#currentassets
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What do you mean by net working capital?
In the dynamic realm of finance, net working capital stands as a critical indicator of a company’s financial health. As savvy business operators, we understand the importance of this metric in deciphering the liquidity and operational efficiency of an enterprise. In this comprehensive guide, we delve into the intricacies of net working capital, unraveling its significance and impact on businesses.
Understanding Net Working Capital
Defining the Essence
Net working capital (NWC) is a fundamental metric that reflects the financial stability and operational capability of a company. Simply put, it is the difference between a company’s current assets and current liabilities. In essence, it represents the liquidity available to meet short-term obligations.
The Formula Unveiled
To calculate net working capital, subtract current liabilities from current assets. Mathematically, it can be expressed as:
���=�������������−������������������NWC=CurrentAssets−CurrentLiabilities
This formula encapsulates the essence of net working capital, providing a numerical representation of a company’s liquidity.
Significance of Net Working Capital
Operational Flexibility
A positive net working capital signifies that a company has more assets than liabilities, providing a cushion to cover its short-term obligations. This surplus enables operational flexibility, allowing businesses to navigate unforeseen challenges and capitalize on opportunities.
Insight into Financial Health
Net working capital serves as a barometer of a company’s financial health. It offers insights into the efficiency of working capital management, indicating whether an organization can efficiently convert its short-term assets into cash to meet financial obligations.
Factors Influencing Net Working Capital
Industry Dynamics
Different industries exhibit varying working capital requirements. Understanding the specific needs of your industry is crucial in determining an optimal net working capital strategy.
Seasonal Fluctuations
Businesses often encounter seasonal variations in demand, impacting their working capital needs. Being cognizant of these fluctuations is vital for effective working capital management.
Strategies for Optimizing Net Working Capital
Streamlining Accounts Receivable
Efficient management of accounts receivable is paramount. Implementing strategies such as offering discounts for early payments or utilizing technology for streamlined invoicing can accelerate cash inflows.
Inventory Management Excellence
Keeping a close eye on inventory levels is crucial for maintaining an optimal net working capital. Employing just-in-time inventory systems and regular assessments can prevent excess capital being tied up in storage.
Challenges in Net Working Capital Management
Overtrading Risks
While maintaining a positive net working capital is essential, overtrading can pose risks. This occurs when a company grows too rapidly, straining its working capital and potentially leading to financial instability.
Economic Downturns
In times of economic uncertainty, businesses may face challenges in maintaining positive net working capital. Prudent financial planning and contingency measures are essential during such periods.
The Road Ahead: Strategic Net Working Capital Management
In conclusion, mastering the intricacies of net working capital is pivotal for steering an organization towards financial success. By adopting strategic approaches to optimize working capital, businesses can enhance their liquidity, adapt to market dynamics, and secure a robust financial future.
Source:- https://myndfin.com/working-capital/
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<b>Gym</b> plan for Westbourne Grand is refused again
A SECOND attempt to secure planning permission to convert a former Westbourne cinema into a gym has failed. Developer Currentasset Ltd had ...
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ACC 206 Week 3 Quiz – Strayer
Click on the Link Below to Purchase A+ Graded Course Material
http://budapp.net/ACC-206-Accounting-Principles-II-Week-3-Quiz-Strayer-261.htm
CHAPTER11
CURRENTLIABILITIESANDPAYROLLACCOUNTING
CHAPTERSTUDYOBJECTIVES
1.Explainacurrentliability,andidentifythemajortypesofcurrentliabilities.
2.Describetheaccountingfornotespayable.
3.Explaintheaccountingforothercurrentliabilities.
4.Explainthefinancialstatementpresentationandanalysisofcurrentliabilities.
5.Describetheaccountinganddisclosurerequirementsforcontingentliabilities.
6.Computeandrecordthepayrollforapayperiod.
7.Describeandrecordemployerpayrolltaxes.
8.Discusstheobjectivesofinternalcontrolforpayroll.
9.Identifyadditionalfringebenefitsassociatedwithemployeecompensation.
TRUE-FALSESTATEMENTS
1. A currentliability must bepaidoutof currentearnings.
2. Currentliabilitiesareexpectedtobepaidwithinoneyearortheoperatingcycle, whichever islonger.
3. Therelationshipbetweencurrentliabilitiesandcurrentassetsisimportantinevaluatinga company'sabilityto payoffits long-termdebt.
4. Acompanywhosecurrentliabilitiesexceeditscurrentassetsmayhavealiquidity problem.
5. Notespayableusuallyrequiretheborrowerto payinterest.
6. Notespayableare oftenusedinsteadofaccountspayable.
7. A notepayablemustalwaysbepaidbeforeanaccountpayable.
8. A $30,000,8%,9-monthnotepayablerequiresaninterestpayment of$1,800 atmaturity.
9. Mostnotesarenotinterest bearing.
10. Withaninterest-bearingnote,theamountofcashreceiveduponissuanceofthenote generallyexceedsthenote'sfacevalue.
11. Interestexpenseonanote payableis onlyrecordedatmaturity.
12. Interestexpenseis reportedunderOtherExpensesandLossesinthe incomestatement.
13. UnearnedrevenuesshouldbeclassifiedasOtherRevenuesandGainsontheIncome Statement.
14. Thehigherthesalestaxrate,themoreprofitaretailercanearn.
15. MetropolitanSymphonysells200seasonticketsfor$60,000thatincludesafiveconcert season. TheamountofUnearnedTicketRevenueafterthesecondconcertis$24,000.
16. Duringthemonth,acompanysellsgoodsforatotalof$108,000,whichincludessales taxesof$8,000;therefore,thecompanyshouldrecognize$100,000inSalesRevenues and $8,000in SalesTaxExpense.
17. Current maturitiesoflong-termdebtreferstotheamountofinterestonanotepayable that must be paidinthecurrent year.
18. Thecurrentratiopermitsanalyststocomparethe liquidityofdifferent sizedcompanies.
19. Workingcapital is currentassetsdivided bycurrentliabilities.
20. Contingentliabilitiesshouldberecordedintheaccountsifthereisaremotepossibility that thecontingencywillactuallyoccur.
21. A contingentliabilityisa liabilitythatmayoccur ifsomefutureeventtakesplace.
22. Inconcept,theestimatingofWarrantyExpensewhenproductsaresoldunderwarrantyis similar to theestimatingofBadDebtsExpensebasedon creditsales.
23. FICAtaxesandfederalincometaxesare leviedonemployees'earningswithoutlimit.
24. FICAtaxeswithheldandfederalincometaxes withheldaremandatorypayrolldeductions.
25. Theemployerincursapayrolltaxexpenseequaltotheamountwithheldfromthe employees'wagesforfederalincometaxes.
26. Internalcontroloverpayrollisnotnecessarybecauseemployeeswillcomplainiftheydo not receivethecorrectamount ontheirpayrollchecks.
27. Thetimekeepingfunctionincludessupervisorsmonitoringhoursworkedthroughtime cardsandtimereports.
28. Thehumanresourcesdepartmentdocumentsandauthorizesemploymentofnew employees.
29. Payrollactivitiesinvolvethreefunctions:hiringemployees,preparingthepayroll,and payingthepayroll.
a30. Post-retirementbenefitsconsistofpaymentsbyemployerstoretiredemployees forhealth care, life insurance,andpensions.
Additional True-FalseQuestions
31. A debt that isexpectedto be paidwithinone yearthroughthecreationof long-termdebt is a current liability.
32. Notespayableusuallyareissuedtomeet long-termfinancingneeds.
33. Currentmaturitiesoflong-termdebtareoftenidentifiedaslong-termdebtduewithinone yearon thebalancesheet.
34. Inagivenyear,totalwarrantyexpenseisthesumofactualwarrantycostsincurredon unitssoldplustheestimatedcostofservicingthose unitsinthefuture.
35. FICAtaxesarea voluntarydeductionfromemployeeearnings.
36. FICAtaxesareadeductionfromemployeeearningsandarealsoimposedupon employersas an expense.
37. Theobjectivesofinternalaccountingcontrolforpayrollsare(a)tosafeguardcompany assetsfromunauthorizedpaymentsofpayrollsand(b)toassureaccuracyandreliability oftheaccountingrecordspertainingto payroll.
a38. Whenacompanygivesemployeesrightstoreceivecompensationforabsencesandthe paymentforsuchabsencesisprobableandtheamountcanbereasonablyestimated, the companyshould accruea liability.
MULTIPLECHOICEQUESTIONS
39. Allof thefollowingarereportedascurrent liabilitiesexcept a.accountspayable.
b.bonds payable. c.notespayable.
d.unearnedrevenues.
40. Therelationshipbetweencurrentliabilitiesandcurrentassets is a.usefulindetermining income.
b.usefulinevaluatinga company'sliquidity. c.calledthematchingprinciple.
d.usefulindeterminingtheamountof acompany'slong-termdebt.
41. Mostcompaniespaycurrent liabilities a.outof currentassets.
b.by issuinginterest-bearing notespayable. c.byissuingstock.
d.bycreatinglong-term liabilities.
42. A currentliability isadebt thatcanreasonably beexpectedtobepaid a.withinoneyear.
b.between6monthsand 18months.
c.outof currentlyrecognizedrevenues. d.outof cashcurrentlyonhand.
43. Liabilitiesare classifiedon thebalancesheetascurrentor a.deferred.
b.unearned. c.long-term. d.accrued.
44. Froma liquiditystandpoint,itismoredesirablefora companytohavecurrent a.assetsequalcurrentliabilities.
b.liabilitiesexceedcurrentassets. c.assetsexceedcurrentliabilities.
d.liabilitiesexceed long-termliabilities.
45. Therelationshipof current assetstocurrentliabilitiesisusedinevaluatinga company's a.operatingcycle.
b.revenue-producingability.
c.short-termdebtpayingability. d.long-rangesolvency.
46. Whichofthefollowingisusuallynotan accruedliability? a.Interestpayable
b.Wagespayable c.Taxespayable d.Notespayable
47. Inmostcompanies,current liabilitiesarepaidwithin
a.oneyearthroughthecreationof othercurrentliabilities.
b.theoperatingcyclethroughthecreationof othercurrentliabilities. c.oneyearout of currentassets.
d.theoperatingcycle out of currentassets.
48. Theentrytorecord theissuance ofaninterest-bearingnotecreditsNotesPayable forthe note's
a.maturityvalue. b.marketvalue. c.facevalue.
d.cashrealizablevalue.
49. Withaninterest-bearingnote,theamountofassets receiveduponissuanceofthenoteis generally
a.equaltothenote'sface value.
b.greaterthanthe note'sface value. c.lessthanthenote'sfacevalue.
d.equaltothenote'smaturityvalue.
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50. A notepayableis intheformof
a.a contingencythat isreasonablylikelyto occur. b.awrittenpromissorynote.
c.anoralagreement.
d.a standingagreement.
51. Theentrytorecordthe proceedsuponissuinganinterest-bearingnoteis a.InterestExpense
Cash
NotesPayable b.Cash
NotesPayable c.NotesPayable
Cash d.Cash
NotesPayable InterestPayable
Usethefollowing informationforquestions52–54.
CoffeyCounty Bank agrees tolend Adcock BrickCompany$200,000on January1.Adcock Brick Companysignsa$200,000,8%,9-monthnote.
52. TheentrymadebyAdcockBrickCompanyonJanuary1torecordtheproceedsand issuance ofthenote is
a.InterestExpense.................................................................. 12,000 Cash.................................................................................... 188,000
NotesPayable............................................................ 200,000 b.Cash.................................................................................... 200,000
NotesPayable............................................................ 200,000 c.Cash.................................................................................... 200,000
InterestExpense.................................................................. 12,000
NotesPayable............................................................ 212,000 d.Cash.................................................................................... 200,000
InterestExpense.................................................................. 12,000
NotesPayable............................................................ 200,000 InterestPayable.......................................................... 12,000
53. WhatistheadjustingentryrequiredifAdcockBrickCompanypreparesfinancial statements onJune30?
a.InterestExpense.................................................................. 8,000
InterestPayable.......................................................... 8,000 b.InterestExpense.................................................................. 8,000
Cash........................................................................... 8,000 c.InterestPayable................................................................... 8,000
Cash........................................................................... 8,000 d.InterestPayable................................................................... 8,000
InterestExpense......................................................... 8,000
CurrentLiabilitiesandPayroll Accounting 11-9
54. WhatentrywillAdcockBrickCompanymaketopayoffthenoteandinterestatmaturity assumingthat interesthas beenaccruedtoSeptember30?
a.NotesPayable...................................................................... 212,000 Cash............................................................................ 212,000
b.NotesPayable...................................................................... 200,000 InterestPayable................................................................... 12,000
Cash............................................................................ 212,000 c.InterestExpense.................................................................. 12,000
NotesPayable...................................................................... 200,000 Cash............................................................................ 212,000
d.InterestPayable................................................................... 8,000 NotesPayable...................................................................... 200,000 InterestExpense.................................................................. 4,000
Cash............................................................................ 212,000
55. As interestisrecordedon an interest-bearingnote, theInterestExpenseaccountis a.increased;the NotesPayableaccountis increased.
b.increased;the NotesPayableaccountisdecreased.c. increased;theInterestPayableaccountisincreased.d. decreased;theInterestPayableaccountis increased.
56. Whenaninterest-bearing notematures,thebalance intheNotes Payableaccountis a.lessthanthetotalamountrepaidbythe borrower.
b.thedifferencebetweenthematurityvalueof thenoteandthefacevalueof thenote. c.equal to thetotalamountrepaidbytheborrower.
d.greaterthanthetotalamountrepaidbytheborrower.
Usethefollowing informationforquestions57–58.
OnOctober1,Jerry'sCarpetServiceborrows$250,000fromFirstNationalBankona3-month, $250,000,8% note.
57. WhatentrymustJerry'sCarpetServicemakeonDecember31beforefinancial statements are prepared?
a.InterestPayable................................................................... 5,000
InterestExpense.......................................................... 5,000
b.InterestExpense.................................................................. 20,000
InterestPayable........................................................... 20,000
c.InterestExpense.................................................................. 5,000
InterestPayable........................................................... 5,000
d.InterestExpense.................................................................. 5,000
NotesPayable............................................................. 5,000
58. Theentry by Jerry's Carpet Serviceto recordpaymentof thenoteandaccrued intereston January1 is
a.NotesPayable...................................................................... Cash............................................................................
b.NotesPayable...................................................................... InterestPayable...................................................................
Cash............................................................................
255,000
250,000 5,000
255,000
255,000
11-10
58. (cont.)
c.NotesPayable..................................................................... InterestPayable................................................................... Cash...........................................................................
d.NotesPayable..................................................................... InterestExpense.................................................................. Cash...........................................................................
250,000 20,000
250,000 5,000
270,000
255,000
59. Interestexpenseonaninterest-bearingnoteis a.alwaysequaltozero.
b.accruedoverthelifeof thenote.
c.onlyrecordedatthetimethenoteisissued.
d.onlyrecordedatmaturitywhenthenoteispaid.
