Deck 11: Current Liabilities and Payroll Accounting

Question 1

Metropolitan Symphony sells 200 season tickets for $100000 that represents a five concert season. The amount of Unearned Ticket Revenue after the second concert is $40000.

Answer 1

False

Question 2

Interest expense on a note payable is only recorded at maturity.

Answer 2

False

Question 3

Current liabilities are expected to be paid within one year or the operating cycle whichever is longer.

Answer 3

True

Question 4

Interest expense is reported under Other Expenses and Losses in the income statement.

Question 5

The relationship between current liabilities and current assets is important in evaluating a company's ability to pay off its long-term debt.

Question 6

Contingent liabilities should be recorded in the accounts if there is a remote possibility that the contingency will actually occur.

Question 7

A company whose current liabilities exceed its current assets may have a liquidity problem.

Question 8

A current liability must be paid out of current earnings.

Question 9

With an interest-bearing note the amount of cash received upon issuance of the note generally exceeds the note's face value.

Question 10

Notes payable are often used instead of accounts payable.

Question 11

A $30000 8% 9-month note payable requires an interest payment of $1800 at maturity.

Question 12

The current ratio permits analysts to compare the liquidity of different sized companies.

Question 13

Most notes are not interest bearing.

Question 14

A note payable must always be paid before an account payable.

Question 15

Notes payable usually require the borrower to pay interest.

Question 16

During the month a company sells goods for a total of $54000 which includes sales taxes of $4000; therefore the company should recognize $50000 in Sales Revenues and $4000 in Sales Tax Expense.

Question 17

The higher the sales tax rate the more profit a retailer can earn.

Question 18

Working capital is current assets divided by current liabilities.

Question 19

Unearned revenues should be classified as Other Revenues and Gains on the Income Statement.

Question 20

Current maturities of long-term debt refers to the amount of interest on a note payable that must be paid in the current year.

Question 21

FICA taxes are a voluntary deduction from employee earnings.

Question 22

When a company gives employees rights to receive compensation for absences and the payment for such absences is probable and the amount can be reasonably estimated the company should accrue a liability.

Question 23

Current maturities of long-term debt are often identified as long-term debt due within one year on the balance sheet.

Question 24

Internal control over payroll is not necessary because employees will complain if they do not receive the correct amount on their payroll checks.

Question 25

The relationship between current liabilities and current assets is

A) useful in determining income.
B) useful in evaluating a company's liquidity.
C) called the matching principle.
D) useful in determining the amount of a company's long-term debt.

Question 26

The objectives of internal accounting control for payrolls are (a) to safeguard company assets from unauthorized payments of payrolls and (b) to assure accuracy and reliability of the accounting records pertaining to payroll.

Question 27

Post-retirement benefits consist of payments by employers to retired employees for health care life insurance and pensions.

Question 28

A debt that is expected to be paid within one year through the creation of long-term debt is a current liability.

Question 29

A contingent liability is a liability that may occur if some future event takes place.

Question 30

In concept the estimating of Warranty Expense when products are sold under warranty is similar to the estimating of Bad Debt Expense based on credit sales.

Question 31

Payroll activities involve three functions: hiring employees preparing the payroll and paying the payroll.

Question 32

FICA taxes and federal income taxes are levied on employees' earnings without limit.

Question 33

The employer incurs a payroll tax expense equal to the amount withheld from the employees' wages for federal income taxes.

Question 34

All of the following are reported as current liabilities except

A) accounts payable.
B) bonds payable.
C) notes payable.
D) unearned revenues.

Question 35

FICA taxes withheld and federal income taxes withheld are mandatory payroll deductions.

Question 36

The timekeeping function includes supervisors monitoring hours worked through time cards and time reports.

Question 37

Notes payable usually are issued to meet long-term financing needs.

Question 38

The human resources department documents and authorizes employment of new employees.

Question 39

In a given year total warranty expense is the sum of actual warranty costs incurred on units sold plus the estimated cost of servicing those units in the future.

Question 40

FICA taxes are a deduction from employee earnings and are also imposed upon employers as an expense.

Question 41

The relationship of current assets to current liabilities is used in evaluating a company's

A) operating cycle.
B) revenue-producing ability.
C) short-term debt paying ability.
D) long-range solvency.

Question 42

The entry to record the payment of an interest-bearing note at maturity after all interest expense has been recognized is

A) Notes Payable Interest Payable
Cash
B) Notes Payable Interest Expense
Cash
C) Notes Payable Cash
D) Notes Payable Cash
Interest Payable

Question 43

Most companies pay current liabilities

A) out of current assets.
B) by issuing interest-bearing notes payable.
C) by issuing stock.
D) by creating long-term liabilities.

