Question 1

A company sells leaf blowers for $170 each. Each unit has a 3 year warranty that covers replacement of defective parts. It is estimated that 4% of all leaf blowers sold will be returned under the warranty at an average cost of $30 each. During October, the company sold 400,000 leaf blowers. 800 leaf blowers were serviced under the warranty during October at a total cost of $25,000. The balance in the Estimated Warranty Liability account on October 1 was $12,500. What is the company's warranty expense for the month of October?

Accepted Answer

400,000 x .04 x $30 = $480,000

Question 2

FICA taxes include:

Accepted Answer

FICA taxes include Social Security taxes, which are collected to fund the Social Security program that provides retirement, disability, and survivor benefits to eligible individuals.

Question 3

The current FUTA tax rate is 0.8% and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned $8,900. What is the amount of total unemployment taxes the employer must pay on this employee's wages?

Accepted Answer

The answer of The current FUTA tax rate is 0.8%...

Question 4

An employee earned $4,300 working for an employer. The current rate for FICA social security is 6.2% and the FICA Medicare rate is 1.45%. The employer's total FICA payroll tax for this employee is:

Accepted Answer

The answer of An employee earned $4,300 working for an...

Question 5

A company estimates that warranty expense will be 4% of sales. The company's sales for the current period are $185,000. The current period's entry to record the warranty expense is:

Accepted Answer

The warranty expense is recorded by debiting Warranty Expense and crediting Estimated Warranty Liability for the estimated amount, which is 4% of $185,000, equaling $7,400.

Question 6

The Federal Insurance Contributions Act (FICA) requires that each employer file a:

Accepted Answer

FICA is the law that requires employers to withhold Social Security and Medicare taxes from their employees' wages. The employer is then required to file a Form 941 quarterly to report these withheld taxes and the employer's matching contributions. Therefore, the best choice is B.

Question 7

FUTA taxes are:

Accepted Answer

FUTA taxes are Federal Unemployment Taxes that employers must pay to support unemployment benefits for workers who have lost their jobs.

Question 8

A company sells computers at a selling price of $1,800 each. Each computer has a 2 year warranty that covers replacement of defective parts. It is estimated that 2% of all computers sold will be returned under the warranty with an average cost of $150 each. During November, the company sold 30,000 computers and 400 computers were serviced under the warranty during November at a total cost of $55,000. The balance in the Estimated Warranty Liability account at November 1 was $29,000. What is the company's warranty expense for the month of November?

Accepted Answer

30,000 x .02 x $150 = $90,000

Question 9

The employer should record payroll deductions as:

Accepted Answer

Payroll deductions are amounts that are withheld from an employee's paycheck for taxes, benefits, or other purposes. These amounts are not part of the employee's gross pay and are therefore not classified as wages payable or employee receivables. Instead, they represent a liability owed by the employer to the relevant tax authorities or benefit plans. As such, they should be recorded as current liabilities.

Question 10

An estimated liability:

Accepted Answer

An estimated liability is a known obligation of an uncertain amount that can be reasonably estimated. This means that the company can make an estimate of the liability based on available information, even though the exact amount may not be known until a later date.

Question 11

The annual Federal Unemployment Tax Return is:

Accepted Answer

The annual Federal Unemployment Tax Return is Form 940, which is used by employers to calculate and pay their annual federal unemployment tax liability. This tax is used to fund the federal unemployment insurance program, which provides temporary financial assistance to employees who have lost their jobs.

Question 12

Youngsong Martin, the founder of Wildflower Linen, realized that effectively managing payroll was crucial to the success of her business. If an employee of the company earns $50,500 per year, Wildflower Linen's total FICA payroll tax for this employee is:

Accepted Answer

50,500 x (.062 + .0145) = 3,863.25

Question 13

The amount of federal income taxes withheld from an employee's paycheck is determined by:

Accepted Answer

The amount of federal income taxes withheld from an employee's paycheck is determined by the employee's annual earnings rate and number of withholding allowances claimed on their W-4 form.

Question 14

The deferred income tax liability:

Accepted Answer

The deferred income tax liability represents income tax payments that are deferred until future years because of temporary differences between GAAP rules and tax accounting rules. It arises because of the difference between taxable income and financial accounting income, which can be either permanent or temporary depending on the nature of the difference. A deferred income tax asset may also be recognized if the temporary difference results in lower taxable income in future years.

Question 15

The FICA tax for social security is 6.2% and the FICA tax for Medicare is 1.45%. An employee's share of both FICA taxes was $3,901.50. Given that this employee did not exceed the FICA earnings limitation, compute gross pay.

Accepted Answer

3,901.50/(.062 + .0145) = 51,000

Question 16

An employee earned $47,000 during the year working for an employer. The FICA tax for social security is 6.2% and the FICA tax for Medicare is 1.45%. The employee's share of FICA taxes is:

Accepted Answer

To find the employee's share of FICA taxes, we need to add up the amounts for social security and Medicare.

For social security: 
$47,000 x 6.2% = $2,914

For Medicare: 
$47,000 x 1.45% = $682.50

Adding these two amounts together, we get: 
$2,914 + $682.50 = $3,596.50

Therefore, the employee's share of FICA taxes is $3,596.50, which is answer choice C.

Question 17

A company sold $12,000 worth of trampolines with an extended warranty. It estimates that 2% of these sales will result in warranty work. The company should:

Accepted Answer

According to the matching principle, expenses should be recognized in the same period as the associated revenue. In this case, the company sold the trampolines with the extended warranty in the same year, so it should also recognize the warranty expense and liability in the year of the sale. Option A is incorrect because even though the rate is only 2%, it is still an estimated expense that should be recognized. Option B is incorrect because it does not follow the matching principle. Option D is incorrect because a contingent liability is a potential liability that depends on the occurrence of a future event, whereas the warranty expense is a probable cost. Option E is incorrect because recognizing the warranty liability when the company purchases the trampolines would not match the expense with the revenue.

Question 18

Employees earn vacation pay at the rate of one day per month. During July, 25 employees qualify for one vacation day each. Their average daily wage is $100 per day. What is the amount of vacation benefit expense for the month of July?

Accepted Answer

The answer of Employees earn vacation pay at the rate...

Question 19

Maryland Company offers a bonus plan to its employees equal to 3% of net income. Maryland's net income is expected to be $960,000. The amount of the employee bonus expense is estimated to be

Accepted Answer

The answer of Maryland Company offers a bonus plan to...

Question 20

Employee vacation benefits:

Accepted Answer

Employee vacation benefits are estimated liabilities because the company has an obligation to pay for the vacation time earned by the employee, but the exact amount and timing of the payments are uncertain. These vacation benefits are typically accrued as an expense and recorded as a liability on the balance sheet. They are not contingent liabilities, which are potential liabilities that are dependent on a future event occurring or not occurring. Employee vacation benefits do not increase net income but rather decrease it when recorded as an expense. Lastly, they are not recorded as an expense when the employee takes a vacation or when they retire, but rather when the company accrues the estimated amount owed to the employee.

Quiz 9: Current Liabilities