Question 1

Estimated liabilities commonly arise from:

Accepted Answer

Estimated liabilities can arise from a variety of sources, including warranties, vacation benefits, income taxes, and employee benefits. Therefore, all of these choices are correct.

Question 2

All of the following statements regarding long-term liabilities are True except?

Accepted Answer

Liabilities that do not have a fixed due date, but are payable on demand, are reported as current liabilities, not long-term liabilities.

Question 3

The wage bracket withholding table is used to:

Accepted Answer

The wage bracket withholding table is used to compute federal income tax withholding.

Question 4

On March 17, Grady Company agrees to accept a 60-day, 10%, $4,500 note from Alert Company to extend the due date on an overdue account. What is the journal entry needed to record the transaction by Alert Company?

Accepted Answer

Alert Company is the one issuing the note, so they would debit Accounts Payable (decreasing their liability) and credit Notes Payable (increasing their liability). The other options are not accurate for this transaction.

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 entry to record the estimated warranty expense is to debit Warranty Expense and credit Estimated Warranty Liability. This is because the company is estimating what they will need to pay out in future warranty claims, and they need to record this liability on their balance sheet. Option A is incorrect because it is debiting sales, which is not relevant to the warranty expense. Option C is also incorrect because it reverses the debit and credit accounts. Option D is incorrect because cash is not involved in recording the estimated warranty expense. Option E is incorrect because the company needs to record the estimated warranty liability even if the items have not yet been returned for warranty repairs.

Question 6

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 accrual accounting principle, expenses should be recognized in the period in which they are incurred. In this case, the warranty is being sold as part of the product, and the expense of the warranty work should be recognized in the same period. Therefore, the company should recognize the warranty expense and liability in the year of the sale. This approach matches the principle of matching expenses with revenues, as the company can estimate the cost of the warranty work based on the sales made during the year.

Question 7

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 at an average cost of $150 each. During November, the company sold 30,000 computers, and 400 computers were serviced under the warranty 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

The answer of A company sells computers at a selling...

Question 8

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. The liability arises when taxable income is greater than financial accounting income, resulting in deferred taxes payable in the future.

Question 9

An employee earns $5,500 per month working for an employer. The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The current FUTA tax rate is 0.8%, and the SUTA tax rate is 4.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The employee has $182 in federal income taxes withheld. The employee has voluntary deductions for health insurance of $150 and contributes $75 to a retirement plan each month. What is the amount of net pay for the employee for the month of January?

Accepted Answer

The answer of An employee earns $5,500 per month working...

Question 10

A table that shows the amount of federal income tax to be withheld from an employee's pay is the:

Accepted Answer

The Wage Bracket Withholding Table is used to determine the amount of federal income tax to withhold from an employee's pay based on their earnings and tax status.

Question 11

An employee earns $5,500 per month working for an employer. The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The current FUTA tax rate is 0.8%, and the SUTA tax rate is 4.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The employee has $182 in federal income taxes withheld. The employee has voluntary deductions for health insurance of $150 and contributes $75 to a retirement plan each month. What is the amount the employer should record as payroll taxes expense for the employee for the month of January?

Accepted Answer

The answer of An employee earns $5,500 per month working...

Question 12

Employee vacation benefits:

Accepted Answer

Employee vacation benefits are estimated liabilities because they represent future obligations that the company has to its employees. The company estimates the amount of vacation benefits that employees will earn and records this as a liability on the balance sheet. As employees take their vacations, the liability is reduced and an expense is recorded for the amount of the vacation taken. Therefore, vacation benefits are not contingent liabilities, are not recorded as an expense when an employee retires, do not increase net income, and are only recorded as an expense when the employee takes a vacation.

Question 13

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 to be recorded for the month of July?

Accepted Answer

Since each employee has earned 1 vacation day, there were 25 vacation days earned in total for July. Each vacation day is worth $100 (the average daily wage). Therefore, the vacation benefit expense for July is 25 days x $100 per day = $2,500.

Question 14

All of the following statements regarding FICA taxes are True except:

Accepted Answer

This statement is False. A self-employed person is not exempt from FICA taxes; however, they are responsible for both the employee and employer portions of FICA taxes.

Question 15

On March 17, Grady Company agrees to accept a 60-day, 10%, $4,500 note from Alert Company to extend the due date on an overdue account. What is the journal entry needed to record the payment of the note by Alert Company on the maturity date?

Accepted Answer

The answer of On March 17, Grady Company agrees to...

Question 16

Harvel Company is required by law to collect and remit sales taxes to the state. If Havel has $8,000 of cash sales that are subject to an 8% sales tax, what is the journal entry to record the cash sales?

Accepted Answer

The correct journal entry to record cash sales that include sales tax is to debit Cash for the total amount received (sales plus sales tax), credit Sales for the amount of the sales before tax, and credit Sales Taxes Payable for the amount of the sales tax collected. In this case, the total cash received is $8,000 plus 8% of $8,000 ($640), which equals $8,640. Therefore, Cash is debited for $8,640, Sales is credited for $8,000, and Sales Taxes Payable is credited for $640.

Question 17

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 18

A special bank account used solely for the purpose of paying employees, by depositing in the account each pay period an amount equal to the total employees' net pay and drawing the employees' payroll checks on the account, is a(n):

Accepted Answer

The description matches that of a payroll bank account, as it is used solely for paying employees and has funds deposited equal to the net pay of each employee before payroll checks are drawn on the account. The other options are not relevant to this specific context.

Question 19

If a company uses a special payroll bank account:

Accepted Answer

When a company uses a special payroll bank account, they still need to issue paychecks or electronic transfers to employees. However, instead of drawing separate checks from the regular bank account for each employee, the company draws one check for the entire payroll and deposits it in the payroll bank account. This helps to simplify the payroll process and streamline record-keeping. There is no requirement to use a federal depository bank for the payroll bank account and the company still needs to maintain a payroll register and issue W-2's as required by law.

Question 20

A payroll register includes:

Accepted Answer

A payroll register includes all of these items, including pay period dates, hours worked, gross pay and net pay, and deductions. It is a record of all the payroll transactions processed by a company for a specific period of time.

Quiz 11: Current Liabilities and Payroll Accounting