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Complete Test Bank | Current Liabilities And Payroll – Ch11

Chapter 11 Current Liabilities and Payroll Accounting

MULTIPLE CHOICE QUESTIONS

A liability is a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events.

True

1. False

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Obligations not due within one year or the company's operating cycle, whichever is longer, are reported as current liabilities.

True

1. False

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

All expected future payments are liabilities.

1. True
2. False

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

A single liability cannot be divided between current and noncurrent liabilities.

1. True
2. False

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

A company cannot have a liability if the amount of the obligation is unknown.

1. True
2. False

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

A liability may exist even if there is uncertainty about whom to pay, when to pay, or how much to pay.

True

1. False

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Trade accounts payable are amounts owed to suppliers for products or services purchased on credit.

1. True
2. False

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Unearned revenues are current liabilities.

1. True
2. False

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Sales Taxes Payable is debited and Cash is credited when companies send sales taxes collected from customers to the government.

True

1. False

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Vacation benefits is an example of a known liability.

1. True
2. False

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

A contingent liability is a potential obligation that depends on a future event arising from a past transaction or event.

True

1. False

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Payroll is an example of a contingent liability for the employer.

1. True
2. False

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible.

True

1. False

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

Uncertainties from the development of new competing products are not contingent liabilities.

1. True
2. False

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis; BB Legal

Debt guarantees are usually disclosed as a contingent liability.

1. True
2. False

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis; BB Legal

Accounting for contingent liabilities covers three possibilities: (1) The future event is probable and the amount cannot be reasonably estimated; (2) The future event is remote or unlikely to recur; (3) The likelihood of the liability to occur is impossible.

True

1. False

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis; BB Legal

A potential lawsuit claim is disclosed when the claim can be reasonably estimated and it is reasonably possible.

True

1. False

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis; BB Legal

A high value for the times interest earned ratio means that a company is a lower risk borrower.

1. True
2. False

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

The times interest earned ratio is calculated by dividing interest expense by income before interest expense and income taxes.

True

1. False

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

Experience shows that the default rate on liabilities increases sharply when times interest earned falls below 1.5 to 2.0 and remains at that level or lower for several time periods.

True

1. False

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

A company's income before interest expense and taxes is $250,000 and its interest expense is

$100,000. Its times interest earned ratio is 2.5.

True

1. False

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

A short-term note payable is a written promise to pay a specified amount on a definite future date within one year or the operating cycle, whichever is shorter.

True

1. False

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Promissory notes cannot be transferred from party to party because they are nonnegotiable.

1. True
2. False

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

A note payable can be used to extend the payment due on an account payable.

1. True
2. False

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Even if the end of an accounting period occurs between the signing of a note payable and its maturity date, the matching principle requires that interest expense not be accrued on a note payable until the note is paid.

True

1. False

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

Required payroll deductions include income taxes, Social Security taxes, pension and health contributions, union dues, and charitable giving.

True

1. False

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

The amount of federal income tax withheld from employee pay depends on the employee's annual earnings rate and the number of withholding allowances claimed by the employee.

True

1. False

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

The amount of FICA tax that employers must pay is twice the amount of the FICA taxes withheld from their employees.

True

1. False

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

The state unemployment tax rates applied to an employer are adjusted according to an employer's merit rating.

True

1. False

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

A high merit rating for state unemployment taxes means that an employer has high employee turnover or seasonal hiring.

True

1. False

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

Employers must keep individual earnings reports for each employee.

1. True
2. False

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

Deposits of amounts payable to the federal government may be paid through federal depository banks.

True

1. False

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

FUTA requires employers to pay a federal unemployment tax on all salary or wages paid to each employee.

True

1. False

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

The Form W-2 must be given to employees before January 31 following the year covered by the Form W-2.

True

1. False

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

Payments of FUTA are made quarterly to a federal depository bank if the total amount due exceeds

$500.

True

1. False

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

A known obligation of an uncertain amount that can at least be reasonably estimated is reported as an estimated liability.

True

1. False

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Accrued vacation benefits are a form of estimated liability for an employer.

1. True
2. False

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

A liability is incurred when income is earned because income tax expense is created by earning income.

True

1. False

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; BB Legal; FN Measurement

A corporation has a $40,000 credit balance in the Income Tax Payable account. Period end information shows that the actual liability is $47,000. The company should record an entry to debit Income Tax Expense for $7,000 and credit Income Taxes Payable for $7,000.

True

1. False

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

Employers can use a wage bracket withholding table to compute federal income taxes withheld from each employee's gross pay.

True

1. False

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; BB Legal; FN Measurement

Each employee records the number of withholding allowances claimed on the withholding allowance certificate that is filed with the employer, which is the Form W-4.

True

1. False

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; BB Legal; FN Measurement

Companies with many employees rarely use a special payroll bank account from which to pay employees.

True

1. False

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The report that shows the pay period dates, hours worked, gross pay, deductions, and net pay of each employee for every pay period is the payroll register.

True

1. False

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

An employee earnings report is a cumulative record of each employee's hours worked, gross earnings, deductions, and net pay.

True

1. False

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

When the number of withholding allowances claimed on Form W-4 increases, the amount of income tax withheld decreases.

True

1. False

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

All of the following statements regarding liabilities are true except:

1. Unearned future wages to be paid to employees should be recorded as liabilities.
2. For a liability to be reported, it must be a present obligation that results from a past transaction or event, and requires a future payment of assets or services.
3. Information about liabilities is more useful when the balance sheet identifies them as either current or long term.

Liabilities can involve uncertainty in whom to pay.

1. A liability is a probable future payment of assets or services.

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

Obligations to be paid within one year or the company's operating cycle, whichever is longer, are:

1. Current assets.
2. Bills.
3. Earned revenues.
4. Operating cycle liabilities.
5. Current liabilities.

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Obligations not expected to be paid within the longer of one year or the company's operating cycle are reported as:

Current liabilities.

1. Long-term liabilities.
2. Bills.
3. Operating cycle liabilities.
4. Current assets.

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

All of the following statements regarding uncertainty in liabilities are true except:

1. Liabilities can involve uncertainty in whom to pay.
2. A company can be aware of an obligation but not know how much will be required to settle it.
3. A company can have an obligation of a known amount to a known creditor but not know when it must be paid.
4. A company can create a liability with a known amount even when the holder of the note may not be known until the maturity date.
5. A company only records liabilities when it knows whom to pay, when to pay, and how much to pay.

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

In order to be reported, liabilities must:

1. Involve an outflow of cash.
2. Always have a definite date for payment.
3. Be for a specific amount.
4. Sometimes be estimated.
5. Be certain.

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

All of the following are true of known liabilities except:

1. Include accounts payable, notes payable, and payroll.
2. Are obligations set by agreements, contracts, or laws.
3. May depend on some future event occurring.
4. Are definitely determinable.
5. Are measurable.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Accounts payable are:

1. Amounts owed to suppliers for products and/or services purchased on credit.
2. Always payable within 30 days.
3. Long-term liabilities.
4. Estimated liabilities.
5. Not usually due on specific dates.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Amounts received in advance from customers for future products or services:

1. Are liabilities.
2. Are revenues.
3. Require an outlay of cash in the future.
4. Are not allowed under GAAP.
5. Increase income.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

When a company is obligated for sales taxes payable, it is reported as a(n):

1. Business expense.
2. Estimated liability.
3. Current liability.
4. Long-term liability.
5. Contingent liability.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Which of the following do not apply to unearned revenues?

1. Also called collections in advance.
2. Amounts received in advance from customers for future delivery of products or services.
3. Also called prepayments.
4. Also called deferred revenues.
5. Amounts to be received in the future from customers for delivery of products or services in the current period.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

If a company has advance ticket sales totaling $2,000,000 for the upcoming football season, the receipt of cash would be journalized as:

Debit Cash, credit Unearned Revenue.

1. Debit Sales, credit Unearned Revenue.
2. Debit Unearned Revenue, credit Sales.
3. Debit Cash, credit Ticket sales payable.
4. Debit Unearned Revenue, credit Cash.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Measurement

A contingent liability is:

1. An obligation not requiring future payment.
2. Always of a specific amount.
3. An obligation arising from a future event.
4. An obligation arising from the purchase of goods or services on credit.
5. A potential obligation that depends on a future event arising from a past transaction or event.

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

Contingent liabilities are recorded or disclosed unless they are:

1. Possible and estimable.
2. Probable and not estimable.
3. Probable and estimable.
4. Remote.
5. Reasonably possible.

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

Contingent liabilities must be recorded if:

1. The future event is reasonably possible but not estimable.
2. The amount owed cannot be reasonably estimated.
3. The future event is probable but not estimable.
4. The future event is remote.
5. The future event is probable and the amount owed can be reasonably estimated.

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

Debt guarantees are:

1. A bad business practice.
2. Considered to be current liabilities.
3. Recorded as liabilities even though it is highly unlikely that the original debtor will default.
4. Considered to be contingent liabilities.
5. Never disclosed in the financial statements.

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

In the accounting records of a defendant, lawsuits:

1. Are estimated liabilities.
2. Should always be disclosed.
3. Should always be recorded.
4. Should be recorded if payment for damages is probable and the amount can be reasonably estimated.

Should never be recorded.

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

Uncertainties such as natural disasters are:

1. Disclosed because of their usefulness to financial statements.
2. Contingent liabilities because they are future events arising from past transactions or events.
3. Estimated liabilities because the amounts are uncertain.
4. Not contingent liabilities because they are future events not arising from past transactions or events.

