Question 1

Even if the end of an accounting period occurs between the signing of a note payable and its maturity date,the matching principle requires that interest expense not be accrued on a note payable until the note is paid.

Accepted Answer

The matching principle requires that expenses be matched with the revenues they help to generate within the same period. Therefore, interest expense on a note payable should be accrued over the period the loan is outstanding, not just when the note is paid.

Question 2

A high merit rating for state unemployment taxes means that an employer has high employee turnover or seasonal hiring.

Accepted Answer

A high merit rating for state unemployment taxes typically means an employer has a lower rate of employee turnover and fewer claims for unemployment benefits, resulting in lower unemployment tax rates.

Question 3

The amount of FICA tax that employers must pay is twice the amount of the FICA taxes withheld from their employees.

Accepted Answer

Employers and employees each pay half of the total FICA taxes due, so the amount of FICA tax that employers must pay is equal to the amount withheld from their employees, not twice the amount.

Question 4

Payments of FUTA are made quarterly to a federal depository bank if the total amount due exceeds $500.

Accepted Answer

According to the IRS, FUTA payments are made quarterly to a federal depository bank if the total amount due exceeds $500.

Question 5

Deposits of amounts payable to the federal government may be paid through federal depository banks.

Accepted Answer

This is true. Deposits that are payable to the federal government may be made through federal depository banks. These include taxes, fees, and other charges.

Question 6

FUTA requires employers to pay a federal unemployment tax on all salary or wages paid to each employee.

Accepted Answer

FUTA (Federal Unemployment Tax Act) requires employers to pay federal unemployment taxes, but only on the first $7,000 of wages paid to each employee per year, not on all salary or wages.

Question 7

A liability is incurred when income is earned because income tax expense is created by earning income.

Accepted Answer

This statement is true. Income tax expense is created when income is earned, which results in a liability for the company until the taxes owed are paid.

Question 8

Employers must keep individual earnings reports for each employee.

Accepted Answer

Employers are required to keep individual earnings reports for each employee for tax and record-keeping purposes. This report typically includes details about the employee's gross and net pay, as well as any deductions or additional earnings such as bonuses or overtime.

Question 9

Required payroll deductions include income taxes,Social Security taxes,pension and health contributions,union dues,and charitable giving.

Accepted Answer

Required payroll deductions include income taxes and Social Security taxes, but pension and health contributions, union dues, and charitable giving are typically voluntary deductions chosen by the employee.

Question 10

The Form W-2 must be given to employees before January 31 following the year covered by the Form W-2.

Accepted Answer

The deadline for employers to give employees their Form W-2 is January 31.

Question 11

A note payable can be used to extend the payment due on an account payable.

Accepted Answer

A note payable is a written promise to pay a specific amount of money on a specific date or over a period of time. It can be issued to extend the payment due on an account payable, which is a debt owed to a supplier or vendor for products or services purchased on credit. By issuing a note payable, the debtor can negotiate new payment terms with the creditor and avoid defaulting on the account payable.

Question 12

A corporation has a $40,000 credit balance in the Income Tax Payable account.Period end information shows that the actual liability is $47,000.The company should record an entry to debit Income Tax Expense for $7,000 and credit Income Taxes Payable for $7,000.

Accepted Answer

The adjustment is needed to increase the Income Tax Payable account to its actual amount of $47,000, reflecting the true liability, and to recognize the additional expense of $7,000 in the Income Tax Expense account.

Question 13

The state unemployment tax rates applied to an employer are adjusted according to an employer's merit rating.

Accepted Answer

State unemployment tax rates can be influenced by an employer's merit rating, which is based on factors such as the number of unemployment claims filed by employees who were laid off or fired by the employer. Employers with a lower number of claims may receive a lower tax rate, while those with more claims may face a higher tax rate.

Question 14

Promissory notes cannot be transferred from party to party because they are nonnegotiable.

Accepted Answer

Promissory notes can be transferred from party to party, but they are considered nonnegotiable instruments. This means that any transfer of the note does not give the transferee greater rights than the transferor had. The transferee takes the note subject to any defenses or claims that the maker of the note could assert against the transferor.

Question 15

The amount of federal income tax withheld from employee pay depends on the employee's annual earnings rate and the number of withholding allowances claimed by the employee.

Accepted Answer

This is true. The more an employee earns and the fewer withholding allowances they claim, the more federal income tax will be withheld from their pay. The IRS provides tables and calculators to help employers calculate the correct amount of withholding based on these factors.

Question 16

A known obligation of an uncertain amount that can at least be reasonably estimated is reported as an estimated liability.

Accepted Answer

An estimated liability is a known obligation of an uncertain amount, but one that can at least be reasonably estimated. This type of liability is reported on the balance sheet at the estimated or probable amount of loss. Examples of estimated liabilities include warranties, income taxes, and environmental cleanup costs.

Question 17

Accrued vacation benefits are a form of estimated liability for an employer.

Accepted Answer

Accrued vacation benefits represent the amount of vacation time an employee has earned but has not yet used. It is a liability for the employer because they will eventually need to pay out these benefits to the employee.

Question 18

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 shorter.

Accepted Answer

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.

Question 19

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 2.5.

Accepted Answer

Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest Expense
Times Interest Earned Ratio = $250,000/$100,000 = 2.5

Question 20

Employers can use a wage bracket withholding table to compute federal income taxes withheld from each employee's gross pay.

Accepted Answer

Employers can use the IRS-provided wage bracket withholding table to determine the federal income tax to be withheld from an employee's paycheck based on their gross pay, filing status, and number of allowances claimed.

Quiz 9: Accounting for Current Liabilities