CHAPTER 11: CURRENT LIABILITIES AND PAYROLL
1. Receiving payment prior to delivering goods or services causes a current liability to be incurred.
a.
True
b.
False
2.
All long-term liabilities eventually become current liabilities.
a.
True
b.
False
3.
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
4.
The borrower issues a note payable to a creditor.
a.
True
b.
False
Chapter 11: Current Liabilities and Payroll
5.
Notes payable may be issued to creditors to satisfy previously created accounts payable.
a.
True
b.
False
6.
Interest expense is reported in the operating expense section of the income statement.
a.
True
b.
False
7.
An interest-beating 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
8.
The amount borrowed is equal to the face amount of the note on an interest bearing note payable.
a.
True
b.
False
Chapter 11: Current Liabilities and Payroll
9.
The amount of money a borrower receives from the lender is called the discount rate.
a.
True
b.
False
10.
The proceeds of a discounted note are equal to the face value of the note.
a.
True
b.
False
11.
The discount on a note payable is charged to an account that has a normal credit balance.
a.
True
b.
False
12.
The proceeds from discounting a $20,000, 60-day, note payable at 6% is $20,200.
a.
True
b.
False
13.
Amounts withheld from each employee for social security and Medicare vary by state.
a.
True
b.
False
14.
An employee’s take-home pay is equal to gross pay less all voluntary deductions.
a.
True
b.
False
15.
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
Chapter 11: Current Liabilities and Payroll
16.
Taxes deducted from an employee’s earnings to finance social security and Medicare benefits are called FICA
taxes.
a.
True
b.
False
17.
Generally, all deductions made from an employee’s gross pay are required by law.
a.
True
b.
False
18.
Payroll taxes are based on the employee’s net pay.
a.
True
b.
False
Chapter 11: Current Liabilities and Payroll
19.
Most employers are required to withhold federal unemployment taxes from employee earnings.
a.
True
b.
False
20.
FICA tax is a payroll tax that is paid only by employers.
a.
True
b.
False
21.
Medicare taxes are paid by both the employee and the employer.
a.
True
b.
False
Chapter 11: Current Liabilities and Payroll
22.
Federal unemployment taxes are paid by the employer and the employee.
a.
True
b.
False
23.
Federal unemployment compensation taxes that are collected by the federal government are not paid directly to
the
unemployed but are allocated among the states for use in state programs.
a.
True
b.
False
24.
Federal income taxes are subject to a maximum amount per employee per year.
a.
True
b.
False
Chapter 11: Current Liabilities and Payroll
25.
Federal unemployment compensation tax becomes an employer’s liability at the time the employee is paid.
a.
True
b.
False
26.
Form W-2 is called the Wage and Tax Statement.
a.
True
b.
False
27.
FICA tax becomes a liability to the federal government at the time an employee’s payroll is prepared.
a.
True
b.
False
Chapter 11: Current Liabilities and Payroll
28.
Payroll taxes only include social security taxes and federal unemployment and state unemployment taxes.
a.
True
b.
False
29.
Federal income taxes withheld increase the employer’s payroll tax expense.
a.
True
b.
False
30.
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
Chapter 11: Current Liabilities and Payroll
31.
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
32.
Payroll taxes levied against employers become an employer liability at the time the employee wages are incurred.
a.
True
b.
False
33.
Most employers use payroll checks drawn on a special bank account for paying the payroll.
a.
True
b.
False
Chapter 11: Current Liabilities and Payroll
34.
The payroll register is a multicolumn form used to assemble the payroll-related data for all employees.
a.
True
b.
False
35.
The total net pay for a period is determined from the payroll register.
a.
True
b.
False
36.
Internal controls for cash payments apply to payrolls.
a.
True
b.
False
Chapter 11: Current Liabilities and Payroll
37.
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.
a.
True
b.
False
38.
Depending upon 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
39.
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
Chapter 11: Current Liabilities and Payroll
40.
One of the more popular defined contribution plans is the 401k plan.
a.
True
b.
False
41.
A defined contribution plan promises employees a fixed annual pension benefit.
a.
True
b.
False
42.
In a defined benefits plan, the employer bears the investment risks in funding a future retirement income benefit.
a.
True
b.
False
43.
The accounting for defined benefit plans is usually very easy and straightforward.
a.
True
b.
False
Chapter 11: Current Liabilities and Payroll
44.
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
45.
Obligations that may arise from past transactions only if certain events occur in the future are contingent liabilities.
a.
True
b.
False
46.
In order to be a recorded contingent liability, the liability must be possible and easily estimated.
a.
True
b.
False
Chapter 11: Current Liabilities and Payroll
47.
The journal entry to record 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
48.
Current liabilities are due
a.
but not receivable for more than one year
b.
but not payable for more than one year
c.
and receivable within one year
d.
and payable within one year
49.
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.
for all of these
Chapter 11: Current Liabilities and Payroll
50.
On June 8, Smith Technologies issued a $75,000, 6%, 140-day note payable to Johnson Company. What is the
due
date of the note?
a.
October 28
b.
October 27
c.
October 26
d.
October 25
51.
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
52.
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 July 31. Using the 360-day year, what is the amount of interest expense recognized by Jones
in the
current fiscal year?
a. $700
b. $4,200
c. $307
d. $1,400
Chapter 11: Current Liabilities and Payroll
53.
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?
a. $700
b. $1,600
c. $1,061
d. $4,200
54.
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
d.
Rodriguez is the borrower and debits Accounts Payable
55.
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 to record 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
Chapter 11: Current Liabilities and Payroll
56.
When a borrower receives the face amount of a discounted note less the discount, the amount is known as
a.
the note proceeds
b.
the note discount
c.
the note deferred interest
d.
the note principal
57.
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
58.
Assuming a 360-day year, when a $50,000, 90-day, 9% interest-bearing note payable matures, total payment will
be
a. $51,125
b. $54,500
c. $1,125
d. $4,500
Chapter 11: Current Liabilities and Payroll
59.
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. 10.00%
c. 10.26%
d. 9.75%
60.
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
c. $50,000
d. $49,500
61.
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
Chapter 11: Current Liabilities and Payroll
62.
The journal entry to record 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 journal entry used to record 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
64.
The journal entry used to record 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