60. Theentrytorecordthepaymentofaninterest-bearingnoteatmaturityafterallinterest expense has beenrecognizedis
a.NotesPayable InterestPayable
Cash
b.NotesPayable Interest Expense Cash
c.NotesPayable Cash
d.NotesPayable Cash
InterestPayable
61. Salestaxescollectedbya retailerarerecordedby a.creditingSalesTaxesRevenue.
b.debitingSalesTaxesExpense. c.creditingSales TaxesPayable. d.debitingSalesTaxesPayable.
62. UnearnedRentalRevenueis
a.a contraaccounttoRentalRevenue. b.a revenueaccount.
c.reportedasacurrentliability.
d.debitedwhenrentis receivedinadvance.
63. Salestaxescollectedbytheretailerare recordedasa(n) a.revenue.
b.liability.c.expense. d.asset.
Usethefollowing informationforquestions64–65.
OnSeptember1,Ken'sPaintingServiceborrows$50,000fromNationalBankona4-month, $50,000,6%note.
CurrentLiabilitiesandPayroll Accounting 11-11
64. WhatentrymustKen'sPaintingServicemakeonDecember31before statements are prepared?
a.InterestPayable................................................................... 1,000 InterestExpense..........................................................
b.InterestExpense.................................................................. 3,000 InterestPayable...........................................................
c.InterestExpense.................................................................. 1,000 InterestPayable...........................................................
d.InterestExpense.................................................................. 1,000 NotesPayable.............................................................
financial
1,000
3,000
1,000
1,000
65. The entrybyKen'sPainting Serviceto recordpayment of thenoteandaccrued intereston January1 is
a.NotesPayable...................................................................... 51,000 Cash............................................................................ 51,000
b.NotesPayable...................................................................... 50,000 InterestPayable................................................................... 1,000
Cash............................................................................ 51,000 c.NotesPayable...................................................................... 50,000
InterestPayable................................................................... 3,000 Cash............................................................................ 53,000
d.NotesPayable...................................................................... 50,000 InterestExpense.................................................................. 1,000
Cash............................................................................ 51,000
66. Theinterestchargedona$100,000notepayable,attherateof8%,ona90-daynote would be
a.$8,000. b.$4,444. c.$2,000. d.$667.
67. Theinterestchargedona$100,000notepayable,attherateof6%,ona60-daynote would be
a.$6,000. b.$3,333. c.$1,500. d.$1,000.
68. Theinterestchargedona$50,000notepayable,attherateof8%,ona3-monthnote would be
a.$4,000. b.$2,000. c.$1,000. d.$667.
69. Theinterestchargedona$50,000notepayable,attherateof6%,ona2-monthnote would be
a.$3,000. b.$1,500. c.$750.d.$500.
11-12
70. Acompanyreceives$132,ofwhich$12isforsalestax.Thejournalentrytorecordthe sale wouldincludea
a.debittoSales TaxExpensefor$12. b.credit toSales TaxPayable for$12. c.debit to Salesfor $132.
d.debitto Cashfor $120.
71. Acompanyreceives$174,ofwhich$14isforsalestax.Thejournalentrytorecordthe sale wouldincludea
adebittoSalesTaxExpensefor$14. b.debittoSalesTaxPayablefor$14. c.debit to Salesfor $174.
d.debitto Cashfor $174.
72. A retailstore creditedtheSalesaccountforthesales priceandtheamount ofsalestaxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $315,000,whatisthe amount of thesalestaxesowedto thetaxingagency?
a.$300,000 b.$315,000 c.$15,750 d.$15,000
73. OnJanuary1,2008,DunnonCompany,acalendar-yearcompany,issued$600,000of notespayable, ofwhich$150,000 isdueonJanuary 1foreachofthenextfouryears. The properbalancesheetpresentation on December31,2008,is
a.CurrentLiabilities,$600,000. b.Long-termDebt,$600,000.
c.CurrentLiabilities,$300,000;Long-termDebt,$300,000. d.CurrentLiabilities,$150,000;Long-termDebt,$450,000.
74. OnJanuary1,2008,BrunsonCompany,acalendar-yearcompany,issued$400,000of notespayable, ofwhich$100,000 isdueonJanuary1foreachofthenextfouryears. The properbalancesheetpresentation on December31,2008,is
a.CurrentLiabilities,$400,000. b.Long-termDebt, $400,000.
c.CurrentLiabilities,$100,000;Long-termDebt,$300,000. d.CurrentLiabilities,$300,000;Long-termDebt,$100,000.
75. Acashregistertapeshowscashsalesof$1,500andsalestaxesof$120.Thejournal entry torecordthis information is
a.Cash.................................................................................... 1,620 Sales........................................................................... 1,620
b.Cash.................................................................................... 1,620
SalesTaxPayable...................................................... 120 Sales........................................................................... 1,500
c.Cash.................................................................................... 1,500 SalesTaxExpense.............................................................. 120
Sales........................................................................... 1,620 d.Cash.................................................................................... 1,620
Sales........................................................................... 1,500 SalesTaxesRevenue................................................. 120
CurrentLiabilitiesandPayroll Accounting 11-13
76. Jo’sBookstorehascollected$750insalestaxesduringApril.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillJo'sBookstoremaketoshow theAprilremittance?
a.SalesTaxesPayable............................................................ 750 Cash............................................................................ 750
b.SalesTaxExpense............................................................. 750 Cash............................................................................ 750
c.SalesTaxExpense.............................................................. 750
SalesTaxesPayable................................................... 750 d.Noentryrequired.
77. JordonCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforOctoberamountedto$18,900.Ifthesalestaxrateis5%,whatamountmust be remittedtothestateforOctober'ssalestaxes?
a.$900 b.$945 c.$45
d.Itcannotbedetermined.
78. Enrique'sSalonhastotalreceiptsforthemonthof$16,430includingsalestaxes.Ifthe sales taxrateis 6%,whatareEnrique'ssalesfor themonth?
a.$15,444.20 b.$17,415.80 c.$15,500.00
d.Itcannotbedetermined.
79. Theamountof salestaxcollectedbyaretailstore whenmakingsalesis a.amiscellaneousrevenuefor thestore.
b.a currentliability.
c.notrecordedbecauseit isataxpaidbythecustomer. d.recordedasanoperatingexpense.
80. Aretailstorecredited theSalesaccount forthesalesprice andtheamountofsales taxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $189,000,whatisthe amount of thesalestaxesowedto thetaxingagency?
a.$180,000 b.$189,000 c.$9,450d.$9,000
81. Advancesfromcustomersareclassifiedasa(n) a.revenue.
b.expense.
c.currentasset.d.currentliability.
82. Thecurrentportionof long-term debtshould a.bepaidimmediately.
b.be reclassifiedasa currentliability. c.beclassifiedasa long-termliability.
d.notbeseparatedfromthelong-termportionof debt.
11-14
83. Salestaxescollectedbya retailerareexpenses a.of theretailer.
b.of thecustomers.c.ofthegovernment.
d.that arenotrecognizedbythe retaileruntiltheyaresubmittedtothegovernment.
84. Salestaxescollectedbya retailerarereportedas a.contingentliabilities.
b.revenues. c.expenses.
d.currentliabilities.
85. Linda'sBoutiquehastotalreceiptsforthemonthof$29,295includingsalestaxes.Ifthe sales taxrateis 5%,whatareLinda'ssalesforthemonth?
a.$27,831 b.$27,900 c.$29,295
d.Itcannotbedetermined.
86. A cashregistertapeshowscashsalesof$1,500and salestaxesof $90.Thejournalentry to recordthisinformationis
a.Cash.................................................................................... 1,500 Sales........................................................................... 1,500
b.Cash.................................................................................... 1,590
SalesTaxRevenue..................................................... 90 Sales........................................................................... 1,500
c.Cash.................................................................................... 1,500 SalesTaxExpense.............................................................. 90
Sales........................................................................... 1,590
d.Cash.................................................................................... 1,590 Sales........................................................................... 1,500 SalesTaxesPayable.................................................. 90
87. Tim'sPharmacyhascollected$600insalestaxesduringMarch.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillTim'sPharmacymaketoshow theMarch remittance?
a.SalesTaxExpense.............................................................. 600
Cash........................................................................... 600 b.SalesTaxesPayable........................................................... 600
Cash........................................................................... 600 c.SalesTaxExpense.............................................................. 600
SalesTaxesPayable.................................................. 600 d.Noentryrequired.
88. LangerCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforFebruaryamountedto$28,600.Ifthesalestaxrateis4%,whatamountmust be remittedtothestatefor February'ssalestaxes?
a.$1,144 b.$1,100 c.$1,716
d.Itcannotbedetermined.
CurrentLiabilitiesandPayroll Accounting 11-15
89. Anybalanceinanunearnedrevenueaccountisreportedasa(n) a.currentliability.
b.long-termdebt. c.revenue.
d.unearnedliability.
90. StanleyCompany typicallysellssubscriptionsonanannualbasis,andpublishessixtimes ayear.Themagazinesells60,000subscriptionsinJanuaryat$15each.Whatentryis made inJanuary torecordthesaleof thesubscriptions?
a.SubscriptionsReceivable..................................................... SubscriptionRevenue.................................................
b.Cash..................................................................................... UnearnedSubscriptionRevenue.................................
c.SubscriptionsReceivable..................................................... UnearnedSubscriptionRevenue.................................
d.PrepaidSubscriptions.......................................................... Cash............................................................................
900,000
900,000
150,000
900,000
900,000
900,000
150,000
900,000
91. Milton Companyissuedafour-year interest-bearingnotepayablefor$300,000on January 1,2007.EachJanuarythecompany isrequiredtopay$75,000onthenote.Howwillthis note be reportedontheDecember31,2008balancesheet?
a.Long-termdebt,$300,000. b.Long-termdebt,$225,000.
c.Long-termdebt,$150,000;Long-termdebtduewithinone year,$75,000. d.Long-termdebt,$225,000;Long-termdebtduewithinone year,$75,000.
92. JanisKnothasalargeconsultingpractice.Newclientsarerequiredtopayone-halfofthe consultingfeesupfront.Thebalanceispaidattheconclusionoftheconsultation.How does Knotaccountforthe cashreceivedattheend of theengagement?
a.Cash
UnearnedConsultingRevenue b.Cash
EarnedConsultingRevenue c.PrepaidConsultingFees
EarnedConsultingRevenue
d.Noentryisrequiredwhentheengagementisconcluded.
93. Whichoneofthefollowingisshownfirstundercurrentliabilitiesbymanycompaniesasa matter ofcustom?
a.Accruedexpenses
b.Currentmaturities of long-term debt c.Salestaxespayable
d.Notespayableandaccountspayable
94. Workingcapital is
a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.
c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.
11-16
95. Thecurrentratiois
a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.
c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.
96. Acontingentliabilityneedonlybedisclosedinthefinancialstatementnoteswhenthe likelihood of thecontingencyis
a.reasonablypossible. b.probable.
c.remote. d.unlikely.
97. Ifacontingentliabilityisreasonablyestimableanditisreasonablypossiblethatthe contingencywilloccur,thecontingentliability
a.shouldberecorded intheaccounts.
b.shouldbedisclosedin the notesaccompanyingthefinancialstatements.
c.shouldnotberecordedordisclosedinthenotesuntilthecontingencyactually happens.
d.mustbepaidforthe amountestimated.
98. Theaccountingforwarrantycostisbasedonthematchingprinciple,whichrequiresthat theestimatedcost of honoring warrantycontractsshouldberecognizedasanexpense
a.whenthe productisbrought inforrepairs.b.intheperiodinwhichtheproductwassold. c.attheendofthewarrantyperiod.
d.onlyif therepairsareexpectedtobemadewithinone year.
99. Ifa liabilityis dependentonafutureevent,it iscalleda a.potentialliability.
b.hypotheticalliability. c.probabilisticliability. d.contingentliability.
100. Currentmaturities of long-termdebt a.requireanadjustingentry.
b.areoptionallyreportedonthebalancesheet.
c.canbeproperlyclassifiedduringbalancesheetpreparation,withnoadjustingentry required.
d.arenotconsideredtobecurrentliabilities.
101. A contingencythatisremote
a.shouldbedisclosedinthefinancialstatements. b.mustbeaccruedasa loss.
c.doesnotneedto bedisclosed.
d.isrecordedasacontingentliability.
102. Theaccountingfor warrantycostsisbasedonthe a.goingconcernprinciple.
b.matchingprinciple.
c.conservatismprinciple. d.objectivityprinciple.
CurrentLiabilitiesandPayroll Accounting 11-17
103. Warrantyexpensesarereported ontheincomestatementas a.administrativeexpenses.
b.part of costofgoodssold. c.contra-revenues.
d.sellingexpenses.
Usethefollowing informationforquestions104–105.
NeerCompanysells2,000unitsofitsproductfor$500each.Thesellingpriceincludesaone-yearwarrantyonparts.Itisexpectedthat3%oftheunitswillbedefectiveandthatrepaircosts willaverage$50perunit.Intheyearofsale,warrantycontractsarehonoredon40unitsfora totalcostof$2,000.
104. WhatamountshouldNeerCompanyaccrueonDecember31forestimatedwarranty costs?
a.$3,000 b.$2,000 c.$1,000 d.$15,000
105. WhatamountwillbereportedonNeerCompany'sbalancesheetasEstimatedWarranty Liabilityon December31,2008?
a.$2,000 b.$3,000 c.$1,000
d.Itcannotbedetermined.
106. Whichofthefollowingitemswouldnotbeidentifiedifacontingentliabilityweredisclosed in a financialstatementfootnote?
a.Thenatureof theitem
b.Theexpectedoutcomeof thefutureeventc.Anumericalprobabilityof theexpectedloss d.Theamountofthecontingency,if known
107. Disclosureofa contingentliabilityisusuallymade
a.parenthetically,inthebodyofthebalancesheet.
b.parenthetically,inthebodyoftheincomestatement. c.in anotetothefinancialstatements.
d.inthemanagementdiscussionsectionofthefinancial statement.
108. Currentliabilitiesgenerallyappear
a.after long-termdebtonthebalancesheet.
b.indecreasingorderofmagnitudeonthebalancesheet. c.in orderofmaturityonthebalancesheet.
d.in increasingorderofmagnitudeonthe balancesheet.
109. Whichofthefollowingemployees wouldlikelyreceivea salaryinsteadofwages? a.Storeclerk
b.Factoryemployee c.Salesmanager
d.Manuallaborer
11-18
110. Thetotalcompensationearnedbyanemployeeis called a.take-homepay.
b.netpay.
c.netearnings.d.grossearnings.
111. Whichoneofthefollowingpayrolltaxesdoesnotresultinapayrolltaxexpenseforthe employer?
a.FICAtax
b.Federalincometax
c.Federalunemployment tax d.Stateunemploymenttax
112. SueStein'sregularrateofpayis$12perhourwithoneandone-halftimesherregular rateforanyhourswhichexceed40hoursperweek.Sheworked48hourslastweek. Therefore, hergross wageswere
a.$576. b.$480. c.$624. d.$864.
113. AssumingaFICAtaxrateof8%onthefirst$90,000inwages,andafederalincometax rateof20%onallwages,whatwouldbeanemployee'snetpay fortheyearifheearned $100,000for theyear?
a.$92,800 b.$72,000 c.$80,000 d.$72,800
114. Mostcompaniesinvolvedin interstatecommercearerequiredtocomputeovertimeat a.theworker'sregularhourlywage.
b.1.25timestheworker'sregularhourlywage. c.1.5timestheworker'sregularhourlywage. d.2.5timesthe worker'sregularhourlywage.
