138) Athena Company provides employee health insurance that costs $5,000 per month. In
addition, the company contributes an amount equal to 5% of the employees’ $120,000 gross
salary to a retirement program. The entry to record the accrued benefits for the month would
include a:
A) Debit to Medical Insurance Payable $5,000.
B) Debit to Employee Retirement Program Payable $6,000.
C) Debit to Employee Benefits Expense $11,000.
D) Credit to Employee Benefits Expense $11,000.
E) Debit to Payroll Taxes Expense $11,000.
139) Athens Company’s salaried employees earn two weeks of vacation per year. The company
estimated and must expense $6,600 of accrued vacation benefits for the year. Which of the
following is the necessary year-end adjusting entry to record accrued vacation benefits?
A) Debit Vacation Benefits Expense $16,500; credit Vacation Benefits Payable $16,500.
B) Debit Vacation Benefits Expense $6,600; credit Vacation Benefits Payable $6,600.
C) Debit Vacation Benefits Expense $17,160; credit Vacation Benefits Payable $17,160.
D) Debit Vacation Benefits Payable $6,600; credit Vacation Benefits Expense $6,600.
E) Debit Vacation Benefits Payable $16,500; credit Vacation Benefits Expense $16,500.
140) All of the following statements related to estimated liabilities are true except:
A) Are a known obligation of an uncertain amount that can be reasonably estimated.
B) Include vacation benefits or paid absences.
C) Depends on the likelihood that a future event will occur.
D) Entry to record includes a debit to an expense account and credit to a payable account.
E) Can be both current and long term.
141) All of the following statements related to recording warranty expense are true except:
A) Recording estimated warranty expense requires a debit to Warranty Expense.
B) Warranty expense should be recorded in the period when the warranty service is performed.
C) Estimated warranty expense is recorded when revenue from the sale of the product or service
is reported.
D) The seller reports a warranty obligation as a liability.
E) Warranty costs are probable and the amount can be estimated.
142) During August, Boxer Company sells $356,000 in merchandise that has a one year
warranty. Experience shows that warranty expenses average about 5% of the selling price. The
warranty liability account has a credit balance of $12,800 before adjustment. Customers returned
merchandise for warranty repairs during the month that used $9,400 in parts for repairs. The
entry to record the estimated warranty expense for the month is:
A) Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
B) Debit Warranty Expense $5,000; credit Estimated Warranty Liability $5,000.
C) Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.
D) Debit Estimated Warranty Liability $9,400; credit Warranty Expense $9,400.
E) Debit Estimated Warranty Liability $17,800; credit Warranty Expense $17,800.
143) During August, Boxer Company sells $356,000 in merchandise that has a one year
warranty. Experience shows that warranty expenses average about 5% of the selling price. The
warranty liability account has a credit balance of $12,800 before adjustment. Customers returned
merchandise for warranty repairs during the month that used $9,400 in parts for repairs. The
entry to record the customer warranty repairs is:
A) Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
B) Debit Warranty Expense $9,400; credit Estimated Warranty Liability $9,400.
C) Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.
D) Debit Estimated Warranty Liability $9,400; credit Parts Inventory $9,400.
E) Debit Estimated Warranty Liability $17,800; credit Parts Inventory $17,800.
144) 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 record
the estimated warranty liability at the end of the month is:
A) Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.
B) Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
C) Debit Warranty Expense $25,500; credit Estimated Warranty Liability $25,500.
D) Debit Estimated Warranty Liability $14,000; credit Warranty Expense $14,000.
E) Debit Estimated Warranty Liability $11,500; credit Warranty Expense $11,500.
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 $25,500; credit Warranty Expense $25,500.
C) Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
D) Debit Estimated Warranty Liability $11,500; credit Merchandise Inventory $11,500.
E) Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000.
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 Unearned Revenue $45,000.
B) Debit Unearned Revenue $45,000; credit Sales $45,000.
C) Debit Cash $45,000, credit Accounts Payable $45,000.
D) Debit Sales $45,000, credit Unearned Revenue $45,000.
E) Debit Prepaid Subscriptions $45,000, credit Sales $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 Prepaid Subscriptions $33,750; credit Unearned Revenue $33,750.
B) Debit Unearned Revenue $45,000; credit Cash $45,000.
C) Debit Cash $11,250, credit Sales $11,250.
D) Debit Unearned Revenue $11,250, credit Sales $11,250.
E) Debit Prepaid Subscriptions $11,250, credit Sales $11,250.
148) Carson Company sells sporting tickets in advance of the event for $500,000. The journal
entry to record the sale is:
A) Debit Prepaid Sales $500,000; credit Sales Revenue $500,000.
B) Debit Cash $500,000; credit Accounts Payable $500,000.
C) Debit Cash $500,000, credit Unearned Ticket Revenue $500,000.
D) Debit Cost of Sales $500,000, credit Inventory $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) $0
B) $80
C) $320
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 by Watson Enterprises upon signing the note?
A) Debit Accounts Receivable $24,000; credit Notes Receivable $24,000.
B) Debit Accounts Payable $24,000; credit Notes Payable $24,000.
C) Debit Accounts Payable $24,160; credit Notes Payable $24,160.
D) Debit Notes Payable $24,000; debit Interest Expense $160; credit Accounts Payable $24,160.
E) Debit Notes Payable $24,000; debit Interest Expense $160; credit Cash $24,160.
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 Interest Expense $625; credit Interest Payable $625.
B) Debit Notes Payable $50,000; credit Interest Revenue $625; credit Cash $49,375.
C) Debit Cash $50,625; credit Notes Receivable $50,625.
D) Debit Notes Payable $50,625; credit Cash $50,625.
E) Debit Notes Payable $50,000; debit Interest Expense $625; credit Cash $50,625.
152) A company has 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) 8.73.
B) 5.40.
C) 7.73.
D) 2.33.
E) 0.11.
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. Medicare taxes
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.
Liabilities 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 fix a product or service that fails to
perform as expected within a specified period.
_____ 5.
Total compensation earned by an employee.
_____ 6.
Compensation provided to employees beyond salaries and wages, such as
premiums for medical insurance and contributions to pension plans.
_____ 7.
Employee withholdings and equal employer taxes, paid to cover medical
benefits.
_____ 8.
A bank authorized to accept deposits of amounts payable to the federal
government, including payroll taxes.
_____ 9.
A calculation of a company’s ability to pay interest when due.
_____ 10.
A written promise to pay a specified amount on a stated 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 after one year or operating
cycle if longer.
_____ 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 fix 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 note payable
2. A loan due in 3 months
3. Salaries payable
4. Debt guarantees
5. FICA taxes payable
6. Income taxes payable
7. A note payable due in 45 days
8. A loan due in 10 years
9. Warranty work completed this year
10. Accounts payable
156) Identify each of the following payroll taxes as an (A) Employer Payroll Tax, (B) Employee
Payroll Tax, or (C) Both.
1. FICA–Social Security taxes
2. FICA–Medicare taxes
3. FUTA (federal unemployment taxes)
4. SUTA (state unemployment taxes)
5. Employee federal income taxes
6. Employee state and local income taxes
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.
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.
169) A company’s income before interest expense and income taxes in Year 1 and Year 2 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 Year 1 and Year 2 is
$487,500 and $427,000, respectively. Its interest expense was $125,000 for both years. Calculate
the company’s times interest earned ratio, and comment on its level of risk.
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.
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 January 30 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 SkateWorld’s journal entry to record the payment of the note at maturity.