Question 1

The amount borrowed is equal to the face amount of the note on an interest bearing note payable.

Accepted Answer

The face amount of a note payable represents the amount of initial principal borrowed by the borrower. The borrower typically pays interest on this amount until they repay the note in full.

Question 2

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

Accepted Answer

The proceeds from discounting a note would be less than its face value because the discount amount (interest) is subtracted from the face value.

Question 3

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

Accepted Answer

FICA stands for Federal Insurance Contributions Act, and includes Social Security and Medicare taxes that are deducted from an employee's earnings.

Question 4

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

Accepted Answer

Notes payable can be issued to creditors as a means of satisfying accounts payable that have already been created.

Question 5

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

Accepted Answer

When payment is received before goods or services are delivered, it creates an obligation to deliver those goods or services in the future, which is a current liability.

Question 6

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

Accepted Answer

An employee's take-home pay is equal to gross pay less all voluntary and involuntary deductions, including taxes, Social Security, and Medicare.

Question 7

Amounts withheld from each employee for social security and Medicare vary by state.

Accepted Answer

Amounts withheld for social security and Medicare are set nationally and do not vary by state. However, state income tax withholding may vary.

Question 8

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

Accepted Answer

Employers are required to pay federal unemployment taxes, but these taxes are not withheld from employee earnings; they are paid by the employer based on employee wages.

Question 9

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

Accepted Answer

While some deductions, such as taxes and Social Security contributions, are required by law, others like voluntary retirement contributions and health insurance premiums are not mandatory and can vary depending on the employer and employee agreement.

Question 10

The borrower issues a note payable to a creditor.

Accepted Answer

A note payable is a written promise to pay a creditor a specific amount of money at a future date. Therefore, the borrower does issue a note payable to the creditor.

Question 11

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

Accepted Answer

Payroll taxes are based on the employee's gross pay, not their net pay.

Question 12

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

Accepted Answer

The discount on a note payable is a contra liability account, which has a normal debit balance. Therefore, the discount is charged to an account that has a normal debit balance.

Question 13

All long-term liabilities eventually become current liabilities.

Accepted Answer

Long-term liabilities are obligations that are due more than one year in the future, and as time passes and they get closer to their due date, they are reclassified as current liabilities, which are due within one year.

Question 14

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

Accepted Answer

The proceeds of a discounted note are less than the face value of the note, due to the deduction of the discount.

Question 15

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

Accepted Answer

Form W-4 is a document completed by employees to indicate their tax withholding preferences, including the number of allowances they wish to claim for tax purposes. This information is used by employers to calculate how much federal income tax to withhold from each employee's paycheck.

Question 16

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

Accepted Answer

FICA tax is actually paid by both employers and employees. It is split between the two, with employers contributing a portion and employees contributing a portion through deductions from their paychecks.

Question 17

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

Accepted Answer

This is the definition of a current liability.

Question 18

An interest-beating note is a loan in which the lender deducts interest from the amount loaned before the money is advanced to the borrower.

Accepted Answer

An interest-beating note is a loan in which the lender adds interest to the amount loaned before the money is advanced to the borrower.

Question 19

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

Accepted Answer

Interest expense is typically reported as a separate line item in the non-operating expense section of the income statement, as it is not directly related to the company's core operations.

Question 20

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

Accepted Answer

The amount of money a borrower receives from the lender is called the loan amount, while the discount rate refers to the interest rate charged by the lender.

Quiz 10: Current Liabilities and Payroll