115. SueRicehasworked44hoursthisweek.Sheworkedinexcessof8hourseachday.Her regularhourlywageis$15perhour.WhatareSue'sgrosswagesfortheweek?(The company Sue worksfor is incompliancewiththeFair LaborStandardsAct.)
a.$660 b.$690 c.$990 d.$720
116. FICAtaxesdonotprovideworkerswith a.lifeinsurance.
b.supplementalretirement. c.employmentdisability.d.medicalbenefits.
CurrentLiabilitiesandPayroll Accounting 11-19
117. Employeepayroll deductionsincludeeachofthefollowingexcept a.federalunemployment taxes.
b.federalincometaxes. c.FICAtaxes.
d.insurance,pension plans,anduniondues.
118. ThejournalentrytorecordthepayrollforaperiodwillincludeacredittoWagesand SalariesPayableforthegross
a.amountlessallpayrolldeductions. b.amountof allpaychecksissued.c.paylesstaxespayable.
d.paylessvoluntarydeductions.
119. Theamountofincometaxeswithheldfromemployeesisdependentoneachofthe followingexceptthe
a.employee'sgrossearnings. b.employee'snetpay.
c.length ofthepayperiod.
d.numberof allowancesclaimedbytheemployee.
Use thefollowing informationforquestions120–123.
Thefollowingtotalsforthemonthof Aprilweretakenfromthepayrollregisterof MainCompany.
Salaries
FICAtaxeswithheld IncometaxeswithheldMedicalinsurancedeductions Federalunemploymenttaxes Stateunemploymenttaxes
$24,000 1,100 5,000 900
64 432
120. Thejournalentrytorecordthemonthlypayrollon April30wouldincludea a.debit toSalariesExpensefor $24,000.
b.credittoSalariesPayablefor$24,000. c.debittoSalariesPayablefor$24,000. d.debit to Salaries Expensefor $17,000.
121. Theentrytorecordthe paymentofnetpayroll wouldincludea a.debit toSalariesPayablefor$16,504.
b.debittoSalariesPayable for$17,000. c.debittoSalariesPayablefor$15,900. d.credit to Cashfor $18,100.
122. TheentrytorecordaccrualofMainCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$496.
b.debittoPayrollTaxExpensefor$1,596. c.credit toFICA Taxes Payablefor$2,200. d.credit to PayrollTaxExpensefor $496.
11-20
123. Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea a.credit to FederalUnemploymentTaxes Payablefor $64.
b.debitto Federal UnemploymentTaxes Expensefor $64. c.creditto PayrollTaxExpensefor$64.
d.debitto Federal UnemploymentTaxes Payablefor $64
Usethefollowing informationforquestions124–127.
Thefollowingtotalsforthemonthof June weretakenfromthepayrollregisterof LaneCompany.
Salaries
FICAtaxeswithheld IncometaxeswithheldMedicalinsurancedeductions Federalunemploymenttaxes Stateunemploymenttaxes
$20,000 1,533 4,400 800
160 1,000
124. Thejournalentrytorecordthemonthlypayrollon June30wouldincludea a.debit toSalariesExpensefor $20,000.
b.credittoSalariesPayablefor$20,000. c.debittoSalariesPayablefor$20,000. d.debit to Salaries Expensefor $13,267
125. Theentrytorecordthe paymentofnetpayroll wouldincludea a.debitto SalariesPayablefor$12,107.
b.debittoSalariesPayable for$13,267. c.debittoSalariesPayablefor$12,267. d.credit to Cashfor $12,267.
126. TheentrytorecordaccrualofLaneCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$2,693
b.credittoPayrollTaxExpensefor$2,693 c.credit toFICA TaxesPayablefor$1,160. d.credit to PayrollTaxExpensefor $1,160.
127. Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea a.credit to FederalUnemploymentTaxes Payablefor $160.
b.creditto Federal UnemploymentTaxes Expensefor $160. c.creditto PayrollTaxExpensefor$160.
d.debitto Federal UnemploymentTaxes Payablefor $160.
128. Whichoneofthefollowingpayrolltaxesisnotwithheldfromanemployee'swages because it is notleviedontheemployee?
a.Federalincometax
b.Federalunemployment tax c.State incometax
d.FICAtax
CurrentLiabilitiesandPayroll Accounting 11-21
129. ByJanuary31followingtheendofacalendaryear,anemployerisrequiredtoprovide each employeewitha(n)
a.stateunemploymenttaxform.
b.federalunemployment taxform940. c.wageandtaxstatementformW-2.
d.employee'swithholdingallowancecertificateformW-4.
130. Whichofthefollowingpayroll taxesareusuallyfiledandremittedannually? a.Federalunemployment taxes
b.FICAtaxes
c.Stateunemploymenttaxes
d.Federalandstateunemploymenttaxes
131. Thetaxthatispaidequallybytheemployerand employeeis the a.federalincometax.
b.federalunemployment tax. c.stateunemploymenttax.d.FICAtax.
132. The effectivefederalunemploymenttaxrateisusually a.6.2%.
b.0.8%. c.5.4%. d.8.0%.
133. Thetreasurer'sdepartmentisresponsiblefor a.approvingthepayroll.
b.maintainingpayrollrecords.c.preparingpayroll taxreturns. d.signingpayrollchecks.
134. Thepayrollis paidbythea.personneldepartment. b.payrolldepartment.
c.cashier.
d.treasurer'sdepartment.
a135.Post-retirementbenefitsconsistof payments byemployerstoretiredemployeesfor a.healthcareand lifeinsuranceonly.
b.healthcareandpensionsonly.c.lifeinsuranceandpensionsonly.
d.healthcare,lifeinsurance,andpensions.
a136.Thepaidabsencethat ismostcommonlyaccruedis a.votingleave.
b.vacationtime.c.maternityleave. d.disabilityleave.
11-22
a137.BlakeCompanyhastenemployeeswhoeachearn$160perday.Iftheyaccumulate vacationtimeattherateof1.5vacationdaysforeachmonthworked,theamountof vacation benefitsthatshouldbeaccruedatthe end of themonthis
a.$160.b.$1,600. c.$2,400. d.$240.
a138.Anemployer'sestimatedcostfor post-retirement benefitsforitsemployeesshouldbe a.recognizedas anexpensewhenpaid.
b.recognizedasanexpenseduringtheemployees'workyears.
c.recognizedas an expenseduringtheemployees'retirementyears.
d.chargedto thegoodwillaccount because providingemployees with benefits generates employee goodwill.
Additional MultipleChoiceQuestions
139. Acurrentliabilityisadebtthecompanyreasonablyexpectstopayfromexistingcurrent assetswithin
a.oneyear.
b.theoperatingcycle.
c.one yearor theoperatingcycle, whicheverislonger. d.oneyearor theoperatingcycle, whicheveris shorter.
140. Whichofthefollowingstatements concerningcurrent liabilitiesis incorrect? a.Currentliabilitiesincludeunearnedrevenues.
b.Acompanythat hasmore currentliabilities thancurrentassets is usuallythesubjectof someconcern.
c.Currentliabilitiesincludeprepaidexpenses.
d.Acurrentliabilityisadebtthatcanreasonablybeexpectedtobepaidoutofexisting currentassetsorresult inthecreationof other currentliabilities.
141. OnAugust1,2008,acompanyborrowedcashandsignedaone-yearinterest-bearing noteonwhichboththefacevalueandinterestarepayableonAugust1,2009.Howwill thenotepayableandtherelatedinterestbeclassifiedintheDecember31,2008,balance sheet?
NotePayable Interest Payablea.Currentliability Noncurrentliability b.Noncurrentliability Currentliability
c.Currentliability Currentliability d.Noncurrentliability Notshown
142. Companiesreportcurrentliabilitiesonthebalancesheetin a.alphabeticalorder.
b.order ofmaturity. c.randomorder.
d.order ofmagnitude.
CurrentLiabilitiesandPayroll Accounting 11-23
143. A contingencyneednotberecordednordisclosedwhen
a.itisprobablethecontingencywillhappenandtheamountcanbereasonably estimated.
b.itisprobablethecontingencywillhappenbuttheamountcannotbereasonably estimated.
c.itisreasonablypossiblethecontingencywillhappenandtheamountcanbe reasonablyestimated.
d.thepossibilityof the contingencyhappeningisremote.
144. A contingentliabilityis recordedwhenthe likelihoodof thecontingency is a.remote.
b.reasonablypossible. c.probable.
d.nil or zero.
145. MikeKohl,anemployeeofSpottswoodCompany,hasgrossearningsforthemonthof Octoberof$6,000.FICAtaxesare8%ofgrossearnings, federalincometaxesamount to $952forthemonth,stateincometaxesare2%ofgrossearnings,andMikeauthorizes voluntarydeductionsof$15permonthtotheUnitedFund.WhatisthenetpayforMike Kohl?
a.$4,442 b.$4,433 c.$4,448 d.$4,452
146. Apayrollrecordthataccumulatesthegrossearnings,deductions,andnetpayby employeefor eachpayperiodis the
a.withholdingtaxtable.
b.employeeearningsrecord. c.payrollregister.
d.WageandTaxStatement.
147. ThejournalentrytorecordthepayrollforMarcusGarveyCompanyfortheweekending January8,wouldprobablyincludea
a.creditto OfficeSalaries.b.credittoWages Expense.
c.debittoFederalIncomeTaxesPayable. d.creditto FICATaxesPayable.
148. Employerpayroll taxesincludeallofthefollowingexcept a.FICAtaxes.
b.federalunemployment taxes. c.stateunemploymenttaxes.d.federalincometaxes.
149. Therecordthatprovidesacumulativesummaryofeachemployee’sgrossearnings, payrolldeductions, and netpayduring theyearandisrequiredtobemaintainedtocomply with stateandlocalfederallawisthe
a.register.
b.employeeearningsrecord. c.statementofearnings.
d.wageandtaxstatement.
11-24
a150.Post-retirementbenefitsincludeallofthefollowingexcept a.healthcare.
b.lifeinsurance. c.pensions.
d.vacationbenefits.
BRIEFEXERCISES
BE151
SaldanaSalesCompanyhasthefollowingselectedaccountsafterpostingadjustingentries:
AccountsPayableNotesPayable,3-month
AccumulatedDepreciation—Equipment NotesPayable,5-year,6%
PayrollTax Expense InterestPayable MortgagePayable SalesTaxPayable
$62,000 50,000 14,000 80,000 4,000 3,000 120,000 38,000
Instructions
PreparethecurrentliabilitysectionofSaldanaSalesCompany'sbalancesheet,assuming $20,000of themortgageispayablenextyear.
BE152
Identifywhichof thefollowingwouldbeclassifiedas currentliabilitiesasof December31,2008: 1.WagesPayable
2.BondsPayable, maturingin 2013 3.InterestPayable,dueJuly1,2009 4.TaxesPayable
5.NotesPayable, dueJanuary30,2010
BE153
OnDecember1,DestinCorporationborrowed$5,000ona90-day,6%note.Preparetheentries torecordtheissuanceofthenote,theaccrualofinterestatyearend,andthepaymentofthe note.
BE154
DuringDecember2008,FashionVixenPublishingsold2,50012-monthannualmagazine subscriptionsatarateof$30each.ThefirstissuesweremailedinFebruary2009.Preparethe entriesonFashionVixen’sbookstorecordthesaleofthesubscriptionsandthemailingofthe first issues.
BE155
Landen Companyhadcashsalesof$54,250(includingtaxes)forthemonthofJune.Salesare subjectto8.5%salestax.Preparetheentryto recordthesale.
BE156
OnDecember1, WynnCompanyintroducesanewproductthatincludesaone-yearwarrantyon parts.InDecember,500unitsaresold.Managementbelievesthat5%oftheunitswillbe defectiveandthattheaveragewarrantycostswillbe$60perunit.Preparetheadjustingentryat December31toaccruethe estimatedwarrantycost.
BE157
MaryStine’sregularhourlywagerateis$12,andshereceivesanhourlyrateof$18forworkin excessof40hours.DuringaMarchpayperiod,Maryworks47hours.Mary’sfederalincometax withholdingis$70,andshehasnovoluntarydeductions.ComputeMaryStine’sgrossearnings and netpayforthepayperiod.
BE158
Data forMaryStinearepresentedinBE157.PreparethejournalentrytorecordMary’spayfor theperiod.Use March15fortheendof thepayperiod.
BE159
InFebruary,grossearningsinZennCompanytotaled$50,000.Allearningsaresubjectto8% FICAtaxes,5.4%stateunemploymenttaxes,and0.8%federalunemploymenttaxes.Prepare theentrytorecordJanuarypayrolltaxexpense.
*BE160
WeaverCompanyemployeesareentitledtooneday’svacationforeachmonthworked.In February,60employeesworkedthefullmonth.RecordthevacationpayliabilityforFebruary assuming theaveragedailypayfor eachemployeeis$90.
EXERCISES
Ex.161
StinerCompanyhasthefollowingselectedaccounts afterpostingadjustingentries:
AccountsPayableNotesPayable,3-month
AccumulatedDepreciation—Equipment PayrollandBenefitsPayable
NotesPayable,5-year,8% EstimatedWarrantyLiability PayrollTax ExpenseInterestPayable MortgagePayable
SalesTaxPayable
$45,000 80,000 14,000 27,000 30,000 34,000 6,000 3,000 200,000 16,000
Instructions
(a)PreparethecurrentliabilitysectionofStinerCompany'sbalancesheet,assuming$25,000 of themortgageispayablenextyear. (Listliabilities inmagnitudeorder,withlargestfirst.)
(b)Commenton Stiner's liquidity,assumingtotalcurrentassetsare$450,000.
Ex.162
Preparethenecessaryjournalentriesforthefollowingtransactions:
(a)On September1,LoreCompanyborrowed$150,000fromNationalBankona6-month,8% note.
(b)On December31, LoreCompanyaccruedinterest(assumeadjustingentries areonlymade at theendoftheyear).
CurrentLiabilitiesandPayroll Accounting 11-29
Ex.163
OnMarch1,FeltonCompanyborrows$90,000fromOttawaStateBankbysigninga6-month, 8%,interest-bearingnote.
Instructions
PreparethenecessaryentriesbelowassociatedwiththenotepayableonthebooksofFelton Company.
(a)Preparetheentryon March 1whenthe notewasissued.
(b)PrepareanyadjustingentriesnecessaryonJune30inordertopreparethesemi-annual financialstatements. Assumenootherinterestaccrualentrieshavebeenmade.
(c)Preparetheadjustingentry at August31to accrueinterest. (d)Preparetheentryto recordpaymentof thenote atmaturity.
Ex.164
TomByerssellstelevisionswitha2-yearwarranty.Pastexperienceindicatesthat2%oftheunits soldwillbereturnedduringthewarrantyperiodforrepairs.Theaveragecostofrepairsunder warrantyisestimatedtobe$50perunit.During2008,7,000unitsweresoldatanaverageprice of$400.Duringtheyear,repairsweremadeon55unitsatacost of $2,400.