Question 44

In most companies current liabilities are paid within

A) one year through the creation of other current liabilities.
B) the operating cycle through the creation of other current liabilities.
C) one year or the operating cycle out of current assets.
D) the operating cycle out of current assets.

Question 45

Watunga County Bank agrees to lend Hoffman Granite Company $600000 on January 1. Hoffman Granite Company signs a $600000 8% 9-month note. What is the adjusting entry required if Hoffman Granite Company prepares financial statements on June 30? a.
$\begin{array}{lrr} \text { Interest Expense } &24,000\\ \text { Interest Payable } &&24,000\\\end{array}$

b.
$\begin{array}{lrr} \text {Interest Expense } &24,000\\ \text { Cash} &&24,000\\\end{array}$

c.
$\begin{array}{lrr} \text {Interest Payable } &24,000\\ \text {Cash } &&24,000\\\end{array}$

d.
$\begin{array}{lrr} \text { Interest Payable} &24,000\\ \text { Interest Expense } &&24,000\\\end{array}$

Question 46

The entry to record the proceeds upon issuing an interest-bearing note is a. Interest Expense
Cash
Notes Payable

b. Cash
Notes Payable

c. Notes Payable
Cash

d. Cash
Notes Payable
Interest Payable

Question 47

Watunga County Bank agrees to lend Hoffman Granite Company $600000 on January 1. Hoffman Granite Company signs a $600000 8% 9-month note. The entry made by Hoffman Granite on January 1 to record the proceeds and issuance of the note is a.
$\begin{array}{lll} \text {Interest Expense } &36,000\\ \text { Cash. } &564,000\\ \text {Notes Payable } &&600,000\end{array}$

b.
$\begin{array}{lll} \text { Cash} &600,000\\ \text { Notes Payable } &&600,000\end{array}$

c.
$\begin{array}{lll} \text { Cash } &600,000\\ \text { Interest Expense } &36,000\\ \text {Notes Payable } &636,000\end{array}$

d.
$\begin{array}{lll} \text { Cash } &600,000\\ \text { Interest Expense} &36,000\\ \text {Notes Payable } &&600,000\\ \text { Interest Payable } &&36,000\end{array}$

Question 48

The entry to record the issuance of an interest-bearing note credits Notes Payable for the note's

A) maturity value.
B) market value.
C) face value.
D) cash realizable value.

Question 49

On October 1 Eli's Carpet Service borrows $125000 from First District Bank on a 3-month $125000 8% note. What entry must Eli's Carpet Service make on December 31 before financial statements are prepared?
a.
$\begin{array}{lrr} \text { Interest Payable } &2,500\\ \text { Interest Expense } &&2,500\\\end{array}$

b.
$\begin{array}{lrr} \text { Interest Expense } &10,000\\ \text {Interest Payable } &&10,000\\\end{array}$

c.
$\begin{array}{lrr} \text { Interest Expense } &2,500\\ \text { Interest Payable } &&2,500\\\end{array}$

d.
$\begin{array}{lrr} \text { Interest Expense } &2,500\\ \text { Notes Payable } &&2,500\\\end{array}$

Question 50

Which of the following is usually not an accrued liability?

A) Interest payable
B) Wages payable
C) Taxes payable
D) Notes payable

Question 51

Liabilities are classified on the balance sheet as current or

A) deferred.
B) unearned.
C) long-term.
D) accrued.

Question 52

Interest expense on an interest-bearing note is

A) always equal to zero.
B) accrued over the life of the note.
C) only recorded at the time the note is issued.
D) only recorded at maturity when the note is paid.

Question 53

A note payable is in the form of

A) a contingency that is reasonably likely to occur.
B) a written promissory note.
C) an oral agreement.
D) a standing agreement.

Question 54

A current liability is a debt that can reasonably be expected to be paid

A) within one year or the operating cycle whichever is longer.
B) between 6 months and 18 months.
C) out of currently recognized revenues.
D) out of cash currently on hand.

Question 55

With an interest-bearing note the amount of assets received upon issuance of the note is generally

A) equal to the note's face value.
B) greater than the note's face value.
C) less than the note's face value.
D) equal to the note's maturity value.

