Question 1

If an employer offers a bonus to its employees equal to 5% of the company's annual net income, and the expected annual pre-bonus net income is $320,000, what bonus amount should be used in the year-end adjusting entry to record this benefit (rounded to the nearest whole dollar)?
A)$16,800.
B)$16,000.
C)$15,238.
D)$15,200.
E)$14.476.

Accepted Answer

The bonus is calculated as 5% of the net income after the bonus. Let x be the bonus amount. Then, the equation is x = 0.05 * ($320,000 - x). Solving for x gives x = $15,238.

Question 2

Classify each of the following items as either:
A.Estimated liability
B.Contingent liability
C.Known liability

Accepted Answer

The answer of Classify each of the following items as...

Question 3

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?
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 answer of On September 1, Knack Company signed a...

Question 4

Freedom Air collected $165,000 in February for charter flights booked for March and April and properly recorded the amount collected as Unearned Charter Revenue. The flights provided during March earned revenue of $83,400. The correct entry to record the revenue earned in March is:
A)Debit Cash $83,400; credit Flight Revenue $83,400.
B)Debit Unearned Charter Revenue $83,400; credit Flight Revenue $83,400.
C)Debit Unearned Charter Revenue $165,000; credit Flight Revenue $165,000.
D)Debit Flight Revenue $81,600; credit Accounts Receivable 81,600.
E)Debit Unearned Charter Revenue $83,400; credit Accounts Receivable $83,400.

Accepted Answer

The $165,000 collected in February had been recorded as Unearned Charter Revenue, which means that it was not yet earned. As the flights were carried out in March, a portion of the revenue would have been earned. 
Therefore, the correct entry to record the revenue earned in March would be to debit the Unearned Charter Revenue account for the amount of revenue earned ($83,400) and credit the Flight Revenue account for the same amount. This entry reduces the unearned balance recorded in February and recognizes the revenue earned in March.

Question 5

Classify each of the following items as either:
A.Current liability
B.Long-term liability
C.Not a liability

Accepted Answer

The answer of Classify each of the following items as...

Question 6

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 7

If a company has advance subscription sales totaling $45,000 for four quarterly journals that will mailed to customers in the upcoming year, 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 company has received cash in advance for the subscription sales, so the entry should reflect this as a liability, "unearned revenue", until the company actually delivers the journals to the customers. Therefore, the entry should be to debit cash and credit unearned revenue.

Question 8

Coastal Oil has three pending legal cases against it for environmental damages due to a recent spill. The company's legal counsel has determined that it is probable the company will lose a suit by the state for $8,000,000 to cover cleanup costs. It advises that there is a remote chance of losing a claim by a neighborhood association for $1,000,000 due to emotional distress over the condition of the coastline. The third claim of $500,000 for health issues arising from suspected water contamination is considered reasonably possible to be won by the claimants. The amount that Costal should record in its accounting records related to these suits is:
A)$8,000,000.
B)$8,500,000.
C)$9,000,000.
D)$9,500,000.
E)$0.

Accepted Answer

Coastal Oil should record a liability for the probable loss of $8,000,000 related to the cleanup costs, as it is probable and can be reasonably estimated. The other claims are either remote or reasonably possible, which do not require recognition in the financial statements.

Question 9

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

When a company replaces an account payable with a note payable, the journal entry would be to debit Accounts Payable and to credit Notes Payable. Therefore, the correct journal entry in this case is Debit Accounts Payable $24,000; credit Notes Payable $24,000. There are no other accounts involved in this transaction, so choices A, C, D, and E can be eliminated.

Question 10

Zephyr Company's salaried employees earn four weeks of vacation per year. It pays $1,075,200 in total employee salaries for 52 weeks but its employees work only 48 weeks. The amount Zephyr should record as its weekly vacation expense is (round to the nearest whole dollar):
A)$82,708.
B)$22,400.
C)$1,733.
D)$5,169.
E)$1,292.

