Chapter 11: Current Liabilities & Payroll Flashcards
The time period for classifying a liability as current is one year or the operating cycle, whichever is:
(a) longer.
(b) shorter.
(c) probable.
(d) possible.
(a) The time period for classifying a liability as current is one year or the operating cycle, whichever is longer.
To be classified as a current liability, a debt must be expected to be paid within:
(a) one year.
(b) the operating cycle.
(c) 2 years.
(d) (a) or (b), whichever is longer.
(d) To be classified as a current liability, a debt must be expected to be paid within one year or the operating cycle.
Maggie Sharrer Company borrows $88,500 on September 1, 2017, from Sandwich State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2017?
(a) $2,655.
(b) $3,540.
(c) $4,425.
(d) $10,620.
(b) Accrued interest at December 31, 2017, is computed as the face value ($88,500) times the interest rate (12%) times the portion of the year the debt was outstanding (4 months out of 12), or $3,540 ($88,500 * 12% * 4 / 12).
RS Company borrowed $70,000 on December 1 on a 6-month, 6% note. At December 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 the interest payable are current liabilities.
(d) Both the note payable and interest payable are current liabilities. Notes due for payment within one year of the balance sheet date are usually classified as current liabilities.
Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, the amount to be credited to Sales Revenue is:
(a) $4,000.
(b) $4,300.
(c) $4,289.25.
(d) No correct answer given.
(b) Dividing the total proceeds ($4,515) by one plus the sales tax rate (1.05) will result in the amount of sales to be credited to the Sales Revenue account of $4,300 ($4,515 / 1.05)
Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should Sensible report as a current liability for Unearned Service Revenue at December 31?
(a) $0.
(b) $4,500.
(c) $13,500.
(d) $18,000.
(b) The monthly premium is $1,500 or $18,000 divided by 12. Because Sensible has recognized 9 months of insurance revenue (April 1–December 31), 3 months’ insurance premium is still unearned. The amount that Sensible should report as Unearned Service Revenue is therefore $4,500 (3 months * $1,500).
Working capital is calculated as:
(a) current assets minus current liabilities.
(b) total assets minus total liabilities.
(c) long-term liabilities minus current liabilities.
(d) Both (b) and (c).
(a) Working capital is defined as current assets minus current liabilities.
The current ratio is computed as:
(a) total assets divided by total liabilities.
(b) total assets divided by current liabilities.
(c) current assets divided by total liabilities.
(d) current assets divided by current liabilities.
(d) The current ratio is defined as current assets divided by current liabilities.
A contingent liability should be recorded in the accounts when:
(a) it is probable the contingency will happen, but the amount cannot be reasonably estimated.
(b) it is reasonably possible the contingency will happen, and the amount can be reasonably estimated.
(c) it is probable the contingency will happen, and
the amount can be reasonably estimated.
(d) it is reasonably possible the contingency will happen, but the amount cannot be reasonably estimated.
(c) A contingent liability is recorded when the amount can be reasonably estimated and the likelihood of the contingency is probable.
At December 31, Hanes Company prepares an adjusting entry for a product warranty contract. Which of the following accounts is/are included in the entry?
(a) Miscellaneous Expense.
(b) Warranty Liability.
(c) Repair Parts.
(d) Both (a) and (b).
(b) The adjusting entry for product warranties includes a debit to Warranty Liability.
Andy Manion earns $14 per hour for a 40-hour week and $21 per hour for any overtime work. If Manion
works 45 hours in a week, gross earnings are:
(a) $560.
(b) $630.
(c) $650.
(d) $665.
(d) Gross earnings are computed as (40 hours * $14 per hour) + (5 hours * $21 per hour) = $665.
When recording payroll:
(a) gross earnings are recorded as salaries and wages payable.
(b) net pay is recorded as salaries and wages expense. (c) payroll deductions are recorded as liabilities.
(d) More than one of the above.
(c) When recording payroll, payroll deductions are recorded as liabilities.
Employer payroll taxes do not include:
(a) federal unemployment taxes.
(b) state unemployment taxes.
(c) federal income taxes.
(d) FICA taxes.
(c) Federal income taxes are a payroll deduction, not an employer payroll tax. The employer is merely a collection agent.
FICA Taxes Payable was credited for $7,500 in the
entry when Antonio Company recorded payroll. When Antonio Company records employer’s payroll taxes, FICA Taxes Payable should be credited for:
(a) $0.
(b) $7,500.
(c) $15,000.
(d) Some other amount.
(b) Each employee pays FICA taxes, but the employer must match each employee’s FICA contribution. Because the employer’s tax is subject to the same rate and maximum earnings as the employee’s, FICA Taxes Payable would also be $7,500.
The department that should pay the payroll is the:
(a) timekeeping department.
(b) human resources department.
(c) payroll department.
(d) treasurer’s department.
(d) The treasurer’s department pays or distributes the payroll checks.
