Deck 11: Current Liabilities and Payroll

Question 1

Which of the following correctly describes the unearned revenue account?

A) The unearned revenue account represents revenue that has been earned, but not yet collected.
B) The unearned revenue account represents revenue that has been collected, but not yet earned.
C) The unearned revenue account represents revenue that has neither been earned nor collected.
D) The unearned revenue account represents revenue that has been earned and collected.

Answer 1

B

Question 2

Archie's has a $12 000 credit balance in the GST clearing account.Which of the following statements is CORRECT?

A) The tax paid to suppliers has exceeded the tax collected from customers for the period.
B) This is an amount owing by the government to the business.
C) GST clearing is a tax expense.
D) There is a $12 000 current liability to report on the balance sheet.

Answer 2

D

Question 3

Which of the following occurs when a company records accrued interest expense on a loan payable?

A) Loan payable is credited.
B) Cash is debited.
C) Interest payable is credited.
D) Interest expense is credited.

Answer 3

C

Question 4

A $40,000,three-month,8% note payable was issued on 1 December 2017.What is the amount of accrued interest on 31 December 2017?

A) $267
B) $400
C) $428
D) $200

Question 5

Which of the following is an amount for products or services purchased on account?

A) Unearned revenue
B) Accrued expense
C) Accounts payable
D) Estimated warranty payable

Question 6

Amounts owed for products or services purchased on account are non-current liabilities.

Question 7

Which of the following is TRUE of a contingent liability?

A) It is a liability resulting from a lawsuit settled in court.
B) It is an actual liability that depends on a past event.
C) It is an actual liability that is difficult to estimate.
D) It is a potential liability that depends on a future event.

Question 8

Which of the following is associated with cash received in advance for services to be performed in the future?

A) Accrued expense
B) Unearned revenue
C) Estimated warranty payable
D) Accounts payable

Question 9

Which of the following principles requires that warranty expense be recorded in the period that revenue is recorded?

A) Consistency principle
B) Matching principle
C) Materiality concept
D) Profit recognition principle

Question 10

Which of the following correctly describes Interest payable?

A) Interest payable is shown on the balance sheet as a non-current liability.
B) Interest payable is shown on the balance sheet as a current liability.
C) Interest payable is shown on the income statement as an operating expense.
D) Interest payable is shown on the balance sheet as a current asset.

Question 11

The journal entry for accrued interest on a loan payable includes:

A) debiting Interest expense and crediting Interest payable.
B) debiting Accrued interest expense and crediting Cash.
C) debiting Interest expense and crediting Cash.
D) crediting Accrued interest expense.

Question 12

On 20 June 2016,Parker Services received $2 400 in advance from a customer for one month's service.The journal entry to record the receipt of cash would be which of the following?

A) Debit Cash $2 400 and credit Service revenue $2 400.
B) Debit Cash $2 400 and credit Unearned service revenue $2 400.
C) Debit Unearned service revenue $2 400 and credit Service revenue $2 400.
D) Debit Unearned service revenue $2 400 and credit Cash $2 400.

Question 13

Which of the following is included in the entry to record estimated warranty payable?

A) A debit to Estimated warranty payable
B) A credit to Inventory
C) A credit to Warranty expense
D) A credit to Estimated warranty payable

Question 14

A $36,000,two-month,12% note payable was issued on 1 December 2016.What is the amount of interest expense recorded in the year 2017?

A) $720
B) $414
C) $90
D) $360

Question 15

In which of the following periods should the expense for warranty costs be recorded?

A) The period when the product is repaired or replaced
B) The period when cash is paid to repair or replace the product
C) The period when the product is sold
D) The period when cash is collected for the sale of the product

Question 16

Firewood Company signed a three-year note payable for $58,000 at 9% annual interest.What is the interest expense for 2016 if the note was signed on 1 August 2016?

A) $2610
B) $15,660
C) $2175
D) $5220

Question 17

An accrued expense is an expense that has been incurred,but has not yet been paid.

Question 18

A company has been sued for product failures allegedly resulting in injuries to the individuals bringing the lawsuit.The company's lawyers believe it is more than remote,but less than probable,that the lawsuit will result in an actual liability.Which of the following actions should be taken by the company's management?

