Question 1

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is Homer's gross pay?

Accepted Answer

To calculate Homer's gross pay, we need to add back the taxes that were withheld from his paycheck.

First, let's find out how much was withheld for federal income tax:

$5,000 x 0.15 = $750

Next, let's find out how much was withheld for FICA and Medicare taxes:

($5,000 x 0.062) + ($5,000 x 0.0145) = $341

Now we can add back the total amount of taxes withheld:

$5,000 + $750 + $341 = $6,091

Therefore, Homer's gross pay was $6,091. However, this isn't one of the answer choices. The closest answer is A, $5,000, which was Homer's original salary before taxes were withheld. So we choose A as the best answer.

Question 2

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is Bob's gross pay?

Accepted Answer

Gross pay is the amount earned before any deductions are taken out. Therefore, Bob's gross pay is $1,000.

Question 3

ABC Company borrows $15,000 from a local bank for six months at 9% annual interest.Which statement below is TRUE?

Accepted Answer

The loan has a specific amount borrowed, a specific interest rate, and a specific timeline for repayment, making it a definitely determinable liability. It is not a long-term liability because it has a repayment timeline of only six months. It is not an estimated liability because the terms of the loan are clear and specific. Interest expense of $225 per month is not accurate as it would depend on the repayment schedule, which is not provided in the question.

Question 4

How are liabilities classified on the balance sheet?

Accepted Answer

Liabilities are typically classified into two categories on the balance sheet: current liabilities and long-term liabilities. Current liabilities are obligations that must be paid within one year or within the normal operating cycle of the business, whichever is longer. Long-term liabilities are obligations that are due more than one year in the future. This classification helps investors and creditors understand a company's short-term and long-term debt obligations.

Question 5

Current liabilities are liabilities that ________.

Accepted Answer

Current liabilities are liabilities that are expected to be settled within one year or the normal operating cycle of the business, whichever is longer. Therefore, choice D is the correct answer. Choices A and C are incorrect because current liabilities may not have a definite amount and may not necessarily be satisfied within two years. Choice B is incorrect because current liabilities may be paid from any source, not just revenues.

Question 6

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much cash will Springfield Power pay the government for Medicare tax because of Homer's December earnings?

Accepted Answer

The Medicare tax is calculated as 1.45% of Homer's earnings. Therefore, $5,000 * 1.45% = $72.50. However, since Medicare tax is paid both by the employee and the employer at the same rate, the total amount paid to the government for Medicare tax by Springfield Power would be $72.50 (employee's share) + $72.50 (employer's share) = $145.

Question 7

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much payroll tax expense for Bob's December salary will be reported on Scrooge & Marley's income statement for the year ended December 31,2010?

Accepted Answer

Federal income tax withholding: $1,000 x 10% = $100FICA tax: $1,000 x 6.2% = $62Medicare tax: $1,000 x 1.45% = $14.50Total payroll tax expense: $100 + $62 + $14.50 = $176.50

Question 8

Definitely determinable liabilities are ________.

Accepted Answer

Definitely determinable liabilities are obligations of an exact amount, meaning that the exact amount owed is known and can be measured with certainty. Examples include accounts payable, notes payable, and salaries payable.

Question 9

Beau Brentley earned $60,000 from his job at Bridgestone Tires.He had 15% of his gross pay withheld for federal income taxes,6.2% withheld for FICA Social Security taxes,and 1.45% withheld for Medicare taxes.What was Beau's net pay?

Accepted Answer

To find Beau's net pay, we need to subtract the total amount withheld for taxes from his gross pay:

Amount withheld for federal income taxes: 0.15 x $60,000 = $9,000 
Amount withheld for FICA Social Security taxes: 0.062 x $60,000 = $3,720 
Amount withheld for Medicare taxes: 0.0145 x $60,000 = $870

Total amount withheld for taxes: $9,000 + $3,720 + $870 = $13,590

Net pay = Gross pay - Total amount withheld for taxes 
Net pay = $60,000 - $13,590 = $46,410

Therefore, the correct answer is B) $46,410.

Question 10

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much cash will Springfield Power pay the government for FICA because of Homer's December earnings?

Accepted Answer

The FICA tax rate is 6.2%. To find the amount paid for FICA, multiply Homer's earnings by the FICA rate: $5,000 * 6.2% = $310. However, since the question asks how much Springfield Power will pay the government for FICA, and FICA includes both the employee and employer portions (each pays 6.2%), the total amount paid to the government for FICA is $310 (employee portion) + $310 (employer portion) = $620.

Question 11

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is Homer's net pay?

Accepted Answer

First, we need to calculate federal income tax withholding:
$5,000 * 0.15 = $750

Next, we need to calculate FICA and Medicare taxes:
$5,000 * 0.062 = $310 (FICA)
$5,000 * 0.0145 = $72.50 (Medicare)

Now we can subtract these taxes from Homer's gross pay:
$5,000 - $750 - $310 - $72.50 = $3,867.50

Therefore, the correct answer is D.

Question 12

Estimated liabilities are ________.

Accepted Answer

Estimated liabilities are obligations of an uncertain amount, such as warranties, tax liabilities, or legal claims. They may be either current or long-term liabilities depending on when they are due for payment. Therefore, neither option C nor option D is correct. Option A is incorrect because estimated liabilities may not necessarily be of an exact amount.

Question 13

Beau Brentley earned $60,000 in 2011 from his job at Bridgestone Tires.He had 15% of his gross pay withheld for federal income taxes,6.2% withheld for FICA Social Security taxes,and 1.45% withheld for Medicare taxes.What amount will Bridgestone Tires report as salary expense for 2011?

Accepted Answer

The salary expense reported by Bridgestone Tires for Beau Brentley would be his gross pay of $60,000, as withholdings for taxes are deductions from the employee's gross income and do not affect the employer's reported salary expense.

Question 14

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much of Homer's December salary will be included in Salary expense on Springfield Power's income statement for the year ended December 31,2011?

Accepted Answer

Salary expense on the income statement includes the gross pay before any deductions. Homer's gross pay is $5,000, so the entire amount is included in the salary expense. Deductions for taxes do not reduce the salary expense reported by the employer.

Question 15

Which of the following is NOT a definitely determinable liability?

Accepted Answer

Accumulated depreciation is not a liability, it is a contra-asset account used to offset the cost of the asset on the balance sheet. The other three options are all definitely determinable liabilities because they represent amounts that are owed and can be accurately calculated.

Question 16

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much of Bob's December salary will be included in Salary expense on Scrooge & Marley's income statement for the year ended December 31,2010?

Accepted Answer

Salary expense on an income statement includes the gross pay before any deductions. Bob earned $1,000, so the full amount is included in the Salary expense. Deductions for taxes do not affect the salary expense reported by the employer.

Question 17

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much payroll tax expense will Springfield Power record when it pays these taxes?

Accepted Answer

The answer of In December 2011,Homer Simpson worked for Springfield...

Question 18

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is Bob's net pay?

Accepted Answer

Bob's gross pay is $1,000. Federal income tax withholding is 10%, so he pays $100 in federal income tax. The FICA rate is 6.2%, so he pays $62 in FICA tax. The Medicare tax is 1.45%, so he pays $14.50 in Medicare tax. His total deductions are $176.50, so his net pay is $823.50.

Question 19

Liabilities are ________.

Accepted Answer

Liabilities are recorded even if the exact amount is not known, as long as it is probable that the obligation exists and the amount is estimable. Liabilities are not just recorded in the period they are due, but rather are recognized as soon as they are incurred.

Question 20

Beau Brentley earned $60,000 in 2011 from his job at Bridgestone Tires.He had 15% of his gross pay withheld for federal income taxes,6.2% withheld for FICA Social Security taxes,and 1.45% withheld for Medicare taxes.What amount will Bridgestone Tires report as payroll tax expense when it pays these taxes?

Accepted Answer

The payroll tax expense for Bridgestone Tires includes only the employer's portion of FICA Social Security taxes (6.2%) and Medicare taxes (1.45%), which are matched by the employer. Federal income taxes withheld from the employee's gross pay are not an employer expense. Therefore, the calculation is: $60,000 * (6.2% + 1.45%) = $60,000 * 7.65% = $4,590.

Quiz 7: Accounting for Liabilities