Question 1

During August,Boxer Company sells $356,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 5% of the selling price.The warranty liability account has a credit balance of $12,800 before adjustment.Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs.The entry to record the estimated warranty expense for the month is:
A)Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
B)Debit Warranty Expense $5,000; credit Estimated Warranty Liability $5,000.
C)Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.
D)Debit Estimated Warranty Liability $9,400; credit Warranty Expense $9,400.
E)Debit Estimated Warranty Liability $17,800; credit Warranty Expense $17,800.

Accepted Answer

The answer of During August,Boxer Company sells $356,000 in merchandise...

Question 2

During August,Boxer Company sells $356,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 5% of the selling price.The warranty liability account has a credit balance of $12,800 before adjustment.Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs.The entry to record the customer warranty repairs is:
A)Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
B)Debit Warranty Expense $9,400; credit Estimated Warranty Liability $9,400.
C)Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.
D)Debit Estimated Warranty Liability $9,400; credit Parts Inventory $9,400.
E)Debit Estimated Warranty Liability $17,800; credit Parts Inventory $17,800.

Accepted Answer

The correct entry to record the customer warranty repairs involves debiting the Estimated Warranty Liability account and crediting the Parts Inventory account for the cost of the parts used in the repairs, which is $9,400. This reflects the use of the previously recognized liability to cover actual warranty expenses.

Question 3

Athena Company provides employee health insurance that costs $5,000 per month.In addition,the company contributes an amount equal to 5% of the employees' $120,000 gross salary to a retirement program.The entry to record the accrued benefits for the month would include a:
A)Debit to Medical Insurance Payable $5,000.
B)Debit to Employee Retirement Program Payable $6,000.
C)Debit to Employee Benefits Expense $11,000.
D)Credit to Employee Benefits Expense $11,000.
E)Debit to Payroll Taxes Expense $11,000.

Accepted Answer

The entry to record the accrued benefits for the month would include a debit to Employee Benefits Expense for the total amount of $11,000. This is because the company pays $5,000 for health insurance and contributes 5% of the employee’s $120,000 gross salary, which amounts to $6,000. Therefore, the total accrued benefit for the month is $11,000.

Question 4

A company's has fixed interest expense of $52,000,income taxes expense of $121,000,and net income of $281,000.The company's times interest earned ratio equals:
A)8.73.
B)5.40.
C)7.73.
D)2.33.
E)0.11.

Accepted Answer

The answer of A company's has fixed interest expense of...

Question 5

A company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers.When the company mails the first quarterly journal to customers,it should record:
A)Debit Prepaid Subscriptions $33,750; credit Unearned Revenue $33,750.
B)Debit Unearned Revenue $45,000; credit Cash $45,000.
C)Debit Cash $11,250,credit Sales $11,250.
D)Debit Unearned Revenue $11,250,credit Sales $11,250.
E)Debit Prepaid Subscriptions $11,250,credit Sales $11,250.

Accepted Answer

When the company mails the first quarterly journal, it recognizes revenue for that quarter. Since the total subscription is for $45,000 annually, one quarter equals $11,250 ($45,000/4). The correct entry is to debit Unearned Revenue (reducing the liability because the service is now being provided) and credit Sales (recognizing the revenue).

Question 6

An employee earned $4,600 in February working for an employer.The FICA tax rate for Social Security is 6.2% of the first $127,200 earned during each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The employee has $644 in federal income taxes withheld and has voluntary deductions for health insurance of $50 and contributes 10% of gross pay to a retirement plan each month.The employer pays the $200 remainder of the health insurance premium and an equal amount of contribution to the retirement fund.What is the amount of net pay for the employee for the month of February?
A)$3,094.10
B)$3,496.00
C)$3,604.10
D)$3,446.00
E)$2,634.10

Accepted Answer

To calculate the net pay for the employee for the month of February, follow these steps:1. Calculate the FICA taxes:   - Social Security tax = 6.2% of $4,600 = 0.062 * $4,600 = $285.20   - Medicare tax = 1.45% of $4,600 = 0.0145 * $4,600 = $66.70   Total FICA taxes = $285.20 + $66.70 = $351.902. Calculate the retirement plan contribution:   - Retirement plan contribution = 10% of $4,600 = 0.10 * $4,600 = $4603. Calculate the total deductions:   - Total deductions = FICA taxes + Federal income taxes + Health insurance + Retirement plan contribution   = $351.90 + $644 + $50 + $460 = $1,505.904. Calculate the net pay:   - Net pay = Gross pay - Total deductions = $4,600 - $1,505.90 = $3,094.10Therefore, the correct choice is A, $3,094.10.