A) Management should consider resigning.
B) The situation should be described in a note to the financial statements.
C) The liability should be estimated and recorded as an expense.
D) The possible liability should be ignored.

Question 19

Unearned revenue is an obligation to provide goods or services to the customer.

Question 20

Which of the following is included in the entry to record warranty expense?

A) A credit to Inventory
B) A credit to Warranty expense
C) A debit to Warranty expense
D) A debit to Estimated warranty payable

Question 21

A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become an actual liability,and the amount could be reasonably estimated.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,what effect would it have on the financial reporting of the company?

A) The information about the transaction would be inadequately disclosed in the notes.
B) The net profit of the company would be understated.
C) The liabilities on the balance sheet would be understated.
D) There would be no effect.

Question 22

Which of the following is an expense of the employer?

A) Employee income taxes
B) Deductions for union membership
C) Payroll tax
D) Employee benefits

Question 23

Which of the following is the proper treatment for a liability that exists,but the exact amount of which is not known?

A) The liability should be ignored.
B) The liability should be treated as a contingent liability.
C) The amount of the liability should be estimated and recorded.
D) The liability should be reported in the notes to the financial statements.

Question 24

Warranties pose an accounting challenge because a company does not know which or how many products will have to be repaired.

Question 25

Which of the following are deducted to arrive at an employee's net pay?

A) Income taxes
B) Commissions
C) Bonuses
D) Payroll tax

Question 26

Which of the following is pay over and above base salary,usually paid for exceptional performance?

A) Bonuses
B) Benefits
C) Wages
D) Commission

Question 27

A contingent liability that has a remote possibility of becoming an actual loss is included in a note to the financial statements.

Question 28

A certain contingent liability was evaluated at year-end,and considered to have a reasonable possibility of becoming an actual liability.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,what effect would this have on the financial reporting of the company?

A) The information about the transaction would be inadequately disclosed in the notes.
B) The liabilities on the balance sheet would be understated.
C) There would be no effect.
D) The net profit of the company would be understated.

Question 29

Jumbo Sales offers warranties on all their electronic goods.Warranty expense is estimated at 4% of sales revenue.In 2016,Jumbo had $613,000 of sales.In the same year,Jumbo paid out $17,500 of warranty payments.Which of the following is the entry needed to record the disbursement of warranty payments?

A) $$\begin{array} { | c | l | l | } \hline \text { Warranty expense } & \$ 24,520 & \\\hline \text { Sales revenue } & & 24,520 \\\hline\end{array}$$
B) $$\begin{array} { | l | l | l | } \hline \text { Warranty expense } & \$ 24,520 & \\\hline \begin{array} { l } \text { Estimated warranty } \\\text { payable }\end{array} & & 24,520 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Estimated warranty payable } & \$ 17,500 & \\\hline \text { Cash } & & 17,500 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | l | } \hline \text { Warranty expense } & \$ 17,500 & \\\hline \begin{array} { l } \text { Estimated warranty } \\\text { payable }\end{array} & & 17,500 \\\hline\end{array}$$

Question 30

Bike World offers warranties on all their bikes.They estimate warranty expense at 5% of sales.At the beginning of 2016,the Estimated warranty payable account had a credit balance of $1700.During the year,Bike World had $301,000 of sales,and had to pay out $6000 in warranty payments.At the end of the year,what is the closing balance in the Estimated warranty payable accounts?

A) $10,750
B) $13,350
C) $7700
D) $15,050

Question 31

Estimated warranty payable would be included in the liability section of the balance sheet.

Question 32

A certain contingent liability was evaluated at year-end,and considered to have a remote possibility of becoming an actual liability.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,this could be considered unethical behaviour.

Question 33

Estimated warranty payable would be included in the operating expense section of the income statement.

Question 34

Contingent liabilities sometimes pose an ethical challenge because they are not real liabilities and are easy to overlook.

Question 35

A certain contingent liability was evaluated at year-end,and considered to have a reasonable possibility of becoming an actual liability.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,this could be considered unethical behaviour.

Question 36

Jumbo Sales offers warranties on all their electronic goods.Warranty expense is estimated at 3% of sales revenue.In 2016,Jumbo had $595,000 of sales.In the same year,Jumbo paid out $16,000 of warranty payments.Which of the following is the entry needed to record the estimated warranty expense?

