Question 1

Since income tax expense is created by earning income, a liability is incurred when income is earned.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Short-term notes payable:

Accepted Answer

A)  Can replace an account payable. 
B)  Can be issued in return for money borrowed from a bank. 
C)  Are negotiable. 
D)  Are an unconditional promise to pay. 
E)  All of these. 
A)  Can replace an account payable. 
B)  Can be issued in return for money borrowed from a bank. 
C)  Are negotiable. 
D)  Are an unconditional promise to pay. 
E)  All of these.

Question 4

The deferred income tax liability:

Accepted Answer

A)  Represents income tax payments that are deferred until future years because of temporary differences between GAAP rules and tax accounting rules. 
B)  Is a contingent liability. 
C)  Can result in a deferred income tax asset. 
D)  Is never recorded. 
E)  Is recorded whether or not the difference between taxable income and financial accounting income is permanent or temporary. 
A)  Represents income tax payments that are deferred until future years because of temporary differences between GAAP rules and tax accounting rules. 
B)  Is a contingent liability. 
C)  Can result in a deferred income tax asset. 
D)  Is never recorded. 
E)  Is recorded whether or not the difference between taxable income and financial accounting income is permanent or temporary.

Question 5

All of the following statements regarding uncertainty in liabilities are except:

Accepted Answer

A)  Liabilities can involve uncertainty in whom to pay. 
B)  A company can create a known amount when issuing a note even though the holder of the note may not be known until the maturity date. 
C)  A company can have an obligation of a known amount to a known creditor but not know when it must be paid. 
D)  A company only records liabilities when it knows whom to pay, when to pay, and how much to pay. 
E)  A company can be aware of an obligation but not know how much will be required to settle it. 
A)  Liabilities can involve uncertainty in whom to pay. 
B)  A company can create a known amount when issuing a note even though the holder of the note may not be known until the maturity date. 
C)  A company can have an obligation of a known amount to a known creditor but not know when it must be paid. 
D)  A company only records liabilities when it knows whom to pay, when to pay, and how much to pay. 
E)  A company can be aware of an obligation but not know how much will be required to settle it.

Question 6

A contingent liability is a potential obligation that depends on a future event arising from a future transaction or event.

Accepted Answer

A) True 
 B)False

Question 7

Employees earn vacation pay at the rate of one day per month. During July, 25 employees qualify for one vacation day each. Their average daily wage is $100 per day. What is the amount of vacation benefit expense to be recorded for the month of July?

Accepted Answer

A)  $25 
B)  $100 
C)  $250 
D)  $2,500 
E)  $25,000 
A)  $25 
B)  $100 
C)  $250 
D)  $2,500 
E)  $25,000

Question 8

Unearned revenues are:

Accepted Answer

A)  Also called deferred revenues. 
B)  Amounts received in advance from customers for future delivery of products or services. 
C)  Also called collections in advance. 
D)  Also called prepayments. 
E)  All of these. 
A)  Also called deferred revenues. 
B)  Amounts received in advance from customers for future delivery of products or services. 
C)  Also called collections in advance. 
D)  Also called prepayments. 
E)  All of these.

Question 9

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

Accepted Answer

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. 
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.

Question 10

Accounts payable:

Accepted Answer

A)  Are amounts owed to suppliers for products and/or services purchased on credit. 
B)  Are long-term liabilities. 
C)  Are estimated liabilities. 
D)  Do not include specific due dates. 
E)  Must be paid within 30 days. 
A)  Are amounts owed to suppliers for products and/or services purchased on credit. 
B)  Are long-term liabilities. 
C)  Are estimated liabilities. 
D)  Do not include specific due dates. 
E)  Must be paid within 30 days.

Question 11

A company can have a liability even if the amount of the obligation is unknown.

Accepted Answer

A) True 
 B)False

Question 12

On March 17, Grady Company agrees to accept a 60-day, 10%, $4,500 note from Alert Company to extend the due date on an overdue account. What is the journal entry needed to record the payment of the note by Alert Company on the maturity date?