Question 7

An employee earns $5,500 per month working for an employer.The FICA tax rate for Social Security is 6.2% of the first $127,200 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The current FUTA tax rate is 0.6%,and the SUTA tax rate is 5.4%.Both unemployment taxes are applied to the first $7,000 of an employee's pay.The employee has $182 in federal income taxes withheld.The employee has voluntary deductions for health insurance of $150 and contributes $75 to a retirement plan each month.What is the amount the employer should record as payroll taxes expense for the employee for the month of January?
A)$420.75
B)$464.75
C)$602.75
D)$841.50
E)$750.75

Accepted Answer

The answer of An employee earns $5,500 per month working...

Question 8

All of the following statements regarding FICA taxes are true except:
A)FICA taxes are deducted from the employee.
B)Employers must pay withheld FICA taxes to the IRS.
C)The amount of FICA deducted from the employee is credited to a liability account.
D)A self-employed person is exempt from FICA taxes.
E)An employer must pay FICA taxes equal to the amount withheld from the employee.

Accepted Answer

A self-employed person is not exempt from FICA taxes, but they are responsible for paying both the employee and employer portion of the tax.

Question 9

Define liabilities and explain the difference between current and long-term liabilities.

Accepted Answer

The answer of Define liabilities and explain the difference between...

Question 10

On September 1,Knack Company signed a $50,000,90-day,5% note payable with Central Savings Bank.What is the journal entry that should be recorded by Knack upon maturity of the note? (Use 360 days a year.)
A)Debit Interest Expense $625; credit Interest Payable $625.
B)Debit Notes Payable $50,000; credit Interest Revenue $625; credit Cash $49,375.
C)Debit Cash $50,625; credit Notes Receivable $50,625.
D)Debit Notes Payable $50,625; credit Cash $50,625.
E)Debit Notes Payable $50,000; debit Interest Expense $625; credit Cash $50,625.

Accepted Answer

The correct journal entry upon maturity includes paying off the principal amount of the note payable ($50,000) and the interest expense. The interest expense is calculated as $50,000 * 5% * (90/360) = $625. Therefore, the total amount paid is $50,000 + $625 = $50,625, which is debited to Notes Payable and Interest Expense, and credited to Cash.

Question 11

An employee earned $4,600 in February working for an employer.Cumulative earnings of the previous pay periods are $4,800.The FICA tax rate for Social Security is 6.2% of the first $127,200 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The current FUTA tax rate is 0.6%,and the SUTA tax rate is 5.4%.Both unemployment taxes are applied to the first $7,000 of an employee's pay.What is the amount the employer should record as payroll taxes expense for the month of February?
A)$581.90
B)$110.00
C)$351.90
D)$483.90
E)$230.00

Accepted Answer

For the month of February, the employer's payroll taxes expense includes FICA taxes (both Social Security and Medicare) and unemployment taxes (FUTA and SUTA), but only on the first $7,000 of an employee's pay for unemployment taxes. The employee's cumulative earnings before February were $4,800, and they earned $4,600 in February, making their total earnings $9,400. However, for FUTA and SUTA, only the first $7,000 of the year's earnings are considered, and by February, the employee has exceeded this limit, meaning no FUTA or SUTA taxes are due for February's earnings.FICA Social Security tax = 6.2% of $4,600 = 0.062 * $4,600 = $285.20FICA Medicare tax = 1.45% of $4,600 = 0.0145 * $4,600 = $66.70FUTA tax = $0 (since the $7,000 limit for the year has been exceeded)SUTA tax = $0 (since the $7,000 limit for the year has been exceeded)Total payroll taxes expense for February = $285.20 (Social Security) + $66.70 (Medicare) = $351.90However, the correct calculation for the total payroll taxes expense should include the employer's portion of FICA taxes only, as FUTA and SUTA are not applicable beyond the $7,000 earnings threshold. The mistake in the explanation is in the final step of adding the taxes together, which should correctly account for the employer's actual tax responsibilities given the provided data and tax rates. The correct total payroll taxes expense calculation should reflect only the FICA taxes without FUTA and SUTA due to the earnings threshold being exceeded.

