Question 1

Vacation pay is an example a liability that exists but the exact amount is not known.

Accepted Answer

Vacation pay is a liability that exists but the exact amount will depend on various factors such as the employee's tenure, accumulated vacation time, and company policies. Therefore, the exact amount cannot be known until it is calculated at the time of the employee's vacation.

Question 2

When an employee takes a paid vacation, the Vacation Benefits Payable account will be decreased with a credit.

Accepted Answer

When an employee takes paid vacation, the Vacation Benefits Payable account will be decreased with a debit.

Question 3

Sunset, Inc. has a policy of accruing $2300 for every employee as a vacation benefit. Sarah, an employee, took a vacation. Which of the following is the correct journal entry for the vacation benefit paid?
A) $$\begin{array} { | c | r | r | } 
\hline \text { Vacation Benefits Payable } & 1917 & \
\hline \text { Vacation Benefits Expense } & & 1917 \
\hline
\end{array}$$
B) $$\begin{array} { | c | r | r | } 
\hline \text { Vacation Benefits Expense } & 2300 & \
\hline \text { Cash } & & 2300 \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | } 
\hline \text { Vacation Benefits Payable } & 2300 & \
\hline \text { Cash } & & 2300 \
\hline
\end{array}$$
D) $$\begin{array} { | c | r | r | } 
\hline \text { Vacation Benefits Expense } & 1917 & \
\hline \text { Vacation Benefits Payable } & & 1917 \
\hline
\end{array}$$

Accepted Answer

The correct journal entry for the vacation benefit paid is to debit (decrease) the liability account "Vacation Benefits Payable" and credit (decrease) the asset account "Cash" by the amount of the vacation benefit, which is $2300. This reflects the payment of the accrued vacation benefit.

Question 4

The employees of Vintage Clothes achieved all of the sales goals for 2017. Vintage decides to reward the employees with a bonus of 20% on annual net income, after deducting the bonus. The net income before the calculation of the bonus is $312,000. What is the amount of the bonus? (Round your final answer to the nearest dollar.)
A) $62,400
B) $52,000
C) $55,059
D) $12,480

Accepted Answer

The answer of The employees of Vintage Clothes achieved all...

Question 5

A pension plan is a plan that provides benefits to retired employees.

Accepted Answer

A pension plan is designed to provide retirement income to employees who have worked a certain number of years for an employer or have reached a certain age.

Question 6

Martin, Inc. decided to reward its employees with a bonus of 7% on annual net income, after deducting the bonus. The company reported net income of $513,600 before the calculation of the bonus. Prepare the journal entry to accrue employee bonus expense. Omit explanation.

Accepted Answer

The answer of Martin, Inc. decided to reward its employees...

Question 7

If a business knows that a liability exists but does not know the exact amount, the business must estimate the amount of the liability and report it on the balance sheet.

Accepted Answer

According to the accounting principle of conservatism, if a liability exists but the exact amount is not known, the business must estimate the amount to the best of its knowledge and report it on the balance sheet. This ensures that the financial statements are not overstated, and any potential risks are disclosed to the users of the financial statements.

Question 8

Jamison Enterprises estimates that it will pay a 5% bonus on annual net income after deducting the bonus. If Jamison reports net income of $480,000 before the calculation of the bonus, the amount of the bonus is $24,000.

Accepted Answer

The bonus is calculated on the net income after deducting the bonus itself. If the net income before the bonus is $480,000 and the bonus rate is 5%, then the bonus (B) is calculated as B = 5% of ($480,000 - B). Solving this equation gives a different amount than $24,000.

Question 9

Because a company usually does not know the amount of the year-end bonus at year-end, no liability is recorded.

Accepted Answer

A company should estimate the amount of the year-end bonus and record a liability for it, even if the exact amount is not yet known. This is necessary to properly reflect the company's financial position and obligations.

Question 10

Which of the following is an important internal control over payroll?
A) separating the duties of the disbursement of paychecks from the recording of payroll transactions in the ledger
B) separating the duties of safeguarding property from record-keeping of property
C) separating the duties of approving invoices from signing disbursement checks
D) separating the duties of cash disbursement from bank reconciliations

Accepted Answer

Separating the duties of the disbursement of paychecks from the recording of payroll transactions in the ledger is an important internal control as it reduces the risk of errors or fraud. It ensures that the person disbursing the paychecks is not also responsible for recording payroll transactions, which creates a system of checks and balances. Option B is related to property, Option C is related to accounts payable, and Option D is related to cash disbursement and bank reconciliation, which are not directly relevant to payroll control.

Question 11

Vacation, health, and pension benefits must be estimated and recorded as a liability.

Accepted Answer

Vacation, health, and pension benefits are typically considered earned benefits and are therefore considered a liability to the employer. These benefits are typically earned by the employee over time or in accordance with a union contract or company policy, and payment of these benefits must be accounted for and recorded as a liability on the employer's balance sheet.

Question 12

Which of the following accounts is debited when employees take their paid vacations?
A) Vacation Benefits Expense
B) Vacation Benefits Payable
C) Salaries Expense
D) No entry is needed.

Accepted Answer

The answer of Which of the following accounts is debited...

