CHAPTER 10

CuRrent Liabilities and payroll

CHAPTER LEARNING OBJECTIVES

1. Account for determinable or certain current liabilities. Liabilities are present obligations arising from past events, to make future payments of assets or services. Determinable liabilities have certainty about their existence, amount, and timing—in other words, they have a known amount, payee, and due date. Examples of determinable current liabilities include accounts payable, unearned revenues, operating lines of credit, notes payable, sales taxes, current maturities of long-term debt, and accrued liabilities such as property taxes, payroll, and interest.

2. Account for uncertain liabilities. Estimated liabilities exist, but their amount or timing is uncertain. As long as it is likely the company will have to settle the obligation, and the company can reasonably estimate the amount, the liability is recognized. Product warranties, customer loyalty programs, and gift cards result in liabilities that must be estimated. They are recorded either as an expense (or as a decrease in revenue) and a liability in the period when the sales occur. These liabilities are reduced when repairs under warranty, redemptions, and returns occur. Gift cards are a type of unearned revenue because they result in a liability until the gift card is redeemed. Because some cards are never redeemed, it is necessary to estimate the liability and make adjustments.

A contingency is an existing condition or situation that is uncertain, where it cannot be known if a loss (and a related liability) will result until a future event happens, or does not happen. Under ASPE, a liability for a contingent loss is recorded if it is likely that a loss will occur and the amount of the contingency can be reasonably estimated. Under IFRS, the threshold for recording the loss is lower. It is recorded if a loss is probable. Under ASPE, these liabilities are called contingent liabilities, and under IFRS, these liabilities are called provisions. If it is not possible to estimate the amount, these liabilities are only disclosed. They are not disclosed if they are unlikely unless they could have a substantial impact on the entity.

3. Determine payroll costs and record payroll transactions. Payroll costs consist of employee and employer payroll costs. In recording employee costs, Salaries Expense is debited for the gross pay, individual liability accounts are credited for payroll deductions, and Salaries Payable is credited for net pay. In recording employer payroll costs, Employee Benefits Expense is debited for the employer’s share of Canada Pension Plan (CPP), Employment Insurance (EI), workers’ compensation, vacation pay, and any other deductions or benefits provided. Each benefit is credited to its specific current liability account.

4. Prepare the current liabilities section of the balance sheet. The nature and amount of each current liability and contingency should be reported in the balance sheet or in the notes accompanying the financial statements. Traditionally, current liabilities are reported first and in order of liquidity.

5. Calculate mandatory payroll deductions (Appendix 10A). Mandatory payroll deductions include CPP, EI, and income taxes. CPP is calculated by multiplying pensionable earnings (gross pay minus the pay-period exemption) by the CPP contribution rate. EI is calculated by multiplying insurable earnings by the EI contribution rate. Federal and provincial income taxes are calculated using a progressive tax scheme and are based on taxable earnings and personal tax credits. The calculations are very complex and it is best to use one of the Canada Revenue Agency income tax calculation tools such as payroll deduction tables.

TRUE-FALSE STATEMENTS

1. A liability is defined as a past obligation, arising from present events to make future payments of assets or services.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

2. A future commitment is not considered a liability unless a present obligation also exists.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

3. Liabilities with a known amount, payee, and due date are often referred to as determinable liabilities.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

4. An operating line of credit is a credit that is set up by a major supplier to assist the company with their purchases online.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

5. Collateral is usually required by a bank as protection in case the company is unable to repay the bank.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

6. Money borrowed on a line of credit is normally borrowed on a long-term basis.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

7. A bank overdraft is the same as an operating line of credit.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

8. Bank overdrafts will require a journal entry at the end of the year to record the amount.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

9. Prime rate refers to the rate that banks charge their worst customers.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

10. A note payable will result in more security of the debt obligation for the creditor than an account payable.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

11. A note payable must be payable within one year.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

12. If a note payable is payable in a term longer than one year, it will be classified as a non-current liability.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

13. A note payable must always have an interest rate attached to it.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

14. A $ 15,000, nine-month, 8% note payable requires an interest payment of $ 900 at maturity if no interest was previously paid.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

15. At its December 31 year end, Jamison Company recorded $ 200 interest payable on a $ 10,000, three-month, 5% note payable. The company’s financial statements will present notes payable of $ 10,200.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

