d.
credit to Payroll Taxes and Benefits Expense for $64.
41. Use this information to answer the following question.
Baker Company has the following information for the pay period of January 1-15. Payment occurs on
January 20.
Gross payroll
$16,000
Federal income taxes withheld
$1,800
Social security and Medicare rate
7.65%
Federal unemployment tax rate
.8%
State unemployment tax rate
5.4%
Salaries Payable would be recorded for
a.
$12,976.
b.
$10,760.
c.
$14,200.
d.
$11,984.
42. Use this information to answer the following question.
Baker Company has the following information for the pay period of January 1-15. Payment occurs on
January 20.
Gross payroll
$16,000
Federal income taxes withheld
$1,800
Social security and Medicare rate
7.65%
Federal unemployment tax rate
.8%
State unemployment tax rate
5.4%
The entry to record the payroll would include a
a.
debit to Salaries Payable for the net amount.
b.
credit to State Unemployment Tax Payable.
c.
debit to Salaries Expense for the amount paid to the employees.
d.
debit to Salaries Expense for the gross payroll.
43. Use this information to answer the following question.
Baker Company has the following information for the pay period of January 1-15. Payment occurs on
January 20.
Gross payroll
$16,000
Federal income taxes withheld
$1,800
Social security and Medicare rate
7.65%
Federal unemployment tax rate
.8%
State unemployment tax rate
5.4%
The entry on January 20 would be a debit to
a.
Salaries Payable and a credit to Cash.
b.
Salaries Payable and a credit to Salaries Expense.
c.
Salaries Expense and a credit to Cash.
d.
Salaries Expense and a credit to Salaries Payable.
44. Use this information to answer the following question.
Gross payroll
$48,000
Federal income taxes withheld
$5,400
Social security and Medicare rate
7.65%
Federal unemployment tax rate
.8%
State unemployment tax rate
5.4%
Payroll Taxes and Benefits Expense would be recorded for
a.
$3,672.
b.
$6,648.
c.
$12,048.
d.
$2,976.
45. Use this information to answer the following question.
Gross payroll
$48,000
Federal income taxes withheld
$5,400
Social security and Medicare rate
7.65%
Federal unemployment tax rate
.8%
State unemployment tax rate
5.4%
The entry to record the payroll taxes expense would include a credit to
a.
Salaries Payable.
b.
Federal Income Taxes Payable.
c.
Social Security Tax Payable.
d.
Cash.
46. During July, Audio City sold 200 radios for $50 each. Each radio had cost Audio City $30 to purchase
and carried a two-year warranty. If 5 percent typically need to be replaced over the warranty period
and one actually is replaced during July, the entry to record the Product Warranty Expense is:
a.
Product Warranty Expense 30
Estimated Product Warranty Liability 30
b.
Product Warranty Expense 150
Cash 150
c.
Product Warranty Expense 300
Estimated Product Warranty Liability 300
d.
Estimated Product Warranty Liability 600
Product Warranty Expense 600
47. Total payroll for a given week is $24,000. If 70 percent of the company’s employees typically qualify
to receive two weeks’ paid vacation per year, assuming 50 working weeks, the entry to record the
estimated liability for vacation pay for the week is:
a.
Estimated Liability for Vacation Pay 1,680
Cash 1,680
b.
Vacation Pay Expense 960
Cash 960
c.
Vacation Pay Expense 672
Estimated Liability for Vacation Pay 672
d.
Cash 336
Estimated Liability for Vacation Pay 336
48. During March, Photo Mart sold 300 instant cameras for $200 each. Each camera had cost Photo Mart
$138 to purchase and carried a one-year warranty. If 4 percent typically need to be replaced over the
warranty period and two actually are replaced during March, the entry to record the Product Warranty
Expense for the month is:
a.
Product Warranty Expense 552
Estimated Product Warranty Liability 552
b.
Product Warranty Expense 1,104
Cash 1,104
c.
Product Warranty Expense 2,208
Cash 2,208
d.
