a.
Estimated Liability for Vacation Pay 840
Cash 840
b.
Vacation Pay Expense 480
Cash 480
c.
Vacation Pay Expense 336
Estimated Liability for Vacation Pay 336
d.
Cash 168
Estimated Liability for Vacation Pay 168
44. During May, Photo Mart sold 150 instant cameras for $100 each. Each camera had cost Photo Mart
$69 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 May, the entry to record the Product Warranty
Expense for the month is:
a.
Product Warranty Expense 138
Estimated Product Warranty Liability 138
b.
Product Warranty Expense 276
Cash 276
c.
Product Warranty Expense 552
Cash 552
d.
Product Warranty Expense 414
Estimated Product Warranty Liability 414
45. 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
46. 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
47. Hi-Tech Company produces widgets that cost $60 each and have a 5 percent failure rate. If 500
widgets are sold, the entry to record the estimated product warranty expense would be
a.
Product Warranty Expense 300
Estimated Product Warranty Liability 300
b.
Product Warranty Expense 1,500
Estimated Product Warranty Liability 1,500
c.
Product Warranty Expense 150
Cash 150
d.
Estimated Product Warranty Liability 75
Cash 75
48. Recording estimated product warranty expense in the year of the sale best follows which of the
following accounting principles?
a.
Matching
b.
Consistency
c.
Historical cost
d.
Full disclosure
49. If product X cost $50 and had a 4 percent failure rate, 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
50. 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 $9,600 :
a.
Estimated Liability for Vacation Pay 144
Cash 144
b.
Vacation Pay Expense 288
Estimated Liability for Vacation Pay 288
c.
Vacation Pay Expense 7,200
Cash 7,200
d.
Cash 256
Estimated Liability for Vacation Pay 256
51. Which of the following most likely is an estimated liability?
a.
Liability for vacation pay
b.
Payroll liabilities
c.
Unearned revenues
d.
Current portion of long-term debt
52. Which of the following is both an estimated liability and a contingent liability?
a.
Co signature on $500 loan
b.
Current portion of long-term debt
c.
Warranty liability
d.
Liability for dividends
53. Purchase agreements are
a.
estimates.
b.
commitments.
c.
liabilities.
d.
contingencies.
54. 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.
55. 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 possibly will become an actual liability and the exact amount is known.
c.
under no circumstances.
d.
if it probably will become an actual liability and the amount can be reasonably estimated.
56. Liabilities that might arise from which of the following probably would be disclosed only in the notes
to the financial statements?
a.
Possible warranty claims
b.
Guarantees of the debt of other companies
c.
Possible bankruptcy of an important customer
d.
Estimated income taxes for the current year
57. Which of the following is a contingent liability?
a.
Note payable with interest included in face amount
b.
Excise tax payable
c.
Property tax liability
d.
Disputed additional tax assessment
58. A contingent liability is best described as a(n)
a.
current liability.
b.
probable liability.
c.
potential liability.
d.
estimated liability.
59. Which of the following is an example of a commitment?
a.
Lease
b.
Note payable
c.
Revenue received in advance
d.
Dividend payable
60. A business accepts a 12 percent, $19,000 note due in three years. Assuming simple interest, how much
will the business receive when the note falls due?
a.
$21,280
b.
$25,840
c.
$23,560
d.
$19,000
61. 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
62. 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.
63. 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 $2,000 made at the beginning of period 1 would grow to how much at the end of
three years?
a.
$2,240.00
b.
$2,810.00
c.
$2,508.00
d.
$6,748.00
64. 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, 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
65. 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 $2,700 made at the end of each year for three years would grow to how much?
a.
$3,793.50
b.
$9,109.80
c.
$8,100.00
d.
$9,072.00
66. 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
67. The future value of an ordinary annuity table would not include the factor
a.
0.909.
b.
2.010.
c.
20.300.
d.
1.000.
68. 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
69. 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.
70. 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 to grow to $450 in three years?
a.
$331.00
b.
$367.20
c.
$171.49
d.
$420.75
71. 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 $400 at the end of each year for three years?
a.
$1,122.00
b.
$326.40
c.
$979.20
d.
$1,049.60
72. 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 so that $600 may be withdrawn at the end of each year for three
years?
a.
$1,800.00
b.
$1,925.14
c.
$1,574.40
d.
$1,683.00
73. 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, 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
74. Heidi wishes to deposit an amount into her savings account that will enable her to withdraw $800 per
year for the next four years. She should deposit $800, 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.
75. 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
76. Fabian Company is considering the purchase of a machine that will save the company $2,000 per year
in operating costs for a period of seven years. The most it should pay for the machine is equal to
a.
$2,000 times the present value of an ordinary annuity for 7 periods.
b.
$14,000.
c.
$2,000 divided by the future value of a single sum at the end of 7 periods.
d.
$2,000 times the future value of an ordinary annuity for 7 periods.
77. 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.
78. The closing entry that would be made at the yearend transferring the interest expense of $50 on a note
is:
a.
Interest Expense 50
Notes payable 50
b.
Interest Expense 50
Income Summary 50
c.
Income Summary 50
Interest Expense 50
d.
Notes payable 50
Interest Expense 50
79. 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.
80. Assume that a company received $1,200 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 1,200
Cash 1,200
b.
Cash 100
Revenue 100
c.
Unearned revenue 100
Revenue 100
d.
Revenue 100
Unearned revenue 100
81. A company places $10,000 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 75
Interest Income 75
b.
Cash 75
Interest Income 75
c.
Interest Income 75
Cash 75
d.
Cash 75
Interest Receivable 75
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. 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
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 working capital,
payables turnover, and days’ payable.
3. On December 1, Boston Pizza borrowed $40,000 from the bank, issuing a 90-day, 15 percent
promissory note. Interest is in addition to the face value. In the journal provided, prepare Boston
Pizza’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
$40,000 .15 30/365 = $493
Mar.
Notes Payable
Interest Expense
Cash
$40,000 .15 60/365 = $986