Accepted Answer

A)  Debit Notes Payable $4,500; debit Interest Expense $75; credit Cash $4,575. 
B)  Debit Notes Payable $4,500; credit Interest Expense $75, credit Cash $4,425. 
C)  Debit Cash $4,575; credit Interest Revenue $75; credit Notes Payable $4,500. 
D)  Debit Notes Payable $4,500; debit Interest Expense $112; credit Cash $4,612. 
E)  Debit Cash $4,575; credit Interest Revenue $75; credit Notes Receivable $4,500. 
A)  Debit Notes Payable $4,500; debit Interest Expense $75; credit Cash $4,575. 
B)  Debit Notes Payable $4,500; credit Interest Expense $75, credit Cash $4,425. 
C)  Debit Cash $4,575; credit Interest Revenue $75; credit Notes Payable $4,500. 
D)  Debit Notes Payable $4,500; debit Interest Expense $112; credit Cash $4,612. 
E)  Debit Cash $4,575; credit Interest Revenue $75; credit Notes Receivable $4,500.

Question 13

Experience shows that when times interest earned falls below 1.5 to 2.0 and remains at that level or lower for several time periods, the default rate on liabilities increases sharply.

Accepted Answer

A) True 
 B)False

Question 14

Employer payroll taxes:

Accepted Answer

A)  Are an added expense beyond the wages and salaries earned by employees. 
B)  Represent the federal taxes withheld from employees. 
C)  Represent the social security taxes withheld from employees. 
D)  Are paid by the employee. 
E)  All of these. 
A)  Are an added expense beyond the wages and salaries earned by employees. 
B)  Represent the federal taxes withheld from employees. 
C)  Represent the social security taxes withheld from employees. 
D)  Are paid by the employee. 
E)  All of these.

Question 15

On November 1, Bob's Skateboards signed a $12,000, 90-day, 5% note payable to cover a past due account payable.
a. What amount of interest expense on this note should Bob's Skateboards report on year-end December 31?
b. Prepare Bob's journal entry to record the issuance of the note payable.
c. Prepare Bob's journal entry to record the payment of the note on February 1 of the following year.

Accepted Answer

The answer of On November 1, Bob's Skateboards signed a...

Question 16

A payroll register includes:

Accepted Answer

A)  Pay period dates. 
B)  Hours worked. 
C)  Gross pay and net pay. 
D)  Deductions. 
E)  All of these. 
A)  Pay period dates. 
B)  Hours worked. 
C)  Gross pay and net pay. 
D)  Deductions. 
E)  All of these.

Question 17

Debt guarantees are not usually disclosed as a contingent liability.

Accepted Answer

A) True 
 B)False

Question 18

_________________ are probable future payments of assets or services that a company is presently obligated to make as a result of past transactions or events.

Accepted Answer

The answer of _________________ are probable future payments of assets...

Question 19

Ember Co. entered into the following transactions involving short-term notes payable.
On June 18, Ember purchased $25,000 merchandise from Halco Co., terms are 2/10, n/30. Halco uses the perpetual inventory system.
On July 19, Ember replaced the June 18 account payable with a 60-day, $22,000 note bearing 9% annual in addition to paying $3,000 in cash. ________ Paid the amount due on the note at maturity.
1. Determine the maturity date for the note.
2. Prepare journal entries for all the preceding transactions and events.

Accepted Answer

1. Maturity date: Se

Question 20

A liability does not exist if there is any uncertainty about whom to pay, when to pay, or how much to pay.

Accepted Answer

A) True 
 B)False

Exam 11: Current Liabilities and Payroll Accounting

Since income tax expense is created by earning income, a liability is incurred when income is earned.

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

Short-term notes payable:

The deferred income tax liability:

All of the following statements regarding uncertainty in liabilities are except:

A contingent liability is a potential obligation that depends on a future event arising from a future transaction or event.

Employees earn vacation pay at the rate of one day per month. During July, 25 employees qualify for one vacation day each. Their average daily wage is $100 per day. What is the amount of vacation benefit expense to be recorded for the month of July?

Unearned revenues are:

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

Accounts payable:

A company can have a liability even if the amount of the obligation is unknown.

On March 17, Grady Company agrees to accept a 60-day, 10%, $4,500 note from Alert Company to extend the due date on an overdue account. What is the journal entry needed to record the payment of the note by Alert Company on the maturity date?

Experience shows that when times interest earned falls below 1.5 to 2.0 and remains at that level or lower for several time periods, the default rate on liabilities increases sharply.

Employer payroll taxes:

A payroll register includes:

Debt guarantees are not usually disclosed as a contingent liability.

_________________ are probable future payments of assets or services that a company is presently obligated to make as a result of past transactions or events.

A liability does not exist if there is any uncertainty about whom to pay, when to pay, or how much to pay.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Long-Term Assets

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Filters