16. Sales taxes apply to all sales.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

17. It is not necessary to prepare an adjusting entry to recognize the current maturity of long-term debt.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

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

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

19. It is possible to have a prepaid property tax and a property tax expense recorded at the same time.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

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

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

21. During the month, a company sells goods for a total of $ 113,480, which includes HST of $ 13,480; therefore, the company should recognize $ 100,000 in Sales Revenues and $ 13,480 in Sales Tax Payable.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

22. An estimated liability is a liability that is known to exist but whose amount and timing are uncertain.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

23. As long as it is likely the company will have to settle the obligation, and the company can reasonably estimate the amount, the liability is recognized.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

24. Warranty liabilities are estimated based on actual warranty costs incurred to date.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

25. After the warranty liability has been established, future costs will be recorded with a debit to Warranty Expense.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

26. Canadian Tire Money represents a liability to Canadian Tire.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

27. With a customer loyalty program, the cost of the program is usually shown as a sales discount and reported as a contra sales account.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

28. When a company issues a gift card, the company will record the gift card in revenue in the period in which it is sold.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

29. Contingencies are events with certain outcomes.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

30. Under IFRS, a provision is a liability of certain timing and amounts.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

31. Under ASPE, a contingent liability is defined as a liability that is contingent on the occurrence or non-occurrence of some future event.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

32. ASPE considers a liability to be a contingent liability as long as its ultimate existence depends on the outcome of a future event, even if the event is likely to occur.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

33. IFRS is generally regarded as having a higher threshold for recognizing liabilities.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

34. There are two types of payroll costs to a company: employee costs and employer costs.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

35. Gross pay, or earnings, is the total compensation earned by an employee.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

36. Payroll deductions may be mandatory or voluntary.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

37. Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, employment insurance (EI), and personal income taxes are mandatory payroll deductions.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

38. The employer incurs a payroll cost equal to the amount withheld from the employees' wages for personal income taxes.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

39. The higher the pay or earnings, the higher the amount of income taxes withheld.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

40. CPP is an example of a voluntary payroll deduction.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

41. Gross pay is the amount of net pay less any deductions.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

42. Employer payroll costs would include an amount deducted from the individual for income taxes.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

43. Workplace Health, Safety, and Compensation is a cost to both the employee and the employer.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

44. Each employer is required to pay an employee for sick days.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

45. Employer payroll costs will include both the gross wages of employees plus the employer costs of benefits.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

46. Employers are required by law to remit the mandatory payroll deductions to Canada Revenue Agency on at least a monthly basis.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Taxation

AACSB: Analytic

47. Under ASPE, current liabilities are the first category reported in the liability section of the balance sheet.

Difficulty: Easy

Learning Objective: Prepare the current liabilities section of the balance sheet.

Section Reference: Financial Statement Presentation

CPA: Financial Reporting

AACSB: Analytic

48. Current liabilities are usually listed in order of liquidity.

Difficulty: Easy

Learning Objective: Prepare the current liabilities section of the balance sheet.

Section Reference: Financial Statement Presentation

CPA: Financial Reporting

AACSB: Analytic

49. CPP and EI and income tax deductions are remitted to the CRA, usually on a quarterly basis.

Difficulty: Easy

Learning Objective: Calculate mandatory payroll deductions (Appendix 10A).

Section Reference: Payroll Deductions

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

MULTIPLE CHOICE QUESTIONS

50. Most companies pay current liabilities

a) out of current assets.

b) by issuing interest-bearing notes payable.

c) by issuing common shares.

d) by creating non-current liabilities.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

51. A determinable liability is one that

a) has uncertainty with the timing of the due date.

b) has uncertainty about the amount which is owed.

c) has a known payee.

d) has an amount which is due within one year.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

52. 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.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

53. An operating line of credit

a) is a non-current liability.

b) is required by all companies.

c) helps companies manage temporary cash shortages.

d) is usually required by the bank in case a company is unable to repay a loan.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

54. All of the following are definitely determinable liabilities except

a) current maturities of long-term debt.

b) operating lines of credit.

c) a future commitment to purchase an asset.

d) accounts payable.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

55. Determinable liabilities involve no uncertainty about all of the following except

a) the existence of the liability.

b) the amount of the liability.

c) the eventual payment of the liability.

d) all of the above involve no uncertainty with respect to the determinable liability.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