Accepted Answer

To calculate the weekly vacation expense, we need to first find the total cost of one week's employee salaries:

Total employee salaries / number of weeks worked = $1,075,200 / 48 = $22,400

Next, we need to find the cost of four weeks of vacation for each employee:

$22,400 / 48 weeks = $466.67 per week of vacation

Finally, we need to multiply the cost of one week of vacation per employee by the total number of employees and number of vacation weeks:

$466.67 x (salaried employees x 4 weeks) = $7,467.52

Rounding to the nearest whole dollar gives us an answer of $1,733. Therefore, the correct answer is C.

Question 11

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 12

A company has advance subscription sales totaling $45,000 for four quarterly journals that will mailed to customers in the upcoming year. 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

The company should recognize revenue for the portion of the subscription that has been earned. Since one out of four journals has been delivered, $11,250 of the $45,000 unearned revenue should be recognized as earned revenue.

Question 13

Loong Industries collected $17,350 of sales tax on sales to customers during the month of March. When Loong remits these collections to the government in early April, the correct journal entry will be:
A)Debit Sales $17,350; credit Cash $17,350.
B)Debit Accounts Payable $17,350; credit Cash $17,350.
C)Debit Sales $17,350; credit Sales Taxes Payable $17,350.
D)Debit Sales Taxes Payable $17,350; credit Sales $17,350.
E)Debit Sales Taxes Payable $17,350; credit Cash $17,350.

Accepted Answer

The correct entry is to debit Sales Taxes Payable to decrease the liability and credit Cash to reflect the payment made to the government.

Question 14

During June, Vixen Fur 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 answer of During June, Vixen Fur Company sells $850,000...

Question 15

Victory Auto Sales, a used car dealership, offers a one-year or 12,000 mile warranty covering parts on all vehicles it sells. The dealer's experience shows that warranty expense averages about 3% of a car's selling price. During July, Victory sold 7 cars for a total of $105,000. The entry to record the estimated expense and liability related to its July sales is:
A)Debit Warranty Expense $3,150; credit Sales $3,150.
B)Debit Warranty Expense $3,150; credit Estimated Warranty Liability $3,150.
C)Debit Sales $450; credit Estimated Warranty Liability $450.
D)Debit Warranty Expense $450; credit Estimated Warranty Liability $450.
E)Debit Sales Returns and Allowances $22,050; credit Parts Inventory $22,050.

Accepted Answer

According to the question, Victory Auto Sales offers a one-year or 12,000 mile warranty covering parts on all vehicles it sells, and the warranty expense averages about 3% of a car's selling price. Therefore, the estimated expense and liability related to its July sales would be 3% of $105,000, which is $3,150. The entry to record this would be to Debit Warranty Expense for $3,150 and credit Estimated Warranty Liability for $3,150. Therefore, the best choice is B. The other options are incorrect because they do not reflect the correct accounting treatment for the warranty expense and liability.

Question 16

Loong Industries sells materials on March 16 for $12,000 cash, subject to 8% sales tax. The cost of the materials sold is $5,700. The revenue portion of the transaction is recorded as:
A)Debit Cash $12,000; credit Sales Taxes Payable $960; credit Sales $11,040.
B)Debit Accounts Receivable $12,960; credit Sales $12,000; credit Sales Taxes Payable $960.
C)Debit Cash $12,960; credit Sales $12,000; credit Sales Taxes Payable $960.
D)Debit Sales $12,960; credit Cash $12,000; credit Sales Taxes Payable $960.
E)Debit Cash $12,960; credit Sales $12,960.

Accepted Answer

The total cash received is $12,960, which includes the sales amount of $12,000 and the sales tax of $960 (8% of $12,000). Therefore, Cash is debited for $12,960, Sales is credited for $12,000, and Sales Taxes Payable is credited for $960.

