Question 1

An estimated liability:

Accepted Answer

An estimated liability is a known obligation, but the exact amount cannot be determined with certainty. It can be reasonably estimated based on available information.

Question 2

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

According to the information provided, the company estimates warranty expense to be 4% of sales, which means that the warranty expense for the current period will be $185,000 x 4% = $7,400.

The entry to record this expense should be a debit to Warranty Expense for $7,400 and a credit to Estimated Warranty Liability for $7,400. This is because the company is estimating the amount it will need to pay out in warranty claims in the future. By recording the expense in Estimated Warranty Liability, the company is setting aside funds to cover any future claims that may arise.

Question 3

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

25 employees qualify for one vacation day each, so 25 vacation days are earned in July.

The average daily wage is $100 per day, so the total vacation benefit expense is:

25 vacation days x $100 average daily wage = $2,500

Therefore, the answer is choice D.

Question 4

The deferred income tax liability:

Accepted Answer

The deferred income tax liability represents the income tax payments that are deferred until future years due to temporary differences between GAAP rules and tax accounting rules. These temporary differences will ultimately reverse in the future, resulting in taxable income being greater than financial accounting income.

Question 5

Employee vacation benefits:

Accepted Answer

Employee vacation benefits are estimated liabilities, which means they are recorded on the balance sheet as an obligation owed by the company to its employees. They are not recorded as an expense until the employee takes a vacation, at which point they become an actual liability and are expensed. Employee vacation benefits do not increase net income; they decrease it by increasing expenses.

Question 6

The wage bracket withholding table is used to:

Accepted Answer

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

Question 7

Estimated liabilities commonly arise from:

Accepted Answer

Estimated liabilities can arise from all of the options listed. Warranties, vacation benefits, income taxes, and employee benefits are all examples of potential financial obligations a company may face, and therefore must estimate and report as liabilities on their financial statements.

Question 8

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 bonus expense is 3% of net income, which is $960,000 x 0.03 = $28,800.

Question 9

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 correct answer is A because on the maturity date, the company will receive the payment of the note, which includes both the principal amount of $4,500 and the interest expense of $75. The journal entry to record this transaction would be to debit Notes Payable for $4,500, debit Interest Expense for $75, and credit Cash for $4,575.

Question 10

A payroll register includes:

Accepted Answer

A payroll register typically includes pay period dates, hours worked, gross pay and net pay, and deductions. Therefore, all of these options are the best choice for a payroll register.

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 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 12

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 13

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

Accepted Answer

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

Question 14

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 special bank account described in the question is commonly known as a payroll bank account. This account is solely dedicated to paying employees' wages, by depositing the net pay amount and drawing checks from the account. Option A, B, C, and D are not correct choices since they do not accurately describe the purpose and type of account used for paying employees.

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 transaction by Alert Company?

Accepted Answer

The journal entry needed to record the transaction by Alert Company is to debit Accounts Payable $4,500 and credit Notes Payable $4,500. This is because Alert Company owes Grady Company for an overdue account and is now issuing a note to extend the due date. The note payable is recorded as a liability (Notes Payable) and the accounts payable is decreased since the payment is being deferred.

Question 16

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 17

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 18

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

The company should recognize warranty expense and liability in the year of the sale since it sold trampolines with an extended warranty. This matches with the matching principle of accounting that expenses should be recognized in the same period as the corresponding revenue. The fact that the rate is only 2% does not make it a remote liability, and the warranty expense should not be recognized only when the warranty work is performed. Since the warranty is already sold with the trampolines, it is not a contingent liability that should be disclosed in the notes to the financial statements. The company should not recognize warranty liability when it purchases the trampolines since the warranty is sold separately.

Question 19

If a company uses a special payroll bank account:

Accepted Answer

When a company uses a special payroll bank account, it typically draws one check for the entire payroll from their regular bank account and deposits it into the payroll bank account. This allows for easier management of payroll funds and can help ensure timely and accurate payment of employees. However, the company still needs to issue paychecks, maintain a payroll register, and provide W-2's to employees at the end of the year. The choice of a federal depository bank for the payroll account is not necessarily required.

Question 20

Phil Phoenix is paid on a monthly basis. For the month of January of the current year, he earned a total of $8,288. FICA tax for Social Security is 6.2% and the FICA tax for Medicare is 1.45%. The FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The amount of Federal Income Tax withheld from his earnings was $1,375.17. What is the amount of the employer's annual payroll taxes expenses for this employee?

Accepted Answer

First, we need to calculate the employee's portion of FICA taxes:

- Social Security tax = $8,288 x 6.2% = $513.86
- Medicare tax = $8,288 x 1.45% = $120.18

Next, we need to calculate the employer's portion of payroll taxes:

- FUTA tax = $7,000 x 0.8% = $56.00
- SUTA tax = $7,000 x 5.4% = $378.00

Therefore, the total annual payroll tax expense for this employee is:

$513.86 (employer's portion of Social Security tax) 
+ $120.18 (employer's portion of Medicare tax) 
+ $56.00 (FUTA tax) 
+ $378.00 (SUTA tax) 
= $1,068.04

So, the correct answer is E.

Quiz 11: Current Liabilities and Payroll Accounting