56. Operating line of credit borrowings usually

a) are credited to a note payable account.

b) are reported as a non-current liability.

c) are debited to the cash account and result in a current liability.

d) are required by all companies.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

57. With an interest-bearing note, the amount of assets received upon issue 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 plus interest.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

58. 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.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

59. 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

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

60. Bell Provincial Bank agrees to lend Griswold Brick Company $ 80,000 on January 1. Griswold Brick Company signs an $ 80,000, 9-month, 5% note. The entry made by Griswold Brick Company on January 1 to record the proceeds and issue of the note is

a) Interest Expense 3,000
Cash 77,000
Notes Payable 80,000

b) Cash 80,000
Notes Payable 80,000

c) Cash 80,000
Interest Expense 3,000
Notes Payable 83,000

d) Cash 80,000
Interest Expense 3,000
Notes Payable 80,000
Interest Payable 3,000

Difficulty: Medium

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

61. Cutes National Bank agrees to lend Sunny Screen Company $ 80,000 on January 1. Sunny Screen Company signs an $ 80,000, 9-month, 5% note. What is the adjusting entry required if Sunny Screen Company prepares financial statements on June 30?

a) Interest Expense 2,000
Interest Payable 2,000

b) Interest Expense 2,000
Cash 2,000

c) Interest Payable 2,000
Cash 2,000

d) Interest Payable 2,000
Interest Expense 2,000

Difficulty: Medium

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

62. Cloudy Day Bank agrees to lend Sleep Dog Company $ 80,000 on January 1. Sleep Dog Company signs an $ 80,000, 9-month, 5% note. What entry will Sleep Dog Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30?

a) Notes Payable 83,000
Cash 83,000

b) Notes Payable 80,000
Interest Payable 3,000
Cash 83,000

c) Interest Expense 3,000
Notes Payable 80,000
Cash 83,000

d) Interest Payable 2,000
Notes Payable 80,000
Cash 82,000

Difficulty: Medium

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

63. 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.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

64. 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.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

65. On October 1, Frank’s Accounting Service borrows $ 75,000 from National Bank on a $ 75,000, 3-month, 6% note. What entry must Frank’s Accounting make on December 31 before financial statements are prepared?

a) Interest Payable 1,125
Interest Expense 1,125

b) Interest Expense 4,500
Interest Payable 4,500

c) Interest Expense 1,125
Interest Payable 1,125

d) Interest Expense 1,125
Notes Payable 1,125

Difficulty: Medium

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

66. On October 1, Asus Computers borrows $ 75,000 from Small Town Bank on a $ 75,000, 3-month, 6% note. Assuming interest was accrued at December 31, the entry by Asus Computers to record payment of the note and accrued interest on January 1 is

a) Notes Payable 76,125
Cash 76,125

b) Notes Payable 75,000
Interest Payable 1,125
Cash 76,125

c) Notes Payable 75,000
Interest Payable 4,500
Cash 79,500

d) Notes Payable 75,000
Interest Expense 1,125
Cash 76,125

Difficulty: Medium

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

67. 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.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

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

a) Notes Payable
Interest Payable
Cash

b) Notes Payable
Interest Expense
Cash

c) Notes Payable
Cash

d) Notes Payable
Cash
Interest Payable

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

69. HST (harmonized sales tax) collected by a retailer is recorded by

a) crediting HST Recoverable.

b) debiting HST Expense.

c) crediting HST Payable.

d) debiting HST Payable.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

70. When HST is remitted to the Canada Revenue Agency, ___ is credited and ___ is debited.

a) Cash; HST Payable

b) Cash; Sales

c) HST Expense; Cash

d) HST Payable; Cash

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

71. The amount of sales tax (GST and PST, or HST) collected by a retail store when making sales is

a) a miscellaneous revenue for the store.

b) a current liability.

c) not recorded because it is a tax paid by the customer.

d) will increase the profit of the company.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

72. Tony Tools Company has a December 31 year end. The company received its property tax bill for 2021 on March 1, 2021. According to the bill, taxes of $ 24,000 for the year ended December 31, 2021 are due by April 30, 2021. On March 1, Tony will record property tax expense of

a) $ 4,000.

b) $ 8,000.

c) $ 12,000.

d) $ 24,000.

