Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
69. 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
70. Which is not a determinate in calculating federal income taxes withheld from an individual’s pay?
a.
marital status
b.
types of earnings
c.
gross pay
d.
number of withholding allowances
71. Which of the following would be used to compute the federal income taxes to be withheld from an employee’s
earnings?
a.
b.
c.
d.
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
72. 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 are correct
73. 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
74. Thomas Martin receives an hourly wage rate of $40, with time and a half 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.
$1,574
$40) + (8 × $40 × 1.5] = $2,080
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
75. Martin Jackson receives an hourly wage rate of $30, with time and a half 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
76. 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
77. Most employers are levied a tax on payrolls for
a.
sales tax
b.
medical insurance premiums
c.
federal unemployment compensation tax
d.
union dues
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
78. 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
79. Sadie White receives an hourly rate of $30, with time and a half 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.
$1,560
80. Davis and Thompson have earnings of $850 each. The social security tax rate is 6% and the Medicare tax rate is
1.5%. Assuming that the payroll will be paid on December 29, what will be the employer’s total FICA tax for this payroll
period?
a.
$102.00
b.
$127.50
c.
$96.00
d.
$25.50
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
81. 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 entry to record 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
for $9,350.
82. Which of the following are included in the employer’s payroll taxes?
a.
SUTA taxes
b.
FUTA taxes
c.
social security taxes
d.
all are included in employer taxes
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
83. Which of the following is required to be withheld from 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
84. Each year there is a ceiling for the amount that is subject to all of the following except
a.
social security tax
b.
federal income tax
c.
federal unemployment tax
d.
state unemployment tax
85. 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%
Federal unemployment tax rate
0.8%
Medicare rate
1.5%
State unemployment tax rate
5.4%
Assuming no employees are subject to ceilings for taxes on their earnings, Salaries Payable would be recorded for
a.
$16,000
b.
$9,808
c.
$10,800
d.
$11,040
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
86. 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
87. An employee receives an hourly wage rate of $15, with time and a half for all hours worked in excess of 40 during the
first week of the calendar year. Payroll data for the first week of the calendar year are as follows: hours worked, 48;
federal income tax withheld, $120; social security tax rate, 6%; and 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. What is
the net amount to be paid to the employee?
a.
$568.74
b.
$601.50
c.
$660.00
d.
$574.90
The following totals for the month of April were taken from the payroll register of Magnum Company. Use this
information to answer the questions that follow.
Salaries
$12,000
FICA taxes withheld
900
Income taxes withheld
2,500
Medical insurance deductions
450
Federal unemployment taxes
32
State unemployment taxes
216
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
88. The journal entry to record 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
89. The entry to record accrual of 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
90. The following totals for the month of April were taken from the payroll register of Magnum Company:
Salaries
$10,000
FICA taxes withheld
750
Income taxes withheld
2,000
Medical insurance deductions
450
Unemployment taxes
420
The entry to record accrual of 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
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
Payroll Tax Expense for $1,170.
91. 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 first week of the calendar year are as follows: hours worked, 46; federal income tax withheld, $110;
Social security tax rate, 6%; and 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. What is the net amount to be paid to the
employee? If required, round your answers to the nearest cent.
a.
$569.87
b.
$539.00
c.
$625.00
d.
$544.88
BUSPROG: Analytic
92. The following totals for the month of June were taken from the payroll register 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 percent
4,000
The entry to record the accrual of 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
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
Assuming no employees are subject to ceilings for their earnings, Harris Company has the following information for the
pay period of January 15–31. Use this information to answer the questions that follow.
Gross payroll
$10,000
Federal income tax withheld
$1,800
Social security rate
6%
Federal unemployment tax rate
0.8%
Medicare rate
1.5%
State unemployment tax rate
5.4%
93. Salaries Payable would be recorded in the amount of
a.
$8,200
b.
$6,830
c.
$8,630
d.