Product Warranty Expense 1,656
Estimated Product Warranty Liability 1,656
49. Of a company’s employees, 50 percent typically qualify to receive two weeks’ paid vacation a year in
50 working weeks. The entry to record the amount of estimated liability for vacation pay for a week in
which the total payroll is $2,900
a.
Estimated Liability for Vacation Pay 116
Cash 116
b.
Vacation Pay Expense 232
Cash 232
c.
Vacation Pay Expense 58
Estimated Liability for Vacation Pay 58
d.
Cash 29
Estimated Liability for Vacation Pay 29
50. When accounting for property taxes, which of the following accounts normally would not be credited?
a.
Prepaid Property Taxes
b.
Cash
c.
Estimated Property Taxes Payable
d.
Property Taxes Expense
51. Holmes Company produces widgets that cost $120 each and have a 5 percent failure rate during the
warranty period. If 500 widgets are sold, the entry to record the estimated product warranty expense
would be
a.
Product Warranty Expense 600
Estimated Product Warranty Liability 600
b.
Product Warranty Expense 3,000
Estimated Product Warranty Liability 3,000
c.
Product Warranty Expense 300
Cash 300
d.
Estimated Product Warranty Liability 150
Cash 150
52. If product X cost $50 and had a 4 percent failure rate during the warranty period, the entry to record
the estimated product warranty expense in a month when 1,000 units are sold would be
a.
Product Warranty Expense 2,000
Estimated Product Warranty Liability 2,000
b.
Product Warranty Expense 200
Estimated Product Warranty Liability 200
c.
Product Warranty Expense 20
Cash 20
d.
Estimated Product Warranty Liability 50
Cash 50
53. Of a company’s employees, 75 percent typically qualify to receive two weeks’ paid vacation out of 50
working weeks per year. The entry to record the amount of estimated liability for vacation pay for a
week in which the total payroll is $19,200 :
a.
Estimated Liability for Vacation Pay 288
Cash 288
b.
Vacation Pay Expense 576
Estimated Liability for Vacation Pay 576
c.
Vacation Pay Expense 14,400
Cash 14,400
d.
Cash 512
Estimated Liability for Vacation Pay 512
54. Assume that a company received $2,400 in advance for one year membership fee in the fitness center.
The entry that would be made to record the recognition of revenue at the end of first month is:
a.
Revenue 2,400
Cash 2,400
b.
Cash 200
Revenue 200
c.
Unearned revenue 200
Revenue 200
d.
Revenue 200
Unearned revenue 200
55. Meggie’s Fitness center received $720 from a customer in advance for one year membership in the
fitness center. The entry that would be made to record the fee receipt is:
a.
Unearned revenue 720
Cash 720
b.
Cash 720
Unearned revenue 720
c.
Unearned revenue 720
Revenue 720
d.
Revenue 720
Unearned revenue 720
56. The adjusting entry that would be made at the year-end accruing the interest expense of $100 on a note
is:
a.
Interest Expense 100
Notes payable 100
b.
Interest Payable 100
Interest Expense 100
c.
Interest Expense 100
Interest Payable 100
d.
Notes payable 100
Interest Expense 100
57. A customer is injured using a company’s product. The potential liability that may result is called a(n)
a.
contingent liability.
b.
estimated liability.
c.
definitely determinable liability.
d.
estimated warranty liability.
58. A contingent liability is recorded in the accounting records
a.
if the contingency has not been described already in the notes to the financial statements.
b.
if it probably will become an actual liability and the exact amount is known.
c.
under all circumstances.
d.
if it probably will become an actual liability and the amount can be reasonably estimated.
59. Which of the following is a contingent liability?
a.
Unearned revenues
b.
Excise tax payable
c.
Payroll liabilities
d.
Disputed additional tax assessment
60. A contingent liability is best described as a(n)
a.
current liability.
b.
probable liability.
c.
potential liability.
d.
estimated liability.
61. Purchase agreements are
a.
estimates.
b.
commitments.
c.
liabilities.
d.
contingencies.
62. Liabilities that might arise from which of the following probably would be disclosed only in the notes
to the financial statements?
a.
A lawsuit with a reasonably estimable loss
b.
Two year purchase agreement
c.
