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Questions
Q:
A company sells computers for $1,800 each. Each computer has a two-year warranty that covers replacement of defective parts. It is estimated that 2% of all computers sold will be returned under the warranty with an average cost of $150 each. During November, the company sold 30,000 computers;. 400 computers were serviced under the warranty during November at a total cost of $55,000. The balance in the Estimated Warranty Liability account at November 1 was $29,000. What is the company's warranty expense for the month of November?
A. $26,000
B. $45,000
C. $55,000
D. $60,000
E. $90,000
Q:
A company estimates that warranty expense will be 4% of sales. The company's sales for the current period are $185,000. The current period's entry to record the warranty expense is:
A. Warranty Expense
7,400 Sales 7,400 B. Warranty Expense
7,400 Estimated Warranty Liability 7,400 C. Estimated Warranty Liability
7,400 Estimated Warranty Expense 7,400 D. Warranty Liability
7,400 Cash 7,400 E. No entry is recorded until the items are returned for warranty repairs.
Q:
The deferred income tax liability:
A. Represents income tax payments that are deferred until future years because of temporary differences between GAAP rules and tax accounting rules.
B. Is a contingent liability.
C. Can result in a deferred income tax asset.
D. Is never recorded.
E. Is recorded whether or not the difference between taxable income and financial accounting income is permanent or temporary.
Q:
A company sold $12,000 worth of trampolines with an extended warranty. It estimates that 2% of these sales will result in warranty work. The company should:
A. Consider the warranty expense a remote liability since the rate is only 2%.
B. Recognize warranty expense at the time the warranty work is performed.
C. Recognize warranty expense and liability in the year of the sale.
D. Consider the warranty expense a contingent liability.
E. Recognize warranty liability when the company purchases the trampolines.
Q:
Employee vacation benefits:
A. Are estimated liabilities.
B. Are contingent liabilities.
C. Are recorded as an expense when the employee takes a vacation.
D. Are recorded as an expense when the employee retires.
E. Increase net income.
Q:
Employees earn vacation pay at the rate of one day per month. During July, 25 employees qualify for one vacation day each. Their average daily wage is $100 per day. What is the amount of vacation benefit expense for the month of July?
A. $25
B. $100
C. $1,200
D. $2,500
E. $30,000
Q:
An estimated liability:
A. Is an unknown liability of a certain amount.
B. Is a known obligation of an uncertain amount that can be reasonably estimated.
C. Is a liability that may occur if a future event occurs.
D. Can be the result of a lawsuit.
E. Is not recorded until the amount is known for certain.
Q:
Karen Cooper, the founder of SmartIT Staffing, realized that effectively managing payroll was crucial to the success of her business. If an employee of the company earns $50,500 per year, SmartIT Staffings total FICA payroll tax for this employee is:
A. $3,863.25.
B. $3,131.00.
C. $732.25.
D. $3,535.
E. Zero because the employee has not earned more that the FICA earnings limitation.
Q:
An employee earned $4,300 working for an employer. The current rate for FICA social security is 6.2% and the FICA Medicare rate is 1.45%. The employer's total FICA payroll tax for this employee is:
A. $62.35.
B. $266.60.
C. $328.95.
D. $657.90.
E. Zero, since the FICA tax is a deduction from an employee's pay and not an employer tax.
Q:
The current FUTA tax rate is 0.8% and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned $8,900. What is the amount of total unemployment taxes the employer must pay on this employee's wages?
A. $322.00.
B. $434.00.
C. $480.60.
D. $551.80.
E. Zero, since the employee's wages exceed the maximum of $7,000.
Q:
FUTA taxes are:
A. Social Security taxes
B. Medicare taxes
C. Employee income taxes
D. Unemployment taxes
E. Employee deductions
Q:
The FICA tax for Social Security is 6.2% and the FICA tax for Medicare is 1.45%. An employee's share of both FICA taxes was $3,901.50. Given that this employee did not exceed the FICA earnings limitation, compute gross pay.
A. $269,068.96.
B. $62,927.42.
C. $29,846.48.
D. $51,000.
E. Zero, since the employee's pay did not exceed the FICA limit.
Q:
An employee earned $47,000 during the year working for an employer. The FICA tax for social security is 6.2%, and the FICA tax for Medicare is 1.45%. The employee's share of FICA taxes is:
A. $681.50.
B. $2,914.00.
C. $3,595.50.
D. $7,191.00.
E. Zero, since the employee's pay exceeds the FICA limit.
Q:
The amount of federal income taxes withheld from an employee's paycheck is determined by:
A. The employee's annual earnings rate and number of withholding allowances.
B. The employer's merit rating.
C. The employees annual earnings rate and merit rating.
D. Multiplying gross pay by 6.2%.
E. The employees credit rating.
Q:
FICA taxes include:
A. Social Security taxes
B. Charitable giving
C. Employee income taxes
D. Unemployment taxes
E. Federal taxes
Q:
The employer should record payroll deductions as:
A. Employee receivables
B. Payroll taxes
C. Current liabilities
D. Wages payable
E. Employee payables
Q:
Gross pay is:
A. Take-home pay.
B. Total compensation earned by an employee before any deductions.
C. Salaries after taxes are deducted.
D. Deductions withheld by an employer.
E. The amount of the paycheck.
Q:
On December 1, Martin Company signed a $5,000, 3-month, 6% note payable, with the principle plus interest due on March 1 of the following year. What amount of interest expense is accrued at December 31 on the note?
