Deck 11: Current Liabilities and Payroll Accounting

Question 1

Unearned revenues should be classified as Other Revenues and Gains on the Income Statement.

Answer 1

False

Question 2

Interest expense on a note payable is only recorded at maturity.

Answer 2

False

Question 3

Current maturities of long-term debt refers to the amount of interest on a note payable that must be paid in the current year.

Answer 3

False

Question 4

A company whose current liabilities exceed its current assets may have a liquidity problem.

Question 5

A $30,000, 8%, 9-month note payable requires an interest payment of $1,800 at maturity.

Question 6

Working capital is current assets divided by current liabilities.

Question 7

The relationship between current liabilities and current assets is important in evaluating a company's ability to pay off its long-term debt.

Question 8

Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.

Question 9

Notes payable are often used instead of accounts payable.

Question 10

A current liability must be paid out of current earnings.

Question 11

Interest expense is reported under Other Expenses and Losses in the income statement.

Question 12

During the month, a company sells goods for a total of $108,000, which includes sales taxes of $8,000; therefore, the company should recognize $100,000 in Sales Revenues and $8,000 in Sales Tax Expense.

Question 13

The current ratio permits analysts to compare the liquidity of different sized companies.

Question 14

Most notes are not interest bearing.

Question 15

Metropolitan Symphony sells 200 season tickets for $60,000 that represents a five concert season. The amount of Unearned Ticket Revenue after the second concert is $24,000.

Question 16

The higher the sales tax rate, the more profit a retailer can earn.

Question 17

With an interest-bearing note, the amount of cash received upon issuance of the note generally exceeds the note's face value.

Question 18

Contingent liabilities should be recorded in the accounts if there is a remote possibility that the contingency will actually occur.

Question 19

A note payable must always be paid before an account payable.

Question 20

Notes payable usually require the borrower to pay interest.

Question 21

Internal control over payroll is not necessary because employees will complain if they do not receive the correct amount on their payroll checks.

Question 22

A debt that is expected to be paid within one year through the creation of long-term debt is a current liability.

Question 23

Notes payable usually are issued to meet long-term financing needs.

Question 24

The timekeeping function includes supervisors monitoring hours worked through time cards and time reports.

Question 25

When a company gives employees rights to receive compensation for absences and the payment for such absences is probable and the amount can be reasonably estimated, the company should accrue a liability.

Question 26

FICA taxes are a voluntary deduction from employee earnings.

Question 27

The employer incurs a payroll tax expense equal to the amount withheld from the employees' wages for federal income taxes.

Question 28

FICA taxes withheld and federal income taxes withheld are mandatory payroll deductions.

Question 29

Payroll activities involve three functions: hiring employees, preparing the payroll, and paying the payroll.

Question 30

The human resources department documents and authorizes employment of new employees.

Question 31

Post-retirement benefits consist of payments by employers to retired employees for health care, life insurance, and pensions.

Question 32

FICA taxes are a deduction from employee earnings and are also imposed upon employers as an expense.

Question 33

All of the following are reported as current liabilities except

A) accounts payable.
B) bonds payable.
C) notes payable.
D) unearned revenues.

Question 34

The relationship between current liabilities and current assets is

A) useful in determining income.
B) useful in evaluating a company's liquidity.
C) called the matching principle.
D) useful in determining the amount of a company's long-term debt.

Question 35

FICA taxes and federal income taxes are levied on employees' earnings without limit.

Question 36

Current maturities of long-term debt are often identified as long-term debt due within one year on the balance sheet.

Question 37

In concept, the estimating of Warranty Expense when products are sold under warranty is similar to the estimating of Bad Debts Expense based on credit sales.

Question 38

A contingent liability is a liability that may occur if some future event takes place.

Question 39

The objectives of internal accounting control for payrolls are (a) to safeguard company assets from unauthorized payments of payrolls and (b) to assure accuracy and reliability of the accounting records pertaining to payroll.

Question 40

In a given year, total warranty expense is the sum of actual warranty costs incurred on units sold plus the estimated cost of servicing those units in the future.

Question 41

Admire County Bank agrees to lend Givens Brick Company $200,000 on January 1. Givens Brick Company signs a $200,000, 8%, 9-month note. What entry will Givens Brick Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30?

