Deck 11: Current Liabilities and Payroll

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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 10

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

Question 11

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 12

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

Question 13

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 14

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

Question 15

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

Question 16

All long-term liabilities eventually become current liabilities.

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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 28

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

Question 29

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 30

Internal controls for cash payments also apply to payrolls.

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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 37

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 38

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

Question 39

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

Question 40

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

Question 41

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 42

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

Question 43

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 44

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

Question 45

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 46

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 47

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

Question 48

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 49

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

Question 50

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

Question 51

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 52

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 53

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 54

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 55

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 56

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 57

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 58

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 59

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 60

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

Question 61

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

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

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 64

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 65

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 66

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 67

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 68

Which of the following would be used to compute the federal income taxes to be withheld from an employee's earnings?

A) FICA tax rate
B) wage and tax statement
C) FUTA tax rate
D) wage bracket and withholding table

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

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 71

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 72

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 73

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 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

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 76

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 77

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 78

Which statement below is not a determinate in calculating the amount of federal income taxes withheld from an individuals pay?

A) filing status
B) types of earnings
C) gross pay
D) number of exemptions

Question 79

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 80

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