Ch 10 - Current Liabilities and Payroll

Question 1

What is unearned revenue?

Answer 1

A liability. Opposite of prepaid accounts. When company receives payment in advance. Ie ticket sales, performances, magazine subscriptions

Cash xxx
Unearned revenue xxx

Question 2

Prepare the JE for Jan 31. Round to nearest $
Accrue interest on Jan 31 (year end) for a $10,000, 30 month, 8% note payable issued on Dec 1. Interest is payable for the first of each month, beginning Jan 1.

Answer 2

$10,000 x 8% = 800 x 1/12 = $67

Jan 31 Interest expense 67
Interest payable 67

Question 3

The cash register total for sales on Apr 2 is $250,000. The HST tax rate is 13%. Record the sales and the sales tax

Answer 3

Apr 2 Cash 282,500
Sales 250,000
Tax payable 32,500

Question 4

Assume Tantram owns land in Regina. Year end is Dec 31 and make adjusting entries annually. Mar 1 receives its property tax bill of 6000 for the year, which is due to be paid May 31.
A)Record Mar 1 JE
B) Record JE for when bill is paid May 31
C) year end

Answer 4

Since 2 months of year have passed since year end, company needs to record the expense.

Mar 1 Property tax expense (6000x2/12) 1000
Property tax payable 1000

May 31 Property tax payable 1000
Property tax expense (3 more months) 1500
Prepaid property tax (7 months) 3500
Cash 6000

Dec 31 Property tax expense 3500
Prepaid property tax 3500
Adjustments are only made annually*

Question 5

A property tax bill of $12,000 for the calendar year is received on May 1 and is due on June 30. Record the entry for May 1, assuming the company has a Jan 31 year end

Answer 5

May 1 Property tax expense (12,000x 3/12) 3,000

Property tax payable 3000

Question 6

What is gross pay

Answer 6

Earnings. Total compensation earned by employee, before deductions

Question 7

What is net pay

Answer 7

The amount actually paid to employee. Gross pay - payroll deductions

Question 8

CPP - how much does employer have to contribute?

What about for EI?

Answer 8

CPP - for each dollar withheld from employee’s gross pay, employer must contribute equal amount. (CPP Payable account)
EI - Employers required to contribute 1.4 times employees EI premiums. (EI Payable account)

Question 9

A companies gross salaries amount to $10,000 for the week ended July 11. The following amounts are deducted from the employee’s wages: CPP 495, EI 183, Income tax 3,965, and health insurance of 950. Assume employees are paid on cash on July 11. Record july 11 entry

B)The company accrues employer’s payroll costs on the same day as it records payroll. Assume vacation days are accrued at an average of 4% of the gross payroll and that the health insurance is 100% funded by the employees.

Answer 9

July 11 Salaries expense 10,000
Cpp payable 495
Ei payable 183
Income tax payable 3965
Health Insurance payable 950
Cash 4407

July 11 Employees Benefits expense 1,151
CPP payable 495
EI Payable (183x1.4) 256
Vacation pay payable (10,000x4%) 400

Question 10

Which of the following statements best describes a liability? A liability is:
A) A commitment to pay an amount in the future
B) Arises when an expense occurs
C) An amount that should have been paid in the past
D) A present obligation, arising from past events, to make future payments of assets or services.

Answer 10

D) A present obligation, arising from past events, to make future payments of assets or services

Question 11

The time period for classifying a liability as current is one year or the operating cycle whichever is:
A) Longer
B) Probable
C) Shorter
D) Possible

Answer 11

A) longer

Question 12

Gilbar borrows $55,200 on July 31, 2017 from East Coast bank by signing a one year, 5% note. Interest is payable at maturity. Assuming Gibraltar has a Dec 31 fiscal year end, how much interest expense will Gilbar record in 2017?

Answer 12

$1150

Question 13

RS Comp. borrowed $70,000 on dec 1 on a six month, 6% note. At dec 31:
A) neither the note payable nor the interest payable is a current liability
B) the note payable is a current liability but the interest payable is not
C) The interest payable is a current liability but the note payable is not
D) both the note payable and interest payable are current liabilitis

Answer 13

Both are current liabilities. D.

Question 14

Big Als appliance store offers a 2 year warranty on all appliances sold. Estimates 5% will need to be services at an average cost of $100 each. At Dec 31, 2016, the Warranty liability account had a balance of $20,000. During 2017 the store spends $14,500 repairing 145 appliances. An additional 4500 appliances are sold in 2017. On the 2017 income statement, warranty expense will be:
A) $28,000
B) $22,500
C) 14,500
D) $20,000

Answer 14

B) $22,500

4500 x 5% x 100

This is the warranty expense for 2017.
The other amount was already expensed for 2016 and is in the Warranty Liability account already.

Warranty expense 22,500
Warranty liability 22,500

Question 15

Friendly department store has a customer loyalty program in which customers receive points when they make a purchase. The points can be redeemed on future purchases. the value of the points issued should be recorded as:
A) Revenue when points are issued
B) An expense when points are issued
C) revenue when the points are redeemed
D) An expense when the points are redeemed

Answer 15

C) Revenue when the points are redeemed

Question 16

in a recent pay period, Blue company employees have gross salaries of $17,250. Total deductions are: CPP $866; EI $316; Income tax $4,312. What is Blue Companies total payroll expense for this pay period?
A) 17,250
B) 18,558
C) 11,765
D) 18,432

Answer 16

17,250 + CPP 866 + 442 (EIx1.4) =

18,558 B.