous pay periods
is $110,000. Social security tax applies to the first $118,500 of employee earnings. Calculate the
total and individual amounts to be withheld for social security (6.2%), Medicare (1.45%) and
federal income tax (15%).
181)
A company has three employees. Total salaries for the month of January were $8,000. The federal
income tax rate for all employees is 15%. The FICA–social security tax rate is 6.2% and the FICA
–Medicare tax rate is 1.45%. Calculate the amount of employee taxes withheld and prepare the
company’s journal entry to record the January payroll assuming these were the only deductions.
182)
A company has 90 employees and a weekly payroll of $117,000. The FICA–social security tax
withheld totals $7,254 and the FICA–Medicare tax withheld totals $1,696.50. The total
withholding for federal income tax is $16,500. Prepare the journal entry to accrue this week’s
salaries expense and withholdings.