Instructions
Preparejournalentriestorecordtherepairsmadeunderwarrantyandestimatedwarranty expense fortheyear.
Ex.165
SommersCompanybilleditscustomersatotalof$1,575,000forthemonthofNovember.The totalincludesa 5% statesalestax.
Instructions
(a)Determinetheproperamountof revenuetoreportforthemonth.
(b)Preparethegeneraljournalentrytorecordtherevenue andrelatedliabilitiesforthemonth.
Ex.166
StevensCompany does notsegregatesales andsales taxes onitscashregister.Its registertotal for themonthis$259,700, whichincludesa 6%salestax.
Instructions
Computesalestaxespayable,andmaketheentrytorecordsalesandsalestaxespayable.
Ex.167
SuttonCoatCompany,whichpreparesannualfinancialstatements,ispreparingadjustingentries on December31. Analysisindicatesthefollowing:
1.Thecompanyisthedefendantinanemployeediscriminationlawsuitinvolving$50,000of damages.Legalcounselbelievesitisunlikelythatthecompanywillhavetopayany damages.
2.December31stisaFriday.TheemployeesofthecompanyhavebeenpaidonMonday, December27thforthepreviousweekwhichendedonFriday,December24th.Thecompany employs30peoplewhoearn$100perdayand15peoplewhoearn$150perday.All employees work5-day weeks.
3.Thecompany isadefendantina$500,000productliability lawsuit.Legal counsel believesthe companyprobablywill havetopaytheamountrequested.
a4.Employeesareentitledtooneday'svacationforeachmonthworked.Allemployees describedabove in(2.) workedthemonthof December.
Instructions
Prepareanyadjustingentriesnecessaryattheendof theyear.
Ex.168
Basedonthefollowinginformation,computethe(1) currentratioand(2) workingcapital.
Currentassets Totalassets Currentliabilities Totalliabilities
$240,000 900,000 80,000 500,000
Ex.169
LindaEstessellsexercisemachinesforhomeuse.Themachinescarrya2-yearwarranty.Past experienceindicatesthat6%oftheunitssoldwillbereturnedduringthewarrantyperiodfor repairs.Theaveragecostofrepairsunderwarrantyis$60forlaborand$90forpartsperunit. During2008,2,500exercise machines weresoldatanaverageprice of$800.Duringtheyear,60 of themachinesthat weresold wererepairedattheaveragepriceper unit.
Instructions
(a) Preparethejournalentrytorecordtherepairsmadeunderwarranty.
(b) Preparethejournalentrytorecordtheestimatedwarrantyexpense fortheyear.
Ex.170
GolfWorldPublicationspublishesagolfmagazineforwomen.Themagazinesellsfor$3acopy onthenewsstand.Yearlysubscriptionstothemagazinecost$24peryear(12issues).During December2008,GolfWorldPublicationssells9,000copiesofthegolfmagazineatnewsstands andreceivespaymentfor15,000subscriptionsfor2009.Financialstatementsareprepared monthly.
Instructions
(a)Preparethe December2008journalentriesto record the newsstandsales and subscriptions received.
(b)PreparethenecessaryadjustingentryonJanuary31,2009.TheJanuary2009issuehas been mailedto subscribers.
CurrentLiabilitiesandPayroll Accounting 11-33
Ex.171
PresleyCompanysellsaproduct thatincludesaone-yearwarrantyonpartsandlabor.During the year,10,000unitsaresold.Presleyexpectsthat3%oftheunitswillbedefectiveandthatthe averagewarrantycostwillbe$50perunit.Actualwarrantycostsincurredduringtheyearwere $14,000.
Instructions
Preparethejournalentriestorecord(a)theestimatedwarrantycostsand(b) theactualcosts incurred.
Ex.172
DobsonCompanyispreparingadjustingentriesatDecember31.Ananalysisrevealsthe following:
1.DuringDecember,DobsonCompanysold2,000unitsofaproductthatcarriesa60-day warranty.Thesalesforthisproducttotaled$100,000.Thecompanyexpects4%oftheunits toneedrepairunderthe warrantyanditestimates thattheaveragerepaircostperunitwillbe $15.
2.Thecompanyhasbeensuedbyadisgruntledemployee.Legalcounselbelievesthatitis reasonablypossiblethatthecompanywillhaveto pay$200,000indamages.
3.Thecompanyhasbeennamedasoneofseveraldefendantsina$400,000damagesuit. Legalcounselbelievesit is unlikelythatthecompanywillhavetopayanydamages.
a4.Employeesearnvacationpayatarateof1daypermonth.DuringDecember,tenemployees qualifyforvacationpay.Theiraveragedailywageis $90per employee.
Instructions
Prepareadjustingentries,if required,for eachofthefouritems.
Ex.173
Matchthecodesassignedtothefollowingpayrollfunctionstotheprocedureslistedbelow:
H HiringEmployees T Timekeeping
PRE PreparingthePayroll PAY Payingthe Payroll
1.Distributionof checksbythetreasurer 2.Supervisorapproveshoursworked
3.Documentationof employeehiring 4.Maintenanceofpayrollrecords
5.Verificationof payrollcalculations
6.Screeningand interviewingofjobapplicants 7.Useofatimeclock
8.Signingprenumberedpayrollchecks
Ex.174
SueWiebe'sregularhourlywageis$14anhour.Shereceivesovertimepayattherateoftime andahalf.TheFICAtaxrateis8%.Sueispaideverytwoweeks.Forthefirstpayperiodin January,Sueworked86hoursofwhich6wereovertimehours.Sue'sfederalincometax withholdingis$300andherstateincometaxwithholding is$100.Suehasauthorizedthat$50be withheldfrom hercheckeachpayperiodforsavingsbonds.
Instructions
ComputeSueWiebe'sgrossearningsandnetpayforthepayperiodshowingeachpayroll deductioninarrivingatnet pay.
Ex.175
StacyCooper'sregularhourlywagerateis$12,andshereceivesawageof11/2timesher regularrateforworkinexcessof40hours.DuringaJunepayperiod,Stacyworked46hours. Stacy'sfederalincometaxwithholdingis$58,andheronlyvoluntarydeductionis$25forgroup hospitalization insurance.
Instructions
ComputeStacy's(a)grossearningsand(b) net payforthepayperiod.
Ex.176
OatesCompany'spayrollfortheweekendingJanuary15amountedto$95,000forOffice Salariesand$150,000forStoreWages.Noneoftheemployeeshasreachedtheearningslimits specifiedforfederalorstateemployerpayrolltaxes.Thefollowingdeductionswerewithheldfrom employees'salaries andwages:
FederalIncomeTax StateIncomeTax FICATaxes
UnionDues UnitedFund
$50,000 9,000 19,600 2,700 1,800
Federalunemploymenttax(FUTA)rateis6.2%lessacreditequaltotheratepaidforstate unemployment taxes.Thestateunemploymenttax(SUTA)rateis5.4%.
Instructions
Preparethe journal entrytorecord theweeklypayroll endingJanuary 15 andalsothe employer’s payroll taxexpenseonthe payroll.
Ex.177
AnnFinleyhadearned(accumulated)salaryof$86,000throughNovember30.HerDecember salaryamounted to$7,800.JimLanebeganemploymentonDecember1andwillbepaidhisfirst month'ssalaryof$5,000onDecember31.IncometaxwithholdingforDecemberforeach employee isasfollows:
Ann Finley JimLane FederalIncomeTax $2,180 $990 StateIncomeTax 390 180
CurrentLiabilitiesandPayroll Accounting 11-37
Ex.177 (cont.)
Thefollowingpayrolltaxratesareapplicable:
FICAtaxonfirst $90,000 8% FUTAtaxonfirst $7,000 6.2%* SUTAtaxonfirst$7,000 5.4%
*Lessacredit equaltothe stateunemploymentcontribution
Instructions
RecordthepayrollforthetwoemployeesatDecember31andrecordtheemployer'sshareof payroll taxexpenseforthe December31payroll.
Ex.178
AssumethatthepayrollrecordsofGibbsOilCompanyprovidedthefollowinginformationforthe weeklypayrollendedNovember30, 2008.
Year-to-Date Hourly Federal EarningsThrough
Employee HoursWorked PayRate Income Tax Union Dues PreviousWeek
C.White 44 J.Ward 46 K.Hurt 39 M.King 42
$45 $362 10 65 20 118 22 169
$9 $91,000 5 23,200 — 5,700 7 49,500
Ex.178 (cont.)
Additionalinformation:Allemployeesarepaidovertimeattimeandahalfforhoursworkedin excessof40perweek.TheFICAtaxrateis8%forthefirst$90,000ofeachemployee'sannual earnings.Theemployerpaysunemploymenttaxesof6.2%(5.4%forstateand.8%forfederal) on thefirst $7,000ofeachemployee'sannualearnings.
Instructions
(a) Preparethepayrollregisterforthepayperiod.
(b) Preparegeneraljournalentriestorecordthepayrollandpayrolltaxes.
Ex.179
DianeJenksearnsasalaryof$8,000permonthduringtheyear.FICAtaxesare8%onthefirst $90,000ofgrossearnings.Federalunemploymentinsurancetaxesare6.2%ofthefirst$7,000; however,acreditisallowedequaltothestateunemploymentinsurancetaxesof5.4%onthe $7,000.During the year, $27,300waswithheldfor federal incometaxesand$5,700was withheld for state incometaxes.
CurrentLiabilitiesandPayroll Accounting 11-39
Ex.179 (cont.)
Instructions
(a)PrepareajournalentrysummarizingthepaymentofJenks’total salaryduringthe year.
(b)PrepareajournalentrysummarizingtheemployerpayrolltaxexpenseonJenks’salaryfor theyear.
(c)Determinethecostof employing Jenksfor theyear.
Ex.180
TolanCompanyhadthefollowingpayroll datafortheyear:
Grossearningsof employees Employeeearnings notsubjectto FICAtax
Employeeearnings notsubjecttoFUTAor SUTAtax
$640,000 140,000 490,000
Assumingthefollowing: FICAtaxrate
StateUnemploymenttaxrate Federal Unemploymenttaxrate
8%
5.4%(SUTA) .8%(FUTA)
Instructions
ComputeTolan'spayrolltaxexpensefortheyear.Makeasummaryjournalentrytorecordthe payroll taxexpense.
Ex.181
InMarch,grossearningsofMilnerCompanytotaled$150,000.AllearningsaresubjecttoFICA taxes,5.4%stateunemploymenttaxes,and0.8%federalunemployment taxes.
Instructions
(a)Computetheemployer'spayrolltaxexpense. (b)Preparetheentrytorecordpayrolltaxes.
Ex.182
ThefollowingpayrollliabilityaccountsareincludedintheledgerofClementsCompanyon January1,2008:
FICATaxes Payable $1,750 FederalIncomeTaxesPayable 4,000 StateIncomeTaxesPayable 665 FederalUnemploymentTaxesPayable 175 StateUnemploymentTaxes Payable 1,190 UnionDuesPayable 400 HealthInsurancePremiumPayable 5,000 ChristmasClubSavingsPayable 1,500
InJanuary,thefollowingtransactionsoccurred:
Jan.9 Sentacheckfor $5,000toBlueCrossandBlueShield.
11 Depositedacheckfor$5,750inFederalReserveBankforFICAtaxesandfederal incometaxeswithheld.
14 Sentacheckfor $400totheuniontreasurerforuniondues. 18 Paidstateincometaxeswithheldfromemployees.
21 Paidstateandfederalunemployment taxes.
22 Senta$1,500checktoaSavingsandLoanforthe ChristmasClubwithholdings.
Instructions
JournalizetheJanuarytransactions
COMPLETIONSTATEMENTS
183.Acurrentliabilityisadebtthatcanbeexpectedtobepaidwithin year or the ,whicheveris longer.
184.Liabilitiesareclassifiedonthebalancesheetasbeing liabilitiesor
liabilities.
185.Obligationsinwrittenformarecalled andusuallyrequiretheborrower topayinterest.
186.Withaninterest-bearingnote,aborrowermustpaythe ofthenote plus atmaturity.
187.Salestaxescollectedfromcustomersarea ofthebusinessuntilthey areremittedtothetaxing agency.
188.Thecurrentratioiscurrent assetsdivided by .
189.Acontingentliabilityshouldberecordedintheaccountsifitis thatthe contingencywilloccurand theamountis .
190.Twofederaltaxeswhichareleviedagainstemployees'wagesthatmustbedeductedin arrivingatnetpay are(1) taxesand(2) taxes.
191.Theemployerincursapayrolltaxexpenseequaltotheamountcontributedbyeach employeefor taxes.
192.Apayrolltaxexpensewhichisborneentirelybytheemployeristhefederal
tax.
MATCHING
193.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.
A.Currentliability B.NotesPayable
C.WageandTaxStatement D.Currentratio
E.Contingentliabilities
F. Federalincometaxes G.FICAtaxes
H.Federalunemploymenttaxes aI. Post-retirementbenefits
aJ.Pensionplan
1.Leviedagainstemployees'wageswithoutlimit.
2.Anobligationintheformofa writtenpromissorynote.
3.Anagreementwherebyanemployerprovidesbenefitsto employeesaftertheyretire.
4.Apayrolltaxexpenseleviedonlyagainstthe employerbasedonemployees'wages.
5.Ameasureofacompany’sliquidity.
6.Adebtthancanreasonablybeexpected tobepaidfromcurrentassets.
7.Aformshowinggrossearnings andincometaxeswithheld.
8.Leviedagainstemployees'wageswithamaximumlimit.
9.Paymentsbyemployerstoretiredemployees.
10.Apotentialliabilitythat maybecome anactualliability inthefuture.
SHORT-ANSWERESSAYQUESTIONS
S-AE194
Acompanywillincurproductrepaircostsinthefutureifproductsthatitsellscurrentlyunder warrantyarebroughtinforrepairduringthewarrantyperiod.Thecompanywillalsoincurbad debtsexpenseinthefutureifcustomerswhobuyoncreditcurrentlyareunabletopaytheir accounts.Aretheaccountingproceduresforthesetwocontingentcosts(warrantyexpenseand bad debtexpense)relatedorguidedbythesameaccountingprinciple?Brieflyexplain.
S-AE195
Anemployee'snetpayconsistsofgrosspaylessmandatoryandvoluntarypayrolldeductions. Identifythemandatorypayrolldeductionsandgivetwoorthreeexamplesofcommonvoluntary deductions.Arethesedeductionsrecognizedaspayrollexpensesbytheemployer? Whattypeof payroll expensesdoesthe employerincurrelatedto havingapayroll?
S-AE196(Ethics)
Quaney Companymaintainstwoseparateaccountspayablecomputersystems.Oneisknownto alltheusers,andisusedtoprocesspaymentstovendors.Employeesenterthevendorcode,or thenameandaddressofnewvendors,theamount,theaccount,andsoon.Theothersystemis asecretone.Itisusedtocross-checkthevendorsagainstanapprovedvendorlist.Ifavendoris notlistedasapproved, thepaymentprocessishalted.Internalauditemployeesseektoverifythe existenceofabonafideclaimbythevendor.Allinquiriesaremadeatthetopmanagement level, andverydiscreetly.Noonebuttopmanagement,theinternalauditstaff,andtheBoardof Directorsofthecompanyis evenawareof thesecondsystem.
