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Exam 9: Accounting for Current Liabilities and Payroll

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Question 41

Multiple Choice

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What is the carrying value of the liability appearing on the December 31,Year 1 balance sheet?

A) $80,400
B) $87,600
C) $90,000
D) $88,800

E) A) and D)
F) All of the above

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Question 42

Multiple Choice

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During Year 1,its first year of operations,Benitez Co.reported sales of $800,000.At the end of Year 1,the company estimated its warranty obligation at 3% of sales.During Year 1,the company paid $13,000 cash to settle warranty claims.Which of the following statements is true?

A) Warranty expenses would decrease net earnings by $24,000 in Year 1.
B) Cash decreased by $13,000 as a result of the accounting events associated with warranties in Year 1.
C) The warranties payable account has a credit balance of $11,000 at the end of Year 1.
D) All of these answer choices are correct.

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

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Question 43

Multiple Choice

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Burger Barn has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's burgers.Burger Barn's attorneys have advised them that the likelihood of a future obligation from the suit is remote.What should Burger Barn do as a result of the information that is available?

[The following information applies to the questions displayed below.] In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer. -Which of the following summarizes the effect of the recognition of the warranty obligation to the customer who purchased this merchandise on the elements of the Year 1 financial statements?

The issuer of a note payable is also known as the maker.

How does the amortization of the discount on a note payable affect the elements of a company's financial statements?

When calculating interest expense on a 6-month note,multiply the principal by the interest rate,and then multiply by (6 ÷ 12).

Which of the following describes the effect of remitting the sales tax to the tax authority?

What is the current ratio used to evaluate?

Joseph Company is preparing to repay a one-year note on May 1,Year 2.The first step in this process is to accrue eight months of interest expense.

If a company offers a warranty on the products it sells,the company records the warranty expense at the time that service is provided to customers under the terms of the warranty.

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

How is the current ratio calculated?

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

What type of account is Discount on Notes Payable?

Vacation pay is considered a contingent liability.

FICA taxes are recorded both as salary expense and as payroll tax expense.

On September 1,Year 1,West Company borrowed $10,000 from Valley Bank.West agreed to pay interest annually at the rate of 6% per year.The note issued by West carried an 18-month term.West Company has a calendar year-end.What is the amount of interest expense that will be reported on West's income statement for Year 1?

The Wage and Tax Statement,Form W-2,is sent to the employee annually to report earnings and withheld taxes.

[The following information applies to the questions displayed below.] Madison Company issued an interest-bearing note payable with a face value of $24,000 and a stated interest rate of 8% to Metropolitan Bank on August 1, Year 1. The note carried a one-year term. -Based on this information alone,what is the amount of total liabilities appearing on Madison's balance sheet as of December 31,Year 1?