Question 1

During June,Vixen Company sells $850,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 3% of the selling price.Customers returned $14,000 of merchandise for warranty replacement during the month.The entry to record the estimated warranty provision at the end of the month is:
A) Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.
B) Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
C) Debit Warranty Expense $25,500; credit Estimated Warranty Liability $25,500.
D) Debit Estimated Warranty Liability $14,000; credit Warranty Expense $14,000.
E) Debit Estimated Warranty Liability $11,500; credit Warranty Expense $11,500.

Accepted Answer

Warranty Expense = $850,000 * 0.03 = $25,500

Question 2

Match each of the following terms with the appropriate definitions.
-A record for a pay period that shows the pay period dates,regular and overtime hours worked,gross pay,net pay and deductions.
A)Short-term note payable
B)Deferred income tax liability
C)Current liabilities
D)Warranty
E)Employee benefits
F)Federal depository bank
G)Payroll register
H)Gross pay
I)Payroll bank account
J)Times interest earned

Accepted Answer

A payroll register matches the description as it records details of a pay period including dates, hours worked, gross and net pay, and deductions.

Question 3

Match each of the following terms with the appropriate definitions.
-Payments of income taxes that are deferred until future years because of temporary differences between GAAP and tax accounting rules.
A)Short-term note payable
B)Deferred income tax liability
C)Current liabilities
D)Warranty
E)Employee benefits
F)Federal depository bank
G)Payroll register
H)Gross pay
I)Payroll bank account
J)Times interest earned

Accepted Answer

Deferred income tax liability is the correct match because it represents the taxes that are owed but not yet paid due to differences in accounting methods between GAAP (Generally Accepted Accounting Principles) and tax regulations, which result in income being recognized at different times for accounting and tax purposes.

Question 4

Match each of the following terms with the appropriate definitions.
-Compensation provided to employees beyond salaries and wages,such as premiums for medical insurance and contributions to pension plans.
A)Short-term note payable
B)Deferred income tax liability
C)Current liabilities
D)Warranty
E)Employee benefits
F)Federal depository bank
G)Payroll register
H)Gross pay
I)Payroll bank account
J)Times interest earned

Accepted Answer

Employee benefits refer to the additional compensation provided to employees beyond their regular salaries and wages. This includes premiums for medical insurance, contributions to pension plans, and other similar benefits.

Question 5

During June,Vixen Company sells $850,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 3% of the selling price.Customers returned $14,000 of merchandise for warranty replacement during the month.The entry to settle the customer warranties is:
A) Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.
B) Debit Estimated Warranty Liability $25,500; credit Warranty Expense $25,500.
C) Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
D) Debit Estimated Warranty Liability $11,500; credit Merchandise Inventory $11,500.
E) Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000.

Accepted Answer

The correct entry to settle customer warranties involves debiting the Estimated Warranty Liability account and crediting Merchandise Inventory for the cost of the merchandise returned under warranty, which is $14,000 in this case. This reflects the use of the warranty liability previously estimated and the reduction in inventory due to the replacement of the returned merchandise.

Question 6

On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What is the journal entry that should be recorded upon signing the note?
A) Debit Accounts Receivable $24,000; credit Notes Receivable $24,000.
B) Debit Accounts Payable $24,000; credit Notes Payable $24,000.
C) Debit Accounts Payable $24,160; credit Notes Payable $24,160.
D) Debit Notes Payable $24,000; debit Interest Expense $160; credit Accounts Payable $24,160.
E) Debit Notes Payable $24,000; debit Interest Expense $160; credit Cash $24,160.

Accepted Answer

When signing the note payable as replacement of an account payable, the journal entry should be a debit to Accounts Payable for $24,000 and a credit to Notes Payable for $24,000. This reflects the fact that the liability has been transferred from the account payable to the note payable. The interest expense and cash transactions will occur at a later date when the note is paid off.

Question 7

A company's has fixed interest expense of $52,000,income taxes expense of $121,000,and net income of $281,000.The company's times interest earned ratio equals:
A) 8.73.
B) 5.40.
C) 7.73.
D) 2.33.
E) 0.11.

Accepted Answer

Times Interest Earned Ratio = (Net income + Income Taxes Expense + Interest Expense)/Interest Expense
Times Interest Earned Ratio = ($281,000 + $121,000 + $52,000)/$52,000 = 8.73

Question 8

During August,Boxer Company sells $356,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 5% of the selling price.The warranty liability account has a credit balance of $12,800 before adjustment.Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs.The entry to record the customer warranty repairs is:
A) Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
B) Debit Warranty Expense $9,400; credit Estimated Warranty Liability $9,400.
C) Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.
D) Debit Estimated Warranty Liability $9,400; credit Parts Inventory $9,400.
E) Debit Estimated Warranty Liability $17,800; credit Parts Inventory $17,800.

Accepted Answer

The correct entry to record the customer warranty repairs involves debiting the Estimated Warranty Liability account and crediting the Parts Inventory account for the cost of the parts used in the repairs, which is $9,400. This reflects the use of the previously recognized liability to cover actual warranty expenses.

Question 9

On September 1,Knack Company signed a $50,000,90-day,5% note payable with Central Savings Bank.What is the journal entry that should be recorded by Knack upon maturity of the note? (Use 360 days a year.)
A) Debit Interest Expense $625; credit Interest Payable $625.
B) Debit Notes Payable $50,000; credit Interest Revenue $625; credit Cash $49,375.
C) Debit Cash $50,625; credit Notes Receivable $50,625.
D) Debit Notes Payable $50,625; credit Cash $50,625.
E) Debit Notes Payable $50,000; debit Interest Expense $625; credit Cash $50,625.

Accepted Answer

Interest Expense = Principal * Interest Rate * Time
Interest Expense = $50,000 * 0.05 * 90/360; Interest Expense = $625

Question 10

If a company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers,the receipt of cash would be journalized as:
A) Debit Cash $45,000; credit Unearned Revenue $45,000.
B) Debit Unearned Revenue $45,000; credit Sales $45,000.
C) Debit Cash $45,000, credit Sales $45,000.
D) Debit Sales $45,000, credit Unearned Revenue $45,000.
E) Debit Prepaid Subscriptions $45,000, credit Sales $45,000.

Accepted Answer

Since the company has received cash for advance subscription sales, it should be recorded as a liability until the journals are actually mailed out. Therefore, the entry should be a debit to Cash and a credit to Unearned Revenue.

Question 11

Match each of the following terms with the appropriate definitions.
-A special bank account used solely for paying employees; each pay period an amount equal to the total employees' net pay is deposited and the employees' payroll checks are drawn on that account.
A)Short-term note payable
B)Deferred income tax liability
C)Current liabilities
D)Warranty
E)Employee benefits
F)Federal depository bank
G)Payroll register
H)Gross pay
I)Payroll bank account
J)Times interest earned

Accepted Answer

A payroll bank account is specifically set up by a business to manage the process of paying employees. Each pay period, the total net pay for all employees is deposited into this account, and then payroll checks or direct deposits are issued from it to the employees. This system helps in segregating payroll transactions from other business transactions, making it easier to manage and track payroll expenses.

Question 12

Match each of the following terms with the appropriate definitions.
-A bank authorized to accept deposits of amounts payable to the federal government,including payroll taxes.
A)Short-term note payable
B)Deferred income tax liability
C)Current liabilities
D)Warranty
E)Employee benefits
F)Federal depository bank
G)Payroll register
H)Gross pay
I)Payroll bank account
J)Times interest earned

Accepted Answer

A federal depository bank is specifically designated to handle deposits for the federal government, including those related to payroll taxes. This type of bank is authorized to accept such deposits, ensuring that funds directed towards the government, such as taxes withheld from employees' paychecks, are processed correctly and efficiently.

Question 13

Match each of the following terms with the appropriate definitions.
-Obligations due within one year or the company's operating cycle,whichever is longer.
A)Short-term note payable
B)Deferred income tax liability
C)Current liabilities
D)Warranty
E)Employee benefits
F)Federal depository bank
G)Payroll register
H)Gross pay
I)Payroll bank account
J)Times interest earned

Accepted Answer

Current liabilities are financial obligations of a company that are due within one year or the operating cycle of the company, whichever is longer. This term best matches the definition provided.

Question 14

On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.)
A) $0
B) $80
C) $320
D) $960
E) $160

Accepted Answer

Interest Expense = Principal * Interest Rate * Time
Interest Expense = $24,000 * 0.04 * 30/360; Interest Expense = $80

Question 15

All of the following statements related to recording warranty expense are true except:
A) Recording estimated warranty expense complies with the full disclosure principle.
B) Warranty expense should be recorded in the period when the warranty service is performed.
C) Recording estimated warranty expense complies with the matching principle.
D) The seller reports a warranty obligation as a liability.
E) Warranty costs are probable and the amount can be estimated.

Accepted Answer

Warranty expense should be recorded in the period when the sale is made, not in the period when the warranty service is performed. This is because the obligation to provide warranty service arises at the time of sale, not at the time of service. Therefore, warranty expense is recognized at the time of sale using estimates based on historical experience and other factors.

Question 16

Carson Company faces a probable loss on a pending lawsuit where the amount of the loss is estimated to be $500,000.The journal entry to recognize the potential loss is:
A) Debit Prepaid Legal Expense $500,000; credit Contingent Legal Liability $500,000.
B) Debit Legal Expense $500,000; credit Lawsuit Payable $500,000.
C) Debit Contingent Legal Expense $500,000, credit Contingent Legal Liability $500,000.
D) Debit Lawsuit Payable $500,000, credit Contingent Legal Liability $500,000.
E) No journal entry is required.

Accepted Answer

The answer of Carson Company faces a probable loss on...

Question 17

Match each of the following terms with the appropriate definitions.
-A seller's obligation to replace or correct a product or service that fails to perform as expected within a specified period.
A)Short-term note payable
B)Deferred income tax liability
C)Current liabilities
D)Warranty
E)Employee benefits
F)Federal depository bank
G)Payroll register
H)Gross pay
I)Payroll bank account
J)Times interest earned

Accepted Answer

A warranty is specifically designed to address the scenario where a product or service fails to meet expected performance standards within a certain timeframe, obligating the seller to make corrections or replacements.

Question 18

A company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers.When the company mails the first quarterly journal to customers,it should record:
A) Debit Prepaid Subscriptions $33,750; credit Unearned Revenue $33,750.
B) Debit Unearned Revenue $45,000; credit Cash $45,000.
C) Debit Cash $11,250, credit Sales $11,250.
D) Debit Unearned Revenue $11,250, credit Sales $11,250.
E) Debit Prepaid Subscriptions $11,250, credit Sales $11,250.

Accepted Answer

When the company mails the first quarterly journal, it recognizes revenue for that quarter. Since there are four quarters, $45,000 divided by 4 equals $11,250, which is the amount recognized. Therefore, it debits Unearned Revenue and credits Sales for $11,250, reflecting the earning of that portion of the subscription revenue.

Question 19

During August,Boxer Company sells $356,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 5% of the selling price.The warranty liability account has a credit balance of $12,800 before adjustment.Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs.The entry to record the estimated warranty expense for the month is:
A) Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
B) Debit Warranty Expense $5,000; credit Estimated Warranty Liability $5,000.
C) Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.
D) Debit Estimated Warranty Liability $9,400; credit Warranty Expense $9,400.
E) Debit Estimated Warranty Liability $17,800; credit Warranty Expense $17,800.

Accepted Answer

Warranty Expense = $356,000 * 0.05 = $17,800

Question 20

Match each of the following terms with the appropriate definitions.
-Total compensation earned by an employee.
A)Short-term note payable
B)Deferred income tax liability
C)Current liabilities
D)Warranty
E)Employee benefits
F)Federal depository bank
G)Payroll register
H)Gross pay
I)Payroll bank account
J)Times interest earned

Accepted Answer

Gross pay is the total compensation earned by an employee before any deductions or taxes are taken out.

Quiz 9: Accounting for Current Liabilities

Match each of the following terms with the appropriate definitions. -A record for a pay period that shows the pay period dates,regular and overtime hours worked,gross pay,net pay and deductions.

Match each of the following terms with the appropriate definitions. -Payments of income taxes that are deferred until future years because of temporary differences between GAAP and tax accounting rules.

Match each of the following terms with the appropriate definitions. -Compensation provided to employees beyond salaries and wages,such as premiums for medical insurance and contributions to pension plans.

During June,Vixen Company sells $850,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 3% of the selling price.Customers returned $14,000 of merchandise for warranty replacement during the month.The entry to settle the customer warranties is:

On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What is the journal entry that should be recorded upon signing the note?

A company's has fixed interest expense of $52,000,income taxes expense of $121,000,and net income of $281,000.The company's times interest earned ratio equals:

On September 1,Knack Company signed a $50,000,90-day,5% note payable with Central Savings Bank.What is the journal entry that should be recorded by Knack upon maturity of the note? (Use 360 days a year.)

If a company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers,the receipt of cash would be journalized as:

Match each of the following terms with the appropriate definitions. -A special bank account used solely for paying employees; each pay period an amount equal to the total employees' net pay is deposited and the employees' payroll checks are drawn on that account.

Match each of the following terms with the appropriate definitions. -A bank authorized to accept deposits of amounts payable to the federal government,including payroll taxes.

Match each of the following terms with the appropriate definitions. -Obligations due within one year or the company's operating cycle,whichever is longer.

On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.)

All of the following statements related to recording warranty expense are true except:

Carson Company faces a probable loss on a pending lawsuit where the amount of the loss is estimated to be $500,000.The journal entry to recognize the potential loss is:

Match each of the following terms with the appropriate definitions. -A seller's obligation to replace or correct a product or service that fails to perform as expected within a specified period.

A company has advance subscription sales totaling $45,000 for the upcoming year when four quarterly journals will mailed to customers.When the company mails the first quarterly journal to customers,it should record:

Match each of the following terms with the appropriate definitions. -Total compensation earned by an employee.