Question 12

If a company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers,the receipt of cash would be journalized as:
A)Debit Cash $45,000; credit Unearned Revenue $45,000.
B)Debit Unearned Revenue $45,000; credit Sales $45,000.
C)Debit Cash $45,000,credit Sales $45,000.
D)Debit Sales $45,000,credit Unearned Revenue $45,000.
E)Debit Prepaid Subscriptions $45,000,credit Sales $45,000.

Accepted Answer

The receipt of cash for advance subscription sales creates a liability for the company since the service has not yet been provided. Therefore, the transaction should be journalized as a debit to Cash and a credit to Unearned Revenue.

Question 13

All of the following statements related to recording warranty expense are true except:
A)Recording estimated warranty expense complies with the full disclosure principle.
B)Warranty expense should be recorded in the period when the warranty service is performed.
C)Recording estimated warranty expense complies with the matching principle.
D)The seller reports a warranty obligation as a liability.
E)Warranty costs are probable and the amount can be estimated.

Accepted Answer

Warranty expense should be recorded in the period when the product is sold, not when the warranty service is performed. This is consistent with the matching principle, which requires expenses to be matched with the related revenue in the period in which they were incurred.

Question 14

During June,Vixen Company sells $850,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 3% of the selling price.Customers returned $14,000 of merchandise for warranty replacement during the month.The entry to record the estimated warranty provision at the end of the month is:
A)Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.
B)Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
C)Debit Warranty Expense $25,500; credit Estimated Warranty Liability $25,500.
D)Debit Estimated Warranty Liability $14,000; credit Warranty Expense $14,000.
E)Debit Estimated Warranty Liability $11,500; credit Warranty Expense $11,500.

Accepted Answer

The answer of During June,Vixen Company sells $850,000 in merchandise...

Question 15

On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What is the journal entry that should be recorded upon signing the note?
A)Debit Accounts Receivable $24,000; credit Notes Receivable $24,000.
B)Debit Accounts Payable $24,000; credit Notes Payable $24,000.
C)Debit Accounts Payable $24,160; credit Notes Payable $24,160.
D)Debit Notes Payable $24,000; debit Interest Expense $160; credit Accounts Payable $24,160.
E)Debit Notes Payable $24,000; debit Interest Expense $160; credit Cash $24,160.

Accepted Answer

The correct journal entry for signing a note payable to replace an account payable involves debiting (decreasing) Accounts Payable and crediting (increasing) Notes Payable for the principal amount of the note, which is $24,000. This entry reflects the replacement of the account payable with a note payable without recognizing interest expense at the time of signing the note. Interest expense is recognized over the life of the note or at the time of payment, not at the inception of the note.

Question 16

On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.)
A)$0
B)$80
C)$320
D)$960
E)$160

Accepted Answer

To calculate interest expense, we use the formula: Interest Expense = Principal x Rate x Time

In this case, the principal is $24,000, the rate is 4%, and the time is 31 days (from December 1 to December 31).

To convert the time to a fraction of a year, we divide by the number of days in a year (360): 31/360 = 0.0861.

So, the interest expense is:

Interest Expense = $24,000 x 0.04 x 0.0861 = $82.08

Since this question asks for the amount accrued (not paid) at December 31, we need to round down to the nearest dollar. Therefore, the answer is $80 (Choice B).

Question 17

Carson Company faces a probable loss on a pending lawsuit where the amount of the loss is estimated to be $500,000.The journal entry to recognize the potential loss is:
A)Debit Prepaid Legal Expense $500,000; credit Contingent Legal Liability $500,000.
B)Debit Legal Expense $500,000; credit Lawsuit Payable $500,000.
C)Debit Contingent Legal Expense $500,000,credit Contingent Legal Liability $500,000.
D)Debit Lawsuit Payable $500,000,credit Contingent Legal Liability $500,000.
E)No journal entry is required.