Reported in the same way as debt guarantees.

Learning Objective: 11-C3 Explain how to account for contingent liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

The times interest earned ratio reflects:

1. A company's ability to pay interest even if sales decline.
2. The relation between assets and liabilities.
3. A company's ability to pay its operating expenses on time.
4. The relation between income and debt.
5. A company's profitability.

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

Interest expense is not:

1. Likely to stay the same when sales change.
2. A fixed expense.
3. A factor in determining a company's borrowing risk.
4. Incurred on current liabilities.
5. Likely to fluctuate when sales change.

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

Times interest earned is calculated by:

1. Dividing income before interest expense and income taxes by interest expense.
2. Dividing interest expense by income before interest expense.
3. Multiplying interest expense by income.
4. Dividing income before interest expense by interest expense and income taxes.
5. Multiplying interest expense by income before interest expense.

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

If the times interest earned ratio:

1. Is greater than 1.5, the company is in default.
2. Increases, then risk decreases.
3. Is greater than 3.0, the company is likely carrying too much debt.
4. Increases, then risk increases.
5. Is less than 1.5, the company is carrying too little debt.

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

A company's had fixed interest expense of $5,000, its income before interest expense and income taxes is $17,000, and its net income is $9,400. The company's times interest earned ratio equals:

A) 3.4. B) 1.8. C) 0.5. D) 1.9. E) 0.3.

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

The correct times interest earned computation is:

1. (Net income - Interest expense - Income taxes)/Interest expense.
2. (Net income + Interest expense - Income taxes)/Interest expense.
3. Interest expense/(Net income + Interest expense + Income taxes expense).
4. (Net income - Interest expense + Income taxes)/Interest expense.
5. (Net income + Interest expense + Income taxes)/Interest expense.

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

A company's income before interest expense and income taxes is $350,000 and its interest expense is $100,000. Its times interest earned ratio is:

A) 1.75 B) 0.29 C) 2.50 D) 3.50 E) 0.50

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

A company's fixed interest expense is $8,000, its income before interest expense and income taxes is $32,000. Its net income is $9,600. The company's times interest earned ratio equals:

A) 0.25. B) 3.33. C) 0.30. D) 4.0. E) 0.83.

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

The difference between the amount received from issuing a note payable and the amount repaid at maturity is referred to as:

Interest.

1. Principal.
2. Accounts Payable.
3. Cash.
4. Face Value.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

A short-term note payable:

1. Is a contingent liability.
2. Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.

Is an estimated liability.

1. Is not a liability until the due date.
2. Cannot be used to extend the payment period for an account payable.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Short-term notes payable:

1. Are not negotiable.
2. Cannot replace an account payable.
3. Are a conditional promise to pay.
4. Can be issued in return for money borrowed from a bank.
5. Rarely involve interest charges.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of

$15,000. What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.)

A) $0 B) $300 C) $225 D) $75 E) $900

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the adjusting entry for the accrued interest at December 31 on the note? (Use 360 days a year.)

Debit Interest Payable, $240; credit Interest Expense, $240.

1. Debit Interest Expense, $720; credit Interest Payable, $720.
2. Debit Interest Expense, $120; credit Interest Payable, $120.
3. Debit interest payable, $120; credit interest expense, $120.
4. No adjusting entry is required.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the maturity value of the note on March 1? (Use 360 days a year.)

A) $9,120 B) $9,240 C) $9,000 D) $720 E) $9,720

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. Alan made the appropriate year-end accrual. What is the journal entry as of March 1 to record the payment of the note assuming no reversing entry was made? (Use 360 days a year.)
1. Debit Notes Payable $9,240; credit Interest Payable $120; credit Interest Expense $120; credit Cash $9,000.

Debit Notes Payable $9,000; debit Interest Payable $120; credit Cash $9,120.

1. Debit Notes Payable $9,000; debit Interest Expense $240; credit Cash $9,240.
2. Debit Notes Payable $9,000; debit Interest Payable $120; debit Interest Expense $120; credit Cash $9,240.

Debit Cash $9,240; credit Notes Payable $9,240.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

Employers' responsibilities for payroll do not include:

1. Recording an expense for the employee Federal Income Tax withholding.
2. Filing Form 941, the Employer's Quarterly Federal Tax Return.
3. Providing each employee with an annual report of his or her wages subject to FICA and federal income taxes along with the amount of these taxes withheld.

Maintaining individual earnings records for each employee.

1. Filing Form 940, the Annual Federal Unemployment Tax Return.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

Gross pay is:

1. Total compensation earned by an employee before any deductions.
2. Salaries after taxes are deducted.
3. Deductions withheld by an employer.
4. The amount of the paycheck.
5. Take-home pay.

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

The employer should record deductions from employee pay as:

1. Employee receivables.
2. Employee payables.
3. Payroll taxes.
4. Current liabilities.
5. Wages payable.

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

FICA taxes include:

1. Charitable giving.
2. Employee federal income tax.
3. Social Security and Medicare taxes.
4. Employee state income tax.
5. Federal and state unemployment taxes.

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

The amount of federal income taxes withheld from an employee's paycheck is determined by:

1. The amount of social security taxes withheld.
2. Multiplying the gross pay by 6.2%.
3. Tax tables provided by the state in which the employee works.
4. The employer's merit rating.
5. Current earnings for the pay period and number of withholding allowances the employee claims.

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; BB Legal; FN Measurement

Recording employee payroll deductions may involve:

1. Expenses for the gross wages and salaries.
2. Liabilities to the employer.
3. Liabilities to federal and state governments.
4. Expenses for state unemployment.
5. Expenses for the employer portion of any medical insurance.

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

The Federal Insurance Contributions Act (FICA) requires that each employer file a:

1. W-2.
2. Form 1040.
3. W-4.
4. Form 941.
5. Form 1099.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; BB Legal; FN Reporting

An employee earned $37,000 during the year working for an employer when the maximum limit for Social Security was $118,500. The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The employee's annual FICA taxes amount is:

A) $2,830.50. B) $1,757.50. C) $8,950.50. D) $536.50. E) $2,294.00.

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of $8,260. The FICA tax for social security is 6.2% of the first $118,500 of employee earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The FUTA tax rate of .6% and the SUTA tax rate of 5.4% are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld from her earnings was $1,325.17. Her net pay for the month is: (Round your intermediate calculations to two decimal places.)

A) $6,422.71 B) $5,868.94 C) $6,246.94 D) $6,302.94 E) $7,194.11

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of $8,260. The FICA tax for social security is 6.2% of the first $118,500 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The FUTA tax rate of 0.6% and the SUTA tax rate of 5.4% are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld from her earnings was $1,325.17. What is the total amount of taxes withheld from the Portia's earnings? (Round your intermediate calculations to two decimal places.)

A) $1,957.06 B) $1,722.00 C) $3,097.17 D) $2,443.21 E) $1,495.36

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% of the first $118,500 earned each calendar year, and the FICA tax rate for Medicare is 1.45% of all earnings for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. His net pay for the month is:

A) $3,162.98 B) $4,190.84 C) $3,857.30 D) $3,510.14 E) $4,538.00

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% of the first $118,500 earned each calendar year, and the FICA tax rate for Medicare is 1.45% of all earnings for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. What is the total amount of taxes withheld from the Trey's earnings?

A) $1,027.86 B) $680.70 C) $1,375.02 D) $746.50 E) $962.06

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

The annual Federal Unemployment Tax Return is:

1. Form W-4.
2. Form W-2.
3. Form 104.
4. Form 940.
5. Form 1099.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; BB Legal; FN Reporting

The Wage and Tax Statement given to each employee annually is:

1. Form W-4.
2. Form 1040.
3. Form W-2.
4. Form 941.
5. Form 940.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; BB Legal; FN Reporting

A bank that is authorized to accept deposits of amounts payable to the federal government is a:

1. Federal Reserve Bank.
2. Federal depository bank.
3. National bank.
4. FDIC insured bank.
5. Credit union.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

An employer's federal unemployment taxes (FUTA) are reported:

1. Semiannually.
2. Annually.
3. Monthly.
4. Weekly.
5. Quarterly.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; BB Legal; FN Reporting

The rate that a state assigns reflecting a company's stability or instability in employing workers is the:

Pay rate.

1. Tax withholding rate.
2. FICA rate.
3. Credit rating.
4. Merit rating.

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

Employer payroll taxes:

1. Are payable for up to a maximum $117,000 of employee earnings.
2. Are paid by the employee.
3. Are added expenses beyond that for the wages and salaries earned by employees.
4. Represent the social security taxes withheld from employees.
5. Represent the federal taxes withheld from employees.

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

All of the following are employer payroll taxes except:

1. Federal income tax equal to that withheld from employees.
2. Medicare tax equal to that withheld from employees.
3. State unemployment tax.
4. Social Security tax equal to that withheld from employees.
5. Federal unemployment tax.

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

FUTA taxes are:

1. Social Security taxes.
2. Employee income taxes.
3. Medicare taxes.
4. Unemployment taxes.
5. Employee deductions.

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

Which of the following is not true regarding the unemployment insurance program?

1. It provides unemployment benefits to qualified workers.
2. It adjusts rates paid by employers based on their merit rating.
3. It is administered by each state.
4. It requires withholding from the employee wages.
5. It is a joint federal and state program.

