Chapter 8—Completing the Operating Cycle Key
1. To properly recognize the expense associated with compensated absences, a company should
2. Which of the following is NOT true regarding taxes deducted from an employee’s earnings?
3. Which of the following taxes is NOT included in the payroll tax expense of the employer?
4. Which of the following taxes must be paid by both the employee and the employer?
5. Which of the following would probably be classified as a current liability?
6. The entry to recognize the estimated expense related to sick days would include a
7. The entry to record sick days taken by an employee would include a
8. The gross pay for all employees is debited to
9. Which accounting principle requires that the expense associated with compensated absences be accounted for
in the period in which it is earned by the employee?
10. During the first week of January, Nathan Mills earned $800. Assume that FICA taxes are 7.65 percent of
wages up to $50,000; state unemployment tax is 5.0 percent of wages up to $13,000; and federal unemployment
tax is 0.8 percent of wages up to $13,000. Assume that Nathan has voluntary withholdings of $40 (in addition to
taxes) and that federal and state income tax withholdings are $72 and $24, respectively. What amount is the
11. During the month of July, Joel Mayer earned $2,000. Joel has been on the payroll all year at a salary of
$2,000 per month. Salaries are paid at the end of each month. Assume that FICA taxes are 7.65 percent of
wages up to $50,000; state unemployment tax is 5.0 percent of wages up to $13,000; and federal unemployment
tax is 0.8 percent of wages up to $13,000. Assume that Joel has voluntary withholdings of $75 (in addition to
taxes) and that federal and state income tax withholdings are $300 and $100, respectively. What amount is the
check, net of all deductions, that Joel received for his July pay?
12. During the first week of January, Nathan Mills earned $800. Assume that FICA taxes are 7.65 percent of
wages up to $50,000; state unemployment tax is 5.0 percent of wages up to $13,000; and federal unemployment
tax is 0.8 percent of wages up to $13,000. Assume that Nathan has voluntary withholdings of $40 (in addition to
taxes) and that federal and state income tax withholdings are $72 and $24, respectively. What is the employer’s
payroll tax expense for the week, assuming that Nathan Mills is the only employee?
13. During the month of July, Joel Mayer earned $2,000. Joel has been on the payroll all year at a salary of
$2,000 per month. Salaries are paid at the end of each month. Assume that FICA taxes are 7.65 percent of
wages up to $50,000; state unemployment tax is 5.0 percent of wages up to $13,000; and federal unemployment
tax is 0.8 percent of wages up to $13,000. Assume that Joel has voluntary withholdings of $75 (in addition to
taxes) and that federal and state income tax withholdings are $300 and $100, respectively. What is the
employer’s payroll tax expense for the month of July, assuming that Joel Mayer is the only employee?
14. When managers are compensated based on the achievement of certain objectives, the company is said to be
paying a(n)
15. Which of the following is NOT true about an earnings-based bonus plan?
16. When the right to purchase stock in the future is used as a substitute for a cash bonus, the company is
granting
17. A severance package would best be termed a
18. When recording the costs associated with a postemployment benefit of a employer that was just laid off in
the current period, a debit will be made to
19. Which of the following is the proper method used to account for employee stock options?
20. Bernal Company laid off 10 employees during the month of May. Bernal has determined that the
postemployment cost of laying off these 10 employees will be a total of $120,000. What journal entry should
Bernal make to record the termination of these employees?
21. A cash compensation received by an employee after that employee has retired is a(n)
22. Which type of pension plan requires a company to place a certain amount of money into a pension fund
each year on behalf of the employees?
23. Which type of pension plan promises employees a certain monthly cash amount after they retire?
24. Which of the following is NOT true about a defined contribution plan?
25. Which of the following is NOT a component of pension expense?
26. The earnings from assets in a company’s pension fund that are used to offset the cost of the pension plan is
the
27. The yearly increase in the pension obligation associated with work done during the year is the
28. A large investment fund of stocks and bonds that is used to pay pension benefits to employees is a
29. Which of the following is the liability that represents a company’s promise to make defined benefit pension
payments to employees?