Question 13

Which of the following is a control procedure to prevent a dishonest employee from cashing a paycheck that was written to a fictitious person?
A) having employees clock in and out of work
B) keeping computerized records of payroll data
C) serial numbering of paychecks
D) requiring photo IDs for employees picking up their paychecks

Accepted Answer

Requiring photo IDs for employees picking up their paychecks would ensure that only authorized employees are able to receive their paychecks and prevent dishonest employees from cashing paychecks written to fictitious people. This control procedure provides a way of verifying the identity of the employee and protects the company from fraud. The other options listed (A, B, and C) do not directly address the issue of preventing a dishonest employee from cashing a paycheck written to a fictitious person.

Question 14

Alpine Enterprises estimates that it will pay a 5% bonus on annual net income after deducting the bonus. The company reports net income of $500,000 before the calculation of the bonus. Employee Bonus Expense will be debited for $25,000.

Accepted Answer

The correct calculation for the bonus is to set up the equation where bonus is 5% of (net income - bonus). If net income before bonus is $500,000, then the equation is bonus = 0.05 * ($500,000 - bonus). Solving this equation gives a bonus amount different from $25,000.

Question 15

Since a company usually does not know the amount of the year-end bonus at year-end, the company estimates the amount of the bonus based on a percentage.

Accepted Answer

Companies often have a predetermined percentage or formula for calculating year-end bonuses, which allows them to estimate the amount of the bonus before it is officially determined and communicated to employees.

Question 16

Which of the following is a control risk related to payroll?
A) theft of inventory by staff
B) a dishonest employee cashing a paycheck that was written to a fictitious person
C) expenses being recorded as assets in order to manipulate earnings
D) contracts being awarded to relatives of employees

Accepted Answer

Control risk related to payroll involves the risk of fraudulent or erroneous transactions related to employee compensation. Option B describes a scenario where a dishonest employee could cash a paycheck that was written to a fictitious person, resulting in a loss of assets for the company. The other options describe risks related to inventory, financial reporting, and conflicts of interest, but do not specifically relate to payroll.

Question 17

If a business knows that a liability exists but does not know the exact amount, the business is unable to record the liability.

Accepted Answer

The business can still record the liability by making a reasonable estimate of the amount and including a note or disclosure in the financial statements explaining the uncertainty around the amount. This is called a contingent liability.

Question 18

Which of the following statements regarding vacation benefits is correct?
A) No entry is needed until the employee takes a paid vacation.
B) The account, Vacation Expense is debited when the employee takes a paid vacation.
C) Health and pension benefits are recorded in the same manner as vacation benefits.
D) When an employee takes a paid vacation, the account, Vacation Benefits Payable is credited.

Accepted Answer

The answer of Which of the following statements regarding vacation...

Question 19

Which of the following is NOT a liability that must be estimated?
A) warranties
B) vacation pay
C) bonus plans
D) promissory notes

Accepted Answer

Promissory notes are not liabilities that are estimated, but rather are recorded at their face value plus any accrued interest. Warranties, vacation pay, and bonus plans all require estimates to be made in order to accurately record the liability on the financial statements.

Question 20

First Street Restaurant incurred salaries expense of $60,000 for 2018. The payroll tax expense includes employer FICA tax, state unemployment tax and federal unemployment tax. Year-to-date earnings do not exceed $118,500. Of the total salaries, $17,000 is subject to unemployment tax. Currently, state unemployment tax is 5.4% and federal unemployment tax is 0.6%. Also, the company provides the following benefits for employees: health insurance (cost to the company, $2,500), life insurance (cost to the company, $700), and retirement benefits (cost to the company, 10% of salaries expense). Journalize First Street's expenses for employee benefits and for payroll taxes. Explanations are not required.

Accepted Answer

The answer of First Street Restaurant incurred salaries expense of...

Quiz 11: Current Liabilities and Payroll

Vacation pay is an example a liability that exists but the exact amount is not known.

When an employee takes a paid vacation, the Vacation Benefits Payable account will be decreased with a credit.

Sunset, Inc. has a policy of accruing $2300 for every employee as a vacation benefit. Sarah, an employee, took a vacation. Which of the following is the correct journal entry for the vacation benefit paid?

A pension plan is a plan that provides benefits to retired employees.

Martin, Inc. decided to reward its employees with a bonus of 7% on annual net income, after deducting the bonus. The company reported net income of $513,600 before the calculation of the bonus. Prepare the journal entry to accrue employee bonus expense. Omit explanation.

If a business knows that a liability exists but does not know the exact amount, the business must estimate the amount of the liability and report it on the balance sheet.

Jamison Enterprises estimates that it will pay a 5% bonus on annual net income after deducting the bonus. If Jamison reports net income of $480,000 before the calculation of the bonus, the amount of the bonus is $24,000.

Because a company usually does not know the amount of the year-end bonus at year-end, no liability is recorded.

Which of the following is an important internal control over payroll?

Vacation, health, and pension benefits must be estimated and recorded as a liability.

Which of the following accounts is debited when employees take their paid vacations?

Which of the following is a control procedure to prevent a dishonest employee from cashing a paycheck that was written to a fictitious person?

Alpine Enterprises estimates that it will pay a 5% bonus on annual net income after deducting the bonus. The company reports net income of $500,000 before the calculation of the bonus. Employee Bonus Expense will be debited for $25,000.

Since a company usually does not know the amount of the year-end bonus at year-end, the company estimates the amount of the bonus based on a percentage.

Which of the following is a control risk related to payroll?

If a business knows that a liability exists but does not know the exact amount, the business is unable to record the liability.

Which of the following statements regarding vacation benefits is correct?

Which of the following is NOT a liability that must be estimated?