$7,450
$7,450
94. 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
Payroll Tax Expense for $1,373.
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
95. Assume that social security taxes are payable at a 6% rate and Medicare taxes are payable at a 1.5% rate with no
maximum earnings, and that 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 employer payroll taxes related to the current week?
a.
$187.50
b.
$196.70
c.
$344.50
d.
$9.20
4.60%] = $150 + $37.50 + $9.20 = $196.70
96. According to a summary of the payroll of Scotland Company, $450,000 was subject to the 6.0% social security tax
and $500,000 was subject 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 to record accrued payroll taxes would
include a
a.
debit to SUTA Payable of $630
b.
debit to SUTA Payable of $18,900
c.
credit to SUTA Payable of $630
d.
credit to SUTA Payable of $18,900
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
97. According to a summary of the payroll of Scotland Company, total salaries were $500,000. Assume that social
security taxes are payable at a 6% rate and Medicare taxes are payable at a 1.5% rate with no maximum earnings. 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 to record accrued salaries would include a
a.
debit to Salaries Payable of $365,250
b.
credit to Salaries Payable of $364,500
c.
debit to Salaries Expense of $364,500
d.
credit to Salaries Expense of $365,250
Payable of $364,500.
98. An aid in internal control over payrolls that indicates employee attendance is
a.
time card
b.
voucher system
c.
special payroll bank account
d.
fringe benefits
99. 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
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
100. During its first year of operations, a company granted employees vacation privileges and pension rights estimated at
a cost of $21,500 and $15,000. 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
101. 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
102. Vacation pay payable is reported on the balance sheet as a(n)
a.
current liability or long-term liability, depending upon when the vacations will be taken by employees
b.
current liability
c.
expense
d.
long-term liability
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
103. An unfunded pension liability is reported on the balance sheet as
a.
current liability
b.
owner’s equity
c.
long-term liability
d.
current liability or long-term liability, depending upon when the pension liability is to be paid
104. The journal entry a company uses to record 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 Salary Expense; credit Cash
d.
debit Salary Expense; credit Salaries Payable
105. The journal entry a company uses to record fully funded pension rights for its salaried employees at the end of the
year is
a.
debit Salary 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
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
106. The journal entry a company uses to record partially funded pension rights for its salaried employees at the end of the
year is
a.
debit Salary 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
107. The journal entry a company uses to record pension rights that have not been funded for its salaried employees at
the end of the year is
a.
debit Salary 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
108. Zennia Company 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 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
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
109. Hall Company sells merchandise with a one-year warranty. In the current year, sales consisted 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. In the current year’s income statement, Hall should show warranty expense of
a.
$45,000
b.
$13,500
c.
$31,500
d.
$0
110. Excom sells radios and each unit carries a two-year replacement warranty. The cost of 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
111. Wright Company sells merchandise with a one-year warranty. This 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 this year and 70% next
year. In this year’s income statement, Wright should show warranty expense of
a.
$9,000
b.
$21,000
c.
$30,000
d.
$0
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
112. 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. In 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
113. 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
114. 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. In the Year 1 income statement, McKay should show warranty expense of
a.
$3,600
b.
$8,400
c.
$12,000
d.
$0
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
115. Blast sells portable CD players and each unit carries a one-year replacement warranty. The cost of 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
player) = 10% × (650 × $50) = $3,250
116. 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
117. The journal entry a company uses to record the estimated product warranty liability 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
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
118. Which of the following is the most desirable quick ratio?
a.
2.20
b.
1.80
c.
1.95
d.
1.50
119. The 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 point).
a.
5.3
b.
3.6
c.
3.3
d.
2.3
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
120. Based on the following data, what is the quick ratio, rounded to one decimal point?
Accounts payable
$ 30,000
Accounts receivable
60,000
Accrued liabilities
5,000
Cash
30,000
Intangible assets
50,000
Inventory
69,000
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
121. 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