Question 1

Uncertainties such as natural disasters are:

Accepted Answer

A) Not contingent liabilities because they are future events not arising from past transactions or events. 
B) Contingent liabilities because they are future events arising from past transactions or events. 
C) Disclosed because of their usefulness to financial statements. 
D) Estimated liabilities because the amounts are uncertain. 
E) Reported in the same way as debt guarantees.

Question 2

On April 12, Hong Company agrees to accept a 60-day, 10%, $4,500 note from Indigo Company to extend the due date on an overdue account. What is the journal entry needed to record the transaction by Indigo Company?

Accepted Answer

A) Debit Notes Payable $4,500; credit Accounts Payable $4,500. 
B) Debit Accounts Payable $4,500; credit Notes Payable $4,500. 
C) Debit Accounts Receivable $4,500; credit Notes Payable $4,500. 
D) Debit Cash $4,500; credit Notes Payable $4,500. 
E) Debit Sales $4,500; credit Notes Payable $4,500.

Question 3

All expected future payments are liabilities.

Accepted Answer

A) True 
 B)False

Question 4

A company's payroll for the week ended May 15 included earned salaries of $20,000. All of that week's pay is subject to FICA social security taxes of 6.2% on the first $118,500 of earnings each calendar year and Medicare taxes of 1.45% on all earnings. In addition, the company withholds the following amounts for this weekly pay period: $900 for medical insurance, $3,400 for federal income taxes, and $180 for union dues.
a. Prepare the general journal entry to accrue the payroll.
b. The company is subject to state unemployment taxes at the rate of 2% and federal unemployment taxes at the rate of 0.6%. By May 15, some employees had earned over $7,000, so only $11,000 of the $20,000 weekly gross pay was subject to unemployment tax. No employees had earned over $118,500. Prepare the general journal entry to accrue the employer's payroll tax expense.

Accepted Answer

The answer of A company's payroll for the week ended...

Question 5

All of the following are employer payroll taxes except:

Accepted Answer

A) Social Security tax equal to that withheld from employees. 
B) Medicare tax equal to that withheld from employees. 
C) State unemployment tax. 
D) Federal unemployment tax. 
E) Federal income tax equal to that withheld from employees.

Question 6

An employee earned $4,600 in February working for an employer. Cumulative earnings of the previous pay periods are $4,800. The FICA tax rate for Social Security is 6.2% of the first $118,500 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 4.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. What is the amount the employer should record as payroll taxes expense for the month of February?

Accepted Answer

A) $581.90 
B) $110.00 
C) $351.90 
D) $461.90 
E) $230.00

Question 7

An employee earned $37,000 during the year working for an employer when the maximum limit for Social Security was $118,500 each calendar year. The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The employee's annual FICA taxes amount is:

Accepted Answer

A) $2,294.00. 
B) $536.50. 
C) $2,830.50. 
D) $1,757.50. 
E) $8,950.50.

Question 8

The difference between the amount borrowed and the amount repaid is referred to as _______________.

Accepted Answer

The answer of The difference between the amount borrowed and...

Question 9

A company's income before interest expense and income taxes in 2016 and 2017 is $487,500 and $427,000, respectively. Its fixed interest expense was $125,000 for both years. Calculate the company's times interest earned ratio, and comment on its level of risk.

Accepted Answer

The answer of A company's income before interest expense and...

Question 10

Employee vacation benefits:

Accepted Answer

A) Are estimated liabilities. 
B) Are contingent liabilities. 
C) Are recorded as an expense when the employee takes a vacation. 
D) Are recorded as an expense when the employee retires. 
E) Increase net income.

Question 11

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:

Accepted Answer

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.

Question 12

If an employer offers a bonus to its employees equal to 5% of the company's annual net income, and the expected annual pre-bonus net income is $320,000, what bonus amount should be used in the year-end adjusting entry to record this benefit (rounded to the nearest whole dollar)?

Accepted Answer

A) $16,800. 
B) $16,000. 
C) $15,238. 
D) $15,200. 
E) $14.476.

Question 13

Employer payroll taxes:

Accepted Answer

A) Are added expenses beyond that for 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) Are payable for up to a maximum $118,500 of employee earnings.

Question 14

On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the maturity value of the note on March 1 of the following year?

Accepted Answer

A) $9,000 
B) $720 
C) $9,120 
D) $9,720 
E) $9,240

Question 15

Uncertainties from the development of new competing products are not contingent liabilities.

Accepted Answer

A) True 
 B)False

Question 16

Contingent liabilities must be recorded if:

Accepted Answer

A) The future event is probable and the amount owed can be reasonably estimated. 
B) The future event is remote. 
C) The future event is reasonably possible but not estimable. 
D) The amount owed cannot be reasonably estimated. 
E) The future event is probable but not estimable.

Question 17

An employee earned $43,300 working for an employer in the current year. The current rate for FICA Social Security is 6.2% payable on earnings up to $118,500 maximum per calendar year and the rate for FICA Medicare 1.45% of all earnings. The employer's total FICA payroll tax for this employee is:

Accepted Answer

A) $8,950.50. 
B) $5,638.05. 
C) $3,312.45. 
D) $2,684.60. 
E) $0, since the FICA tax is only deducted from an employee's pay.

Question 18

Coastal Oil has three pending legal cases against it for environmental damages due to a recent spill. The company's legal counsel has determined that it is probable the company will lose a suit by the state for $8,000,000 to cover cleanup costs. It advises that there is a remote chance of losing a claim by a neighborhood association for $1,000,000 due to emotional distress over the condition of the coastline. The third claim of $500,000 for health issues arising from suspected water contamination is considered reasonably possible to be won by the claimants. The amount that Costal should record in its accounting records related to these suits is:

Accepted Answer

A) $8,000,000. 
B) $8,500,000. 
C) $9,000,000. 
D) $9,500,000. 
E) $0.

Question 19

If a company has advance ticket sales totaling $2,000,000 for the upcoming football season, the receipt of cash would be journalized as:

Accepted Answer

A) Debit Sales, credit Unearned Revenue. 
B) Debit Unearned Revenue, credit Sales. 
C) Debit Cash, credit Unearned Revenue. 
D) Debit Unearned Revenue, credit Cash. 
E) Debit Cash, credit Revenue.

Question 20

The deferred income tax liability:

Accepted Answer

A) Results from the income tax expense reported on the income statement differing from the amount of income taxes payable to the government. 
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.

Exam 9: Reporting and Analyzing Current Liabilities