A) $$\begin{array} { | l | l | l | } \hline \text { Warranty expense } & \$ 16,000 & \\\hline \begin{array} { l } \text { Estimated warranty } \\\text { payable }\end{array} & & 16,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Warranty expense } & \$ 17,850 & \\\hline \text { Sales revenue } & & 17,850 \\\hline\end{array}$$
C) $$\begin{array} { | l | l | l | } \hline \text { Warranty expense } & \$ 17,850 & \\\hline \begin{array} { l } \text { Estimated warranty } \\\text { payable }\end{array} & & 17,850 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | l | } \hline \text { Estimated warranty payable } & \$ 16,000 & \\\hline \text { Cash } & & 16,000 \\\hline\end{array}$$

Question 37

Bike World offers warranties on all their bikes.They estimate warranty expense at 5.5% of sales.At the beginning of 2016,the Estimated warranty payable account had a credit balance of $2000.During the year,Bike World had $296,000 of sales,and had to pay out $5400 in warranty payments.How much Warranty expense will be reported on the 2016 income statement?

A) $7400
B) $14,280
C) $12,880
D) $16,280

Question 38

Warranty expense would be included in the operating expense section of the income statement.

Question 39

In which of the following periods should the estimated warranty liability be debited?

A) The period when cash is paid to repair or replace the product
B) The period when the product is sold
C) The period when the product is shipped to the customer
D) The period when cash is collected for the sale of the product

Question 40

Synergy Appliances sells dishwashers with a four year warranty.In 2016,sales revenue for dishwashers is $97,000.The company estimates warranty expense at 4.5% of revenues.What is the 2016 warranty expense?

A) $0
B) $3423.53
C) $1091.25
D) $4365

Question 41

Katie Pereira and Ferro Schwartz are the only two employees of Free Star Company.In February 2016,Katie's gross pay was $6500 and Ferro's gross pay was $12,400.All earnings are subject to Payroll tax of 4.2% and Medicare tax of 1.45%.Which of the following would be included in the entry to record the Payroll tax expense for February?

A) a credit to Payroll tax payable for $793.80
B) a debit to Salary payable to employees for $793.80
C) a credit to Payroll tax expense for $793.80
D) a debit to Medicare for $793.80

Question 42

Payroll tax is paid by the employee and deducted from gross pay.

Question 43

Which of the following is a reason that many companies require a photo ID when employees pick up their pay cheques?

A) To improve efficiency of the payroll disbursement process
B) To make sure an employee's work hours have been accurately reported
C) To make sure all employees are legal adults
D) To avoid writing a pay cheque to a fictitious person

Question 44

Art Parrish is the sole employee of Parrish Sales.His company pays a portion of his health insurance premium,and also contributes to a superannuation fund.The company share of the health insurance premium is $400,and the company contribution to superannuation is $550.The second journal entry in the payroll cycle to record the employee benefits to be paid by the company should include which of the following?

A) Credit Superannuation expense
B) Debit Employee benefits payable
C) Credit Health insurance expense
D) Credit Employee benefits payable

Question 45

Payroll taxes are withheld from each employee's pay cheque.

Question 46

Art Parrish is the sole employee of Parrish Sales.His company pays a portion of his health insurance premium,and also contributes to his superannuation.The company share of the health insurance premium is $400,and the company contribution to superannuation is $550.The second journal entry in the payroll cycle to record the employee benefits to be paid by the company should include a credit to Employee benefits payable for $950.

Question 47

Which of the following is a control procedure to prevent fictitious persons cashing pay cheques?

A) Requiring photo IDs for employees picking up their pay cheques
B) Keeping computerised records of payroll data
C) Serial numbering of pay cheques
D) Having employees clock in and out of work

Question 48

PAYG tax is paid by the employer only and is not deducted from gross pay.

Question 49

Gross pay is the total amount of compensation earned by an employee,before any deductions are made.

Question 50

Which of the following is a major control risk in the payroll area?

A) Theft of inventory by staff
B) Fictitious persons cashing pay cheques
C) Contracts being awarded to relatives of employees
D) Expenses being recorded as assets in order to manipulate earnings

Question 51

For the month of September,Countrywide Sales Company recorded gross pay of $68,000.The net pay for the month amounted to $67,750.The company decided to pay the salaries on 5 October.Which of the following is the journal entry for the payment of salaries?