Required:
Isit ethicalforacompanytohavea secretsystemliketheonedescribed?Explain.
S-AE197(Communication)
Al-Fabisamanufacturingcompanythatmakesvariousindustrialcomponentsoutofaluminum. Al-FabislocatedinalargecityinthenortheasternUnitedStates.Variouslabordisputeshave occurredinthecity,somewithacrimoniouspublicdebateconcerningthehonestyof management.DuringoneofAl-Fab'sroutineemployeemeetings,JackGrant,aproduction worker, broughtuptheissueof thecostof aworkerasreportedinthecompany'sannualreport.
Thecostwasgivenas$32,000peryear.Jackpointsoutthattheaveragewagerateof$12per hourisatmostaround$25,000ingrosswages.Heaskswhetherthecompanyisaddingin overtime,becauseifso,thefiguresaremisleadingbecausetheemployeesarenotallowedto workovertime.
Required:
PrepareanoteexplainingtoMr.GranthowAl-Fabmightcalculateacostperemployeethatis greater thangross wages.Explainingeneraltermsonly.Do notuseanycalculations.
0 notes
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ACC 206 Week 3 Quiz – Strayer
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CHAPTER11
CURRENTLIABILITIESANDPAYROLLACCOUNTING
CHAPTERSTUDYOBJECTIVES
1.Explainacurrentliability,andidentifythemajortypesofcurrentliabilities.
2.Describetheaccountingfornotespayable.
3.Explaintheaccountingforothercurrentliabilities.
4.Explainthefinancialstatementpresentationandanalysisofcurrentliabilities.
5.Describetheaccountinganddisclosurerequirementsforcontingentliabilities.
6.Computeandrecordthepayrollforapayperiod.
7.Describeandrecordemployerpayrolltaxes.
8.Discusstheobjectivesofinternalcontrolforpayroll.
9.Identifyadditionalfringebenefitsassociatedwithemployeecompensation.
TRUE-FALSESTATEMENTS
1. A currentliability must bepaidoutof currentearnings.
2. Currentliabilitiesareexpectedtobepaidwithinoneyearortheoperatingcycle, whichever islonger.
3. Therelationshipbetweencurrentliabilitiesandcurrentassetsisimportantinevaluatinga company'sabilityto payoffits long-termdebt.
4. Acompanywhosecurrentliabilitiesexceeditscurrentassetsmayhavealiquidity problem.
5. Notespayableusuallyrequiretheborrowerto payinterest.
6. Notespayableare oftenusedinsteadofaccountspayable.
7. A notepayablemustalwaysbepaidbeforeanaccountpayable.
8. A $30,000,8%,9-monthnotepayablerequiresaninterestpayment of$1,800 atmaturity.
9. Mostnotesarenotinterest bearing.
10. Withaninterest-bearingnote,theamountofcashreceiveduponissuanceofthenote generallyexceedsthenote'sfacevalue.
11. Interestexpenseonanote payableis onlyrecordedatmaturity.
12. Interestexpenseis reportedunderOtherExpensesandLossesinthe incomestatement.
13. UnearnedrevenuesshouldbeclassifiedasOtherRevenuesandGainsontheIncome Statement.
14. Thehigherthesalestaxrate,themoreprofitaretailercanearn.
15. MetropolitanSymphonysells200seasonticketsfor$60,000thatincludesafiveconcert season. TheamountofUnearnedTicketRevenueafterthesecondconcertis$24,000.
16. Duringthemonth,acompanysellsgoodsforatotalof$108,000,whichincludessales taxesof$8,000;therefore,thecompanyshouldrecognize$100,000inSalesRevenues and $8,000in SalesTaxExpense.
17. Current maturitiesoflong-termdebtreferstotheamountofinterestonanotepayable that must be paidinthecurrent year.
18. Thecurrentratiopermitsanalyststocomparethe liquidityofdifferent sizedcompanies.
19. Workingcapital is currentassetsdivided bycurrentliabilities.
20. Contingentliabilitiesshouldberecordedintheaccountsifthereisaremotepossibility that thecontingencywillactuallyoccur.
21. A contingentliabilityisa liabilitythatmayoccur ifsomefutureeventtakesplace.
22. Inconcept,theestimatingofWarrantyExpensewhenproductsaresoldunderwarrantyis similar to theestimatingofBadDebtsExpensebasedon creditsales.
23. FICAtaxesandfederalincometaxesare leviedonemployees'earningswithoutlimit.
24. FICAtaxeswithheldandfederalincometaxes withheldaremandatorypayrolldeductions.
25. Theemployerincursapayrolltaxexpenseequaltotheamountwithheldfromthe employees'wagesforfederalincometaxes.
26. Internalcontroloverpayrollisnotnecessarybecauseemployeeswillcomplainiftheydo not receivethecorrectamount ontheirpayrollchecks.
27. Thetimekeepingfunctionincludessupervisorsmonitoringhoursworkedthroughtime cardsandtimereports.
28. Thehumanresourcesdepartmentdocumentsandauthorizesemploymentofnew employees.
29. Payrollactivitiesinvolvethreefunctions:hiringemployees,preparingthepayroll,and payingthepayroll.
a30. Post-retirementbenefitsconsistofpaymentsbyemployerstoretiredemployees forhealth care, life insurance,andpensions.
Additional True-FalseQuestions
31. A debt that isexpectedto be paidwithinone yearthroughthecreationof long-termdebt is a current liability.
32. Notespayableusuallyareissuedtomeet long-termfinancingneeds.
33. Currentmaturitiesoflong-termdebtareoftenidentifiedaslong-termdebtduewithinone yearon thebalancesheet.
34. Inagivenyear,totalwarrantyexpenseisthesumofactualwarrantycostsincurredon unitssoldplustheestimatedcostofservicingthose unitsinthefuture.
35. FICAtaxesarea voluntarydeductionfromemployeeearnings.
36. FICAtaxesareadeductionfromemployeeearningsandarealsoimposedupon employersas an expense.
37. Theobjectivesofinternalaccountingcontrolforpayrollsare(a)tosafeguardcompany assetsfromunauthorizedpaymentsofpayrollsand(b)toassureaccuracyandreliability oftheaccountingrecordspertainingto payroll.
a38. Whenacompanygivesemployeesrightstoreceivecompensationforabsencesandthe paymentforsuchabsencesisprobableandtheamountcanbereasonablyestimated, the companyshould accruea liability.
MULTIPLECHOICEQUESTIONS
39. Allof thefollowingarereportedascurrent liabilitiesexcept a.accountspayable.
b.bonds payable. c.notespayable.
d.unearnedrevenues.
40. Therelationshipbetweencurrentliabilitiesandcurrentassets is a.usefulindetermining income.
b.usefulinevaluatinga company'sliquidity. c.calledthematchingprinciple.
d.usefulindeterminingtheamountof acompany'slong-termdebt.
41. Mostcompaniespaycurrent liabilities a.outof currentassets.
b.by issuinginterest-bearing notespayable. c.byissuingstock.
d.bycreatinglong-term liabilities.
42. A currentliability isadebt thatcanreasonably beexpectedtobepaid a.withinoneyear.
b.between6monthsand 18months.
c.outof currentlyrecognizedrevenues. d.outof cashcurrentlyonhand.
43. Liabilitiesare classifiedon thebalancesheetascurrentor a.deferred.
b.unearned. c.long-term. d.accrued.
44. Froma liquiditystandpoint,itismoredesirablefora companytohavecurrent a.assetsequalcurrentliabilities.
b.liabilitiesexceedcurrentassets. c.assetsexceedcurrentliabilities.
d.liabilitiesexceed long-termliabilities.
45. Therelationshipof current assetstocurrentliabilitiesisusedinevaluatinga company's a.operatingcycle.
b.revenue-producingability.
c.short-termdebtpayingability. d.long-rangesolvency.
46. Whichofthefollowingisusuallynotan accruedliability? a.Interestpayable
b.Wagespayable c.Taxespayable d.Notespayable
47. Inmostcompanies,current liabilitiesarepaidwithin
a.oneyearthroughthecreationof othercurrentliabilities.
b.theoperatingcyclethroughthecreationof othercurrentliabilities. c.oneyearout of currentassets.
d.theoperatingcycle out of currentassets.
48. Theentrytorecord theissuance ofaninterest-bearingnotecreditsNotesPayable forthe note's
a.maturityvalue. b.marketvalue. c.facevalue.
d.cashrealizablevalue.
49. Withaninterest-bearingnote,theamountofassets receiveduponissuanceofthenoteis generally
a.equaltothenote'sface value.
b.greaterthanthe note'sface value. c.lessthanthenote'sfacevalue.
d.equaltothenote'smaturityvalue.
11-8
50. A notepayableis intheformof
a.a contingencythat isreasonablylikelyto occur. b.awrittenpromissorynote.
c.anoralagreement.
d.a standingagreement.
51. Theentrytorecordthe proceedsuponissuinganinterest-bearingnoteis a.InterestExpense
Cash
NotesPayable b.Cash
NotesPayable c.NotesPayable
Cash d.Cash
NotesPayable InterestPayable
Usethefollowing informationforquestions52–54.
CoffeyCounty Bank agrees tolend Adcock BrickCompany$200,000on January1.Adcock Brick Companysignsa$200,000,8%,9-monthnote.
52. TheentrymadebyAdcockBrickCompanyonJanuary1torecordtheproceedsand issuance ofthenote is
a.InterestExpense.................................................................. 12,000 Cash.................................................................................... 188,000
NotesPayable............................................................ 200,000 b.Cash.................................................................................... 200,000
NotesPayable............................................................ 200,000 c.Cash.................................................................................... 200,000
InterestExpense.................................................................. 12,000
NotesPayable............................................................ 212,000 d.Cash.................................................................................... 200,000
InterestExpense.................................................................. 12,000
NotesPayable............................................................ 200,000 InterestPayable.......................................................... 12,000
53. WhatistheadjustingentryrequiredifAdcockBrickCompanypreparesfinancial statements onJune30?
a.InterestExpense.................................................................. 8,000
InterestPayable.......................................................... 8,000 b.InterestExpense.................................................................. 8,000
Cash........................................................................... 8,000 c.InterestPayable................................................................... 8,000
Cash........................................................................... 8,000 d.InterestPayable................................................................... 8,000
InterestExpense......................................................... 8,000
CurrentLiabilitiesandPayroll Accounting 11-9
54. WhatentrywillAdcockBrickCompanymaketopayoffthenoteandinterestatmaturity assumingthat interesthas beenaccruedtoSeptember30?
a.NotesPayable...................................................................... 212,000 Cash............................................................................ 212,000
b.NotesPayable...................................................................... 200,000 InterestPayable................................................................... 12,000
Cash............................................................................ 212,000 c.InterestExpense.................................................................. 12,000
NotesPayable...................................................................... 200,000 Cash............................................................................ 212,000
d.InterestPayable................................................................... 8,000 NotesPayable...................................................................... 200,000 InterestExpense.................................................................. 4,000
Cash............................................................................ 212,000
55. As interestisrecordedon an interest-bearingnote, theInterestExpenseaccountis a.increased;the NotesPayableaccountis increased.
b.increased;the NotesPayableaccountisdecreased.c. increased;theInterestPayableaccountisincreased.d. decreased;theInterestPayableaccountis increased.
56. Whenaninterest-bearing notematures,thebalance intheNotes Payableaccountis a.lessthanthetotalamountrepaidbythe borrower.
b.thedifferencebetweenthematurityvalueof thenoteandthefacevalueof thenote. c.equal to thetotalamountrepaidbytheborrower.
d.greaterthanthetotalamountrepaidbytheborrower.
Usethefollowing informationforquestions57–58.
OnOctober1,Jerry'sCarpetServiceborrows$250,000fromFirstNationalBankona3-month, $250,000,8% note.
57. WhatentrymustJerry'sCarpetServicemakeonDecember31beforefinancial statements are prepared?
a.InterestPayable................................................................... 5,000
InterestExpense.......................................................... 5,000
b.InterestExpense.................................................................. 20,000
InterestPayable........................................................... 20,000
c.InterestExpense.................................................................. 5,000
InterestPayable........................................................... 5,000
d.InterestExpense.................................................................. 5,000
NotesPayable............................................................. 5,000
58. Theentry by Jerry's Carpet Serviceto recordpaymentof thenoteandaccrued intereston January1 is
a.NotesPayable...................................................................... Cash............................................................................
b.NotesPayable...................................................................... InterestPayable...................................................................
Cash............................................................................
255,000
250,000 5,000
255,000
255,000
11-10
58. (cont.)
c.NotesPayable..................................................................... InterestPayable................................................................... Cash...........................................................................
d.NotesPayable..................................................................... InterestExpense.................................................................. Cash...........................................................................
250,000 20,000
250,000 5,000
270,000
255,000
59. Interestexpenseonaninterest-bearingnoteis a.alwaysequaltozero.
b.accruedoverthelifeof thenote.
c.onlyrecordedatthetimethenoteisissued.
d.onlyrecordedatmaturitywhenthenoteispaid.
60. Theentrytorecordthepaymentofaninterest-bearingnoteatmaturityafterallinterest expense has beenrecognizedis
a.NotesPayable InterestPayable
Cash
b.NotesPayable Interest Expense Cash
c.NotesPayable Cash
d.NotesPayable Cash
InterestPayable
61. Salestaxescollectedbya retailerarerecordedby a.creditingSalesTaxesRevenue.
b.debitingSalesTaxesExpense. c.creditingSales TaxesPayable. d.debitingSalesTaxesPayable.
62. UnearnedRentalRevenueis
a.a contraaccounttoRentalRevenue. b.a revenueaccount.
c.reportedasacurrentliability.
d.debitedwhenrentis receivedinadvance.
63. Salestaxescollectedbytheretailerare recordedasa(n) a.revenue.
b.liability.c.expense. d.asset.
Usethefollowing informationforquestions64–65.
OnSeptember1,Ken'sPaintingServiceborrows$50,000fromNationalBankona4-month, $50,000,6%note.
CurrentLiabilitiesandPayroll Accounting 11-11
64. WhatentrymustKen'sPaintingServicemakeonDecember31before statements are prepared?
a.InterestPayable................................................................... 1,000 InterestExpense..........................................................
b.InterestExpense.................................................................. 3,000 InterestPayable...........................................................
c.InterestExpense.................................................................. 1,000 InterestPayable...........................................................
d.InterestExpense.................................................................. 1,000 NotesPayable.............................................................
financial
1,000
3,000
1,000
1,000
65. The entrybyKen'sPainting Serviceto recordpayment of thenoteandaccrued intereston January1 is
a.NotesPayable...................................................................... 51,000 Cash............................................................................ 51,000
b.NotesPayable...................................................................... 50,000 InterestPayable................................................................... 1,000
Cash............................................................................ 51,000 c.NotesPayable...................................................................... 50,000
InterestPayable................................................................... 3,000 Cash............................................................................ 53,000
d.NotesPayable...................................................................... 50,000 InterestExpense.................................................................. 1,000
Cash............................................................................ 51,000
66. Theinterestchargedona$100,000notepayable,attherateof8%,ona90-daynote would be
a.$8,000. b.$4,444. c.$2,000. d.$667.