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned total wages of $9,900. What is the amount of total unemployment taxes the employer must pay on this employee's wages?

A) $534.60. B) $594.00. C) $0.00. D) $420.00. E) $336.00.

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned total wages of $2,900 in the current period and had cumulative pay for prior periods of $5,800. What is the amount of unemployment taxes the employer must pay on this employee's wages for the current period?

A) $174.00. B) $0.00. C) $348.00. D) $420.00. E) $72.00.

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

An employee earned $43,300 working for an employer in the current year. The current rate for FICA Social Security is 6.2% payable on earnings up to $118,500 maximum per year and the rate for FICA Medicare 1.45%. The employer's total FICA payroll tax for this employee is:

A) $3,312.45.

B) $5,638.05.

C) $8,950.50.

D) $2,684.60.

E) $0, since the FICA tax is only deducted from an employee's pay.

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

An employee earned $128,500 working for an employer in the current year. The current rate for FICA Social Security is 6.2% payable on earnings up to $118,500 maximum per year and the rate for FICA Medicare 1.45% of all earnings. The employer's total FICA payroll tax for this employee is:

A) $9,210.25.

B) $9,830.25.

C) $8,950.50. D) $879.75.

$0, since the FICA tax is only deducted from an employee's pay.

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

An employee earned $62,500 during the year working for an employer. The FICA tax rate for Social Security is 6.2% of the first $118,500 of employee earnings per calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. What is the amount of total unemployment taxes the employee must pay?

A) $434.00 B) $56.00 C) $378.00 D) $0.00 E) $101.50

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

Gary Marks 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% on the first $118,500 of earnings each calendar year and the FICA tax for Medicare is 1.45% of all earnings. The FUTA tax rate is 0.6%, 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 payroll taxes expenses for this employee? (Round your intermediate calculations to two decimal places.)

A) $420.00 B) $2,009.21 C) $2,506.48 D) $1,131.31 E) $1,054.04

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

Triston Vale is paid on a monthly basis. For the month of January of the current year, he earned a total of $5,210. FICA tax for Social Security is 6.2% on the first $118,500 of earnings each calendar year and the FICA tax for Medicare is 1.45% of all earnings. The FUTA tax rate is 0.6%, 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 $885.70. What is the amount of the employer's payroll taxes expenses for this employee?

A) $1,284.27 B) $398.57 C) $711.17 D) $312.60 E) $1,596.87

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

An estimated liability:

1. Is a liability that may occur if a future event occurs.
2. Is not recorded until the amount is known for certain.
3. Can be the result of a lawsuit.
4. Is an unknown liability of a certain amount.
5. Is a known obligation of an uncertain amount that can be reasonably estimated.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Estimated liabilities commonly arise from all of the following except:

1. Vacation benefits.
2. Warranties.
3. Income taxes.
4. Employee benefits.
5. Unearned revenues.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

Employees earn vacation pay at the rate of one day per month. During the month of 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?

A) $25,000 B) $250 C) $2,500 D) $25 E) $100

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Measurement

Employees earn vacation pay at the rate of one day per month. During the month of June, 10 employees qualify for one vacation day each. Their average daily wage is $150 per day. Which of the following is the necessary adjusting journal entry to record the June vacation benefits?

Debit Payroll Tax Expense $1,500; credit Payroll Taxes Payable $1,500.

1. Debit Prepaid Vacation Benefits $1,500; credit Vacation Benefits Payable $1,500.
2. Debit Vacation Benefits Expense $1,500; credit Vacation Benefits Payable $1,500.
3. Debit Vacation Benefits Payable; credit Vacation Benefits Expense $1,500.
4. Debit Vacation Benefits Expense $1,500; credit Prepaid Vacation Benefits $1,500.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Measurement

Employee vacation benefits:

1. Increase net income.
2. Are recorded as an expense when the employee retires.
3. Are estimated liabilities.
4. Are contingent liabilities.
5. Are recorded as an expense when the employee takes a vacation.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

A company sold $12,000 worth of bicycles with an extended warranty. The company's experience is that warranty expense averages 2% of sales. The company should:

Consider the warranty expense a remote liability since the rate is only 2%.

1. Recognize warranty expense and liability in the year of the sale.
2. Consider the warranty expense a contingent liability.
3. Recognize warranty expense at the time the warranty work is performed.
4. Recognize warranty liability when the company purchases the bicycles.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

A company sold $12,000 worth of bicycles with an extended warranty. The company's experience is that warranty expense averages 2% of sales. The current period's entry to record the warranty expense is:

Debit Prepaid Warranties $240; credit Warranty Expense $240.

1. Debit Sales Allowances $240; credit Estimated Warranty Liability $240.
2. Debit Estimated Warranty Liability $240; credit Cash $240.
3. Debit Warranty Expense $240; credit Cash $240.
4. Debit Warranty Expense $240; credit Estimated Warranty Liability $240.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

The deferred income tax liability:

1. Is a contingent liability.
2. Can result in a deferred income tax asset.
3. Is recorded whether or not the difference between taxable income and financial accounting income is permanent or temporary.

Is never recorded.

1. Results from the income tax expense reported on the income statement differing from the amount of income taxes payable to the government.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; BB Legal; FN Measurement

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:

Debit Estimated Warranty Liability $7,400; credit Warranty Expense $7,400

1. Debit Warranty Expense $7,400; credit Sales $7,400.
2. Debit Warranty Expense $7,400; credit Estimated Warranty Liability $7,400.
3. Debit Estimated Warranty Liability $7,400; credit Cash $7,400.
4. No entry is recorded until the items are returned for warranty repairs.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

A company has a selling price of $1,800 each for its printers. Each printer has a 2 year warranty that covers replacement of defective parts. It is estimated that 2% of all printers sold will be returned under the warranty at an average cost of $150 each. During November, the company sold 30,000 printers, and 400 printers 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?

A) $60,000 B) $55,000 C) $45,000 D) $26,000 E) $90,000

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

Springfield Company offers a bonus plan to its employees and the amount of the employee bonuses for the current year is estimated to be $32,500 to be paid during January of the following year. The journal entry on December 31 to record the bonuses is:

Debit Unearned Bonuses $32,500; credit Bonus Payable $32,500.

1. No entry since the bonuses are not paid until January.
2. Debit Employee Bonus Expense $32,500; credit Prepaid Employee Bonus $32,500.
3. Debit Estimated Bonus Payable $32,500; credit Cash $32,500.
4. Debit Employee Bonus Expense $32,500; credit Bonus Payable $32,500.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

A payroll register does not include:

1. Hours worked.
2. Deductions.
3. Pay period dates.
4. Prior year's earnings
5. Gross pay and net pay.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The wage bracket withholding table is used to:

1. Compute Medicare withholding.
2. Compute unemployment taxes.
3. Prepare the W-4.
4. Compute social security withholding.
5. Compute federal income tax withholding.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

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

1. W-4.
2. Form 941.
3. Wage bracket withholding table.
4. W-2.
5. Tax table.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Legal

Companies may use a special bank account solely for the purpose of paying employees, by depositing an amount equal to the total employees' net pay into the account each pay period and drawing the employees' payroll checks on the account. This account is a(n):

Payroll bank account.

1. Federal depository bank account.
2. Employee's Individual Earnings account.
3. Payroll register account.
4. Employees' bank account.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

If a company uses a special payroll bank account:

1. There is no need to issue W-2's.
2. The company does not need to issue paychecks.
3. The company draws one check for the entire payroll on the regular bank account and deposits it in the payroll bank account.

The company must use a federal depository bank for the payroll bank account.

1. There is no need for a payroll register.

Learning Objective: 11-P5 Appendix 11A-Identify and describe the details of payroll reports, records, and procedures. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Cantrell Company is required by law to collect and remit sales taxes to the state. If Cantrell has

$8,000 of cash sales that are subject to an 8% sales tax, what is the journal entry to record the cash sales?

Debit Accounts Receivable $8,640; credit Sales $8,000; credit Sales Taxes Payable $640.

1. Debit Cash $8,000; credit Sales $7,360; credit Sales Taxes Payable $640.
2. Debit Sales Taxes Payable $640; debit Cash $7,360; credit Sales $8,000.
3. Debit Cash $8,000; credit Sales $8,000; and record the taxes when paid.
4. Debit Cash $8,640; credit Sales $8,000; credit Sales Taxes Payable $640.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Measurement

Furniture World is required by law to collect and remit sales taxes to the state. If Furniture World has $78,000 of cash sales that are subject to a 6% sales tax, what is the journal entry to record the cash sales?

Debit Accounts Receivable $82,680; credit Sales $78,000; credit Sales Taxes Payable $4,680.

1. Debit Cash $82,680; credit Sales $78,000; credit Sales Taxes Payable $4,680.
2. Debit Sales Taxes Payable $4,680; debit Cash $73,220; credit Sales $78,000.
3. Debit Cash $78,000; credit Sales $73,320; credit Sales Taxes Payable $4,680.
4. Debit Cash $78,000; credit Sales $78,000; and record the taxes when paid.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Measurement

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

1. Liabilities that do not have a fixed due date, but are payable on demand, are reported as long-term liabilities.
2. Long-term liabilities can be reported on the balance sheet in a single total or in multiple categories.
3. Long-term liabilities include long-term notes payable, warranty liabilities, lease liabilities, and bonds payable.
4. A single long-term liability can be divided between current and noncurrent sections on the balance sheet.
5. Liabilities not expected to be paid within the longer of one year or the company's operating cycle are reported as long-term liabilities.