Question 42

The relationship of current assets to current liabilities is used in evaluating a company's

A) operating cycle.
B) revenue-producing ability.
C) short-term debt paying ability.
D) long-range solvency.

Question 43

Which of the following is usually not an accrued liability?

A) Interest payable
B) Wages payable
C) Taxes payable
D) Notes payable

Question 44

From a liquidity standpoint, it is more desirable for a company to have current

A) assets equal current liabilities.
B) liabilities exceed current assets.
C) assets exceed current liabilities.
D) liabilities exceed long-term liabilities.

Question 45

Interest expense on an interest-bearing note is

A) always equal to zero.
B) accrued over the life of the note.
C) only recorded at the time the note is issued.
D) only recorded at maturity when the note is paid.

Question 46

When an interest-bearing note matures, the balance in the Notes Payable account is

A) less than the total amount repaid by the borrower.
B) the difference between the maturity value of the note and the face value of the note.
C) equal to the total amount repaid by the borrower.
D) greater than the total amount repaid by the borrower.

Question 47

The entry to record the proceeds upon issuing an interest-bearing note is

A) Interest Expense Cash
Notes Payable
B) Cash Notes Payable
C) Notes Payable Cash
D) Cash Notes Payable
Interest Payable

Question 48

As interest is recorded on an interest-bearing note, the Interest Expense account is

A) increased; the Notes Payable account is increased.
B) increased; the Notes Payable account is decreased.
C) increased; the Interest Payable account is increased.
D) decreased; the Interest Payable account is increased.

Question 49

Most companies pay current liabilities

A) out of current assets.
B) by issuing interest-bearing notes payable.
C) by issuing stock.
D) by creating long-term liabilities.

Question 50

With an interest-bearing note, the amount of assets received upon issuance of the note is generally

A) equal to the note's face value.
B) greater than the note's face value.
C) less than the note's face value.
D) equal to the note's maturity value.

Question 51

A note payable is in the form of

A) a contingency that is reasonably likely to occur.
B) a written promissory note.
C) an oral agreement.
D) a standing agreement.

Question 52

Liabilities are classified on the balance sheet as current or

A) deferred.
B) unearned.
C) long-term.
D) accrued.

Question 53

In most companies, current liabilities are paid within

A) one year through the creation of other current liabilities.
B) the operating cycle through the creation of other current liabilities.
C) one year out of current assets.
D) the operating cycle out of current assets.

Question 54

The entry to record the payment of an interest-bearing note at maturity after all interest expense has been recognized is

Question 55

Admire County Bank agrees to lend Givens Brick Company $200,000 on January 1. Givens Brick Company signs a $200,000, 8%, 9-month note. The entry made by Givens Brick Company on January 1 to record the proceeds and issuance of the note is

Question 56

On October 1, Steve's Carpet Service borrows $250,000 from First National Bank on a 3-month, $250,000, 8% note. The entry by Steve's Carpet Service to record payment of the note and accrued interest on January 1 is

Question 57

On October 1, Steve's Carpet Service borrows $250,000 from First National Bank on a 3-month, $250,000, 8% note. What entry must Steve's Carpet Service make on December 31 before financial statements are prepared?

Question 58

Admire County Bank agrees to lend Givens Brick Company $200,000 on January 1. Givens Brick Company signs a $200,000, 8%, 9-month note. What is the adjusting entry required if Givens Brick Company prepares financial statements on June 30?

Question 59

A current liability is a debt that can reasonably be expected to be paid

A) within one year.
B) between 6 months and 18 months.
C) out of currently recognized revenues.
D) out of cash currently on hand.

Question 60

The entry to record the issuance of an interest-bearing note credits Notes Payable for the note's

A) maturity value.
B) market value.
C) face value.
D) cash realizable value.

Question 61

The interest charged on a $50,000 note payable, at the rate of 8%, on a 3-month note would be

A) $4,000.
B) $2,000.
C) $1,000.
D) $667.

Question 62

On October 1, 2010, Pennington Company issued a $40,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2011, the entry to record the payment of the note on July 1, 2011, will include a:

A) debit to Interest Expense of $1,000.
B) credit to Cash of $40,000
C) debit to Interest Payable of $3,000.
D) debit to Notes Payable of $43,000.