67. Theinterestchargedona$100,000notepayable,attherateof6%,ona60-daynote would be
a.$6,000. b.$3,333. c.$1,500. d.$1,000.
68. Theinterestchargedona$50,000notepayable,attherateof8%,ona3-monthnote would be
a.$4,000. b.$2,000. c.$1,000. d.$667.
69. Theinterestchargedona$50,000notepayable,attherateof6%,ona2-monthnote would be
a.$3,000. b.$1,500. c.$750.d.$500.
11-12
70. Acompanyreceives$132,ofwhich$12isforsalestax.Thejournalentrytorecordthe sale wouldincludea
a.debittoSales TaxExpensefor$12. b.credit toSales TaxPayable for$12. c.debit to Salesfor $132.
d.debitto Cashfor $120.
71. Acompanyreceives$174,ofwhich$14isforsalestax.Thejournalentrytorecordthe sale wouldincludea
adebittoSalesTaxExpensefor$14. b.debittoSalesTaxPayablefor$14. c.debit to Salesfor $174.
d.debitto Cashfor $174.
72. A retailstore creditedtheSalesaccountforthesales priceandtheamount ofsalestaxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $315,000,whatisthe amount of thesalestaxesowedto thetaxingagency?
a.$300,000 b.$315,000 c.$15,750 d.$15,000
73. OnJanuary1,2008,DunnonCompany,acalendar-yearcompany,issued$600,000of notespayable, ofwhich$150,000 isdueonJanuary 1foreachofthenextfouryears. The properbalancesheetpresentation on December31,2008,is
a.CurrentLiabilities,$600,000. b.Long-termDebt,$600,000.
c.CurrentLiabilities,$300,000;Long-termDebt,$300,000. d.CurrentLiabilities,$150,000;Long-termDebt,$450,000.
74. OnJanuary1,2008,BrunsonCompany,acalendar-yearcompany,issued$400,000of notespayable, ofwhich$100,000 isdueonJanuary1foreachofthenextfouryears. The properbalancesheetpresentation on December31,2008,is
a.CurrentLiabilities,$400,000. b.Long-termDebt, $400,000.
c.CurrentLiabilities,$100,000;Long-termDebt,$300,000. d.CurrentLiabilities,$300,000;Long-termDebt,$100,000.
75. Acashregistertapeshowscashsalesof$1,500andsalestaxesof$120.Thejournal entry torecordthis information is
a.Cash.................................................................................... 1,620 Sales........................................................................... 1,620
b.Cash.................................................................................... 1,620
SalesTaxPayable...................................................... 120 Sales........................................................................... 1,500
c.Cash.................................................................................... 1,500 SalesTaxExpense.............................................................. 120
Sales........................................................................... 1,620 d.Cash.................................................................................... 1,620
Sales........................................................................... 1,500 SalesTaxesRevenue................................................. 120
CurrentLiabilitiesandPayroll Accounting 11-13
76. Jo’sBookstorehascollected$750insalestaxesduringApril.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillJo'sBookstoremaketoshow theAprilremittance?
a.SalesTaxesPayable............................................................ 750 Cash............................................................................ 750
b.SalesTaxExpense............................................................. 750 Cash............................................................................ 750
c.SalesTaxExpense.............................................................. 750
SalesTaxesPayable................................................... 750 d.Noentryrequired.
77. JordonCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforOctoberamountedto$18,900.Ifthesalestaxrateis5%,whatamountmust be remittedtothestateforOctober'ssalestaxes?
a.$900 b.$945 c.$45
d.Itcannotbedetermined.
78. Enrique'sSalonhastotalreceiptsforthemonthof$16,430includingsalestaxes.Ifthe sales taxrateis 6%,whatareEnrique'ssalesfor themonth?
a.$15,444.20 b.$17,415.80 c.$15,500.00
d.Itcannotbedetermined.
79. Theamountof salestaxcollectedbyaretailstore whenmakingsalesis a.amiscellaneousrevenuefor thestore.
b.a currentliability.
c.notrecordedbecauseit isataxpaidbythecustomer. d.recordedasanoperatingexpense.
80. Aretailstorecredited theSalesaccount forthesalesprice andtheamountofsales taxon sales.Ifthesalestaxrateis5%andthebalanceintheSalesaccountamountedto $189,000,whatisthe amount of thesalestaxesowedto thetaxingagency?
a.$180,000 b.$189,000 c.$9,450d.$9,000
81. Advancesfromcustomersareclassifiedasa(n) a.revenue.
b.expense.
c.currentasset.d.currentliability.
82. Thecurrentportionof long-term debtshould a.bepaidimmediately.
b.be reclassifiedasa currentliability. c.beclassifiedasa long-termliability.
d.notbeseparatedfromthelong-termportionof debt.
11-14
83. Salestaxescollectedbya retailerareexpenses a.of theretailer.
b.of thecustomers.c.ofthegovernment.
d.that arenotrecognizedbythe retaileruntiltheyaresubmittedtothegovernment.
84. Salestaxescollectedbya retailerarereportedas a.contingentliabilities.
b.revenues. c.expenses.
d.currentliabilities.
85. Linda'sBoutiquehastotalreceiptsforthemonthof$29,295includingsalestaxes.Ifthe sales taxrateis 5%,whatareLinda'ssalesforthemonth?
a.$27,831 b.$27,900 c.$29,295
d.Itcannotbedetermined.
86. A cashregistertapeshowscashsalesof$1,500and salestaxesof $90.Thejournalentry to recordthisinformationis
a.Cash.................................................................................... 1,500 Sales........................................................................... 1,500
b.Cash.................................................................................... 1,590
SalesTaxRevenue..................................................... 90 Sales........................................................................... 1,500
c.Cash.................................................................................... 1,500 SalesTaxExpense.............................................................. 90
Sales........................................................................... 1,590
d.Cash.................................................................................... 1,590 Sales........................................................................... 1,500 SalesTaxesPayable.................................................. 90
87. Tim'sPharmacyhascollected$600insalestaxesduringMarch.Ifsalestaxesmustbe remittedtothestategovernmentmonthly,whatentrywillTim'sPharmacymaketoshow theMarch remittance?
a.SalesTaxExpense.............................................................. 600
Cash........................................................................... 600 b.SalesTaxesPayable........................................................... 600
Cash........................................................................... 600 c.SalesTaxExpense.............................................................. 600
SalesTaxesPayable.................................................. 600 d.Noentryrequired.
88. LangerCompanydoesnotringupsalestaxesseparatelyonthecashregister.Total receiptsforFebruaryamountedto$28,600.Ifthesalestaxrateis4%,whatamountmust be remittedtothestatefor February'ssalestaxes?
a.$1,144 b.$1,100 c.$1,716
d.Itcannotbedetermined.
CurrentLiabilitiesandPayroll Accounting 11-15
89. Anybalanceinanunearnedrevenueaccountisreportedasa(n) a.currentliability.
b.long-termdebt. c.revenue.
d.unearnedliability.
90. StanleyCompany typicallysellssubscriptionsonanannualbasis,andpublishessixtimes ayear.Themagazinesells60,000subscriptionsinJanuaryat$15each.Whatentryis made inJanuary torecordthesaleof thesubscriptions?
a.SubscriptionsReceivable..................................................... SubscriptionRevenue.................................................
b.Cash..................................................................................... UnearnedSubscriptionRevenue.................................
c.SubscriptionsReceivable..................................................... UnearnedSubscriptionRevenue.................................
d.PrepaidSubscriptions.......................................................... Cash............................................................................
900,000
900,000
150,000
900,000
900,000
900,000
150,000
900,000
91. Milton Companyissuedafour-year interest-bearingnotepayablefor$300,000on January 1,2007.EachJanuarythecompany isrequiredtopay$75,000onthenote.Howwillthis note be reportedontheDecember31,2008balancesheet?
a.Long-termdebt,$300,000. b.Long-termdebt,$225,000.
c.Long-termdebt,$150,000;Long-termdebtduewithinone year,$75,000. d.Long-termdebt,$225,000;Long-termdebtduewithinone year,$75,000.
92. JanisKnothasalargeconsultingpractice.Newclientsarerequiredtopayone-halfofthe consultingfeesupfront.Thebalanceispaidattheconclusionoftheconsultation.How does Knotaccountforthe cashreceivedattheend of theengagement?
a.Cash
UnearnedConsultingRevenue b.Cash
EarnedConsultingRevenue c.PrepaidConsultingFees
EarnedConsultingRevenue
d.Noentryisrequiredwhentheengagementisconcluded.
93. Whichoneofthefollowingisshownfirstundercurrentliabilitiesbymanycompaniesasa matter ofcustom?
a.Accruedexpenses
b.Currentmaturities of long-term debt c.Salestaxespayable
d.Notespayableandaccountspayable
94. Workingcapital is
a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.
c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.
11-16
95. Thecurrentratiois
a.currentassetspluscurrentliabilities.b.currentassetsminuscurrent liabilities.
c.currentassetsdividedbycurrentliabilities.d.currentassetsmultipliedbycurrentliabilities.
96. Acontingentliabilityneedonlybedisclosedinthefinancialstatementnoteswhenthe likelihood of thecontingencyis
a.reasonablypossible. b.probable.
c.remote. d.unlikely.
97. Ifacontingentliabilityisreasonablyestimableanditisreasonablypossiblethatthe contingencywilloccur,thecontingentliability
a.shouldberecorded intheaccounts.
b.shouldbedisclosedin the notesaccompanyingthefinancialstatements.
c.shouldnotberecordedordisclosedinthenotesuntilthecontingencyactually happens.
d.mustbepaidforthe amountestimated.
98. Theaccountingforwarrantycostisbasedonthematchingprinciple,whichrequiresthat theestimatedcost of honoring warrantycontractsshouldberecognizedasanexpense
a.whenthe productisbrought inforrepairs.b.intheperiodinwhichtheproductwassold. c.attheendofthewarrantyperiod.
d.onlyif therepairsareexpectedtobemadewithinone year.
99. Ifa liabilityis dependentonafutureevent,it iscalleda a.potentialliability.
b.hypotheticalliability. c.probabilisticliability. d.contingentliability.
100. Currentmaturities of long-termdebt a.requireanadjustingentry.
b.areoptionallyreportedonthebalancesheet.
c.canbeproperlyclassifiedduringbalancesheetpreparation,withnoadjustingentry required.
d.arenotconsideredtobecurrentliabilities.
101. A contingencythatisremote
a.shouldbedisclosedinthefinancialstatements. b.mustbeaccruedasa loss.
c.doesnotneedto bedisclosed.
d.isrecordedasacontingentliability.
102. Theaccountingfor warrantycostsisbasedonthe a.goingconcernprinciple.
b.matchingprinciple.
c.conservatismprinciple. d.objectivityprinciple.
CurrentLiabilitiesandPayroll Accounting 11-17
103. Warrantyexpensesarereported ontheincomestatementas a.administrativeexpenses.
b.part of costofgoodssold. c.contra-revenues.
d.sellingexpenses.
Usethefollowing informationforquestions104–105.
NeerCompanysells2,000unitsofitsproductfor$500each.Thesellingpriceincludesaone-yearwarrantyonparts.Itisexpectedthat3%oftheunitswillbedefectiveandthatrepaircosts willaverage$50perunit.Intheyearofsale,warrantycontractsarehonoredon40unitsfora totalcostof$2,000.
104. WhatamountshouldNeerCompanyaccrueonDecember31forestimatedwarranty costs?
a.$3,000 b.$2,000 c.$1,000 d.$15,000
105. WhatamountwillbereportedonNeerCompany'sbalancesheetasEstimatedWarranty Liabilityon December31,2008?
a.$2,000 b.$3,000 c.$1,000
d.Itcannotbedetermined.
106. Whichofthefollowingitemswouldnotbeidentifiedifacontingentliabilityweredisclosed in a financialstatementfootnote?
a.Thenatureof theitem
b.Theexpectedoutcomeof thefutureeventc.Anumericalprobabilityof theexpectedloss d.Theamountofthecontingency,if known
107. Disclosureofa contingentliabilityisusuallymade
a.parenthetically,inthebodyofthebalancesheet.
b.parenthetically,inthebodyoftheincomestatement. c.in anotetothefinancialstatements.
d.inthemanagementdiscussionsectionofthefinancial statement.
108. Currentliabilitiesgenerallyappear
a.after long-termdebtonthebalancesheet.
b.indecreasingorderofmagnitudeonthebalancesheet. c.in orderofmaturityonthebalancesheet.
d.in increasingorderofmagnitudeonthe balancesheet.
109. Whichofthefollowingemployees wouldlikelyreceivea salaryinsteadofwages? a.Storeclerk
b.Factoryemployee c.Salesmanager
d.Manuallaborer
11-18
110. Thetotalcompensationearnedbyanemployeeis called a.take-homepay.
b.netpay.
c.netearnings.d.grossearnings.
111. Whichoneofthefollowingpayrolltaxesdoesnotresultinapayrolltaxexpenseforthe employer?
a.FICAtax
b.Federalincometax
c.Federalunemployment tax d.Stateunemploymenttax
112. SueStein'sregularrateofpayis$12perhourwithoneandone-halftimesherregular rateforanyhourswhichexceed40hoursperweek.Sheworked48hourslastweek. Therefore, hergross wageswere
a.$576. b.$480. c.$624. d.$864.
113. AssumingaFICAtaxrateof8%onthefirst$90,000inwages,andafederalincometax rateof20%onallwages,whatwouldbeanemployee'snetpay fortheyearifheearned $100,000for theyear?
a.$92,800 b.$72,000 c.$80,000 d.$72,800
114. Mostcompaniesinvolvedin interstatecommercearerequiredtocomputeovertimeat a.theworker'sregularhourlywage.
b.1.25timestheworker'sregularhourlywage. c.1.5timestheworker'sregularhourlywage. d.2.5timesthe worker'sregularhourlywage.
115. SueRicehasworked44hoursthisweek.Sheworkedinexcessof8hourseachday.Her regularhourlywageis$15perhour.WhatareSue'sgrosswagesfortheweek?(The company Sue worksfor is incompliancewiththeFair LaborStandardsAct.)
a.$660 b.$690 c.$990 d.$720
116. FICAtaxesdonotprovideworkerswith a.lifeinsurance.
b.supplementalretirement. c.employmentdisability.d.medicalbenefits.
CurrentLiabilitiesandPayroll Accounting 11-19
117. Employeepayroll deductionsincludeeachofthefollowingexcept a.federalunemployment taxes.
b.federalincometaxes. c.FICAtaxes.
d.insurance,pension plans,anduniondues.
118. ThejournalentrytorecordthepayrollforaperiodwillincludeacredittoWagesand SalariesPayableforthegross
a.amountlessallpayrolldeductions. b.amountof allpaychecksissued.c.paylesstaxespayable.
d.paylessvoluntarydeductions.
119. Theamountofincometaxeswithheldfromemployeesisdependentoneachofthe followingexceptthe
a.employee'sgrossearnings. b.employee'snetpay.
c.length ofthepayperiod.
d.numberof allowancesclaimedbytheemployee.
Use thefollowing informationforquestions120–123.
Thefollowingtotalsforthemonthof Aprilweretakenfromthepayrollregisterof MainCompany.
