Question 1

Liabilities due beyond one year are classified as _____.

Accepted Answer

Liabilities due beyond one year are classified as long-term liabilities. Current liabilities are due within one year. Contingent liabilities refer to potential obligations that depend on future events. Fixed liabilities is not a commonly used classification term.

Question 2

The debt ratio measures the percent of the company's assets financed by debt.

Accepted Answer

The debt ratio is calculated by dividing the total liabilities of a company by its total assets. This gives the percentage of the company's assets that are financed by debt.

Question 3

Bonds payable due in 2020 are reported on the balance sheet as long-term liabilities.

Accepted Answer

Bonds payable due in 2020 are due after one year from the balance sheet date, and therefore are reported as long-term liabilities.

Question 4

The following information is available for Amanda Co.for the current year. $$\begin{array} { l r } 
\text { Common shares outstanding } & 150,000 \
\text { Preferred stock dividend declared and paid } & \$ 90,000 \
\text { Net income } & \$ 300,000
\end{array}$$ ? Calculate the company's earnings per share.

Accepted Answer

The answer of The following information is available for Amanda...

Question 5

Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $106,150 and $91,000, respectively.Their earnings for the last completed payroll period of the year are $850 each.Social security tax rate is 6% on maximum of $106,800.All earnings are subject to Medicare tax of 1.5%.Assuming that the payroll will be paid on December 29, what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each?

Accepted Answer

- Employee A has earned $106,150 prior to the last payroll period and earned an additional $850 during the current payroll period, bringing the total earnings to $107,000.
- Employee B has earned $91,000 prior to the last payroll period and earned an additional $850 during the current payroll period, bringing the total earnings to $91,850.
- The Social Security tax rate is 6% on a maximum of $106,800. Therefore, both employees have reached the maximum taxable earnings for Social Security.
- The Medicare tax rate is 1.5% on all earnings.
- Employer FICA tax is equal to the combined Social Security and Medicare taxes.
- For Employee A, Social Security tax is 6% of $106,800 ($6,408) and Medicare tax is 1.5% of $107,000 ($1,605), totaling $7,013. For Employee B, Social Security tax is 6% of $91,850 ($5,511) and Medicare tax is 1.5% of $91,850 ($1,378), totaling $6,889.
- Therefore, the employer's total FICA tax for this payroll period on the two salary amounts of $850 each is $7,013 + $6,889 = $13,902, which is divided by 2 (since there are two employees) to get $6,951. This amount is then divided by 24 (the number of payroll periods in a year) to get $289.63. Finally, since the question is asking for the FICA tax on just this payroll period, we subtract the FICA taxes paid on previous payrolls. Employee A has had FICA tax of $7,013 withheld in previous payroll periods and Employee B has had FICA tax of $6,889 withheld in previous payroll periods, making the total FICA taxes paid on previous payrolls $13,902. So the FICA tax due for this payroll period is $289.63 - $13,902 = -$13,612.37. However, payroll taxes cannot be negative, so the employer's total FICA tax for this payroll period is $0 plus any state or local payroll taxes that may apply. 
- The only answer option closer to this result is B.

Question 6

If paid-in capital in excess of par--preferred stock is $80,000, preferred stock is $500,000, paid-in capital in excess of par-common stock is $50,000, common stock is $1,000,000, and retained earnings is $230,000, the total stockholders' equity is $1,860,000.

Accepted Answer

To calculate the total stockholders' equity, we need to add all the components of equity: 
Preferred Stock + Paid-in Capital in Excess of Par-Preferred Stock + Common Stock + Paid-in Capital in Excess of Par-Common Stock + Retained Earnings
= $500,000 + $80,000 + $1,000,000 + $50,000 + $230,000
= $1,860,000

Question 7

Which of the following transactions decreases the profitability of a company?

Accepted Answer

Recording payroll tax expense decreases profitability as it is an expense that reduces net income.

Question 8

An employee receives an hourly rate of $27, with time and a half for all hours worked in excess of 40 during a week.Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of $106,800; and Medicare tax rate, 1.5% on all earnings.What is the net pay for the employee?

Accepted Answer

First, calculate the gross pay: 40 hours at $27/hour = $1,080. Overtime pay for 6 hours at $27 * 1.5 = $243. Total gross pay = $1,080 + $243 = $1,323. Social Security tax is 6% on earnings up to $106,800. Since the employee's cumulative earnings are $99,700, only the first $7,100 of the current pay is subject to Social Security tax. Thus, Social Security tax = $7,100 * 6% = $426 (but since the gross pay is less than $7,100, we apply the 6% to the entire gross pay: $1,323 * 6% = $79.38). Medicare tax = 1.5% on all earnings = $1,323 * 1.5% = $19.845. Total taxes = $350 (federal income tax) + $79.38 (Social Security tax) + $19.845 (Medicare tax) = $449.225. Net pay = Gross pay - Total taxes = $1,323 - $449.225 = $873.775, rounded to $873.77.

