Question 1

The amount of federal income taxes withheld from an employee's gross pay is recorded as a (n)

Accepted Answer

The federal income taxes withheld from an employee's gross pay are liabilities because they are amounts that are owed to the federal government on behalf of the employee. The employer is responsible for withholding these taxes from the employee's pay and remitting them to the government, but until they are remitted, they are a liability on the employer's books.

Question 2

Proper payroll accounting methods are important for a business for all of the following reasons except

Accepted Answer

Delaying payroll taxes to federal and state agencies is not a proper accounting method and can lead to legal and financial consequences for the business. Proper payroll accounting methods are necessary for all of the other reasons listed, including maintaining good employee morale, complying with regulations, and accurately reflecting the impact of payroll on a business's net income.

Question 3

The journal entry used to record the issuance of an interest-bearing note for the purpose of borrowing funds for the business is

Accepted Answer

When a business issues an interest-bearing note to borrow funds, it receives cash, so Cash (an asset) is debited. Notes Payable (a liability) is credited because the business now owes this amount. The interest expense is not recorded at the time of borrowing but rather over the period the note is outstanding.

Question 4

Which of the following taxes would be deducted in determining an employee's net pay?

Accepted Answer

Only FICA taxes would be deducted in determining an employee's net pay. FUTA and SUTA taxes are employer-paid taxes and do not affect the employee's net pay.

Question 5

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

Accepted Answer

A current liability is a debt that is expected to be paid within one year from the date of the balance sheet or within the company's operating cycle, whichever is longer. Option A is partially correct as some current liabilities may be due within 6 months, while option B is not accurate as the payment of current liabilities does not necessarily depend on recognized revenues. Option D is not true as a company may need to raise additional cash by borrowing or other means to pay its current liabilities.

Question 6

On January 5, Thomas Company, which follows a calendar year, issued $1,000,000 of notes payable, of which $250,000 is due on January 1 each of the next four years. The proper balance sheet presentation on December 31 is

Accepted Answer

The portion of the notes payable that is due within one year (i.e. $250,000) should be classified as current liabilities on the balance sheet. The remaining portion ($750,000) should be classified as long-term debt. Therefore, the proper balance sheet presentation on December 31 is Current liabilities, $250,000; Long-term debt, $750,000.

Question 7

The current portion of long-term debt should

Accepted Answer

The current portion of long-term debt represents the amount of a company's long-term debt that is due within the next 12 months. Therefore, it should be reclassified as a current liability in a company's balance sheet.

Question 8

The journal entry used to record the payment of a discounted note is

Accepted Answer

Notes Payable is debited to remove the liability, and Cash is credited to record the payment.

Question 9

Which of the following taxes are employers required to withhold from employees?

Accepted Answer

Employers are required to withhold FICA tax (Federal Insurance Contributions Act tax) from employees' paychecks, which includes Social Security and Medicare taxes. State and federal unemployment taxes are paid by the employer and are not withheld from employees' wages.

Question 10

Assuming a 360-day year, when a $20,000, 90-day, 5% interest-bearing note payable matures, total payment will be

Accepted Answer

The interest on the note can be calculated using the simple interest formula:

Interest = Principal x Rate x Time
where Principal is $20,000, Rate is 5% per year, and Time is 90/360 years (since it's a 90-day note and there are 360 days in a year).

Interest = $20,000 x 0.05 x (90/360) = $250

Therefore, the total payment at maturity will be the sum of the principal and the interest:

Total payment = Principal + Interest = $20,000 + $250 = $20,250

Hence, the answer is option C.

Question 11

Which of the following is not a determinant in calculating federal income taxes withheld from an individual's pay?

Accepted Answer

Type of earnings generally refers to the nature of the income (e.g., salary, bonuses, dividends), but the specific type of earnings is not a direct determinant in the calculation of federal income taxes withheld from an individual's pay. The withholding is primarily determined by filing status, gross pay, and the number of exemptions or allowances claimed, which directly affect the amount of income that is subject to withholding.

Question 12

Which of the following would most likely be classified as a current liability?

Accepted Answer

Unearned rent is a liability that arises when a tenant pays rent in advance. It is considered a current liability because it is expected to be earned within a year. The other options, such as a two-year note payable, bond payable, and mortgage payable, are long-term liabilities that do not need to be paid off within a year.

Question 13

Current liabilities are

Accepted Answer

Current liabilities are defined as obligations that are due and expected to be paid within one year or within the company's normal operating cycle, whichever is longer. These obligations are typically paid out of the company's current assets, such as cash or inventory. Therefore, choice B is the best answer as it accurately reflects the definition of current liabilities.

Question 14

The journal entry used to record the issuance of a discounted note for the purpose of borrowing funds for the business is

Accepted Answer

When a discounted note is issued for borrowing purposes, the business receives cash (debit Cash) and recognizes the cost of borrowing (interest expense) upfront (debit Interest Expense). The liability for the note is recorded by crediting Notes Payable.

Question 15

The journal entry to record the issuance of a note for the purpose of converting an existing account payable would be

Accepted Answer

The correct journal entry for converting an account payable into a note payable involves debiting (decreasing) Accounts Payable to remove the liability under accounts payable and crediting (increasing) Notes Payable to record the new liability under a formal note agreement. This reflects the change in the type of liability without affecting cash.

Question 16

The journal entry to record the conversion of a $6,300 account payable to a note payable would be​

Accepted Answer

The answer of The journal entry to record the conversion...

Question 17

Which of the following would be used to compute the federal income taxes to be withheld from an employee's earnings?

Accepted Answer

The wage bracket and withholding table would be used to compute the federal income taxes to be withheld from an employee's earnings. The FICA tax rate is used to calculate Social Security and Medicare taxes, the wage and tax statement (or W-2 form) reports an employee's income and taxes paid over the course of a year, and the FUTA tax rate is used to calculate federal unemployment taxes.

Question 18

The journal entry to record the payment of an interest-bearing note is

Accepted Answer

When a payment is made for an interest-bearing note, both the principal amount and the interest amount need to be recorded. Therefore, we should debit both the Notes Payable and Interest Expense accounts. Cash should be credited since it is being paid out. Option A is incorrect because it only records the principal amount. Option B is incorrect because it refers to accounts payable instead of notes payable. Option D is incorrect because it records interest receivable instead of interest expense.

Question 19

Taylor Bank lends Guarantee Company $150,000 on January 1. Guarantee Company signs a $150,000, 8%, nine-month note. The entry made by Guarantee Company on January 1 to record the proceeds and issuance of the note is​

Accepted Answer

The answer of Taylor Bank lends Guarantee Company $150,000 on...

Question 20

Chang Co. issued a $50,000, 120-day, discounted note to Guarantee Bank. The discount rate is 6%. Assuming a 360-day year, the cash proceeds to Chang Co. are

Accepted Answer

The cash proceeds can be calculated using the formula for the discount: Proceeds = Face Value - (Face Value * Discount Rate * (Time/360)). Here, it's $50,000 - ($50,000 * 6% * (120/360)) = $50,000 - $1,000 = $49,000.

Quiz 11: Current Liabilities and Payroll