Learning Objective: 11-C1 Describe current and long-term liabilities and their characteristics. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

On April 12, Hong Company agrees to accept a 60-day, 10%, $4,500 note from Indigo Company to extend the due date on an overdue account. What is the journal entry needed to record the transaction by Indigo Company?

Debit Notes Payable $4,500; credit Accounts Payable $4,500.

1. Debit Sales $4,500; credit Notes Payable $4,500.
2. Debit Accounts Payable $4,500; credit Notes Payable $4,500.
3. Debit Cash $4,500; credit Notes Payable $4,500.
4. Debit Accounts Receivable $4,500; credit Notes Payable $4,500.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

On April 12, Hong Company agrees to accept a 60-day, 10%, $4,500 note from Indigo Company to extend the due date on an overdue account. What is the journal entry that Indigo Company would make, when it records payment of the note on the maturity date? (Use 360 days a year.)

Debit Cash $4,575; credit Interest Revenue $75; credit Notes Payable $4,500.

1. Debit Notes Payable $4,500; credit Interest Expense $75, credit Cash $4,425.
2. Debit Notes Payable $4,500; debit Interest Expense $75; credit Cash $4,575.
3. Debit Cash $4,575; credit Interest Revenue $75; credit Notes Receivable $4,500.
4. Debit Notes Payable $4,500; debit Interest Expense $112; credit Cash $4,612.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

On May 22, Jarrett Company borrows $7,500 from Fairmont Financing, signing a 90-day, 8%,

$7,500 note. What is the journal entry needed to record the transaction by Jarrett Company?

Debit Cash $7,500; credit Notes Payable $7,500.

1. Debit Notes Receivable $7,500; credit Cash $7,500.
2. Debit Cash $7,650; credit Notes Payable $7,650.
3. Debit Accounts Payable $7,500; credit Notes Payable $7,500.
4. Debit Cash $7,500; credit Accounts Payable $7,500.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

On May 22, Jarrett Company borrows $7,500 from Fairmont Financing, signing a 90-day, 8%,

$7,500 note. What is the journal entry needed to record the payment of the note by Jarrett Company on the maturity date?

Debit Cash $7,650; credit Interest Revenue $150; credit Notes Receivable $7,500.

1. Debit Notes Payable $7,500; credit Cash $7,500.
2. Debit Notes Payable $7,500; credit Interest Expense $150; credit Cash $7,350.
3. Debit Notes Payable $7,500; debit Interest Expense $150; credit Cash $7,650.
4. Debit Notes Payable $7,650; credit Cash $7,650.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

An employee earns $5,500 per month working for an employer. The FICA tax rate for Social Security is 6.2% of the first $118,500 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. 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? (Round your intermediate calculations to two decimal places.)

A) $4,672.25 B) $4,430.25 C) $4,386.25 D) $4,827.00 E) $4,628.25

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

During the first week of January, an employee works 46 hours. For this company, workers earn 150% of their regular rate for hours in excess of 40 per week. Her pay rate is $16 per hour, and her wages are subject to no deductions other than FICA Social Security, FICA Medicare, and federal income taxes. The tax rate for Social Security is 6.2% of the first $118,500 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The employee has $80 in federal income taxes withheld. What is the amount of this employee's gross pay for the first week of January?

A) $784 B) $1,156 C) $1,004 D) $736 E) $1,104

Explanation:	A)	Regular	Hours 40	Rate $16	Total $640
		Overtime	6	$24	144
		Gross pay			$784
	B)	Regular	Hours 40	Rate $16	Total $640
		Overtime	6	$24	144
		Gross pay			$784

C)	Regular	Hours 40	Rate $16	Total $640
	Overtime	6	$24	144
	Gross pay			$784
D)	Regular	Hours 40	Rate $16	Total $640
	Overtime	6	$24	144
	Gross pay			$784
E)	Regular	Hours 40	Rate $16	Total $640
	Overtime	6	$24	144
	Gross pay			$784

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

During the first week of January, an employee works 46 hours. For this company, workers earn 150% of their regular rate for hours in excess of 40 per week. Her pay rate is $16 per hour, and her wages are subject to no deductions other than FICA Social Security, FICA Medicare, and federal income taxes. The tax rate for Social Security is 6.2% of the first $118,500 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The employee has $80 in federal income taxes withheld. What is the amount of this employee's net pay for the first week of January?

A) $784.00 B) $139.98 C) $923.98 D) $724.02 E) $644.02

FICA - Social Security (.062 * $784)	$48.61
FICA - Medicare (.0145 * $784)	11.37
Federal income taxes withheld	80.00
Total deductions		$139.98
Net pay		$644.02

Hours Regular

Rate

Total

$16

$640.00

Overtime

$24

144.00

Gross pay

$784.00

	FICA - Social Security (.062 * $784)	$48.61
	FICA - Medicare (.0145 * $784)	11.37
	Federal income taxes withheld Total deductions	80.00	$139.98
	Net pay		$644.02
C)	Hours Rate Total Regular 40 $16		$640.00
	Overtime 6 $24		144.00
	Gross pay		$784.00

	FICA - Social Security (.062 * $784)	$48.61
	FICA - Medicare (.0145 * $784)	11.37
	Federal income taxes withheld Total deductions	80.00	$139.98
	Net pay		$644.02
D)	Hours Rate Regular 40 $16		Total $640.00
	Overtime 6 $24		144.00
	Gross pay		$784.00

	FICA - Social Security (.062 * $784)	$48.61
	FICA - Medicare (.0145 * $784)	11.37
	Federal income taxes withheld Total deductions	80.00	$139.98
	Net pay		$644.02
E)	Hours Rate Regular 40 $16		Total $640.00
	Overtime 6 $24		144.00
	Gross pay		$784.00

FICA - Social Security (.062 * $784)	$48.61
FICA - Medicare (.0145 * $784)	11.37
Federal income taxes withheld	80.00
Total deductions		$139.98
Net pay		$644.02

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

The chief executive officer earns $20,000 per month. As of May 31, her gross pay was $100,000. The tax rate for Social Security is 6.2% of the first $118,500 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. What is the amount of FICA-Social Security withheld from this employee for the month of June?

A) $290.00 B) $268.25 C) $1,147.00 D) $7,347.00 E) $1,240.00

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

The chief executive officer earns $20,000 per month. As of May 31, her gross pay was $100,000. The tax rate for Social Security is 6.2% of the first $118,500 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. What is the amount of FICA - Medicare withheld from this employee for the month of June?

A) $1,240.00 B) $7,347.00 C) $290.00 D) $1,147.00 E) $268.25

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

An employee earned $4,600 in February working for an employer. The FICA tax rate for Social Security is 6.2% of the first $118,500 earned during each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The employee has $644 in federal income taxes withheld and has voluntary deductions for health insurance of $50 and contributes 10% of gross pay to a retirement plan each month. The employer pays the $200 remainder of the health insurance premium and an equal amount of contribution to the retirement fund. What is the amount of net pay for the employee for the month of February?

A) $3,446.00 B) $3,496.00 C) $3,604.10 D) $3,094.10 E) $2,634.10

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

An employee earns $5,500 per month working for an employer. The FICA tax rate for Social Security is 6.2% of the first $118,500 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. 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?

A) $841.50 B) $750.75 C) $464.75 D) $602.75 E) $420.75

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

An employee earned $4,600 in February working for an employer. Cumulative earnings of the previous pay periods are $4,800. The FICA tax rate for Social Security is 6.2% of the first

$118,500 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. What is the amount the employer should record as payroll taxes expense for the month of February?

A) $351.90 B) $483.90 C) $581.90 D) $230.00 E) $110.00

Learning Objective: 11-P2 Compute and record employee payroll deductions and liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; BB Legal; FN Measurement

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

1. The amount of FICA deducted from the employee is credited to a liability account.
2. FICA taxes are deducted from the employee.
3. Employers must pay withheld FICA taxes to the IRS.
4. A self-employed person is exempt from FICA taxes.
5. An employer must pay FICA taxes equal to the amount withheld from the employee.

Learning Objective: 11-P3 Compute and record employer payroll expenses and liabilities. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Decision Making

Athena Company provides employee health insurance that costs $5,000 per month. In addition, the company contributes an amount equal to 5% of the employees' $120,000 gross salary to a retirement program. The entry to record the accrued benefits for the month would include a:

Debit to Medical Insurance Payable $5,000.

1. Debit to Employee Benefits Expense $11,000.
2. Credit to Employee Benefits Expense $11,000.
3. Debit to Employee Retirement Program Payable $6,000.
4. Debit to Payroll Taxes Expense $11,000.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

Athena Company's salaried employees earn two weeks of vacation per year. It pays $858,000 in total employee salaries for 52 weeks but its employees work only 50. Record Athena Company's weekly journal entry to record the vacation expense:

Debit Vacation Benefits Expense $17,160; credit Vacation Benefits Payable $17,160.