Question 9

An employee receives an hourly rate of $30, with time and a half for all hours worked in excess of 40 during a week.Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $300; cumulative earnings for year prior to current week, $90,700; social security tax rate, 6.0% on maximum of $106,800; and Medicare tax rate, 1.5% on all earnings.What is the net pay for the employee?

Accepted Answer

The employee's gross pay is $1,470.00 (40 hours at $30 + 6 hours at $45). Social Security tax is $88.20 (6% of $1,470), and Medicare tax is $22.05 (1.5% of $1,470). After deducting $300 for federal income tax, the net pay is $1,059.75.

Question 10

As interest is recorded on an interest-bearing note, the Interest Expense account is:

Accepted Answer

Interest Expense account is increased as interest is incurred, and the corresponding liability account, Interest Payable, is also increased as the interest has not yet been paid.

Question 11

Joe Co.paid a notes payable of $6,000 with interest.As a result of this transaction, the company's:

Accepted Answer

The answer of Joe Co.paid a notes payable of $6,000...

Question 12

An employee receives an hourly rate of $27, with time and a half for all hours worked in excess of 40 during a week.Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of $106,800; and Medicare tax rate, 1.5% on all earnings.What is the gross pay for the employee?

Accepted Answer

The employee worked 46 hours, so they worked 6 hours in excess of 40 hours. Therefore, they earned 40 hours at their regular rate of $27 and 6 hours at time and a half ($27 x 1.5 = $40.50).

Regular pay: $27 x 40 hours = $1,080 
Overtime pay: $40.50 x 6 hours = $243

Total gross pay = $1,080 + $243 = $1,323.

Next, we need to calculate the taxes withheld.

Social security tax: This employee's earnings for the week do not exceed the maximum taxable amount, so the social security tax rate of 6.0% will apply to all earnings.

Total social security tax = $1,323 x 0.06 = $79.38

Medicare tax: This employee's earnings are subject to the Medicare tax rate of 1.5% on all earnings.

Total Medicare tax = $1,323 x 0.015 = $19.84

Finally, we can calculate the net pay.

Net pay = Gross pay - (Federal income tax + Social security tax + Medicare tax) 
Net pay = $1,323 - ($350 + $79.38 + $19.84) 
Net pay = $873.78

Therefore, the correct answer is D) $1,323.00.

Question 13

Current liabilities are:

Accepted Answer

Current liabilities are obligations that are due and payable within one year.

Question 14

ABC Co.has a gross payroll of $18,000.The FICA tax rate is 7.65% of the gross payroll, and the federal and state withholding are $1,600 and $963 respectively.On recording the payroll tax liability, net assets of the company:

Accepted Answer

- FICA tax = 7.65% x $18,000 = $1,377
- Total taxes withheld = $1,600 + $963 + $1,377 = $3,940
- Net payroll = $18,000 - $3,940 = $14,060
- Recording payroll tax liability decreases net assets, therefore the correct answer is B: decrease by $14,060.

Question 15

Where is interest expense listed on the income statement?

Accepted Answer

Interest expense is typically listed in the "Other expense" section of the income statement, separate from operating expenses and cost of goods sold, reflecting the cost associated with borrowing funds.

Question 16

For the year that just ended, a company reports net income of $1,500,000.There are 500,000 shares authorized, 300,000 shares issued, and 250,000 shares of common stock outstanding.What is the earnings per share?

Accepted Answer

The answer of For the year that just ended, a...

Question 17

Which of the following will be classified as a current liability?

Accepted Answer

Unearned rent is a current liability because it represents cash received in advance for rent that will be earned in the future. The other options - Two-year notes payable, Bonds payable, and Mortgage loan - are long-term liabilities because they will be due beyond one year from the balance sheet date.

Question 18

On March 15, Silver Co.issued a $80,000, 5%, 90-day note payable to Gold Co.How much will Silver Co.have to pay at maturity? (Assume 360 days in a year)

Accepted Answer

The interest on the note is calculated as Principal x Rate x Time = $80,000 x 5% x (90/360) = $1,000. Therefore, at maturity, Silver Co. will have to pay the principal amount of $80,000 plus interest of $1,000, totaling $81,000.

Question 19

The FICA tax withheld from employees contributes to:

Accepted Answer

The FICA tax withheld from employees contributes to Social Security and Medicare.

Question 20

Rico Inc.issues a 90-day, 4%, $3,000 note on account.This transaction:

Accepted Answer

Issuing a note on account is a financing activity that replaces one liability (the account payable) with another (the note payable). It does not directly affect the company's net assets (assets minus liabilities) or earnings per share since it does not impact revenue or expenses immediately.

Quiz 8: Liabilities and Stockholders Equity