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Exam 9: Accounting for Current Liabilities and Payroll

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Question 1

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Franklin Company issued a $40,000 note to the Mercantile Bank on August 1,Year 1.The note carried a one-year term and a 12% rate of interest.How will the adjusting entry,dated December 31,Year 1,to record accrued interest expense impact the elements of the financial statements?

A) Decrease assets and decrease retained earnings by $2,000
B) Increase liabilities and decrease equity by $2,000
C) Increase liabilities and decrease equity by $1,600
D) Decrease equity and increase liabilities by $4,800

E) B) and C)
F) A) and D)

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Question 2

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Which of the following represents the correct journal entry to record a taxable cash sale of $400 if the sales tax rate is 5%?

A) A debit to cash for $420,a debit to sales tax expense for $20,and a credit to sales revenue for $400.
B) A debit to cash for $400,a credit to sales tax payable for $20,and a credit to sales revenue for $380.
C) A debit to cash for $420,a credit to sales tax payable for $20,and a credit to sales revenue for $400.
D) None of these answer choices are correct.

E) B) and D)
F) None of the above

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Question 3

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Greer Company pays Jamal Perry a salary of $3,000 per week.How much FICA tax must Greer pay with regards to this employee (including both the employee and employer portions) ? (Assume a Social Security rate of 6 percent on the first $110,000 of income and a Medicare rate of 1.5 percent on all earnings. )

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

[The following information applies to the questions displayed below.] Baltimore Company issued a $9,000 face value discount note to Bank of the Chesapeake on March 1, Year 1. The note had a 5% discount rate and a one-year term to maturity. -How would the adjusting entry to record interest expense on December 31,Year 1 affect the elements of the financial statements?

Indicate whether each of the following statements is true or false. ________ a)The amount of federal tax withheld from an employee's salary depends on the employee's gross pay and the number of withholding allowances the employee claims. ________ b)Withheld taxes are recorded in the payroll tax expense account. ________ c)An employer will submit $8,250 in FICA taxes for an employee who earns $55,000 annually.(Assume a Social Security rate of 6 percent on the first $110,000 of income and a Medicare rate of 1.5 percent on all earnings. ) ________ d)A voluntary deduction,such as a charitable contribution,creates a liability when it is withheld from employee pay. ________ e)If an employer records gross pay of $2,400 and withholds $700 of that amount,then the employer will recognize $1,700 in salary expense.

What is (are) the term(s) used to describe the party who borrows money as evidenced by a note payable?

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

Indicate whether each of the following statements is true or false. ________ a)The amount of warranty expense is an estimate that is based on the amount of merchandise sold. ________ b)A warranty obligation only occurs if a buyer purchases an extended warranty. ________ c)When a warranty claim is settled,the seller's equity decreases. ________ d)When a warranty claim is settled,the seller's liabilities increase. ________ e)Product warranties usually represent legal liabilities that must be reported in the financial statements.

Which of the following accounts appear in the liabilities section of the balance sheet?

What factor distinguishes an employee from an independent contractor?

On October 1,Year 1,Harrison Company borrowed money by issuing a $24,000 face value discount note to its bank.The note had an 8% discount rate and had a one-year term to maturity.The amount of cash that Harrison received on that date was $22,080.

The current ratio is calculated as total current assets divided by total assets.

If a company is in a region in which floods or earthquakes are deemed to be possible,the company should record a contingent liability.

Indicate whether each of the following statements is true or false. ________ a)An eight-month,6% note for $10,000 will require the issuer to pay $600 in interest. ________ b)Interest expense is considered an operating expense on the income statement. ________ c)Payment of interest is considered an operating activity on the statement of cash flows. ________ d)Payment of interest on a one-year note due on March 1 will include a reduction in liabilities. ________ e)The adjusting entry to recognize interest expense is an asset use transaction.

[The following information applies to the questions displayed below.] Baltimore Company issued a $9,000 face value discount note to Bank of the Chesapeake on March 1, Year 1. The note had a 5% discount rate and a one-year term to maturity. -After accruing all interest expense due as of April 1,Year 1,Baltimore Company made the cash payment for the full amount due (i.e. ,principal and interest) to Bank of the Chesapeake.How does the cash payment affect the elements of Baltimore's financial statements?

On October 1,Year 1,Hartford Company issued a $20,000 face value discount note.The note had a 6% discount rate and a one-year term to maturity.Which of the following would be included in the adjusting entry,dated December 31,Year 1,to recognize interest accrued since the issuance date?

Craig Company experienced an accounting event that is recorded in the T-accounts as follows: How does this event affect the elements of Craig's financial statements?

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

The December 31,Year 1,balance sheet of Rowan Company shows current assets of $32,000 and current liabilities of $20,000.On January 1,Year 2,the company recorded the following entries: After the two journal entries were recorded,what is the company's current ratio?