1. Debit Vacation Benefits Payable $16,500; credit Vacation Benefits Expense $16,500.
2. Debit Vacation Benefits Payable $660; credit Vacation Benefits Expense $660.
3. Debit Vacation Benefits Expense $16,500; credit Vacation Benefits Payable $16,500.
4. Debit Vacation Benefits Expense $660; credit Vacation Benefits Payable $660.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

All of the following statements related to current liabilities for U.S. GAAP and IFRS are true

except:

1. The definitions and characteristics of current liabilities are broadly similar for both U.S. GAAP and IFRS.
2. Because tax regulatory systems of countries are different, the approach to recording taxes is totally different.
3. The term provision is typically used under IFRS to refer to what is titled liability under U.S. GAAP.
4. When there is little uncertainty surrounding current liabilities, both require companies to record them in a similar manner.
5. When there is a known current obligation that involves an uncertain amount, but one that can be reasonable estimated, both require similar treatment.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Understand

AACSB: Diversity

AICPA: FN Reporting; BB Global

All of the following statements related to recording warranty expense are true except:

1. Recording estimated warranty expense complies with the full disclosure principle.
2. Warranty costs are probable and the amount can be estimated.
3. Warranty expense should be recorded in the period when the warranty service is performed.
4. Recording estimated warranty expense complies with the matching principle.
5. The seller reports a warranty obligation as a liability.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

During August, Boxer Company sells $356,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a credit balance of $12,800 before adjustment. Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs. The entry to record the estimated warranty expense for the month is:

Debit Estimated Warranty Liability $9,400; credit Warranty Expense $9,400.

1. Debit Warranty Expense $5,000; credit Estimated Warranty Liability $5,000.
2. Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
3. Debit Estimated Warranty Liability $17,800; credit Warranty Expense $17,800.
4. Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

During August, Boxer Company sells $356,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a credit balance of $12,800 before adjustment. Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs. The entry to record the customer warranty repairs is:

Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.

1. Debit Estimated Warranty Liability $17,800; credit Parts Inventory $17,800.
2. Debit Warranty Expense $9,400; credit Estimated Warranty Liability $9,400.
3. Debit Estimated Warranty Liability $9,400; credit Parts Inventory $9,400.
4. Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

During June, Vixen Company sells $850,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 3% of the selling price. Customers returned $14,000 of merchandise for warranty replacement during the month. The entry to record the estimated warranty provision at the end of the month is:

Debit Estimated Warranty Liability $14,000; credit Warranty Expense $14,000.

1. Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.
2. Debit Warranty Expense $25,500; credit Estimated Warranty Liability $25,500.
3. Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
4. Debit Estimated Warranty Liability $11,500; credit Warranty Expense $11,500.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

During June, Vixen Company sells $850,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 3% of the selling price. Customers returned $14,000 of merchandise for warranty replacement during the month. The entry to settle the customer warranties is:

Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.

1. Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000.
2. Debit Estimated Warranty Liability $11,500; credit Merchandise Inventory $11,500.
3. Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
4. Debit Estimated Warranty Liability $25,500; credit Warranty Expense $25,500.

Learning Objective: 11-P4 Account for estimated liabilities, including warranties and bonuses. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

If a company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers, the receipt of cash would be journalized as:

Debit Cash $45,000, credit Sales $45,000.

1. Debit Sales $45,000, credit Unearned Revenue $45,000.
2. Debit Prepaid Subscriptions $45,000, credit Sales $45,000.
3. Debit Unearned Revenue $45,000; credit Sales $45,000.
4. Debit Cash $45,000; credit Unearned Revenue $45,000.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Measurement

A company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers. When the company mails the first quarterly journal to customers, it should record:

Debit Unearned Revenue $11,250, credit Sales $11,250.

1. Debit Prepaid Subscriptions $33,750; credit Unearned Revenue $33,750.
2. Debit Unearned Revenue $45,000; credit Cash $45,000.
3. Debit Prepaid Subscriptions $11,250, credit Sales $11,250.
4. Debit Cash $11,250, credit Sales $11,250.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Measurement

Carson Company faces a probable loss on a pending lawsuit where the amount of the loss is estimated to be $500,000. The journal entry to recognize the potential loss is:

Debit Lawsuit Payable $500,000, credit Contingent Legal Liability $500,000.

1. Debit Legal Expense $500,000; credit Lawsuit Payable $500,000.
2. Debit Contingent Legal Expense $500,000, credit Contingent Legal Liability $500,000.
3. Debit Prepaid Legal Expense $500,000; credit Contingent Legal Liability $500,000.
4. No journal entry is required.

Learning Objective: 11-C2 Identify and describe known current liabilities. Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Measurement

On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of an account payable with Erikson Company. What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.)

A) $320 B) $80 C) $0 D) $960 E) $160

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as replacement of an account payable with Erikson Company. What is the journal entry that should be recorded upon signing the note?

Debit Notes Payable $24,000; debit Interest Expense $160; credit Accounts Payable $24,160.

1. Debit Accounts Payable $24,160; credit Notes Payable $24,160.
2. Debit Notes Payable $24,000; debit Interest Expense $160; credit Cash $24,160.
3. Debit Accounts Receivable $24,000; credit Notes Receivable $24,000.
4. Debit Accounts Payable $24,000; credit Notes Payable $24,000.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

On September 1, Knack Company signed a $50,000, 90-day, 5% note payable with Central Savings Bank. What is the journal entry that should be recorded by Knack upon maturity of the note? (Use 360 days a year.)

Debit Notes Payable $50,625; credit Cash $50,625.

1. Debit Notes Payable $50,000; debit Interest Expense $625; credit Cash $50,625.
2. Debit Interest Expense $625; credit Interest Payable $625.
3. Debit Notes Payable $50,000; credit Interest Revenue $625; credit Cash $49,375.
4. Debit Cash $50,625; credit Notes Receivable $50,625.

Learning Objective: 11-P1 Prepare entries to account for short-term notes payable. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Measurement

A company's has fixed interest expense of $52,000, income taxes expense of $121,000, and net income of $281,000. The company's times interest earned ratio equals:

A) 7.73. B) 0.11. C) 2.33. D) 8.73. E) 5.40.

Learning Objective: 11-A1 Compute the times interest earned ratio and use it to analyze liabilities. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Risk Analysis; BB Resource Management

SHORT ANSWER QUESTIONS

Match each of the following terms with the appropriate definitions.
Employee benefits f. Gross pay
Short-term note payable g. Times interest earned
Payroll bank account h. Warranty
Federal depository bank i. Deferred income tax liability
Payroll register j. Current liabilities

_____ 1. A record for a pay period that shows the pay period dates, regular and overtime hours worked, gross pay, net pay and deductions.

_____ 2. Obligations due within one year or the company's operating cycle, whichever is longer.

_____ 3. A special bank account used solely for paying employees; each pay period an amount equal to the total employees' net pay is deposited and the employees' payroll checks are drawn on that account.

_____ 4. A seller's obligation to replace or correct a product or service that fails to perform as expected within a specified period.

_____ 5. Total compensation earned by an employee.

6. Compensation provided to employees beyond salaries and wages, such as premiums for medical insurance and contributions to pension plans.

_____ 7. Payments of income taxes that are deferred until future years because of temporary differences between GAAP and tax accounting rules.

_____ 8. A bank authorized to accept deposits of amounts payable to the federal government, including payroll taxes.

_____ 9. A calculation of a company's risk of its ability to pay interest when due.

10. A written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.

Learning Objective: 11-C1; 11-C2; 11-A1; 11-P2; 11-P4; 11-P5

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

Match each of the following terms a through j with the appropriate definitions 1 — 10.
FUTA taxes
Contingent liability
Merit rating
Long-term liability
Estimated liability
Net pay
Wage bracket withholding table
Warranty
Withholding allowance
FICA taxes

_____ 1. A measure provided by a state to employers that reflects a company's stability in employing workers.

_____ 2. Taxes that fund Social Security and Medicare, assessed on both employer and employees under the Federal Insurance Contributions Act.

_____ 3. Known obligations of an uncertain amount that can be reasonably estimated.

_____ 4. Obligations of a company requiring payment in more than one year or operating cycle.

_____ 5. Gross pay less all tax and voluntary deductions.

_____ 6. A table of amounts of income tax to be withheld from employees' wages.

_____ 7. A potential obligation that depends on a future event arising from a past transaction.

_____ 8. A seller's obligation to replace or correct a product or service that fails to perform as expected within a specified period.

_____ 9. A number indicated on an employee's Form W-4 that is used to reduce the amount of federal income tax withheld from an employee's pay.

_____ 10. Payroll taxes on employers assessed by the federal government to support the federal unemployment insurance program.

Learning Objective: 11-C1; 11-C2; 11-C3; 11-P2; 11-P3; 11-P4; 11-P5

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

Classify each of the following items as either:
Current liability
Long-term liability
Not a liability
1. 60-day promissory note
2. Payment of a 4-year term loan due this year
3. Salaries payable
4. Debt guarantees
5. FICA taxes payable
6. Income taxes payable
7. Payment of a 30-year term loan due this year
8. Payment of a 30-year term loan due next year. (The company's operating cycle is 2 months.)
9. Warranty work completed this year
10. Accounts payable

Learning Objective: 11-C1; 11-C2; 11-C3

Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

Classify each of the following items as either:
Estimated liability
Contingent liability
Known liability
1. Lawsuit against the company
2. Warranty on products sold this year
3. Accounts payable
4. Income taxes payable
5. Vacation benefits
6. Accrued wages payable
7. Debt guarantees
8. Sales taxes payable
9. Payroll taxes payable
10. Unearned revenues

Learning Objective: 11-C1; 11-C2; 11-C3

Bloom's: Understand AACSB: Analytic

AICPA: BB Industry; FN Measurement

ESSAY QUESTIONS

Define liabilities and explain the difference between current and long-term liabilities.