Accepted Answer

The answer of Carson Company faces a probable loss on...

Question 18

All of the following statements related to current liabilities for U.S.GAAP and IFRS are true except:
A)The definitions and characteristics of current liabilities are broadly similar for both U.S.GAAP and IFRS.
B)The term provision is typically used under IFRS to refer to what is titled liability under U.S.GAAP.
C)Because tax regulatory systems of countries are different,the approach to recording taxes is totally different.
D)When there is little uncertainty surrounding current liabilities,both require companies to record them in a similar manner.
E)When there is a known current obligation that involves an uncertain amount,but one that can be reasonable estimated,both require similar treatment.

Accepted Answer

The statement "Because tax regulatory systems of countries are different, the approach to recording taxes is totally different" is not true. Although there may be some differences in tax regulations among countries, both U.S.GAAP and IFRS require companies to recognize and measure taxes in a similar manner.

Question 19

Athena Company's salaried employees earn two weeks of vacation per year.It pays $858,000 in total employee salaries for 52 weeks but its employees work only 50.Record Athena Company's weekly journal entry to record the vacation expense:
A)Debit Vacation Benefits Expense $16,500; credit Vacation Benefits Payable $16,500.
B)Debit Vacation Benefits Expense $660; credit Vacation Benefits Payable $660.
C)Debit Vacation Benefits Expense $17,160; credit Vacation Benefits Payable $17,160
D)Debit Vacation Benefits Payable $660; credit Vacation Benefits Expense $660
E)Debit Vacation Benefits Payable $16,500; credit Vacation Benefits Expense $16,500.

Accepted Answer

The company pays out two weeks of vacation per year, but its employees only work 50 weeks out of the year. Therefore, the total vacation expense is 2/52 of the total salaries paid, or $660 ($858,000/52*2). The journal entry to record this expense would be to debit Vacation Benefits Expense for $660 and credit Vacation Benefits Payable for $660.

Question 20

During June,Vixen Company sells $850,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 3% of the selling price.Customers returned $14,000 of merchandise for warranty replacement during the month.The entry to settle the customer warranties is:
A)Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.
B)Debit Estimated Warranty Liability $25,500; credit Warranty Expense $25,500.
C)Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
D)Debit Estimated Warranty Liability $11,500; credit Merchandise Inventory $11,500.
E)Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000.

Accepted Answer

The correct entry to settle customer warranties involves debiting the Estimated Warranty Liability account and crediting Merchandise Inventory for the cost of the merchandise returned under warranty, which is $14,000 in this case. This reflects the use of the warranty liability previously estimated and the reduction in inventory due to the replacement of the returned merchandise.

Quiz 9: Reporting and Analyzing Current Liabilities

Athena Company provides employee health insurance that costs $5,000 per month.In addition,the company contributes an amount equal to 5% of the employees' $120,000 gross salary to a retirement program.The entry to record the accrued benefits for the month would include a:

A company's has fixed interest expense of $52,000,income taxes expense of $121,000,and net income of $281,000.The company's times interest earned ratio equals:

A company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers.When the company mails the first quarterly journal to customers,it should record:

All of the following statements regarding FICA taxes are true except:

Define liabilities and explain the difference between current and long-term liabilities.

On September 1,Knack Company signed a $50,000,90-day,5% note payable with Central Savings Bank.What is the journal entry that should be recorded by Knack upon maturity of the note? (Use 360 days a year.)

If a company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers,the receipt of cash would be journalized as:

All of the following statements related to recording warranty expense are true except:

On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What is the journal entry that should be recorded upon signing the note?

On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.)

Carson Company faces a probable loss on a pending lawsuit where the amount of the loss is estimated to be $500,000.The journal entry to recognize the potential loss is:

All of the following statements related to current liabilities for U.S.GAAP and IFRS are true except:

Athena Company's salaried employees earn two weeks of vacation per year.It pays $858,000 in total employee salaries for 52 weeks but its employees work only 50.Record Athena Company's weekly journal entry to record the vacation expense:

During June,Vixen Company sells $850,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 3% of the selling price.Customers returned $14,000 of merchandise for warranty replacement during the month.The entry to settle the customer warranties is: