Deck 11: Current Liabilities and Payroll

Question 1

Receiving payment prior to delivering goods or services causes a current liability to be incurred.

Answer 1

True

Question 2

Notes payable may be issued to creditors to satisfy accounts payable created earlier.

Answer 2

True

Question 3

If, prior to the last weekly payroll period of the calendar year, the cumulative earnings for an employee are $98,800, earnings subject to social security tax are $100,000, and the tax rate is 6.0%, the employer's social security tax on the $2,000 gross earnings paid on the last day of the year is $120.

Answer 3

False

Question 4

A loan in which the lender deducts interest from the amount borrowed before the money is advanced to the borrower is called an interest bearing note.

Question 5

For a current liability to exist, the following two tests must be met. The liability must be due usually within a year and must be paid out of current assets.

Question 6

The proceeds of a discounted note are equal to the face value of the note.

Question 7

Amounts withheld from each employee for Social Security and Medicare varies by state.

Question 8

The discount on a note payable is charged to an account that has a normal credit balance.

Question 9

The proceeds from discounting a $20,000, 60-day, note payable at 6% is $20,200.

Question 10

For an interest bearing note payable, the amount borrowed is equal to the face amount of the note.

Question 11

All long-term liabilities eventually become current liabilities.

Question 12

Form W-4 is a form authorizing employers to withhold a portion of employee earnings for payment of an employee's federal income taxes.

Question 13

Form W-2 is called the Wage and Tax Statement.

Question 14

Interest expense is reported in the operating expense section of the income statement.

Question 15

Taxes deducted from an employee's earnings to finance social security and Medicare benefits are called FICA taxes.

Question 16

An employee's take home pay is equal to gross pay less all voluntary deductions.

Question 17

The amount of money a borrower receives from the lender is called discount rate.

Question 18

Payroll taxes are based on the employee's net pay.

Question 19

Generally, all deductions made from an employee's gross pay are required by law.

Question 20

The borrower is the one who issues a note payable to a creditor.

Question 21

Federal income taxes withheld increase the employer's payroll tax expense.

Question 22

Federal unemployment compensation taxes that are collected by the federal government are paid directly to the unemployed but are allocated among the states for use in state programs.

Question 23

Like many taxes deducted from employee earnings, federal income taxes are subject to a maximum amount per employee per year.

Question 24

Most employers are required to withhold federal unemployment taxes from employee earnings.

Question 25

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.

Question 26

The payroll register is a multicolumn form used to assemble the data related for all employees.

Question 27

Payroll taxes levied against employers become an employer liability at the time the employee wages are incurred.

Question 28

The total net pay for a period is determined from the payroll register.

Question 29

For paying their payroll, most employers use payroll checks drawn on a special bank account.

Question 30

FICA tax becomes a liability to the federal government at the time an employee's payroll is prepared.

Question 31

Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid.

Question 32

Medicare taxes are withheld from an employee's pay only until the employee has earned a specific amount each year.

Question 33

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.

Question 34

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.

Question 35

Medicare taxes are paid by both the employee and the employer.

Question 36

FICA tax is a payroll tax that is paid only by employers.

Question 37

Internal controls for cash payments also apply to payrolls.

Question 38

While separation of duties may play a strong role in the internal control of inventory, it is significant in controlling payroll.

Question 39

Payroll taxes only include social security taxes and federal unemployment and state unemployment taxes.

Question 40

Federal unemployment taxes are paid by the employer and the employee.

Question 41

Notes may be issued

A) when assets are purchased
B) to creditor's to temporarily satisfy an account payable created earlier
C) when borrowing money
D) all of the above

Question 42

On June 8, Alton Co. issued an $95,000, 6%, 120-day note payable to Seller Co. What is the due date of the note?

A) October 8
B) October 7
C) October 6
D) October 5

Question 43

On June 8, Alton Co. issued an $90,000, 6%, 120-day note payable to Seller Co. Assuming a 360-day year for your calculations, what is the maturity value of the note?

A) $90,450
B) $90,000
C) $91,800
D) $95,400

Question 44

One of the more popular defined contribution plans is the 401k plan.

Question 45

A business borrowed $40,000 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 $600
B) debit to Interest Expense $600
C) credit to Cash for $40,000
D) credit to Cash for $46,300

Question 46

In order to be a recorded contingent liability, the liability must be possible and easily estimated.

Question 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.

Question 48

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.

Question 49

A defined contribution plan promises employees a fixed annual pension benefit.

Question 50

On July 8, Alton Co. issued an $80,000, 6%, 120-day note payable to Seller Co. Assume that the fiscal year of Alton Co. ends July 31. Using the 360-day year in your calculations, what is the amount of interest expense recognized by Alton in the current fiscal year?

A) $1,200.00
B) $106.67
C) $306.67
D) $400.00

Question 51

Obligations that depend on past events and that are based on future possible events are contingent liabilities.

Question 52

On June 8, Alton Co. issued an $80,000, 6%, 120-day note payable on an overdue account payable to Seller Co. Assume that the fiscal year of Alton Co. ends June 30. Which of the following relationships is true?

A) Alton is the creditor and credits Accounts Receivable
B) Seller is the creditor and debits Accounts Receivable
C) Seller is the borrower and credits Accounts Payable
D) Alton is the borrower and debits Accounts Payable

Question 53

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.

Question 54

When a borrower receives the face amount of a discounted note less discount, this amount is known as:

A) the note proceeds
B) the note discount
C) the note deferred interest
D) the note principal

Question 55

During the first year of operations, a company granted warranties on its products. The estimated cost of the product warranty liability at the end of the year is $8,500. The product warranty expense of $8,500 should be recorded in the years of the expenditures to repair the products covered by the warranty payments.

Question 56

Assuming a 360-day year, the interest charged by the bank, at the rate of 9%, on a 90-day, discounted note payable of $100,000 is

A) $9,000
B) $2,250
C) $750
D) $1,000

Question 57

On June 8, Alton Co. issued an $80,000, 6%, 120-day note payable to Seller Co. Assume that the fiscal year of Seller Co. ends June 30. Using the 360-day year in your calculations, what is the amount of interest revenue recognized by Seller in the following year?

A) $1,200.00
B) $1,208.89
C) $1,306.67
D) $1,600.00

Question 58

In a defined benefits plan, the employer bears the investment risks in funding a future retirement income benefit.

Question 59

The accounting for defined benefit plans is usually very easy and straight forward.

Question 60

Current liabilities are

A) due, but not receivable for more than one year
B) due, but not payable for more than one year
C) due and receivable within one year
D) due and payable within one year

Question 61

Assuming a 360-day year, when a $40,000, 90-day, 9% interest-bearing note payable matures, total payment will amount to:

A) $40,900
B) $43,600
C) $900
D) $3,600

Question 62

The current portion of long-term debt should

A) be classified as a long-term liability.
B) not be separated from the long-term portion of debt.
C) be paid immediately.
D) be reclassified as a current liability.

Question 63

The journal entry a company uses 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

Question 64

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

Question 65

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

A) between 6 months and 18 months.
B) out of currently recognized revenues.
C) within one year.
D) out of cash currently on hand.

Question 66

Mobile Co. issued a $45,000, 60-day, discounted note to Guarantee Bank. The discount rate is 6%. At maturity, assuming a 360-day year, the borrower will pay:

A) $45,450
B) $42,300
C) $45,000
D) $44,550

Question 67

The journal entry a company uses 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

Question 68

The journal entry a company uses to record the payment of an interest-bearing note is

A) debit Cash; credit Notes Payable
B) debit Accounts Payable; credit Cash
C) debit Notes Payable and Interest Expense; credit Cash
D) debit Notes Payable and Interest Receivable; credit Cash

Question 69

On January 5, 2014, Garrett Company, a calendar-year company, issued $1,000,000 of notes payable, of which $200,000 is due on January 1 for each of the next five years. The proper balance sheet presentation on December 31, 2014, is

A) Current Liabilities, $1,000,000.
B) Current Liabilities, $200,000; Long-term Debt, $800,000.
C) Long-term Debt, $1,000,000
D) Current Liabilities, $800,000; Long-term Debt, $200,000.

Question 70

Assuming a 360-day year, when a $30,000, 90-day, 5% interest-bearing note payable matures, total payment will amount to:

A) $31,500
B) $1,500
C) $30,375
D) $375

Question 71

Current liabilities are:

A) due and receivable within one year.
B) due and to be paid out of current assets within one year.
C) due, but not payable for more than one year.
D) payable if a possible subsequent event occurs.

Question 72

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

Question 73

Grayson Bank agrees to lend the Trust Company $120,000 on January 1. Trust Company signs a $120,000, 8%, 9-month note. The entry made by Trust Company on January 1 to record the proceeds and issuance of the note is:

A) Interest Expense 9,600 Cash 110,400
Notes Payable 120,000
B) Cash 120,000 Notes Payable 120,000
C) Cash 129,600 Interest Expense 9,600
Notes Payable 120,000
D) Notes Payable 120,000 Interest Payable 7,200
Cash 120,000
Interest Expense 7,200

Question 74

The journal entry a company uses to record the payment of a discounted note is

A) debit Notes Payable and Interest Expense; credit Cash
B) debit Notes Payable; credit Cash
C) debit Cash; credit Notes Payable
D) debit Accounts Payable; credit Cash

Question 75

Which of the following would most likely be classified as a current liability?

A) Two-year Notes Payable
B) Bonds Payable
C) Mortgage Payable
D) Unearned Rent

Question 76

Proper payroll accounting methods are important for a business for all the reasons below except

A) good employee morale requires timely and accurate payroll payments.
B) payroll is subject to various federal and state regulations.
C) to help a business with cash flow problems by delayed payments of payroll taxes to federal and state agencies.
D) payroll and related payroll taxes have a significant effect on the net income of most businesses.

Question 77

The journal entry to record the conversion of an $4,700 accounts payable to a notes payable would be:

A) Cash 4,700 Notes Payable 4,700
B) Notes Receivable 4,700 Notes Payable 4,700
C) Notes Payable 4,700 Cash 4,700
D) Accounts Payable 4,700 Notes Payable 4,700

Question 78

On October 30, Seba Salon, Inc. issued a 90-day note with a face amount of $60,000 to Reyes Products, Inc. for merchandise inventory. Assuming a 360-day year, determine the proceeds of the note assuming the note is discounted at 8%.

A) $55,200
B) $64,800
C) $58,800
D) $61,200

Question 79

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%

Question 80

The journal entry a company uses 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