Learning Objective: 11-C1 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

What are known current liabilities? Cite at least two examples of known current liabilities.

Learning Objective: 11-C2 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

Describe contingent liabilities and how to account for and/or report them.

Learning Objective: 11-C3 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

Describe employer responsibilities for reporting payroll taxes. (To the extent possible, reference the form to be filed for each tax.)

Learning Objective: 11-P5

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; BB Legal; FN Reporting

Explain how to calculate times interest earned and how it is used to analyze a company's risk.

Learning Objective: 11-A1 Bloom's: Understand

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

What is a short-term note payable? Explain the accounting issues related to notes payable.

Learning Objective: 11-P1 Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

Explain the responsibilities of and the accounting by employers for deductions from employee payroll.

Learning Objective: 11-P2 Bloom's: Understand AACSB: Communication

AICPA: BB Legal; FN Measurement

Identify and explain the types of employer payroll taxes.

Learning Objective: 11-P3 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; BB Legal; FN Measurement

What are estimated liabilities? Cite at least two examples and explain why they are classified as estimated liabilities.

Learning Objective: 11-P4 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; BB Legal; FN Measurement

Identify and discuss the factors involved in computing federal income taxes withheld from employees.

Learning Objective: 11-P2 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; BB Legal; FN Measurement

SHORT ANSWER QUESTIONS

A company had income before interest expense and income taxes of $186,000, and its interest expense is $55,000. Calculate the company's times interest earned ratio.

Learning Objective: 11-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

A company's income before interest expense and income taxes is $302,400, and its interest expense is $62,000. Calculate the company's times interest earned ratio.

Learning Objective: 11-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

ESSAY QUESTIONS

A company's income before interest expense and income taxes in 2014 and 2015 is $225,000 and

$250,000, respectively. Its interest expense was $45,000 for both years. Calculate the company's times interest earned ratio, and comment on its level of risk.

Learning Objective: 11-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

A company's income before interest expense and income taxes in 2014 and 2015 is $487,500 and

$427,000, respectively. Its fixed interest expense was $125,000 for both years. Calculate the company's times interest earned ratio, and comment on its level of risk.

Learning Objective: 11-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

SHORT ANSWER QUESTIONS

Floral Depot's income before interest expense and income taxes was $5,900 million, and interest expense was $38 million. Calculate Floral Depot's times interest earned.

Learning Objective: 11-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

Kelso had income before interest expense and income taxes of $570 million and interest expense of

$37 million. Calculate Kelso' times interest earned.

Learning Objective: 11-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

ESSAY QUESTIONS

SaveMart had income before interest expense and income taxes of $12,581 million and interest expense of $1,063 million. Valueland had income before interest expense and income taxes of

$3,596 million and interest expense of $1,143 million. Calculate the times interest earned for each company and comment on the results.

Learning Objective: 11-A1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Resource Management; FN Risk Analysis

On November 1, Casey's Snowboards signed a $12,000, 90-day, 5% note payable to cover a past due account payable.
What amount of interest expense on this note should Casey's Snowboards report on year-end December 31?
Prepare Casey's journal entry to record the issuance of the note payable.
Prepare Casey's adjusting journal entry at the end of the year
Prepare Casey's journal entry to record the payment of the note on February 1 of the following year.

d.	2/1	Notes Payable	12,000
		Interest Payable	100
		Interest Expense ($12,000 * 0.05 * 30/360) Cash	50	12,150

Learning Objective: 11-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

On June 1, Jasper Company signed a $25,000, 120-day, 6% note payable to cover a past due account payable.
What is the total amount of interest to be paid on this note?
Prepare Jasper Company's general journal entry to record the issuance of the note payable.
Prepare Jasper Company's general journal entry to record the payment of the note on September 29.

Learning Objective: 11-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

On September 15, SkateWorld borrowed $70,000 cash from Mutual Bank by signing a 6%, 60-day note payable.
Prepare SkateWorld's journal entry to record the issuance of the note payable.
Prepare SkaetWorld's journal entry to record the payment of the note at maturity.

Learning Objective: 11-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

On December 1, Williams Company borrowed $45,000 cash from Second National Bank by signing a 90-day, 9% note payable.
Prepare Williams' journal entry to record the issuance of the note payable.
Prepare Williams' journal entry to record the accrued interest due at December 31.
Prepare Williams' journal entry to record the payment of the note on March 1 of the next year.

c.	3/1	Note Payable	45,000
		Interest Payable	337.50
		Interest Expense ($45,000 * .09 * 60/360)	675.00
		Cash		46,012.50

Learning Objective: 11-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

SHORT ANSWER QUESTIONS

A company borrowed $60,000 by signing a 60-day, 5% note payable from its bank. Compute the total cash payment due on the note's maturity date.

Learning Objective: 11-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

ESSAY QUESTIONS

Calculate the total amount of FICA withholding for an employee whose pay is $2,400 for the first pay period of the year. The tax rate for FICA–Social Security is 6.2% and the tax rate for FICA

–Medicare is 1.45%.

Learning Objective: 11-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

An employee earns $9,450 for the current period. The cumulative earnings of previous pay periods is $110,000. Social security tax applies to the first $118,500 of employee earnings. Calculate the total and individual amounts to be withheld for social security (6.2%), Medicare (1.45%) and federal income tax (15%).

FICA–Social security* =	$ 527.00
FICA–Medicare =	137.03
Federal income tax =	1,417.50
	$2,081.53

Learning Objective: 11-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

A company has three employees. Total salaries for the month of January were $8,000. The federal income tax rate for all employees is 15%. The FICA–social security tax rate is 6.2% and the FICA

–Medicare tax rate is 1.45%. Calculate the amount of employee taxes withheld and prepare the company's journal entry to record the January payroll assuming these were the only deductions.

Diff: 3

Answer: Salaries Expense	8,000
FICA–Social Security Taxes Payable ($8,000 x .062)		496
FICA–Medicare Taxes Payable ($8,000 x .0145)		116
Employees' Federal Income Taxes Payable ($8,000 x .15)		1,200
Salaries Payable		6,188

Topic: Payroll Liabilities Learning Objective: 11-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

A company has 90 employees and a weekly payroll of $117,000. The FICA–social security tax withheld totals $7,254 and the FICA–Medicare tax withheld totals $1,696.50. The total withholding for federal income tax is $16,500. Prepare the journal entry to accrue this week's salaries expense and withholdings.

Diff: 2

Answer: Salaries Expense	117,000.00
FICA–Social Security Taxes Payable		7,254.00
FICA–Medicare Taxes Payable		1,696.50
Employee's Federal Income Taxes Payable		16,500.00
Salaries Payable		91,549.50

Topic: Payroll Liabilities Learning Objective: 11-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

Santa Barbara Express has 4 sales employees, each of whom earns $5,000 per month and is paid on the last working day of the month. Each employee's wages are subject to FICA social security taxes of 6.2% and Medicare taxes of 1.45% on all wages. Withholding for each employee also includes federal income tax of 16% and monthly medical insurance premiums of $110 for each employee.
Prepare the general journal entry to accrue the monthly sales salaries expense at January 31.
The employer payroll taxes for Santa Barbara Express include FICA taxes, federal unemployment taxes of 0.6% of the first $7,000 paid each employee, and state unemployment taxes of 4.0% of the first $7,000 paid to each employee. Prepare the journal entry to record the employer's payroll taxes at January 31 for Santa Barbara Express. (Assume that none of the employees has reached the unemployment limit of $7,000.)

FICA-Social Security Taxes Payable ($20,000 * .062)	1,240
FICA-Medicare Taxes Payable ($20,000 * .0145)	290
Employee Federal Income Taxes Payable (20,000 * .16)	3,200
Employee Medical Insurance Payable (4 * 110)	440
Salaries Payable	14,830

Jan. 31 Payroll Taxes Expense	2,450
FICA–Social Security Taxes Payable		1,240
FICA–Medicare Taxes Payable		290
State Unemployment Taxes Payable (20,000 * .04)		800
Federal Unemployment Taxes Payable (20,000 * .006)		120

Learning Objective: 11-P2; 11-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

The payroll records of a company provided the following data for the weekly pay period ended December 7:

	Earnings
	to End of		Federal	Medical
	Previous	Gross	Income	Insurance	Union	United
Employee	Week	Pay	Taxes	Deduction	Dues	Way
Ronald Arthur	$ 54,000	$1,200	$216	$125	$15	$15
John Baines	40,500	900	162	125	15	30
Ted Carter	45,000	1,000	180	150	-0-	20

The FICA social security tax rate is 6.2% and the FICA Medicare tax rate is 1.45% on all of this week's wages paid to each employee. The federal and state unemployment tax rates are 0.8% and 5.4%, respectively, on the first $7,000 paid to each employee. Prepare the journal entries to (a)

accrue the payroll and (b) record payroll taxes expense.