Salaries
FICAtaxeswithheld IncometaxeswithheldMedicalinsurancedeductions Federalunemploymenttaxes Stateunemploymenttaxes
$24,000 1,100 5,000 900
64 432
120. Thejournalentrytorecordthemonthlypayrollon April30wouldincludea a.debit toSalariesExpensefor $24,000.
b.credittoSalariesPayablefor$24,000. c.debittoSalariesPayablefor$24,000. d.debit to Salaries Expensefor $17,000.
121. Theentrytorecordthe paymentofnetpayroll wouldincludea a.debit toSalariesPayablefor$16,504.
b.debittoSalariesPayable for$17,000. c.debittoSalariesPayablefor$15,900. d.credit to Cashfor $18,100.
122. TheentrytorecordaccrualofMainCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$496.
b.debittoPayrollTaxExpensefor$1,596. c.credit toFICA Taxes Payablefor$2,200. d.credit to PayrollTaxExpensefor $496.
11-20
123. Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea a.credit to FederalUnemploymentTaxes Payablefor $64.
b.debitto Federal UnemploymentTaxes Expensefor $64. c.creditto PayrollTaxExpensefor$64.
d.debitto Federal UnemploymentTaxes Payablefor $64
Usethefollowing informationforquestions124–127.
Thefollowingtotalsforthemonthof June weretakenfromthepayrollregisterof LaneCompany.
Salaries
FICAtaxeswithheld IncometaxeswithheldMedicalinsurancedeductions Federalunemploymenttaxes Stateunemploymenttaxes
$20,000 1,533 4,400 800
160 1,000
124. Thejournalentrytorecordthemonthlypayrollon June30wouldincludea a.debit toSalariesExpensefor $20,000.
b.credittoSalariesPayablefor$20,000. c.debittoSalariesPayablefor$20,000. d.debit to Salaries Expensefor $13,267
125. Theentrytorecordthe paymentofnetpayroll wouldincludea a.debitto SalariesPayablefor$12,107.
b.debittoSalariesPayable for$13,267. c.debittoSalariesPayablefor$12,267. d.credit to Cashfor $12,267.
126. TheentrytorecordaccrualofLaneCompany’spayrolltaxeswouldincludea a.debit toPayrollTaxExpensefor$2,693
b.credittoPayrollTaxExpensefor$2,693 c.credit toFICA TaxesPayablefor$1,160. d.credit to PayrollTaxExpensefor $1,160.
127. Theentrytorecordthe accrualof federal unemploymenttaxeswouldincludea a.credit to FederalUnemploymentTaxes Payablefor $160.
b.creditto Federal UnemploymentTaxes Expensefor $160. c.creditto PayrollTaxExpensefor$160.
d.debitto Federal UnemploymentTaxes Payablefor $160.
128. Whichoneofthefollowingpayrolltaxesisnotwithheldfromanemployee'swages because it is notleviedontheemployee?
a.Federalincometax
b.Federalunemployment tax c.State incometax
d.FICAtax
CurrentLiabilitiesandPayroll Accounting 11-21
129. ByJanuary31followingtheendofacalendaryear,anemployerisrequiredtoprovide each employeewitha(n)
a.stateunemploymenttaxform.
b.federalunemployment taxform940. c.wageandtaxstatementformW-2.
d.employee'swithholdingallowancecertificateformW-4.
130. Whichofthefollowingpayroll taxesareusuallyfiledandremittedannually? a.Federalunemployment taxes
b.FICAtaxes
c.Stateunemploymenttaxes
d.Federalandstateunemploymenttaxes
131. Thetaxthatispaidequallybytheemployerand employeeis the a.federalincometax.
b.federalunemployment tax. c.stateunemploymenttax.d.FICAtax.
132. The effectivefederalunemploymenttaxrateisusually a.6.2%.
b.0.8%. c.5.4%. d.8.0%.
133. Thetreasurer'sdepartmentisresponsiblefor a.approvingthepayroll.
b.maintainingpayrollrecords.c.preparingpayroll taxreturns. d.signingpayrollchecks.
134. Thepayrollis paidbythea.personneldepartment. b.payrolldepartment.
c.cashier.
d.treasurer'sdepartment.
a135.Post-retirementbenefitsconsistof payments byemployerstoretiredemployeesfor a.healthcareand lifeinsuranceonly.
b.healthcareandpensionsonly.c.lifeinsuranceandpensionsonly.
d.healthcare,lifeinsurance,andpensions.
a136.Thepaidabsencethat ismostcommonlyaccruedis a.votingleave.
b.vacationtime.c.maternityleave. d.disabilityleave.
11-22
a137.BlakeCompanyhastenemployeeswhoeachearn$160perday.Iftheyaccumulate vacationtimeattherateof1.5vacationdaysforeachmonthworked,theamountof vacation benefitsthatshouldbeaccruedatthe end of themonthis
a.$160.b.$1,600. c.$2,400. d.$240.
a138.Anemployer'sestimatedcostfor post-retirement benefitsforitsemployeesshouldbe a.recognizedas anexpensewhenpaid.
b.recognizedasanexpenseduringtheemployees'workyears.
c.recognizedas an expenseduringtheemployees'retirementyears.
d.chargedto thegoodwillaccount because providingemployees with benefits generates employee goodwill.
Additional MultipleChoiceQuestions
139. Acurrentliabilityisadebtthecompanyreasonablyexpectstopayfromexistingcurrent assetswithin
a.oneyear.
b.theoperatingcycle.
c.one yearor theoperatingcycle, whicheverislonger. d.oneyearor theoperatingcycle, whicheveris shorter.
140. Whichofthefollowingstatements concerningcurrent liabilitiesis incorrect? a.Currentliabilitiesincludeunearnedrevenues.
b.Acompanythat hasmore currentliabilities thancurrentassets is usuallythesubjectof someconcern.
c.Currentliabilitiesincludeprepaidexpenses.
d.Acurrentliabilityisadebtthatcanreasonablybeexpectedtobepaidoutofexisting currentassetsorresult inthecreationof other currentliabilities.
141. OnAugust1,2008,acompanyborrowedcashandsignedaone-yearinterest-bearing noteonwhichboththefacevalueandinterestarepayableonAugust1,2009.Howwill thenotepayableandtherelatedinterestbeclassifiedintheDecember31,2008,balance sheet?
NotePayable Interest Payablea.Currentliability Noncurrentliability b.Noncurrentliability Currentliability
c.Currentliability Currentliability d.Noncurrentliability Notshown
142. Companiesreportcurrentliabilitiesonthebalancesheetin a.alphabeticalorder.
b.order ofmaturity. c.randomorder.
d.order ofmagnitude.
CurrentLiabilitiesandPayroll Accounting 11-23
143. A contingencyneednotberecordednordisclosedwhen
a.itisprobablethecontingencywillhappenandtheamountcanbereasonably estimated.
b.itisprobablethecontingencywillhappenbuttheamountcannotbereasonably estimated.
c.itisreasonablypossiblethecontingencywillhappenandtheamountcanbe reasonablyestimated.
d.thepossibilityof the contingencyhappeningisremote.
144. A contingentliabilityis recordedwhenthe likelihoodof thecontingency is a.remote.
b.reasonablypossible. c.probable.
d.nil or zero.
145. MikeKohl,anemployeeofSpottswoodCompany,hasgrossearningsforthemonthof Octoberof$6,000.FICAtaxesare8%ofgrossearnings, federalincometaxesamount to $952forthemonth,stateincometaxesare2%ofgrossearnings,andMikeauthorizes voluntarydeductionsof$15permonthtotheUnitedFund.WhatisthenetpayforMike Kohl?
a.$4,442 b.$4,433 c.$4,448 d.$4,452
146. Apayrollrecordthataccumulatesthegrossearnings,deductions,andnetpayby employeefor eachpayperiodis the
a.withholdingtaxtable.
b.employeeearningsrecord. c.payrollregister.
d.WageandTaxStatement.
147. ThejournalentrytorecordthepayrollforMarcusGarveyCompanyfortheweekending January8,wouldprobablyincludea
a.creditto OfficeSalaries.b.credittoWages Expense.
c.debittoFederalIncomeTaxesPayable. d.creditto FICATaxesPayable.
148. Employerpayroll taxesincludeallofthefollowingexcept a.FICAtaxes.
b.federalunemployment taxes. c.stateunemploymenttaxes.d.federalincometaxes.
149. Therecordthatprovidesacumulativesummaryofeachemployee’sgrossearnings, payrolldeductions, and netpayduring theyearandisrequiredtobemaintainedtocomply with stateandlocalfederallawisthe
a.register.
b.employeeearningsrecord. c.statementofearnings.
d.wageandtaxstatement.
11-24
a150.Post-retirementbenefitsincludeallofthefollowingexcept a.healthcare.
b.lifeinsurance. c.pensions.
d.vacationbenefits.
BRIEFEXERCISES
BE151
SaldanaSalesCompanyhasthefollowingselectedaccountsafterpostingadjustingentries:
AccountsPayableNotesPayable,3-month
AccumulatedDepreciation—Equipment NotesPayable,5-year,6%
PayrollTax Expense InterestPayable MortgagePayable SalesTaxPayable
$62,000 50,000 14,000 80,000 4,000 3,000 120,000 38,000
Instructions
PreparethecurrentliabilitysectionofSaldanaSalesCompany'sbalancesheet,assuming $20,000of themortgageispayablenextyear.
BE152
Identifywhichof thefollowingwouldbeclassifiedas currentliabilitiesasof December31,2008: 1.WagesPayable
2.BondsPayable, maturingin 2013 3.InterestPayable,dueJuly1,2009 4.TaxesPayable
5.NotesPayable, dueJanuary30,2010
BE153
OnDecember1,DestinCorporationborrowed$5,000ona90-day,6%note.Preparetheentries torecordtheissuanceofthenote,theaccrualofinterestatyearend,andthepaymentofthe note.
BE154
DuringDecember2008,FashionVixenPublishingsold2,50012-monthannualmagazine subscriptionsatarateof$30each.ThefirstissuesweremailedinFebruary2009.Preparethe entriesonFashionVixen’sbookstorecordthesaleofthesubscriptionsandthemailingofthe first issues.
BE155
Landen Companyhadcashsalesof$54,250(includingtaxes)forthemonthofJune.Salesare subjectto8.5%salestax.Preparetheentryto recordthesale.
BE156
OnDecember1, WynnCompanyintroducesanewproductthatincludesaone-yearwarrantyon parts.InDecember,500unitsaresold.Managementbelievesthat5%oftheunitswillbe defectiveandthattheaveragewarrantycostswillbe$60perunit.Preparetheadjustingentryat December31toaccruethe estimatedwarrantycost.
BE157
MaryStine’sregularhourlywagerateis$12,andshereceivesanhourlyrateof$18forworkin excessof40hours.DuringaMarchpayperiod,Maryworks47hours.Mary’sfederalincometax withholdingis$70,andshehasnovoluntarydeductions.ComputeMaryStine’sgrossearnings and netpayforthepayperiod.
BE158
Data forMaryStinearepresentedinBE157.PreparethejournalentrytorecordMary’spayfor theperiod.Use March15fortheendof thepayperiod.
BE159
InFebruary,grossearningsinZennCompanytotaled$50,000.Allearningsaresubjectto8% FICAtaxes,5.4%stateunemploymenttaxes,and0.8%federalunemploymenttaxes.Prepare theentrytorecordJanuarypayrolltaxexpense.
*BE160
WeaverCompanyemployeesareentitledtooneday’svacationforeachmonthworked.In February,60employeesworkedthefullmonth.RecordthevacationpayliabilityforFebruary assuming theaveragedailypayfor eachemployeeis$90.
EXERCISES
Ex.161
StinerCompanyhasthefollowingselectedaccounts afterpostingadjustingentries:
AccountsPayableNotesPayable,3-month
AccumulatedDepreciation—Equipment PayrollandBenefitsPayable
NotesPayable,5-year,8% EstimatedWarrantyLiability PayrollTax ExpenseInterestPayable MortgagePayable
SalesTaxPayable
$45,000 80,000 14,000 27,000 30,000 34,000 6,000 3,000 200,000 16,000
Instructions
(a)PreparethecurrentliabilitysectionofStinerCompany'sbalancesheet,assuming$25,000 of themortgageispayablenextyear. (Listliabilities inmagnitudeorder,withlargestfirst.)
(b)Commenton Stiner's liquidity,assumingtotalcurrentassetsare$450,000.
Ex.162
Preparethenecessaryjournalentriesforthefollowingtransactions:
(a)On September1,LoreCompanyborrowed$150,000fromNationalBankona6-month,8% note.
(b)On December31, LoreCompanyaccruedinterest(assumeadjustingentries areonlymade at theendoftheyear).
CurrentLiabilitiesandPayroll Accounting 11-29
Ex.163
OnMarch1,FeltonCompanyborrows$90,000fromOttawaStateBankbysigninga6-month, 8%,interest-bearingnote.
Instructions
PreparethenecessaryentriesbelowassociatedwiththenotepayableonthebooksofFelton Company.
(a)Preparetheentryon March 1whenthe notewasissued.
(b)PrepareanyadjustingentriesnecessaryonJune30inordertopreparethesemi-annual financialstatements. Assumenootherinterestaccrualentrieshavebeenmade.
(c)Preparetheadjustingentry at August31to accrueinterest. (d)Preparetheentryto recordpaymentof thenote atmaturity.
Ex.164
TomByerssellstelevisionswitha2-yearwarranty.Pastexperienceindicatesthat2%oftheunits soldwillbereturnedduringthewarrantyperiodforrepairs.Theaveragecostofrepairsunder warrantyisestimatedtobe$50perunit.During2008,7,000unitsweresoldatanaverageprice of$400.Duringtheyear,repairsweremadeon55unitsatacost of $2,400.
Instructions
Preparejournalentriestorecordtherepairsmadeunderwarrantyandestimatedwarranty expense fortheyear.
Ex.165
SommersCompanybilleditscustomersatotalof$1,575,000forthemonthofNovember.The totalincludesa 5% statesalestax.
Instructions
(a)Determinetheproperamountof revenuetoreportforthemonth.
(b)Preparethegeneraljournalentrytorecordtherevenue andrelatedliabilitiesforthemonth.
Ex.166
StevensCompany does notsegregatesales andsales taxes onitscashregister.Its registertotal for themonthis$259,700, whichincludesa 6%salestax.
Instructions
Computesalestaxespayable,andmaketheentrytorecordsalesandsalestaxespayable.
Ex.167
SuttonCoatCompany,whichpreparesannualfinancialstatements,ispreparingadjustingentries on December31. Analysisindicatesthefollowing:
1.Thecompanyisthedefendantinanemployeediscriminationlawsuitinvolving$50,000of damages.Legalcounselbelievesitisunlikelythatthecompanywillhavetopayany damages.
2.December31stisaFriday.TheemployeesofthecompanyhavebeenpaidonMonday, December27thforthepreviousweekwhichendedonFriday,December24th.Thecompany employs30peoplewhoearn$100perdayand15peoplewhoearn$150perday.All employees work5-day weeks.