30. A pension fund is “under-funded” when the
31. The following information relates to the defined benefit pension plan of Williams Corporation for the year
ending December 31, 2012:
Pension benefit obligation
$9,200,000
Pension fund assets
6,070,000
Service cost
900,000
Interest cost
605,000
Expected return on fund assets
850,000
What is the net pension expense for Williams Corporation in 2012?
32. The following information relates to the defined benefit pension plan of Wendy Corporation for the year
ending December 31, 2012:
Pension benefit obligation
$4,600,000
Pension fund assets
5,035,000
Service cost
450,000
Interest cost
32,500
Expected return on fund assets
425,000
What is the net pension asset or liability for Wendy corporation in 2012?
33. Unger Sporting Goods Company sold a pair of skis for cash. It recorded the sale as:
Account
A
210
Account B
200
Account C
10
Given this entry, what would be the nature of Account C?
34. Sales Taxes Payable is normally classified as a(n)
35. Prepaid Property Taxes would typically appear on the balance sheet as a(n)
36. Property taxes are usually assessed by county or city governments based on a company’s
37. Income taxes shown on the income statement are based on
38. Deferred income taxes arise from
39. The period covered by the assessment of property taxes usually covers a
40. Which of the following is NOT a legal liability?
41. Marino, Inc. makes a sale and collects a total of $378, which includes an 8 percent sales tax. The amount
credited to Sales Revenue is
42. Marino, Inc. makes a sale and collects a total of $378, which includes an 8 percent sales tax. The amount
credited to Sales Tax Payable is
43. Eldora, Inc. paid property taxes of $16,500 on June 30, 2012, for the period July 1, 2012, to June 30, 2013,
and debited prepaid property tax expense. Eldora, Inc. uses a fiscal year end of September 30 for financial
purposes. What is the adjusting entry Eldora, Inc. should make on September 30, 2012?
44. Eldora, Inc. paid property taxes of $16,500 on June 30, 2012, for the period July 1, 2012, to June 30, 2013,
and debited prepaid property tax expense. Eldora, Inc. uses a fiscal year end of September 30 for financial
purposes. What journal entry should be made to recognize property tax expense for the period October 1, 2012,
to June 30, 2013?
45. On June 1, Jenni invested $4,000 into a mutual fund. By December 31, the value of the mutual fund had
decreased to $3,200. Jenni did not sell any portion of the mutual fund during the year. Assuming Jenni’s income
tax rate on this investment will be 35%, the journal entry to record the income tax expense is
46. On June 1, Jenni invested $4,000 into a mutual fund. By December 31, the value of the mutual fund had
increased to $5,200. Jenni did not sell any portion of the mutual fund during the year. Assuming Jenni’s income
tax rate on this investment will be 25%, the journal entry to record the income tax expense is
47. The accounting term for an uncertain circumstance involving a potential gain or loss that will NOT be
resolved until the future is a(n)
48. Which of the following types of contingencies would NOT be disclosed on the financial statements until it
has been resolved?
49. A contingent liability is recorded by making the appropriate journal entry if the likelihood of a loss from a
contingency is
50. A footnote disclosure only is required if the likelihood of a loss due to a contingency is
51. What makes environmental liabilities unique among contingent liabilities?
52. Which of the following is the appropriate disclosure in the financial statements for a contingent gain?
53. No disclosure is required for contingent liabilities that are
54. Which of the following expenditures should be expensed in the year incurred?
55. The required recording of research and development expenditures has which of the following effects on the
financial statements?
56. Which of the following is the required treatment of research and development costs under FASB?
57. Which of the following is the required treatment of research and development costs under international
accounting rules?
58. Which of the following types of advertising is typically capitalized?
59. The general rule for advertising costs is