Difficulty: Medium

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

73. Barker Company has a December 31 year end. The company received its property tax bill for 2021 on March 1, 2021. According to the bill, taxes of $ 24,000 for the year ended December 31, 2021 are due by April 30, 2021. On April 30, 2021, Barker will record which of the following entries?

a) Dr. Cash; Cr. Property Tax Payable

b) Dr. Property Tax Payable; Dr. Prepaid Property Tax; Cr. Cash

c) Dr. Property Tax Expense; Cr. Property Tax Payable

d) Dr. Property Tax Expense; Cr. Cash

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

74. Property taxes are generally based on

a) income before tax.

b) property values.

c) gross sales.

d) gross wages.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

75. The current portion of long-term debt should

a) be paid immediately.

b) be reclassified as a current liability.

c) be classified as a non-current liability.

d) not be separated from the non-current portion of debt.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

76. Sales taxes collected by a retailer are expenses

a) of the retailer.

b) of the customers.

c) of the government.

d) that are not recognized by the retailer until they are submitted to the government.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

77. A retailer that collects sales taxes is acting as an agent for the

a) wholesaler.

b) customer.

c) taxing authority.

d) chamber of commerce.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

78. Sales taxes collected by a retailer are reported as

a) a contingent loss.

b) revenues.

c) expenses.

d) current liabilities.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

79. A cash register tape shows cash sales of $ 1,000 and HST of $ 130. The journal entry to record this information is

a) Cash 1,000
Sales 1,000

b) Cash 1,130
Sales Tax Revenue 130
Sales 1,000

c) Cash 1,000
Sales Tax Expense 130
Sales 1,130

d) Cash 1,130
Sales 1,000
HST Payable 130

Difficulty: Medium

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

80. Jim's Pharmacy has collected $ 500 in HST during March. If sales taxes must be remitted to the Canada Revenue Agency monthly, what entry will Jim's Pharmacy make to show the March remittance?

a) HST Expense 500
Cash 500

b) HST Payable 500
Cash 500

c) HST Expense 500
HST Payable 500

d) No entry required.

Difficulty: Medium

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

81. Examples of determinable current liabilities include all of the following except

a) current maturities of long-term debt.

b) bank indebtedness from operating lines of credit.

c) unearned revenues.

d) contingencies.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

82. A company has a negative (credit) balance in the Cash account at the end of the year. This amount can be called all of the following except

a) bank indebtedness.

b) operating line of credit.

c) bank overdraft.

d) bank advances.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

83. Fees accepted in advance from a client

a) are considered earned revenues.

b) increase income.

c) are recorded as liabilities.

d) have no impact on assets.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

84. Unearned revenue is initially recognized with a

a) debit to cash and credit to revenue.

b) debit to cash and credit to unearned revenue.

c) debit to revenue and credit to cash.

d) debit to unearned revenue and credit to cash.

Difficulty: Easy

Learning Objective: Account for determinable or certain current liabilities.

Section Reference: Determinable (Certain) Current Liabilities

CPA: Financial Reporting

AACSB: Analytic

85. Which of the following is not considered an estimated liability?

a) accrued wages

b) gift card promotions

c) warranties

d) customer loyalty programs

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

86. Bass Bay Marina had a customer loyalty program at its gas dock. For every litre of gasoline purchased, the customer would get a redemption award of $ .015, which can be used to purchase products in the company’s retail marine store. In July, the company sold 100,000 litres of gasoline. The entry to record the liability for the July sales would be a $ ___ credit to ___.

a) $ 1,500; Redemption Reward Liability

b) $ 1,500; Sales Discounts

c) $ 1,500; Cash

d) $ 3,000; Cash

Difficulty: Medium

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

87. Bass Bay Marina had a customer loyalty program at its gas dock. For every litre of gasoline purchased, the customer would get a redemption award of $ .015, which can be used to purchase products in the company’s retail marine store. In July, the company sold 100,000 litres of gasoline. By the end of the August, customers redeemed 25,000 of the rewards. Bass Bay should make which of the following entries to record the redemption?

a) Cash 375
Redemption Reward Liability 375

b) Redemption Reward Liability 375
Cash 375

c) Cash 375
Redemption Expense 375

d) Redemption Expense 375
Cash 375

Difficulty: Medium

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

88. The accounting for warranty costs is based on the concept of matching expenses with revenues, which requires that the estimated cost of honouring warranty contracts should be recognized as an expense

a) when the product is brought in for repairs.

b) in the period in which the product was sold.

c) at the end of the warranty period.

d) only if the repairs are expected to be made within one year.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

89. Cameron Company sells 2,000 units of its product for $ 500 each in 2021. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $ 100 per unit. In 2021, warranty contracts are honoured on 40 units for a total cost of $ 4,000. What amount should Cameron Company record in 2021 for warranty expense?

a) $ 6,000

b) $ 4,000

c) $ 2,000

d) $ 30,000

Difficulty: Medium

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

90. Cameron Company sells 2,000 units of its product for $ 500 each in 2021. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $ 100 per unit. In 2021, warranty contracts are honoured on 40 units for a total cost of $ 4,000. What amount will be reported on Cameron Company's balance sheet as Estimated Warranty Liability on December 31, 2021?

a) $ 4,000

b) $ 6,000

c) $ 2,000

d) cannot be determined

Difficulty: Medium

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

91. Product warranties are promises made by the ___ to repair or replace the product if it is defective or does not perform as intended.

a) buyer

b) employees

c) manufacturer

d) government

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

92. Warranties are also known as

a) determinable liabilities.

b) customer loyalty programs.

c) contingencies.

d) guarantees.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

93. Under the expense approach, the warranty liability is measured using

a) the estimated future cost of servicing the product warranty.

b) actual costs of past years’ repairs.

c) the estimated sales of past years.

d) the estimated past returns of products.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

94. The warranty liability account will be carried from year to year and will be increased by

a) current years repairs to non-warranty products.

b) current years estimated warranty expense.

c) prior years’ estimated warranty expense.

d) current year’s actual warranty expense.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

95. Loyalty programs are designed to

a) decrease sales.

b) increase inventory levels.

c) increase sales.

d) decrease cost of goods sold.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

96. The Redemption Reward Liability account is reported as a

a) current asset.

b) contra sales account.

c) current liability.

d) non-current liability.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

97. Under ASPE, a contingent liability must be accrued in the financial statements if

a) it can be reasonably estimated and is unlikely to occur.

b) it can be reasonably estimated and is likely to occur.

c) it is likely to occur but cannot be reasonably estimated.

d) the amount of the potential loss is greater than the balance in the cash account.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

98. Under ASPE, the following should not be disclosed in notes to the financial statements.

a) If the contingency is unlikely and the chance of occurrence is small.

b) If the contingency is likely but the amount of the loss cannot be reasonably estimated.

c) If the likelihood of occurrence of the contingent liability is not determinable.

d) If the contingency is unlikely but it could have a substantial negative effect on the company’s financial position.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

99. If a liability is dependent on a future event, it is called a

a) potential loss.

b) hypothetical loss.

c) probabilistic loss.

d) contingent loss.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

100. Under ASPE, a contingency that is not likely to occur

a) should be disclosed in the financial statements.

b) must be accrued as a loss.

c) does not need to be disclosed unless the loss would result in a substantial negative effect on the company's financial position.

d) is recorded as a contingent loss.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

101. Disclosure of a contingent loss is usually made

a) parenthetically, in the body of the balance sheet.

b) parenthetically, in the body of the income statement.

c) in a note to the financial statements.

d) in the management discussion section of the financial statement.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

102. If it is likely that a company will lose a lawsuit and the amount can be reliably estimated, then the company must

a) record the asset.

b) disclose only in the notes to the financial statements.

c) not record or disclose any information.

d) record the loss and the liability.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

103. Under ASPE, a liability for a contingent loss is recorded if both of the following conditions are met

a) occurrence is high and amount cannot be estimated.

b) amount is reasonably estimated and occurrence is low.

c) occurrence is low and amount is determinable.

d) occurrence is high and amount can be reasonably estimated.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

104. Under IFRS, a liability is recorded if the chance of occurrence is

a) likely.

b) probable.

c) unlikely.

d) undeterminable.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

105. Under ASPE, only ___contingent losses are recognized.

a) likely

b) probable

c) more likely than not

d) unlikely

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

106. Under IFRS, the term used for an uncertain liability is

a) contingent liability.

b) undeterminable liability.

c) provision.

d) estimated liability.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

107. The following are general risk contingencies that can affect anyone who is operating a business and are not reported in the notes to the financial statements, except

a) war.

b) strike.

c) lawsuit.

d) recession.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

108. Which of the following is not an example of an estimated liability?

a) contingencies

b) employee benefits

c) payroll deductions

d) warranties

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

109. Kenneth Mole Company sold $ 10,000 worth of luggage with a one-year warranty. The company estimates that 2% of the sales will result in a warranty payout. Kenneth Mole Company should

a) recognize warranty expense at the time of sale.

b) recognize warranty expense at the time warranty work is performed.

c) recognize warranty expense and warranty liability at the time of sale.

d) recognize warranty expense at the time warranty work is performed and warranty liability at the time of sale.

Difficulty: Easy

Learning Objective: Account for uncertain liabilities.

Section Reference: Uncertain Liabilities

CPA: Financial Reporting

AACSB: Analytic

110. Payroll deductions are also frequently called

a) net payments.

b) withholdings.

c) CPP contributions.

d) gross payments.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

111. The amount of income tax withheld from an individual’s payroll is determined by three variables. Which one of the following is not a variable?

a) employee’s net pay

b) number of income tax deductions claimed by the employee

c) length of the pay period

d) employee’s gross pay

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

112. Gross earnings

a) is the net compensation received by employees.

b) is the total wage cost for an employee.

c) excludes any bonuses paid to employees.

d) is the total compensation earned by an employee.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

113. The employer’s share of personal income tax is ___ the employee’s share.

a) higher than

b) lower than

c) equal to

d) Employers are not required to share in this cost.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

114. The employer’s share of Canada Pension Plan is ___ the employee’s share.

a) higher than

b) lower than

c) equal to

d) Employers are not required to share in this cost.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

115. Which one of the following payroll costs does not result in an expense for the employer?

a) CPP (Canada Pension Plan)

b) Federal and provincial personal income tax

c) Employment Insurance (EI)

d) QPP (Quebec Pension Plan)

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

116. Jill Cole’s regular rate of pay is $ 10 per hour with one and one-half times her regular rate for any hours that exceed 44 hours per week. She worked 52 hours last week. Her gross wages were

a) $ 520.

b) $ 440.

c) $ 560.

d) $ 880.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

117. Most companies calculate overtime at

a) the worker's regular hourly wage.

b) 1.25 times the worker's regular hourly wage for hours over 42 per week.

c) 1.5 times the worker's regular hourly wage for hours over 44 per week.

d) 2.5 times the worker's regular hourly wage for hours over 37.5 per week.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

118. Ann Parks has worked 44 hours this week. Six of these 44 hours were on the weekend. Her regular hourly wage is $ 15 per hour with one and one-half times her regular rate for weekend work. What are Ann's gross wages for the week?

a) $ 660

b) $ 705

c) $ 990

d) $ 795

Difficulty: Medium

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

119. The designated collection agency for payroll deductions is

a) the Canada Revenue Agency.

b) Employment Canada.

c) Health and Welfare Canada.

d) HRDC.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

120. The journal entry to record the payroll for a period will include a credit to Wages and Salaries Payable for the gross

a) amount less all payroll deductions.

b) amount of all paycheques issued.

c) pay less taxes payable.

d) pay less voluntary deductions.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

121. Paid absences and post-employment benefits

a) are supplemental benefits for injured workers.

b) are rights to receive compensation for future absences when certain conditions of employment are met.

c) must be accrued for.

d) are paid to retired or terminated employees.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

122. Post-retirement benefits consist of payments by employers to retired employees for

a) health care and life insurance only.

b) health care and pensions only.

c) life insurance and pensions only.

d) health care, life insurance, and pensions.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

123. The paid absence that is most commonly accrued is

a) voting leave.

b) vacation time.

c) maternity leave.

d) disability leave.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

124. Berman Company has ten employees who each earn $ 180 per day. If they accumulate vacation time at the rate of 1.5 vacation days for each month worked, the amount of vacation benefits that should be accrued at the end of the month is

a) $ 180.

b) $ 1,800.

c) $ 2,700.

d) $ 270.