Possible bankruptcy of an important customer
d.
Estimated income taxes for the current year
63. Which of the following is an example of a commitment?
a.
Lease
b.
Incomes taxes payable
c.
Sales taxes payable
d.
Dividend payable
64. Which of the following phrases is not descriptive of an ordinary annuity?
a.
Payments made at the beginning of equal periods of time
b.
Both present and future value can be calculated
c.
Compound interest assumed
d.
Series of equal payments
65. Which of the following statements is true regarding the time value of money?
a.
Compound interest will produce equal amounts of interest each period on a fixed deposit.
b.
Earning simple interest is more beneficial than earning compound interest.
c.
When making a purchase, it is better to make payment as soon as possible.
d.
It is better to receive $1 now than a year from now.
66. The future value of an ordinary annuity table would not include the factor
a.
0.971.
b.
1.000.
c.
8.0192.
d.
25.290.
67. The higher the interest rate assumed, the
a.
higher the present value of an ordinary annuity.
b.
more one must deposit today to accumulate to a desired sum.
c.
lower the future value of a sum invested in the bank today.
d.
lower the present value of a sum due in the future.
68. A business accepts a 12 percent, $38,000 note due in three years. Assuming simple interest, how much
will the business receive when the note falls due?
a.
$42,560
b.
$51,680
c.
$47,120
d.
$38,000
69. A business accepts a 9 percent, $25,000 note due in 120 days. Assuming simple interest, how much
(amount rounded) will the business receive when the note falls due?
a.
$25,000
b.
$25,075
c.
$25,740
d.
$27,260
70. Use this information to answer the following question.
Periods
Future Value of $1 at 12 Percent
Future Value of Ordinary Annuity of
$1 at 12 Percent
1
1.120
1.000
2
1.254
2.120
3
1.405
3.374
A single deposit of $4,000 made at the beginning of period 1 at a 12% interest rate would grow to how
much at the end of three years?
a.
$4,480.00
b.
$5,620.00
c.
$5,016.00
d.
$13,496.00
71. Use this information to answer the following question.
Periods
Future Value of $1 at 12 Percent
Future Value of Ordinary Annuity of
$1 at 12 Percent
1
1.120
1.000
2
1.254
2.120
3
1.405
3.374
If an accumulation of $6,000 is desired at the end of three years, at a 12% interest rate what amount
must be deposited at the end of each of the three years?
a.
$1,778.30
b.
$20,244.00
c.
$4,270.46
d.
$8,430.00
72. Use this information to answer the following question.
Periods
Future Value of $1 at 12 Percent
Future Value of Ordinary Annuity of
$1 at 12 Percent
1
1.120
1.000
2
1.254
2.120
3
1.405
3.374
A deposit of $5,400 made at the end of each year for three years at a 12% interest rate would grow to
how much?
a.
$7,587.00
b.
$18,219.60
c.
$16,200.00
d.
$18,144.00
73. Compound interest is computed quarterly on $700 for seven years at 12 percent annual interest. The
future value table is used by multiplying the $700 by which factor?
a.
28 periods at 3 percent
b.
7 periods at 3 percent
c.
7 periods at 12 percent
d.
28 periods at 7 percent
74. Use this information to answer the following question.
Periods
Present Value of $1 at 7 Percent
Present Value of Ordinary Annuity of
$1 at 7 Percent
1
0.935
0.935
2
0.873
1.808
3
0.816
2.624
What amount must be deposited today at a 12% interest rate to grow to $900 in three years?
a.
$662.00
b.
$734.40
c.
$342.98
d.
$841.50
75. Use this information to answer the following question.
Periods
Present Value of $1 at 7 Percent
Present Value of Ordinary Annuity of
$1 at 7 Percent
1
0.935
0.935
2
0.873
1.808
3
0.816
2.624
What is the present value of receiving $1,200 at the end of each year for three years at a 12% interest
rate?
a.
$3,366.00
b.
$979.20
c.
$2,937.60
d.
