Question 1

Which of the following is NOT a liability that must be estimated?

Accepted Answer

Promissory notes are not a liability that needs to be estimated. This is because promissory notes do not involve any uncertainty or estimation. They are a written promise to pay a specific amount at a specific time, and therefore their value is certain and can be accurately recorded in the financial statements. Warranties, vacation pay, and bonus plans, on the other hand, involve estimation and uncertainty, as their value depends on future events that cannot be predicted with certainty.

Question 2

The employees of Vintage Clothes achieved all of the sales goals for 2017.Vintage decides to reward the employees with a bonus of 20% on annual net income,after deducting the bonus.The net income before the calculation of the bonus is $312,000.What is the amount of the bonus? (Round your final answer to the nearest dollar.)

Accepted Answer

The answer of The employees of Vintage Clothes achieved all...

Question 3

Warranties pose an accounting challenge because a company does not know which or how many products will have to be repaired.

Accepted Answer

Warranties are contingent liabilities, meaning they are dependent on a future event (i.e. a product malfunctioning), and the exact amount of repairs cannot be predicted with certainty. This uncertainty makes accounting for warranties challenging because companies have to estimate the potential cost of repairs and record them as expenses even before they occur.

Question 4

The entry to accrue the warranty payable includes a credit to Warranty Expense.

Accepted Answer

The entry to accrue the warranty payable typically includes a debit to Warranty Expense and a credit to Warranty Liability or Warranty Payable, not a credit to Warranty Expense.

Question 5

Sunset Company has a policy of accruing $2300 for every employee as a vacation benefit.Sarah,an employee,took a vacation.Which of the following is the correct journal entry for the vacation benefit paid?

Accepted Answer

When an employee takes a vacation, the company should relieve the liability it has accrued for that vacation benefit. The correct entry debits the liability account (Vacation Benefits Payable) and credits Cash, reflecting the payment of the benefit.

Question 6

Estimated Warranty Payable is included in the liability section of the balance sheet.

Accepted Answer

Estimated Warranty Payable represents the amount of warranty claims that a company expects to pay in the future. It is a liability because the company has an obligation to cover these future costs, and therefore it is included in the liability section of the balance sheet.

Question 7

The matching principle requires businesses to record Warranty Expense when the warranty costs are incurred.

Accepted Answer

The matching principle requires businesses to record Warranty Expense in the same period in which the revenue from the sale of the warranted product is recognized, not necessarily when the warranty costs are actually incurred.

Question 8

First Street Restaurant incurred salaries expense of $60,000 for 2018.The payroll tax expense includes employer FICA tax,state unemployment tax and federal unemployment tax.Year-to-date earnings do not exceed $118,500.Of the total salaries,$17,000 is subject to unemployment tax.Currently,state unemployment tax is 5.4% and federal unemployment tax is 0.6%.Also,the company provides the following benefits for employees: health insurance (cost to the company,$2,500),life insurance (cost to the company,$700),and retirement benefits (cost to the company,10% of salaries expense).Journalize First Street's expenses for employee benefits and for payroll taxes.Explanations are not required.

Accepted Answer

The answer of First Street Restaurant incurred salaries expense of...

Question 9

When an employee takes a paid vacation,the Vacation Benefits Payable account will be decreased with a credit.

Accepted Answer

When an employee takes paid vacation, the Vacation Benefits Payable account will be decreased with a debit.

Question 10

Martin Company decided to reward its employees with a bonus of 7% on annual net income,after deducting the bonus.The company reported net income of $513,600 before the calculation of the bonus.Prepare the journal entry to accrue employee bonus expense.Omit explanation.

Accepted Answer

The answer of Martin Company decided to reward its employees...

Question 11

Alpine Enterprises estimates that it will pay a 5% bonus on annual net income after deducting the bonus.The company reports net income of $500,000 before the calculation of the bonus.Employee Bonus Expense will be debited for $25,000.

Accepted Answer

Bonus = (Bonus % × Net income before bonus)/(1 + Bonus %)
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Question 12

A pension plan is a plan that provides benefits to retired employees.

Accepted Answer

A pension plan is specifically designed to provide benefits to employees who have retired from their job.

Question 13

Since a company usually does not know the amount of the year-end bonus at year-end,the company estimates the amount of the bonus based on a percentage.

Accepted Answer

Companies often estimate the year-end bonus based on a percentage, since the exact amount may not be known until the end of the year.

Question 14

Jamison Enterprises estimates that it will pay a 5% bonus on annual net income after deducting the bonus.If Jamison reports net income of $480,000 before the calculation of the bonus,the amount of the bonus is $24,000.

Accepted Answer

The bonus is calculated on the net income after deducting the bonus itself. If the net income before the bonus is $480,000 and the bonus rate is 5%, the bonus is not simply 5% of $480,000. Instead, let B be the bonus amount. The equation to find the bonus is B = 5% * ($480,000 - B). Solving this equation gives a different amount than $24,000.

Question 15

If a business knows that a liability exists but does not know the exact amount,the business must estimate the amount of the liability and report it on the balance sheet.

Accepted Answer

According to accounting principles, if a liability exists but the exact amount is not known, the business must estimate the amount and report it on the balance sheet. This is known as a contingent liability, and it must be disclosed in the notes to the financial statements.

Question 16

Because a company usually does not know the amount of the year-end bonus at year-end,no liability is recorded.

Accepted Answer

The company estimates the amount of the bonus based on a set percentage.

Question 17

Vacation pay is an example a liability that exists but the exact amount is not known.

Accepted Answer

Vacation pay is an example of a liability that exists because the employer has an obligation to pay it to the employees, but the exact amount is not known as it may vary based on factors such as the number of vacation days earned by each employee and their rate of pay.

Question 18

Which of the following accounts is debited when employees take their paid vacations?

Accepted Answer

The answer of Which of the following accounts is debited...

Question 19

Vacation,health,and pension benefits must be estimated and recorded as a liability.

Accepted Answer

Vacation, health, and pension benefits are typically considered employee benefits and are a form of compensation. Therefore, they must be estimated and recorded as a liability on a company's balance sheet.

Question 20

Which of the following statements regarding vacation benefits is correct?

Accepted Answer

The answer of Which of the following statements regarding vacation...

Quiz 11: Current Liabilities and Payroll