A. $0
B. $25
C. $50
D. $75
E. $300
Q:
A short-term note payable:
A. Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.
B. Is a contingent liability.
C. Is an estimated liability.
D. Is not a liability until the due date.
E. Cannot be used to extend the payment period for an account payable.
Q:
The difference between the amount received from issuing a note payable and the amount repaid is referred to as:
A. Interest
B. Principle
C. Face value
D. Cash
E. Accounts payable
Q:
Miller Company has a times interest earned ratio of 5. Sales and variable expenses were $57,290 and $40,105 respectively. Compute the company's fixed interest expense.
A. $17,185
B. $3,437
C. $11,458
D. $8,021
E. $85,925
Q:
Tree Frog Company is organized as a LLC and does not pay income taxes. The company has fixed interest expense of $5,750, sales of $253,000, and variable expenses of $189,750. What is the company's times interest earned ratio?
A. 44
B. 33
C. 11
D. 10
E. $63,250
Q:
The times interest earned computation is:
A. (Net income + Interest expense + Income taxes)/Interest expense.
B. (Net income + Interest expense - Income taxes)/Interest expense.
C. (Net income - Interest expense - Income taxes)/Interest expense.
D. (Net income - Interest expense + Income taxes)/Interest expense.
E. Interest expense/(Net income + Interest expense + Income taxes expense).
Q:
A company had a fixed interest expense of $6,000, its income before interest expense and any income taxes was $18,000 and its net income was $8,400. The company's times interest earned ratio is equals to
A. 0.33
B. 0.71
C. 1.40
D. 3.00
E. 12,000
Q:
If the times interest ratio:
A. Increases, then risk increases.
B. Increases, then risk decreases.
C. Is greater than 1.5, then the company is in default.
D. Is less than 1.5, the company is carrying too little debt.
E. Is greater than 1.5, the company is likely carrying too much debt.
Q:
Times interest earned is calculated by:
A. Multiplying interest expense times income.
B. Dividing interest expense by income before interest expense.
C. Dividing income before interest expense and any income tax by interest expense.
D. Dividing interest and income tax expense by income before interest and income tax expense.
E. Dividing income before interest expense by interest expense and income taxes.
Q:
The times interest earned ratio is a measure of:
A. A company's ability to pay its operating expenses on time.
B. A company's ability to pay interest incurred even if sales decline.
C. A company's profitability.
D. The relation between income and debt.
E. The relation between assets and liabilities.
Q:
Uncertainties such as natural disasters that could happen in the future:
A. Are not contingent liabilities because they are future events not arising out of past transactions or events.
B. Are contingent liabilities because they are future events arising from past transactions or events.
C. Should be disclosed because of their usefulness to financial statements.
D. Are estimated liabilities because the amounts are uncertain.
E. Arise out of transactions such as debt guarantees.
Q:
In the accounting records of a defendant, lawsuits:
A. Are estimated liabilities,
B. Should always be recorded,
C. Should always be disclosed,
D. Should be recorded if payment for damages is probable and the amount can be reasonably estimated,
E. Should never be recorded,
Q:
Which of the following is a true statement regarding the treatment of accounts payable, sales tax payable, and unearned revenues?
A. Both GAAP and IFRS treat these accounts as estimated liabilities.
B. GAAP treats them as estimated liabilities, while IFRS treats these accounts as contingent liabilities.
C. IFRS treats them as estimated liabilities, while GAAP treats theses accounts as contingent liabilities.
D. Both GAAP and IFRS treat these accounts as known liabilities.
E. IFRS treats them as known liabilities, while GAAP treats these accounts as contingent liabilities.
Q:
A contingent liability:
A. Is always of a specific amount.
B. Is a potential obligation that depends on a future event arising out of a past transaction or event.
C. Is an obligation not requiring future payment.
D. Is an obligation arising from the purchase of goods or services on credit.
E. Is an obligation arising from a future event.
Q:
Advance ticket sales totaling $6,000,000 cash would be recognized as follows:
A. Debit Sales, credit Unearned Revenue.
B. Debit Unearned Revenue, credit Sales.
C. Debit Cash, credit Unearned Revenue.
D. Debit Unearned Revenue, credit Cash.
E. Debit Cash, credit Revenue Payable.
Q:
Unearned revenue is initially recognized with a:
A. Credit to unearned revenue.
B. Credit to revenue.
C. Debit to revenue payable.
D. Debit to revenue.
E. Debit to unearned revenue.
Q:
Sales taxes payable:
A. Is an estimated liability.
B. Is a contingent liability.
C. Is a current liability for retailers.
D. Is a business expense.
E. Is a long-term liability.
Q:
Amounts received in advance from customers for future products or services:
A. Are revenues.
B. Increase income.
C. Are liabilities.
D. Are not allowed under GAAP.
E. Require an outlay of cash in the future.
Q:
Accounts payable:
A. Are amounts owed to suppliers for products and/or services purchased on credit.
B. Are long-term liabilities.
C. Are estimated liabilities.
D. Do not include specific due dates.
E. Must be paid within 30 days.
Q:
Liabilities:
A. Must be certain.
B. Must sometimes be estimated.
C. Must be for a specific amount.
D. Must always have a definite date for payment.
E. Must involve an outflow of cash.
Q:
Obligations not expected to be paid within one year (or the company's operating cycle if longer than one year) are reported as:
A. Current assets
B. Current liabilities
C. Long-term liabilities
D. Operating cycle liabilities
E. Bills
Q:
Obligations due to be paid within one year or within the company's operating cycle, whichever is longer, are:
A. Current assets
B. Current liabilities
C. Earned revenues
D. Operating cycle liabilities
E. Bills
Q:
Payments of FUTA are made quarterly to a federal depository bank if the total amount due exceeds $1,000.
Q:
The Form W-2 must be given to employees before January 31 following the year covered by this report.
Q:
When the number of withholding allowances increases, the amount of income tax withheld increases.
Q:
An employee earnings report is a cumulative record of an employee's hours worked, gross earnings, deductions, and net pay.
Q:
Employers must keep certain payroll records, including individual earnings reports for each employee.
Q:
Federal depository banks are authorized to accept deposits of amounts payable to the federal government.
Q:
Each employee records the number of withholding allowances claimed on form W-4, the withholding allowance certificate that is filed with the employer.
Q:
Employers can use a wage bracket withholding table to compute federal income taxes withheld from each employee's gross pay.
Q:
Payroll is usually paid with a check or with the use of an electronic funds transfer.
Q:
A payroll register is a cumulative record of an employee's hours worked, gross earnings, deductions, and net pay.
Q:
A payroll register usually shows the pay period dates, hours worked, gross pay, deductions, and net pay of each employee for every pay period.
Q:
Employers are required to pay state and federal payroll taxes.
Q:
A corporation has a $42,000 credit balance in the Income Tax Payable account. Period-end information shows that the actual liability is $50,000. The company should record an entry to debit Income Tax Expense for $8,000 and credit Income Taxes Payable for $8,000.
Q:
Vacation benefits are a form of estimated liabilities for an employer.
Q:
An estimated liability is a known obligation of an uncertain amount that can at least be reasonably estimated.
Q:
FUTA requires employers to pay a federal unemployment tax on the first $7,000 in salary or wages paid to each employee.
Q:
A high merit rating means that an employer has high employee turnover or seasonal hiring.
Q:
The state unemployment tax rates applied to an employer are adjusted according to an employer's merit rating.
Q:
Employers must pay FICA taxes that are equal to the amount being withheld from their employees.
Q:
The amount of federal income tax withheld is based on the employee's annual earnings rate plus the number of withholding allowances claimed by the employee.
Q:
Required employee payroll deductions include income taxes, Social Security taxes, pension and health contributions, union dues, and charitable giving.
Q:
Social security payments are made up of Social Security taxes and Medicare taxes.
Q:
The matching principle requires that interest expense not be accrued on a note payable until the note is paid, even if the end of an accounting period occurs between the signing of a note payable and its maturity date.
Q:
A note payable can be used to extend the payment due on an account payable.
Q:
Promissory notes are nonnegotiable, which means they cannot be transferred from party to party.
Q:
A short-term note payable is a written promise to pay a specified amount on a definite future date within one year or the operating cycle, whichever is longer.
Q:
A company's income before interest expense and taxes is $250,000 and its interest expense is $100,000. Its times interest earned ratio is equal to .4.
Q:
When the times interest earned ratio declines, the likelihood of default on liabilities increases.
Q:
Experience shows that when times interest earned falls below 1.5 to 2.0 and remains at that level or lower for several time periods, the default rate on liabilities increases sharply.
Q:
The times interest earned ratio is calculated by dividing income before interest expense and income taxes by interest expense.
Q:
Times interest earned can be calculated by multiplying income by the interest rate on a company's debt.
Q:
A high value for the times interest earned ratio means that a company is of high risk to the borrower.
Q:
When there is little uncertainty surrounding current liabilities, both GAAP and IFRS require companies to record them in a similar manner.
Q:
Accounting for contingent liabilities covers three possibilities. (1) The future event is probable and the amount cannot be reasonably estimated. (2) The future event is remote or unlikely to recur. (3) The likelihood of the liability to occur is impossible.
Q:
Debt guarantees are not disclosed because the guarantor is not the primary debtor.
Q:
Uncertainties from the development of new competing products are contingent liabilities.
Q:
The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible.
Q:
Payroll taxes are considered to be contingent liabilities.
Q:
A lawsuit is an example of a contingent liability for the defendant.
Q:
A contingent liability is a potential obligation that depends on a future event arising from a future transaction or event.
Q:
The Orlando Magic received $6 million cash in advance season ticket sales. Prior to the beginning of the basketball season, these sales are recorded as a credit to unearned season ticket revenue.