Difficulty: Medium

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

125. A payroll register is used to

a) accumulate gross earnings for each pay period.

b) determine source deductions.

c) accumulate gross earnings, deductions, and net pay per employee for each pay period.

d) determine budgeted payroll detail.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

126. The Workplace Health, Safety, and Compensation Plan

a) provides a bonus to workers who have no accidents.

b) is paid by the employee only.

c) provides supplemental benefits for workers injured on the job.

d) provides supplemental benefits for workers injured on the job or at home.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

127. Post-employment benefits are payments made by

a) retired employees.

b) terminated employees.

c) employees.

d) employers.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

128. On the income statement, employee benefits expense is combined with

a) sales revenue.

b) salaries and wages expense.

c) cost of goods sold.

d) employers benefits expense.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

129. For small employers with perfect payroll deduction records, withholdings must be reported and remitted to the government

a) monthly.

b) annually.

c) quarterly.

d) bi-weekly.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

130. Following the end of a calendar year, an employer is required to provide each employee with

a) a personal income tax credits return (TD1).

b) a payroll register.

c) a statement of remuneration paid (T4).

d) a medical history form.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

131. Employers are required to withhold income taxes from employees each pay period. Identify the variable that is not used to determine the amount withheld.

a) the employee's gross earnings

b) the size of the company the employee is working for

c) the number of credits claimed by the employee for himself, herself, spouse, and other dependents

d) the length of the pay period

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

132. The deduction that is paid equally by the employer and employee is the

a) federal income tax.

b) Workplace Health, Safety, and Compensation Plan deduction.

c) Employment Insurance (EI) deduction.

d) Canada or Quebec Pension Plan deduction.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

CPA: Taxation

AACSB: Analytic

133. The employer should record payroll deductions as

a) current liabilities.

b) non-current liabilities.

c) employee advances receivable.

d) employee advances payable.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

134. The amount an employee earns before any deductions is referred to as

a) net pay.

b) net income.

c) taxable income.

d) gross pay.

Difficulty: Easy

Learning Objective: Determine payroll costs and record payroll transactions.

Section Reference: Payroll

CPA: Financial Reporting

AACSB: Analytic

135. The relationship between current liabilities and current assets is

a) useful in determining income.

b) useful in evaluating a company's short-term debt paying ability.

c) called the matching principle.

d) useful in determining the amount of a company's long-term debt.

Difficulty: Easy

Learning Objective: Prepare the current liabilities section of the balance sheet.

Section Reference: Financial Statement Presentation

CPA: Financial Reporting

AACSB: Analytic

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

a) profitability.

b) revenue-producing ability.

c) short-term debt paying ability.

d) long-range solvency.

Difficulty: Easy

Learning Objective: Prepare the current liabilities section of the balance sheet.

Section Reference: Financial Statement Presentation

CPA: Financial Reporting

AACSB: Analytic

137. Muffin Company issued a five-year, interest-bearing note payable for $ 50,000 on January 1, 2021. Each January the company is required to pay $ 10,000 on the note. How will this note be reported on the December 31, 2022, balance sheet?

a) Long-term debt, $ 50,000

b) Long-term debt, $ 40,000

c) Long-term debt, $ 30,000; Long-term debt due within one year, $ 10,000

d) Long-term debt of $ 40,000; Long-term debt due within one year, $ 10,000

Difficulty: Medium

Learning Objective: Prepare the current liabilities section of the balance sheet.

Section Reference: Financial Statement Presentation

CPA: Financial Reporting

AACSB: Analytic

138. Under ASPE, current liabilities are usually listed

a) after long-term debt on the balance sheet.

b) in order of liquidity on the balance sheet.

c) in order of maturity on the balance sheet.

d) in increasing order of magnitude on the balance sheet.

Difficulty: Easy

Learning Objective: Prepare the current liabilities section of the balance sheet.

Section Reference: Financial Statement Presentation

CPA: Financial Reporting

AACSB: Analytic

139. Current maturities of long-term debt

a) require an adjusting entry.

b) are optionally reported on the balance sheet.

c) can be properly classified during balance sheet preparation, with no adjusting entry required.

d) are not considered to be current liabilities.

Difficulty: Easy

Learning Objective: Prepare the current liabilities section of the balance sheet.

Section Reference: Financial Statement Presentation

CPA: Financial Reporting

AACSB: Analytic

140. The current portion of long-term debt

a) refers to the portion of long-term debt due within one year.

b) is separated from the long-term portion for proper presentation.

c) must be disclosed on the statement of financial position.