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

Jones Pharmacy agreed to pay $2,000 monthly for employee medical insurance and contribute 12% of employees' gross salaries to a retirement program. If gross salaries of employees in August were $37,000, the entry to record these accrued benefits will include a:
A)Debit to Employee Benefits Expense of $43,440.
B)Debit to Employee Medical Insurance Payable of $2,000.
C)Credit to Employee Retirement Program Payable of $6,440.
D)Debit to Employee Benefits Expense of $6,440.
E)Credit to Employee Retirement Program Payable of $41,440.

Accepted Answer

To record the accrued benefits, we need to debit the expense accounts and credit the payable accounts.

The amount to be accrued for employee medical insurance is already known, which is $2,000. So we need to debit Employee Benefits Expense for that amount, and credit Employee Medical Insurance Payable.

For employee retirement program, we need to calculate the amount to be accrued using the given percentage (12%) of gross salaries.

12% of $37,000 is:

12/100 * 37,000 = $4,440

So we need to debit Employee Benefits Expense for $4,440, and credit Employee Retirement Program Payable for that amount.

Therefore, the entry to record these accrued benefits will be:

Debit Employee Benefits Expense $6,440 
   Credit Employee Medical Insurance Payable $2,000 
   Credit Employee Retirement Program Payable $4,440

Question 19

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, the company's year-end, on the note?
A)$0
B)$80
C)$320
D)$960
E)$160

Accepted Answer

The interest expense is calculated using the formula: Principal x Rate x Time. Here, the principal is $24,000, the annual interest rate is 4%, and the time is 30/360 (since December 31 is 30 days from December 1). Thus, the interest expense is $24,000 x 0.04 x (30/360) = $80.

Question 20

Gladstone Company liabilities include $13,500 of accounts payable, $8,000 of wages payable, $6,300 of unearned revenue, $32,000 note payable due in 18 months, $70,000 of 10-year bonds payable, and $41,000 of taxes payable. Gladstone's current liabilities equal:
A)$59,800
B)$68,800
C)$60,800
D)$62,500
E)$100,800

Accepted Answer

Current liabilities include accounts payable, wages payable, unearned revenue, and taxes payable. Adding these: $13,500 + $8,000 + $6,300 + $41,000 = $68,800.

Quiz 9: Reporting and Analyzing Current Liabilities

If an employer offers a bonus to its employees equal to 5% of the company's annual net income, and the expected annual pre-bonus net income is $320,000, what bonus amount should be used in the year-end adjusting entry to record this benefit (rounded to the nearest whole dollar) ?

Classify each of the following items as either: A.Estimated liability B.Contingent liability C.Known liability

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?

Freedom Air collected $165,000 in February for charter flights booked for March and April and properly recorded the amount collected as Unearned Charter Revenue. The flights provided during March earned revenue of $83,400. The correct entry to record the revenue earned in March is:

Classify each of the following items as either: A.Current liability B.Long-term liability C.Not a liability

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

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

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?

Zephyr Company's salaried employees earn four weeks of vacation per year. It pays $1,075,200 in total employee salaries for 52 weeks but its employees work only 48 weeks. The amount Zephyr should record as its weekly vacation expense is (round to the nearest whole dollar) :

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 four quarterly journals that will mailed to customers in the upcoming year. When the company mails the first quarterly journal to customers, it should record:

Loong Industries collected $17,350 of sales tax on sales to customers during the month of March. When Loong remits these collections to the government in early April, the correct journal entry will be:

Loong Industries sells materials on March 16 for $12,000 cash, subject to 8% sales tax. The cost of the materials sold is $5,700. The revenue portion of the transaction is recorded as:

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:

Jones Pharmacy agreed to pay $2,000 monthly for employee medical insurance and contribute 12% of employees' gross salaries to a retirement program. If gross salaries of employees in August were $37,000, the entry to record these accrued benefits will include a:

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, the company's year-end, on the note?

Gladstone Company liabilities include $13,500 of accounts payable, $8,000 of wages payable, $6,300 of unearned revenue, $32,000 note payable due in 18 months, $70,000 of 10-year bonds payable, and $41,000 of taxes payable. Gladstone's current liabilities equal: