Question 1

What is the purpose of the Federal W-4 form?

Accepted Answer

The purpose of the Federal W-4 form is to allow an employee to declare how many withholding allowances they have for dependents, which can lessen the amount of federal tax withheld from their paycheck.

Question 2

Monthly remittance of sales tax:

Accepted Answer

Remittance of sales tax reduces assets (cash) and reduces liabilities (sales tax payable).

Question 3

Which of the following answers correctly shows the effect of the recognition of the warranty obligation at the end of 2013 on the financial statements of Lucky?

Accepted Answer

The entry to estimate future warranty costs related to 2013 sales increases expenses (warranty expense), which decreases net income and equity, and increases liabilities (warranties payable).

Question 4

Gilson Company pays Matt Sawyer a salary of $2,000 per week. How much FICA tax must Gilson pay on Matt's behalf, including both the employee and employer portions?

Accepted Answer

$2,000 x 7.5% = $150. $150 is withheld from Matt's gross pay, and Matt's employer is responsible for an additional $150, for a total of $300.

Question 5

On a classified balance sheet, the financial statement user will be able to distinguish between:

Accepted Answer

The classified balance sheet also distinguishes between current and non-current (long term) liabilities.

Question 6

When do the effects of product warranties appear on the statement of cash flow?

Accepted Answer

Cash is usually used to settle a warranty claim made by a customer, but is never used at the time the obligation is recognized as an expense. Although cash may be collected when the sale is made, that cash is not related to the warranty.

Question 7

Bacchus Co. had sales of $400,000 in 2013. The company expects to incur warranty expenses amounting to 3% of sales. There were $6,500 of warranty obligations paid in cash during 2013. Based on this information:

Accepted Answer

$400,000 x 3% = $12,000 warranty expense is recognized in 2013. Assets (cash) decrease by $6,500. Warranty obligations (warranties payable) increases by $12,000 when warranty expense is recognized and decreases by $6,500 when warranty obligations are paid, for a net increase of $5,500.

Question 8

Which of the following reflects the effect of the year-end adjusting entry to record estimated warranty expense?

Accepted Answer

The adjusting entry increases liabilities (warranties payable) and expenses (warranty expense), which decreases net income and equity. It does not affect cash flows.

Question 9

Which of the following represents the correct journal entry to record a taxable cash sale of $800 if the sales tax rate is 5%?

Accepted Answer

The transaction is recorded as a debit (increase) to cash of $840, the amount of the sale, plus the 5% sales tax collected, a credit (increase) to sales tax payable of $40, the amount owed to the state, and a credit (increase) to sales revenue of $800, the amount of the sale.

Question 10

Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet?

Accepted Answer

Bonds payable is a long term liability because it is repaid many accounting periods after its issue.

Question 11

Which of the following is a claims exchange transaction?

Accepted Answer

Equity does down and liabilities increase by the same amount.

Question 12

Which of the following items is not classified as a current asset?

Accepted Answer

Office equipment is a long term asset because it is used over more than one year or one operating cycle.

Question 13

Mighty Burger has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's french fries. Mighty Burger's attorneys have advised them that the likelihood of a future obligation from the suit is remote. As a result of the lawsuit, Mighty Burger should:

Accepted Answer

Because the obligation is considered remote, it is neither recognized nor disclosed in Mighty Burger's financial statements.

Question 14

Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?

Accepted Answer

A pending lawsuit should be recognized as a liability on a company's balance sheet if both the outcome is probable and the amount can be reasonably estimated.

Question 15

Selling $65 of merchandise to a customer for $100 in a state where the sales tax rate is 4%:

Accepted Answer

The transaction increases cash by $104, the amount of the sale, plus$4 in sales tax collecte

Question 16

A company's classified balance sheet shows current assets of $8,650 and current liabilities of $6,000. The company's current ratio is:

Accepted Answer

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $8,650 / $6,000
Current Ratio = 1.44 to 1

Question 17

What factor distinguishes an employee from an independent contractor?

Accepted Answer

In order for an individual to be considered an independent contractor and not be subject to tax withholding, he or she must not work under the supervision and control of the company.

Question 18

On January 2, 2013, the company recorded the following transaction:  Recording this transaction will:

Accepted Answer

$6,000 current assets before transaction + $4,000 increase in accounts receivable = $10,000; $10,000/$2,000 current liabilities = 5:1 current ratio

Question 19

Which of the following answers indicates the effect of the February 12, 2014 entry on the financial statements of Lucky Corporation?

Accepted Answer

Paying $215 cash and using $60 of inventory to satisfy a warranty claim decreases assets (cash by $215 and inventory by $65) and decreases liabilities (warranties payable) by $275. The $215 outflow is reported as an operating activity on the statement of cash flows.

Question 20

Which of the following is not an item deducted from salary expense to arrive at net pay?

Accepted Answer

Federal unemployment tax is paid entirely by the employer, and is not withheld from an employee's pay.

Quiz 9: Accounting for Current Liabilities and Payroll