Question 63

A company receives $132, of which $12 is for sales tax. The journal entry to record the sale would include a

A) debit to Sales Tax Expense for $12.
B) credit to Sales Tax Payable for $12.
C) debit to Sales for $132.
D) debit to Cash for $120.

Question 64

On January 1, 2010, Howard Company, a calendar-year company, issued $600,000 of notes payable, of which $150,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2010, is

A) Current Liabilities, $600,000.
B) Long-term Debt, $600,000.
C) Current Liabilities, $300,000; Long-term Debt, $300,000.
D) Current Liabilities, $150,000; Long-term Debt, $450,000.

Question 65

Unearned Rental Revenue is

A) a contra account to Rental Revenue.
B) a revenue account.
C) reported as a current liability.
D) debited when rent is received in advance.

Question 66

Reliable Insurance Company collected a premium of $15,000 for a 1-year insurance policy on May 1. What amount should Reliable report as a current liability for Unearned Insurance Premiums at December 31?

A) $0.
B) $5,000.
C) $10,000.
D) $15,000.

Question 67

The interest charged on a $50,000 note payable, at the rate of 6%, on a 2-month note would be

A) $3,000.
B) $1,500.
C) $750.
D) $500.

Question 68

The interest charged on a $100,000 note payable, at the rate of 8%, on a 90-day note would be

A) $8,000.
B) $4,444.
C) $2,000.
D) $667.

Question 69

A cash register tape shows cash sales of $1,500 and sales taxes of $120. The journal entry to record this information is

Question 70

On September 1, Joe's Painting Service borrows $50,000 from National Bank on a 4-month, $50,000, 6% note. What entry must Joe's Painting Service make on December 31 before financial statements are prepared?

Question 71

On September 1, Joe's Painting Service borrows $50,000 from National Bank on a 4-month, $50,000, 6% note. The entry by Joe's Painting Service to record payment of the note and accrued interest on January 1 is

Question 72

A retail store credited the Sales account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales account amounted to $315,000, what is the amount of the sales taxes owed to the taxing agency?

A) $300,000
B) $315,000
C) $15,750
D) $15,000

Question 73

Sales taxes collected by a retailer are recorded by

A) crediting Sales Taxes Revenue.
B) debiting Sales Taxes Expense.
C) crediting Sales Taxes Payable.
D) debiting Sales Taxes Payable.

Question 74

On January 1, 2010, Donahue Company, a calendar-year company, issued $400,000 of notes payable, of which $100,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2010, is

A) Current Liabilities, $400,000.
B) Long-term Debt , $400,000.
C) Current Liabilities, $100,000; Long-term Debt, $300,000.
D) Current Liabilities, $300,000; Long-term Debt, $100,000.

Question 75

Crawford Company has total proceeds (before segregation of sales taxes) from sales of $4,770. If the sales tax is 6%, the amount to be credited to the account Sales is:

A) $4,770.
B) $4,484.
C) $5,056.
D) $4,500.

Question 76

On October 1, 2010, Pennington Company issued a $40,000, 10%, nine-month interest-bearing note. If the Pennington Company is preparing financial statements at December 31, 2010, the adjusting entry for accrued interest will include a:

A) credit to Notes Payable of $1,000.
B) debit to Interest Expense of $1,000
C) credit to Interest Payable of $2,000.
D) debit to Interest Expense of $1,500.

Question 77

Sales taxes collected by the retailer are recorded as a(n)

A) revenue.
B) liability.
C) expense.
D) asset.

Question 78

Ed's Bookstore has collected $750 in sales taxes during April. If sales taxes must be remitted to the state government monthly, what entry will Ed's Bookstore make to show the April remittance?

Question 79

The interest charged on a $100,000 note payable, at the rate of 6%, on a 60-day note would be

A) $6,000.
B) $3,333.
C) $1,500.
D) $1,000.

Question 80

A company receives $174, of which $14 is for sales tax. The journal entry to record the sale would include a
A debit to Sales Tax Expense for $14.
B) debit to Sales Tax Payable for $14.
C) debit to Sales for $174.
D) debit to Cash for $174.