Answer: a.	Dec. 7	Salaries and Wages Expense Federal Income Taxes Payable	3,100.00	558.00
		Medical Insurance Payable		400.00
		Union Dues Payable		30.00
		United Way Payable		65.00
		FICA–Social Security Taxes Payable		192.20
		FICA–Medicare Taxes Payable		44.95
		Salaries Payable		1,809.85
b.	Dec. 7	Payroll Taxes Expense FICA–Social Security Taxes Payable	237.15	192.20
		FICA–Medicare Taxes Payable		44.95

Diff: 3

Topic: Payroll Liabilities; Payroll Expenses Learning Objective: 11-P2; 11-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

A company's payroll for the week ended May 15 included earned salaries of $20,000. All of that week's pay is subject to FICA social security taxes of 6.2% and Medicare taxes of 1.45%. In addition, the company withholds the following amounts for this weekly pay period: $900 for medical insurance, $3,400 for federal income taxes, and $180 for union dues.
Prepare the general journal entry to accrue the payroll.
The company is subject to state unemployment taxes at the rate of 2% and federal unemployment taxes at the rate of 0.6%. By May 15, some employees had earned over $7,000, so only $11,000 of the $20,000 weekly gross pay was subject to unemployment tax. Prepare the general journal entry to accrue the employer's payroll tax expense.

Answer: a. May 15	Sales Salaries Expense	20,000
	FICA–Social Security Taxes Payable		1,240
	FICA–Medicare Taxes Payable		290
	Employee Income Taxes Payable		3,400
	Employee Medical Insurance Payable		900
	Employee Union Dues Payable		180
	Salaries Payable		13,990

b. May 15	Payroll Taxes Expense	1,816
	FICA–Social Security Taxes Payable		1,240
	FICA–Medicare Taxes Payable		290
	State Unemployment Taxes Payable ($11,000 * .02)		220
	Federal Unemployment Taxes Payable ($11,000 * .006)		66

Diff: 3

Topic: Payroll Liabilities; Payroll Expenses Learning Objective: 11-P2; 11-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

A company's employees had the following earnings records at the close of the current payroll period:

Earning through

Prior Pay Earning this

Employees Period Pay Period

F. Argent....	$11,300	$3,900
A. Garza.......	6,100	2,500
L. Hong..........	9,500	3,100
R. Levinson...	4,800	1,400
J. Young.......	10,000	3,000

The company's payroll taxes expense on each employee's earnings includes: FICA Social Security taxes of 6.2% on the first $118,500 of earnings plus 1.45% FICA Medicare on all wages; 0.6% federal unemployment taxes on the first $7,000; and 2.5% state unemployment taxes on the first

$7,000. Compute the employer's total payroll taxes expense for the current pay period.

Answer:	FICA–Social Security	$13,900 * .062 =	$861.80
	FICA–Medicare	$13,900 * .0145 =	201.55
	FUTA	$2,3001 * .006 =	13.80
	SUTA	$2,3001 * .025 =	57.50
	Total employer payroll taxes		$1,134.65

Diff: 3

1 Employee pay subject to unemployment taxes:

Argent $0 + Garza $900 + Hong $0 + Levinson $1,400 + Young $0 = $2,300

Topic: Payroll Expenses Learning Objective: 11-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

An employer has an employee benefit package that includes employer-paid health insurance and an employer-paid retirement program. During March, the employer paid $5,500 for health insurance, and contributed to the employee retirement program 10% of the employees' $120,000 gross salaries. Prepare the journal entry to record these employee benefits.

Diff: 2

Answer: Employee Benefits Expense	17,500
Employee Health Insurance Payable		5,500
Employee Retirement Program Payable		12,000

Topic: Estimated Liabilities Learning Objective: 11-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

A company sells its product subject to a warranty that covers the cost of parts for repairs during the six months after the date of sale. Warranty costs are estimated to be 5% of sales. During the month of July, the company performed warranty work and used $11,000 of parts to perform the warranty work. Sales for July were $450,000.
Record the warranty expense for the month of July.
Record the costs of the warranty work completed in June.
If the Estimated Warranty Liability account had a credit balance of $10,000 on May 31, what is the account balance at July 31?

Learning Objective: 11-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

A company sells tablet computers for $1,300 each. The price includes a two-year warranty. During the current year, the company sells 400 tablets. On the basis of past experience, the warranty costs are estimated to be $280 per tablet. The actual warranty costs (paid in cash) by the company during the current year were $65,000. Prepare general journal entries to record the (a) estimated warranty expense and (b) warranty repair costs during current year.

Diff: 3

Answer: a. Warranty Expense (400 * $280)	112,000
Estimated Warranty Liability		112,000
b. Estimated Warranty Liability	65,000
Cash		65,000

Topic: Estimated Liabilities Learning Objective: 11-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

A company sells sofas with a 6-month warranty. In January, the company sold 100,000 sofas at

$1,750 each; and 500 sofas needed repairs during that same month. The total repairs amounted to

$85,000 costs from the upholstery materials inventory. It is estimated that 2% of all units sold will need repairs under warranty at an estimated cost of $200 per unit. Prepare the journal entries to record (a) estimated warranty expense for January and (b) warranty repair costs for January.

Answer: Jan 31 Warranty Expense	400,000
Estimated Warranty Liability		400,000
(100,000 * .02 * $200)
Jan. 31 Estimated Warranty Liability	85,000
Upholstery Materials Inventory Diff: 3		85,000
Topic: Estimated Liabilities
Learning Objective: 11-P4
Bloom's: Apply
AACSB: Analytic
AICPA: BB Industry; FN Measurement

Early Co. offers its employees a bonus equal to 2% of the company's net income. The estimated net income for the year is expected to be $800,000. Prepare the general journal entry to record the estimated employee bonus plan expense.

Learning Objective: 11-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

A company's employer payroll tax rates are 0.6% for federal unemployment taxes, 5.4% for state unemployment taxes, 6.2% for FICA social security taxes on earnings up to $118,500, and 1.45% for FICA Medicare taxes on all earnings. Compute the W-2 Wage and Tax Statement information required below for the following employees:

Employee	Gross Earnings	Federal Income Taxes	Withheld
A. Baylor	$114,000	$17,600
C. Jasmine	52,000	8,200

A. Baylor C. Jasmine

W-2 Information:
Federal Income Tax Withheld
Wages, Tips, Other Compensation
Social Security Tax Withheld
Social Security Wages
Medicare Tax Withheld
Medicare Wages
Answer: W-2 Information:	A. Baylor	C. Jasmine
Federal Income Tax Withheld	$17,600.00	$ 8,200.00
Wages, Tips, Other Compensation	114,000.00	52,000.00
Social Security Tax Withheld Social Security Wages	7,068.00 ($114,000 * .062) 114,000.00	3,224.00 (52,000 * .062) 52,000.00
Medicare Tax Withheld Medicare Wages	1,653.00 ($114,000 * .0145) 114,000.00	754.00 (52,000 * .0145) 52,000.00

Diff: 3

Topic: Payroll Liabilities; Payroll Reports, Records and Procedures Learning Objective: 11-P2; 11-P5

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

The payroll records of a company provided the following data for the current weekly pay period ended March 12.

	Earnings
	to End of		Federal	Medical
	Previous	Gross	Income	Insurance	Union	United
Employees	Week	Pay	Taxes	Deduction	Dues	Way
D. Hui	$ 5,800	$800	$120	$35	$10	$10
B. Kim	6,850	1,100	180	35	10	15
C. Sly	12,900	1,440	404	35	10	40

Assume that the Social Security portion of the FICA taxes is 6.2% on the first $118,500 and the Medicare portion is 1.45% of all wages paid to each employee for this pay period. The federal and state unemployment tax rates are 0.8% and 5.4%, respectively, on the first $7,000 paid to each employee. Calculate the net pay for each employee.

Learning Objective: 11-P2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

A company's payroll information for the month of May follows:

Administrative salaries	$4,000
Sales salaries	5,500
FICA-Social Security taxes withheld	589
FICA-Medicare taxes withheld	138
Federal income taxes withheld	1,300
Medical insurance premiums withheld	415
Union dues withheld	205

On May 31 the company issued Check No. 4625 payable to the Payroll Bank Account to pay for the May payroll. It issued payroll checks to the employees after depositing the check. (1) Prepare the journal entry to record (accrue) the employer's payroll for May. (2) Prepare the journal entry to record payment of the May payroll. The federal and state unemployment tax rates are 0.6% and 5.4%, respectively, on the first $7,000 paid to each employee. The wages and salaries subject to these taxes were $6,000. (3) Prepare the journal entry to record the employer's payroll taxes.

Answer: May	31	Administrative Salaries Expense	4,000
		Sales Salaries Expense	5,500
		FICA-Social Security Taxes Payable	589
		FICA-Medicare Taxes Payable	138
		Employee Federal Income Taxes Payable	1,300
		Employee Medical Insurance Payable	415
		Employee Union Dues Payable	205
		Salaries Payable	6,853
	31	Salaries Payable	6,853
		Cash	6,853
	31	Payroll Taxes Expense	1,087
		FICA-Social Security Taxes Payable	589
		FICA-Medicare Taxes Payable	138
		Federal Unemployment Taxes Payable*	36
		State Unemployment Taxes Payable*	324

Diff: 3

*$6,000 * 0.006 = $36.

*$6,000 * 0.054 = $324.

Topic: Payroll Liabilities; Payroll Expenses Learning Objective: 11-P2; 11-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

Cardinal Company sells merchandise for $24,000 cash on March 31 (cost of merchandise is

$12,300). The sales tax law requires Cardinal to collect 8.5% sales tax on every dollar of merchandise sold. Record the entry for the sale and its applicable sales tax.(Assume the company uses the periodic inventory method to keep track of inventory)

Diff: 2

Answer: Cash	26,040
Sales Taxes Payable (24,000 * .085)		2,040
Sales		24,000

Topic: Known Liabilities Learning Objective: 11-C2 Bloom's: Apply

AACSB: Analytic AICPA: BB Industry

Star Recreation receives $48,000 cash in advance ticket sales for 12 home games. Record the advance ticket sales on April 30. Record the revenue earned for the first home game played on August 14.