Question 56

On October 1 Eli's Carpet Service borrows $125000 from First National Bank on a 3-month $125000 8% note. The entry by Eli's Carpet Service to record payment of the note and accrued interest on January a.
$\begin{array}{lrr} \text {Notes Payable } &127,500\\ \text { Cash } &&127,500\\\end{array}$

b.
$\begin{array}{lrr} \text { Notes Payable } &125,000\\ \text { Interest Payable} &2,500\\ \text { Cash} &&127,500\end{array}$

c.
$\begin{array}{lrr} \text {Notes Payable } &125,000\\ \text { Interest Payable} &10,000\\ \text { Cash } &&135,000\end{array}$

d.
$\begin{array}{lrr} \text { Notes Payable} &125,000\\ \text { Interest Expense } &2,500\\ \text { Cash } &&127,500\end{array}$

Question 57

From a liquidity standpoint it is more desirable for a company to have current

A) assets equal current liabilities.
B) liabilities exceed current assets.
C) assets exceed current liabilities.
D) liabilities exceed long-term liabilities.

Question 58

When an interest-bearing note matures the balance in the Notes Payable account is

A) less than the total amount repaid by the borrower.
B) the difference between the maturity value of the note and the face value of the note.
C) equal to the total amount repaid by the borrower.
D) greater than the total amount repaid by the borrower.

Question 59

As interest is recorded on an interest-bearing note the Interest Expense account is

A) increased; the Notes Payable account is increased.
B) increased; the Notes Payable account is decreased.
C) increased; the Interest Payable account is increased.
D) decreased; the Interest Payable account is increased.

Question 60

Watunga County Bank agrees to lend Hoffman Granite Company $600000 on January 1. Hoffman Granite Company signs a $600000 8% 9-month note. What entry will Hoffman Granite make to pay off the note and interest at maturity assuming that interest has been accrued to September 30? a.
$\begin{array}{ll}\text { Notes Payable. } & 636,000 \\\text { Cash} && 636,000 \\\end{array}$

b.
$\begin{array}{ll} \text { Notes Payable. } & 600,000 \\ \text { Interest Payable} & 36,000 \\\text { Cash} && 636,000& \\\end{array}$

c.
$\begin{array}{ll}\text { Interest Expense. } & 36,000 \\\text { Notes Payable } & 600,000 \\\text { Cash} && 636,000 \\\end{array}$

d.
$\begin{array}{ll}\text { Interest Payable. } & 24,000 \\ \text { Notes Payable } & 600,000 \\ \text { Interest Expense } & 12,000 \\\text { Cash} && 636,000\end{array}$

Question 61

Maple Street Bookstore has collected $1500 in sales taxes during April. If sales taxes must be remitted to the state government monthly what entry will Maple Street Bookstore make to show the April remittance? a.
$\begin{array}{lrr} \text { Sales Taxes Payable } &1,500\\ \text { Cash } &&1,500\\\end{array}$

b.
$\begin{array}{lrr} \text { Sales Tax Expense } &1,500\\ \text { Cash } &&1,500\\\end{array}$

c.
$\begin{array}{lrr} \text { Sales Tax Expense } &1,500\\ \text { Sales Taxes Payable } &&1,500\\\end{array}$

d. $\text {No entry required.}$

Question 62

Sales taxes collected by the retailer are recorded as a(n)

A) revenue.
B) liability.
C) expense.
D) asset.

Question 63

On September 1 Bud's Painting Service borrows $150000 from Highlands Bank on a 4-month $150000 6% note. What entry must Bud's Painting Service make on December 31 before financial statements are prepared? a.
$\begin{array}{lrr} \text { Interest Payable } &3,000\\ \text { Interest Expense } &&3,000\\\end{array}$

b.
$\begin{array}{lrr} \text { Interest Expense } &9,000\\ \text {Interest Payable } &&9,000\\\end{array}$

c.
$\begin{array}{lrr} \text { Interest Expense } &3,000\\ \text { Interest Payable } &&3,000\\\end{array}$

d.
$\begin{array}{lrr} \text { Interest Expense } &3,000\\ \text { Notes Payable } &&3,000\\\end{array}$

Question 64

On January 1 2017 Mazzeo Company a calendar-year company issued $1600000 of notes payable of which $400000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31 2017 is

A) Current Liabilities $1600000.
B) Long-term Debt $1600000.
C) Current Liabilities $800000; Long-term Debt $800000.
D) Current Liabilities $400000; Long-term Debt $1200000.

Question 65

On January 1 2017 Key Company a calendar-year company issued $250000 of notes payable of which $62500 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31 2017 is

A) Current Liabilities $250000.
B) Long-term Debt $250000.
C) Current Liabilities $62500; Long-term Debt $187500.
D) Current Liabilities $187500; Long-term Debt $62500.