$3,148.80
76. Use this information to answer the following question.
Periods
Present Value of $1 at 7 Percent
Present Value of Ordinary Annuity of
$1 at 7 Percent
1
0.935
0.935
2
0.873
1.808
3
0.816
2.624
What amount must be deposited today at a 12% interest rate so that $1,200 may be withdrawn at the
end of each year for three years?
a.
$3,600.00
b.
$3,850.28
c.
$3,148.80
d.
$3,366.00
77. Use this information to answer the following question.
Periods
Present Value of $1 at 7 Percent
Present Value of Ordinary Annuity of
$1 at 7 Percent
1
0.935
0.935
2
0.873
1.808
3
0.816
2.624
If $100 is invested at a 12% interest rate, how much will it grow to at the end of the three years?
a.
$100 .935 3
b.
$100 ÷ .816
c.
($100 ÷ 2.624) 3
d.
$100 2.624
78. Dorothy wishes to deposit an amount into her savings account that will enable her to withdraw $1,500
per year for the next five years. She should deposit $1,500, multiplied by the
a.
present value of a single sum factor.
b.
present value of an ordinary annuity factor.
c.
future value of a single sum factor.
d.
future value of an ordinary annuity factor.
79. First City Bank computes interest semiannually. If the interest rate is currently 6 percent per annum,
the amount deposited today should be multiplied by which future value factor to calculate the amount
that will accumulate by the end of 10 years?
a.
20 periods at 12 percent
b.
20 periods at 3 percent
c.
10 periods at 6 percent
d.
10 periods at 3 percent
80. Fabian Company is considering the purchase of a machine that will save the company $4,000 per year
in operating costs for a period of 10 years. The most it should pay for the machine is equal to
a.
$4,000 times the present value of an ordinary annuity for 10 periods.
b.
$40,000.
c.
$4,000 divided by the future value of a single sum at the end of 10 periods.
d.
$4,000 times the future value of an ordinary annuity for 10 periods.
81. A company purchases an asset on a deferred payment plan, ultimately paying $10,000. On the
payment date, the company would
a.
credit Cash for less than $10,000.
b.
debit Interest Expense for the imputed amount.
c.
debit the asset account for $10,000.
d.
debit Accounts Payable for $10,000.
82. A company wishes to make annual contributions into a fund intended to retire $400,000 in debt five
years from now. The amount to contribute each year equals $400,000
a.
divided by the appropriate future value of an ordinary annuity factor.
b.
times the appropriate present value of an ordinary annuity factor.
c.
times the appropriate future value of an ordinary annuity factor.
d.
divided by the appropriate present value of an ordinary annuity factor.
83. A company sells merchandise on a deferred payment plan, ultimately receiving $5,000 on the account
receivable. On the payment date, the company would
a.
credit Accounts Receivable for less than $5,000.
b.
debit Interest Income for the imputed amount.
c.
credit Sales for less than $5,000.
d.
debit the asset account for $5,000.
84. A company places $20,000 into a money market account for four months. The account is expected to
pay 9 percent annual interest, compounded monthly. After one month, the entry to record interest
earned is:
a.
Short-Term Investments 150
Interest Income 150
b.
Cash 150
Interest Income 150
c.
Interest Income 150
Cash 150
d.
Cash 150
Interest Receivable 150
SHORT ANSWER
1. A company enters into a contract to purchase a certain quantity of goods from another company during
the following month. At this point, would a liability exist? Explain why or why not.
2. Ronald Company has current assets of $115,000 and current liabilities of $75,000 of which accounts
payable are $65,000. Arnold’s cost of goods sold is $420,000, its merchandise inventory increased by
$20,000, and accounts payable were $45,000 the prior year. Calculate Ronald’s payables turnover, and
days’ payable.
3. On December 1, Grenada Company borrowed $80,000 from the bank, issuing a 90-day, 15 percent
promissory note. Interest is in addition to the face value. In the journal provided, prepare Grenada’s
December 1 entry, December 31 adjusting entry without explanation for accrued interest, and March 1
entry at maturity. Round to the nearest whole dollar.
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
Date
Cash
Interest Payable
$80,000 .15 30/365 = $986
Mar.
Notes Payable