A) $$\begin{array} { | c | l | l | } \hline \text { Salaries and wages expense } & \$ 67,750 & \\\hline \text { Cash } & & 67,750 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Salarires and wages payable } & \$ 67,750 & \\\hline \text { Cash } & & 67,750 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Salaries and wages payable } & \$ 68,000 & \\\hline \text { Cash } & & 68,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | l | } \hline \text { Cash } & \$ 68,000 & \\\hline \begin{array} { l } \text { Salaries and wages } \\\text { expense }\end{array} & & \$ 8,000 \\\hline\end{array}$$

Question 52

The Statewide Sales Company has gross pay for March of $45 000.The first journal entry in the payroll cycle to record salary expense would include a credit to Cash for $45 000.

Question 53

Which of the following is included in the entry to record the employer's payroll taxes?

A) A debit to Payroll tax payable
B) A credit to Payroll tax payable
C) A credit to Income tax payable
D) A credit to Payroll tax expense

Question 54

During December,General Stores made total sales of $200 000 and collected a further 10% GST on this amount.The GST will be sent to the tax office at the end of the quarter.What is the account name and amount of the current liability that will be reported on the balance sheet as at 31 December?

A) GST receivable $20 000
B) GST clearing $20 000
C) GST expense $20 000
D) GST $200 000

Question 55

The Statewide Sales Company has gross pay for March of $45 000.Which of the following would be included in the first journal entry in the payroll cycle to record salary expense?

A) Debit Salary payable
B) Credit Salary expense
C) Debit Cash
D) Debit Salary expense

Question 56

Which of the following is a reason that many companies maintain two payroll bank accounts?

A) To prove an employee's hours worked
B) To make bank reconciliations simpler
C) To separate the duties of human resources personnel and accounting personnel
D) To avoid writing a pay cheque to a fictitious person

Question 57

Gross pay is the total amount of salary,wages,commissions and bonuses earned by an employee during a pay period.

Question 58

On 31 October,General Stores signed a six-month,9% note payable to purchase inventory costing
$10 000.The note requires payment of principal and interest at maturity.What is the account name and amount of a current liability that will be reported on the balance sheet as at 31 December?

A) Interest payable $900
B) Short-term loan payable $10 000
C) Short-term loan payable $6 667
D) Short-term loan payable $3 333

Question 59

Rocco worked 46 hours at his job during the first week of March 2016.He is paid $23.00 per hour and receives overtime at the rate of time-and-a-half for hours worked over 40.Rocco pays income taxes at 15% and 5.65% for superannuation and Medicare.All of his income is taxable.What is Rocco's net pay?

A) $766.47
B) $957.95
C) $758.06
D) $894.27

Question 60

Art Parrish,the sole employee of Parrish Sales,has gross salary for March of $4 000.He is subject to income tax at a rate of 18%.The third journal entry in the payroll cycle to record the payment by the company of payroll taxes to the government includes which of the following?

A) Debit to Payroll tax expense
B) Credit to Employee income tax payable
C) Credit to Salary payable
D) Debit to Income tax expense

Question 61

On 31 October,General Stores signed a six-month,9% loan payable to purchase inventory costing
$10 000.The loan requires payment of principal and interest at maturity.What is the account name and amount of a current liability that will be reported on the balance sheet as at 31 December?

A) Interest payable $900
B) Interest payable $150
C) Principal payable $6 667
D) Interest payable $300

Question 62

General Stores borrowed $50 000 at 6% interest on a long-term loan payable on 31 August.At 31 December,interest plus $10 000 of the principal are payable within one year.What is the account name and amount of a current liability that will be reported on the balance sheet as at 31 December?

A) Interest payable $600
B) Interest payable $1 000
C) Interest payable $3 000
D) Interest payable $2 000

Question 63

On 15 December,General Stores received cash of $900 in advance for a special order of goods.By 31 December,$400 of the goods had been delivered to the customer.What is the account name and amount of a current liability that will be reported on the balance sheet as at 31 December?

A) Unearned revenue $500
B) Unearned revenue $400
C) Acounts receivable $400
D) This transaction does not create a liability.