3.Thecompany isadefendantina$500,000productliability lawsuit.Legal counsel believesthe companyprobablywill havetopaytheamountrequested.
a4.Employeesareentitledtooneday'svacationforeachmonthworked.Allemployees describedabove in(2.) workedthemonthof December.
Instructions
Prepareanyadjustingentriesnecessaryattheendof theyear.
Ex.168
Basedonthefollowinginformation,computethe(1) currentratioand(2) workingcapital.
Currentassets Totalassets Currentliabilities Totalliabilities
$240,000 900,000 80,000 500,000
Ex.169
LindaEstessellsexercisemachinesforhomeuse.Themachinescarrya2-yearwarranty.Past experienceindicatesthat6%oftheunitssoldwillbereturnedduringthewarrantyperiodfor repairs.Theaveragecostofrepairsunderwarrantyis$60forlaborand$90forpartsperunit. During2008,2,500exercise machines weresoldatanaverageprice of$800.Duringtheyear,60 of themachinesthat weresold wererepairedattheaveragepriceper unit.
Instructions
(a) Preparethejournalentrytorecordtherepairsmadeunderwarranty.
(b) Preparethejournalentrytorecordtheestimatedwarrantyexpense fortheyear.
Ex.170
GolfWorldPublicationspublishesagolfmagazineforwomen.Themagazinesellsfor$3acopy onthenewsstand.Yearlysubscriptionstothemagazinecost$24peryear(12issues).During December2008,GolfWorldPublicationssells9,000copiesofthegolfmagazineatnewsstands andreceivespaymentfor15,000subscriptionsfor2009.Financialstatementsareprepared monthly.
Instructions
(a)Preparethe December2008journalentriesto record the newsstandsales and subscriptions received.
(b)PreparethenecessaryadjustingentryonJanuary31,2009.TheJanuary2009issuehas been mailedto subscribers.
CurrentLiabilitiesandPayroll Accounting 11-33
Ex.171
PresleyCompanysellsaproduct thatincludesaone-yearwarrantyonpartsandlabor.During the year,10,000unitsaresold.Presleyexpectsthat3%oftheunitswillbedefectiveandthatthe averagewarrantycostwillbe$50perunit.Actualwarrantycostsincurredduringtheyearwere $14,000.
Instructions
Preparethejournalentriestorecord(a)theestimatedwarrantycostsand(b) theactualcosts incurred.
Ex.172
DobsonCompanyispreparingadjustingentriesatDecember31.Ananalysisrevealsthe following:
1.DuringDecember,DobsonCompanysold2,000unitsofaproductthatcarriesa60-day warranty.Thesalesforthisproducttotaled$100,000.Thecompanyexpects4%oftheunits toneedrepairunderthe warrantyanditestimates thattheaveragerepaircostperunitwillbe $15.
2.Thecompanyhasbeensuedbyadisgruntledemployee.Legalcounselbelievesthatitis reasonablypossiblethatthecompanywillhaveto pay$200,000indamages.
3.Thecompanyhasbeennamedasoneofseveraldefendantsina$400,000damagesuit. Legalcounselbelievesit is unlikelythatthecompanywillhavetopayanydamages.
a4.Employeesearnvacationpayatarateof1daypermonth.DuringDecember,tenemployees qualifyforvacationpay.Theiraveragedailywageis $90per employee.
Instructions
Prepareadjustingentries,if required,for eachofthefouritems.
Ex.173
Matchthecodesassignedtothefollowingpayrollfunctionstotheprocedureslistedbelow:
H HiringEmployees T Timekeeping
PRE PreparingthePayroll PAY Payingthe Payroll
1.Distributionof checksbythetreasurer 2.Supervisorapproveshoursworked
3.Documentationof employeehiring 4.Maintenanceofpayrollrecords
5.Verificationof payrollcalculations
6.Screeningand interviewingofjobapplicants 7.Useofatimeclock
8.Signingprenumberedpayrollchecks
Ex.174
SueWiebe'sregularhourlywageis$14anhour.Shereceivesovertimepayattherateoftime andahalf.TheFICAtaxrateis8%.Sueispaideverytwoweeks.Forthefirstpayperiodin January,Sueworked86hoursofwhich6wereovertimehours.Sue'sfederalincometax withholdingis$300andherstateincometaxwithholding is$100.Suehasauthorizedthat$50be withheldfrom hercheckeachpayperiodforsavingsbonds.
Instructions
ComputeSueWiebe'sgrossearningsandnetpayforthepayperiodshowingeachpayroll deductioninarrivingatnet pay.
Ex.175
StacyCooper'sregularhourlywagerateis$12,andshereceivesawageof11/2timesher regularrateforworkinexcessof40hours.DuringaJunepayperiod,Stacyworked46hours. Stacy'sfederalincometaxwithholdingis$58,andheronlyvoluntarydeductionis$25forgroup hospitalization insurance.
Instructions
ComputeStacy's(a)grossearningsand(b) net payforthepayperiod.
Ex.176
OatesCompany'spayrollfortheweekendingJanuary15amountedto$95,000forOffice Salariesand$150,000forStoreWages.Noneoftheemployeeshasreachedtheearningslimits specifiedforfederalorstateemployerpayrolltaxes.Thefollowingdeductionswerewithheldfrom employees'salaries andwages:
FederalIncomeTax StateIncomeTax FICATaxes
UnionDues UnitedFund
$50,000 9,000 19,600 2,700 1,800
Federalunemploymenttax(FUTA)rateis6.2%lessacreditequaltotheratepaidforstate unemployment taxes.Thestateunemploymenttax(SUTA)rateis5.4%.
Instructions
Preparethe journal entrytorecord theweeklypayroll endingJanuary 15 andalsothe employer’s payroll taxexpenseonthe payroll.
Ex.177
AnnFinleyhadearned(accumulated)salaryof$86,000throughNovember30.HerDecember salaryamounted to$7,800.JimLanebeganemploymentonDecember1andwillbepaidhisfirst month'ssalaryof$5,000onDecember31.IncometaxwithholdingforDecemberforeach employee isasfollows:
Ann Finley JimLane FederalIncomeTax $2,180 $990 StateIncomeTax 390 180
CurrentLiabilitiesandPayroll Accounting 11-37
Ex.177 (cont.)
Thefollowingpayrolltaxratesareapplicable:
FICAtaxonfirst $90,000 8% FUTAtaxonfirst $7,000 6.2%* SUTAtaxonfirst$7,000 5.4%
*Lessacredit equaltothe stateunemploymentcontribution
Instructions
RecordthepayrollforthetwoemployeesatDecember31andrecordtheemployer'sshareof payroll taxexpenseforthe December31payroll.
Ex.178
AssumethatthepayrollrecordsofGibbsOilCompanyprovidedthefollowinginformationforthe weeklypayrollendedNovember30, 2008.
Year-to-Date Hourly Federal EarningsThrough
Employee HoursWorked PayRate Income Tax Union Dues PreviousWeek
C.White 44 J.Ward 46 K.Hurt 39 M.King 42
$45 $362 10 65 20 118 22 169
$9 $91,000 5 23,200 — 5,700 7 49,500
Ex.178 (cont.)
Additionalinformation:Allemployeesarepaidovertimeattimeandahalfforhoursworkedin excessof40perweek.TheFICAtaxrateis8%forthefirst$90,000ofeachemployee'sannual earnings.Theemployerpaysunemploymenttaxesof6.2%(5.4%forstateand.8%forfederal) on thefirst $7,000ofeachemployee'sannualearnings.
Instructions
(a) Preparethepayrollregisterforthepayperiod.
(b) Preparegeneraljournalentriestorecordthepayrollandpayrolltaxes.
Ex.179
DianeJenksearnsasalaryof$8,000permonthduringtheyear.FICAtaxesare8%onthefirst $90,000ofgrossearnings.Federalunemploymentinsurancetaxesare6.2%ofthefirst$7,000; however,acreditisallowedequaltothestateunemploymentinsurancetaxesof5.4%onthe $7,000.During the year, $27,300waswithheldfor federal incometaxesand$5,700was withheld for state incometaxes.
CurrentLiabilitiesandPayroll Accounting 11-39
Ex.179 (cont.)
Instructions
(a)PrepareajournalentrysummarizingthepaymentofJenks’total salaryduringthe year.
(b)PrepareajournalentrysummarizingtheemployerpayrolltaxexpenseonJenks’salaryfor theyear.
(c)Determinethecostof employing Jenksfor theyear.
Ex.180
TolanCompanyhadthefollowingpayroll datafortheyear:
Grossearningsof employees Employeeearnings notsubjectto FICAtax
Employeeearnings notsubjecttoFUTAor SUTAtax
$640,000 140,000 490,000
Assumingthefollowing: FICAtaxrate
StateUnemploymenttaxrate Federal Unemploymenttaxrate
8%
5.4%(SUTA) .8%(FUTA)
Instructions
ComputeTolan'spayrolltaxexpensefortheyear.Makeasummaryjournalentrytorecordthe payroll taxexpense.
Ex.181
InMarch,grossearningsofMilnerCompanytotaled$150,000.AllearningsaresubjecttoFICA taxes,5.4%stateunemploymenttaxes,and0.8%federalunemployment taxes.
Instructions
(a)Computetheemployer'spayrolltaxexpense. (b)Preparetheentrytorecordpayrolltaxes.
Ex.182
ThefollowingpayrollliabilityaccountsareincludedintheledgerofClementsCompanyon January1,2008:
FICATaxes Payable $1,750 FederalIncomeTaxesPayable 4,000 StateIncomeTaxesPayable 665 FederalUnemploymentTaxesPayable 175 StateUnemploymentTaxes Payable 1,190 UnionDuesPayable 400 HealthInsurancePremiumPayable 5,000 ChristmasClubSavingsPayable 1,500
InJanuary,thefollowingtransactionsoccurred:
Jan.9 Sentacheckfor $5,000toBlueCrossandBlueShield.
11 Depositedacheckfor$5,750inFederalReserveBankforFICAtaxesandfederal incometaxeswithheld.
14 Sentacheckfor $400totheuniontreasurerforuniondues. 18 Paidstateincometaxeswithheldfromemployees.
21 Paidstateandfederalunemployment taxes.
22 Senta$1,500checktoaSavingsandLoanforthe ChristmasClubwithholdings.
Instructions
JournalizetheJanuarytransactions
COMPLETIONSTATEMENTS
183.Acurrentliabilityisadebtthatcanbeexpectedtobepaidwithin year or the ,whicheveris longer.
184.Liabilitiesareclassifiedonthebalancesheetasbeing liabilitiesor
liabilities.
185.Obligationsinwrittenformarecalled andusuallyrequiretheborrower topayinterest.
186.Withaninterest-bearingnote,aborrowermustpaythe ofthenote plus atmaturity.
187.Salestaxescollectedfromcustomersarea ofthebusinessuntilthey areremittedtothetaxing agency.
188.Thecurrentratioiscurrent assetsdivided by .
189.Acontingentliabilityshouldberecordedintheaccountsifitis thatthe contingencywilloccurand theamountis .
190.Twofederaltaxeswhichareleviedagainstemployees'wagesthatmustbedeductedin arrivingatnetpay are(1) taxesand(2) taxes.
191.Theemployerincursapayrolltaxexpenseequaltotheamountcontributedbyeach employeefor taxes.
192.Apayrolltaxexpensewhichisborneentirelybytheemployeristhefederal
tax.
MATCHING
193.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.
A.Currentliability B.NotesPayable
C.WageandTaxStatement D.Currentratio
E.Contingentliabilities
F. Federalincometaxes G.FICAtaxes
H.Federalunemploymenttaxes aI. Post-retirementbenefits
aJ.Pensionplan
1.Leviedagainstemployees'wageswithoutlimit.
2.Anobligationintheformofa writtenpromissorynote.
3.Anagreementwherebyanemployerprovidesbenefitsto employeesaftertheyretire.
4.Apayrolltaxexpenseleviedonlyagainstthe employerbasedonemployees'wages.
5.Ameasureofacompany’sliquidity.
6.Adebtthancanreasonablybeexpected tobepaidfromcurrentassets.
7.Aformshowinggrossearnings andincometaxeswithheld.
8.Leviedagainstemployees'wageswithamaximumlimit.
9.Paymentsbyemployerstoretiredemployees.
10.Apotentialliabilitythat maybecome anactualliability inthefuture.
SHORT-ANSWERESSAYQUESTIONS
S-AE194
Acompanywillincurproductrepaircostsinthefutureifproductsthatitsellscurrentlyunder warrantyarebroughtinforrepairduringthewarrantyperiod.Thecompanywillalsoincurbad debtsexpenseinthefutureifcustomerswhobuyoncreditcurrentlyareunabletopaytheir accounts.Aretheaccountingproceduresforthesetwocontingentcosts(warrantyexpenseand bad debtexpense)relatedorguidedbythesameaccountingprinciple?Brieflyexplain.
S-AE195
Anemployee'snetpayconsistsofgrosspaylessmandatoryandvoluntarypayrolldeductions. Identifythemandatorypayrolldeductionsandgivetwoorthreeexamplesofcommonvoluntary deductions.Arethesedeductionsrecognizedaspayrollexpensesbytheemployer? Whattypeof payroll expensesdoesthe employerincurrelatedto havingapayroll?
S-AE196(Ethics)
Quaney Companymaintainstwoseparateaccountspayablecomputersystems.Oneisknownto alltheusers,andisusedtoprocesspaymentstovendors.Employeesenterthevendorcode,or thenameandaddressofnewvendors,theamount,theaccount,andsoon.Theothersystemis asecretone.Itisusedtocross-checkthevendorsagainstanapprovedvendorlist.Ifavendoris notlistedasapproved, thepaymentprocessishalted.Internalauditemployeesseektoverifythe existenceofabonafideclaimbythevendor.Allinquiriesaremadeatthetopmanagement level, andverydiscreetly.Noonebuttopmanagement,theinternalauditstaff,andtheBoardof Directorsofthecompanyis evenawareof thesecondsystem.
Required:
Isit ethicalforacompanytohavea secretsystemliketheonedescribed?Explain.
S-AE197(Communication)
Al-Fabisamanufacturingcompanythatmakesvariousindustrialcomponentsoutofaluminum. Al-FabislocatedinalargecityinthenortheasternUnitedStates.Variouslabordisputeshave occurredinthecity,somewithacrimoniouspublicdebateconcerningthehonestyof management.DuringoneofAl-Fab'sroutineemployeemeetings,JackGrant,aproduction worker, broughtuptheissueof thecostof aworkerasreportedinthecompany'sannualreport.
Thecostwasgivenas$32,000peryear.Jackpointsoutthattheaveragewagerateof$12per hourisatmostaround$25,000ingrosswages.Heaskswhetherthecompanyisaddingin overtime,becauseifso,thefiguresaremisleadingbecausetheemployeesarenotallowedto workovertime.
Required:
PrepareanoteexplainingtoMr.GranthowAl-Fabmightcalculateacostperemployeethatis greater thangross wages.Explainingeneraltermsonly.Do notuseanycalculations.
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Text
Westbourne's former Grand bingo hall can't be turned into <b>gym</b> and office
Following this it was sold to Currentasset before it submitted its application to convert it into a gym and coffee below office space created on a new ...
from Google Alert - gym https://ift.tt/2r7VHKu
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