Diff: 2

Answer: Apr. 30 Cash	48,000
Unearned Ticket Revenue		48,000
Aug. 14 Unearned Ticket Revenue	4,000
Ticket Revenue		4,000

Topic: Known Liabilities Learning Objective: 11-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

On January 31, Ransom Company's payroll register showed that its employers earned $30,320 of office salaries and $82,750 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes as the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $16,960 of federal income taxes, $3,350 of medical insurance deductions (which represents 50% of the total cost of the employee medical insurance), and $4,210 of 401(k) retirement contribution deductions. Ransom Company pays the other 50% of the employee insurance cost and matches the employee 401(k) contributions. Several employees earned more than $7,000 for the period which reduced salaries subject to unemployment to $104,000. No employees exceeded the FICA-Social Security taxable wage base.
Prepare the journal entry to record Ransom Company's January 31 payroll expenses and liabilities.
Prepare the journal entry to record Ransom Company's employer payroll taxes resulting from the January 31 payroll. Ransom's merit rating reduces its state unemployment (SUTA) to 4% of the first

$7,000 paid each employee. The federal unemployment tax (FUTA) rate is 0.6%.

Prepare the journal entry to record Ransom's additional employee expenses.

Answer: Jan. 31 Office Salaries Expense	30,320.00
Sales Salaries Expense	82,750.00
FICA-Social Security Taxes Payable (113,070 * .062)		7,010.34
FICA-Medicare Taxes Payable (113,070 * .0145)		1,639.52
Employee Federal Income Taxes Payable		16,960.00
Employee Medical Insurance Payable		3,350.00
Employee Retirement Program Payable		4,210.00
Salaries Payable		79,900.14

Jan. 31 Payroll Taxes Expense	13,433.86
FICA-Social Security Taxes Payable (113,070 * .062)		7,010.34
FICA-Medicare Taxes Payable (113,070 * .0145)		1,639.52
SUTA Taxes Payable (104,000 * .04)		4,160.00
FUTA Taxes Payable (104,000 * .006)		624.00

Answer: Jan. 31 Employee Benefits Expense	7,560.00
Employee Medical Insurance Payable		3,350.00
Employee Retirement Program Payable		4,210.00

Diff: 3

Topic: Payroll Liabilities; Payroll Expenses Learning Objective: 11-P2; 11-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

General Co. entered into the following transactions involving short-term notes payable.

On May 14, General purchased $40,000 merchandise from Steller Co., terms are 2/15, n/30. General uses the perpetual inventory system. On May 29, General replaced the May 14 account payable with a 60-day, $36,000 note bearing 8% annual along with paying $4,000 in cash. On July 28, General paid the amount due on the note at maturity.

Prepare journal entries for all the preceding transactions and events.

Answer: 5/14 5/29	Merchandise Inventory Accounts Payable Accounts Payable	40,000 40,000	40,000
	Notes Payable		36,000
7/28	Cash Note Payable	36,000	4,000
	Interest Expense ($36,000 * .08 * 60/360) Cash	480	36,480

Diff: 2

Topic: Short-term Notes Payable Learning Objective: 11-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

Drake Company pays its employees for two weeks of vacation each year. The total annual cost of the vacation benefit is $109,920. Prepare the journal entry to record the monthly accrued vacation expense.

Learning Objective: 11-P4 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

Hollow Company provides you with following information for two of its employees. The company is subject to the following taxes.

Tax	Rate	Applied To
FICA–Social Security	6.20%	First $118,500
FICA–Medicare	1.45%	All gross pay
FUTA	0.60%	First $7,000
SUTA	3.20%	First $7,000

Compute amounts for each of these four taxes as applied to each employee's gross earnings for November.

Gross Pay through October	Gross Pay for November
a. $6,400	$2,000
b. $112,000	$9,400

a.	Wages Subject To Tax	Rate	Taxes
FICA–Social Security	$2,000	6.20%	$124.00
FICA–Medicare	2,000	1.45	29.00
FUTA	600	0.60	3.60
SUTA	600	3.20	19.20

b.	Wages Subject To Tax	Rate	Taxes
FICA–Social Security	$6,500	6.20%	$403.00
FICA–Medicare	9,400	1.45	136.30
FUTA	0	0.60	.00
SUTA	0	3.20	.00

Learning Objective: 11-P3 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

Deacon Company provides you with following information related to payroll transactions for the month of May. Prepare journal entries to record the transactions for May.

Office

Salaries

Sales Salaries

Social Security

Taxes

Medicare Taxes

Federal Income

Taxes

$38,000

$26,000

$3,968

$928

$5,600

Recorded the May payroll using the payroll register information given above.
Recorded the employer's payroll taxes resulting from the May payroll. The company had a merit rating that reduces its state unemployment tax rate to 3.5% of the first $7,000 paid each employee. Only $42,000 of the current months salaries are subject to unemployment taxes. The federal rate is 0.6%.
Issued a check to Reliant Bank in payment of the May FICA and employee taxes.
Issued a check to the state for the payment of the SUTA taxes for the month of May.
Issued a check to Reliant Bank in payment of the employer's quarterly FUTA taxes for the first quarter in the amount of $1,020.

Diff: 3

Answer: a.	Office Salaries Expense	38,000
	Sales Salaries Expense	26,000
	FICA–Social Security Taxes Payable		3,968
	FICA–Medicare Taxes Payable		928
	Employee Federal Income Taxes Payable		5,600
	Salaries Payable		53,504
b.	Payroll Taxes Expense FICA–Social Security Taxes Payable	6,618	3,968
	FICA–Medicare Taxes Payable		928
	State Unemployment Taxes Payable		1,470
	Federal Unemployment Taxes Payable		252
c.	FICA–Social Security Taxes Payable	7,936
	FICA–Medicare Taxes Payable	1,856
	Employee Federal Income Taxes Payable Cash	5,600	15,392
d.	State Unemployment Taxes Payable Cash	1,470	1,470
e.	Federal Unemployment Taxes Payable Cash	1,020	1,020

Topic: Payroll Liabilities; Payroll Expenses; Payroll Reports, Records and Procedures Learning Objective: 11-P2; 11-P3; 11-P5

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

Sparks Company entered into the following transactions involving short-term notes payable. On June 18, Sparks purchased $25,000 merchandise from EquipCo., terms 2/10, n/30. Sparks uses the perpetual inventory system. On July 19, Sparks replaced the June 18 account payable with a

60-day, $12,000 note bearing 4% annual interest in addition to paying $13,000 in cash. Sparks paid the amount due on the note at maturity.

Determine the maturity date for the note.
Prepare journal entries for all the preceding transactions and events.

Learning Objective: 11-P1 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

Richardson Fields receives $31,680 cash in advance ticket sales for 11 home soccer games. Record the advance ticket sales on March 31. Record the revenue earned for the first game played on August 17.

Learning Objective: 11-C2 Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

SHORT ANSWER QUESTIONS

Obligations due within one year or the company's operating cycle, whichever is longer, are

________.

Learning Objective: 11-C1 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

are probable future payments of assets or services that a company is presently obligated to make as a result of past transactions or events.

Learning Objective: 11-C1 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

are amounts received in advance from customers for future products or services.

Learning Objective: 11-C2 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

________ are amounts owed to suppliers for products or services purchased on credit.

Learning Objective: 11-C2 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

A ________ is a potential obligation that depends on a future event arising from a past transaction or event.

Learning Objective: 11-C3 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Measurement

Contingent liabilities are recorded in the accounts if the future event is ________ and the amount owed can be ________.

Learning Objective: 11-C3 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

Banks authorized to accept deposits of amounts payable to the federal government, including amounts due for payroll taxes are ________.

Learning Objective: 11-P5

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

A ________ shows the pay period dates, hours worked, gross pay, deductions, and net pay of each employee for every pay period.

Learning Objective: 11-P5

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

Times interest earned is computed by dividing income before interest expense and income taxes by

________.

Learning Objective: 11-A1 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

The difference between the amount borrowed and the amount repaid is referred to as ________.

Learning Objective: 11-P1 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

A ________ is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.

Learning Objective: 11-P1 Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions such as taxes is called ________.

Learning Objective: 11-P2 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

Gross pay less all deductions is called ________.

Learning Objective: 11-P2 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

The more allowances an employee claims, the less federal income tax the employer will deduct from pay.

Learning Objective: 11-P2 Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Decision Making

Employer payroll taxes are an added employee ________ beyond the wages and salaries earned by the employees.

Learning Objective: 11-P3 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

A ________ is a seller's obligation to replace or correct a product or service that fails to perform as expected within a specified period.

Learning Objective: 11-P4 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

Vacation benefits are a type of _ liability.

Learning Objective: 11-P4 Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

To compute the amount of tax withheld from an employee's pay, employers can use a ________ table.

Learning Objective: 11-P5

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

Companies with many employees often use a special ________ account to pay employees.

Learning Objective: 11-P5

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; FN Decision Making

Document Information

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Chapter Number:

Created Date:

Aug 21, 2025

Chapter Name:

Chapter 11 Current Liabilities And Payroll Accounting

Author:

John J. Wild

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