Question 66

Koppernaes Company has total proceeds (before segregation of sales taxes) from sales of $9540. If the sales tax is 6% the amount to be credited to the account Sales Revenue is:

A) $9540.
B) $8968.
C) $10112.
D) $9000.

Question 67

A cash register tape shows cash sales of $3000 and sales taxes of $240. The journal entry to record this information is

A) $\begin{array}{lrr} \text { Cash} &3,240\\ \text { Sales Revenue} &&3,240\\\end{array}$

B) $\begin{array}{lr}\text { Cash } &3,240\\\text { Sales Taxes Payable }&&240\\\text { Sales Revenue }&&3,000\end{array}$

C) $\begin{array}{lr}\text { Cash } &3,000\\\text { Sales Tax Expense }&240\\\text { Sales Revenue }&&3,240 \end{array}$

D) $\begin{array}{lrr} \text { Cash } &3,240\\ \text { Sales Revenue} &&3,000\\ \text { Sales Tax Revenue } &&240\end{array}$

Question 68

The interest charged on a $50000 note payable at the rate of 6% on a 60-day note would be

A) $3000.
B) $1667.
C) $750.
D) $500.

Question 69

A retail store does not segregate sales and the amount of sales tax on sales. If the sales tax rate is 5% and the register total amounted to $262500 what is the amount of the sales taxes owed to the taxing agency?

A) $250000
B) $262500
C) $13125
D) $12500

Question 70

Mackenzie Insurance Company collected a premium of $15000 for a 1-year insurance policy on May 1. What amount should Mackenzie report as a current liability for Unearned Insurance Revenue at December 31?

A) $0.
B) $5000.
C) $10000.
D) $15000.

Question 71

A company receives $696 of which $56 is for sales tax. The journal entry to record the sale would include a a debit to Sales Tax Expense for $56.
B) debit to Sales Taxes Payable for $56.
C) debit to Sales Revenue for $696.
D) debit to Cash for $696.

Question 72

On October 1 2017 Dakota Company issued an $800000 10% nine-month interest-bearing note. If the Dakota Company is preparing financial statements at December 31 2017 the adjusting entry for accrued interest will include a:

A) credit to Notes Payable of $20000.
B) debit to Interest Expense of $20000
C) credit to Interest Payable of $40000.
D) debit to Interest Expense of $30000.

Question 73

The interest charged on a $400000 note payable at the rate of 8% on a 90-day note would be

A) $32000.
B) $17776.
C) $8000.
D) $2666.

Question 74

On September 1 Eli's Painting Service borrows $150000 from National Bank on a 4-month $150000 6% note. The entry by Eli's Painting Service to record payment of the note and accrued interest on January 1 is a.
$\begin{array}{lrr} \text {Notes Payable } &153,000\\ \text { Cash } &&153,000\\\end{array}$

b.
$\begin{array}{lrr} \text { Notes Payable } &150,000\\ \text { Interest Payable} &3,000\\ \text { Cash} &&153,000\end{array}$

c.
$\begin{array}{lrr} \text {Notes Payable } &150,000\\ \text { Interest Payable} &9,000\\ \text { Cash } &&159,000\end{array}$

d.
$\begin{array}{lrr} \text { Notes Payable} &150,000\\ \text { Interest Expense } &3,000\\ \text { Cash } &&153,000\end{array}$

Question 75

Sales taxes collected by a retailer are recorded by

A) crediting Sales Tax Revenue.
B) debiting Sales Tax Expense.
C) crediting Sales Taxes Payable.
D) debiting Sales Taxes Payable.

Question 76

The interest charged on a $100000 note payable at the rate of 6% on a 2-month note would be

A) $6000.
B) $3000.
C) $1500.
D) $1000.

Question 77

A company receives $396 of which $36 is for sales tax. The journal entry to record the sale would include a

A) debit to Sales Tax Expense for $36.
B) credit to Sales Taxes Payable for $36.
C) debit to Sales Revenue for $396.
D) debit to Cash for $360.

Question 78

The interest charged on a $225000 note payable at the rate of 8% on a 3-month note would be

A) $18000.
B) $9000.
C) $4500.
D) $3000.

Question 79

On October 1 2016 Pennington Company issued an $800000 10% nine-month interest-bearing note. Assuming interest was accrued in June 30 2017 the entry to record the payment of the note on July 1 2017 will include a:

A) debit to Interest Expense of $20000.
B) credit to Cash of $800000
C) debit to Interest Payable of $60000.
D) debit to Notes Payable of $860000.

Question 80

Unearned Rent Revenue is

A) a contra account to Rent Revenue.
B) a revenue account.
C) reported as a current liability.
D) debited when rent is received in advance.