Financial and Managerial Accounting Charles T. Horngren 3rd Edition Test Bank

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Financial and Managerial Accounting Charles T. Horngren 3rd Edition Test Bank

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Financial and Managerial Accounting, 3e (Horngren)
Chapter 10 Current Liabilities and Payroll

Learning Objective 10-1

1) If an installment note payable has installments due within a year, the entire note is treated as a current liability.
Answer: FALSE
Diff: 1
LO: 10-1
EOC: E10-9
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

2) Amounts owed for products or services purchased on account are contingent liabilities.
Answer: FALSE
Diff: 1
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3) Unearned revenue is an obligation to provide goods or services to the customer.
Answer: TRUE
Diff: 1
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

4) Notes payable are considered short-term if they are due within the current operating cycle.
Answer: TRUE
Diff: 1
LO: 10-1
EOC: E10-9
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

5) An accrued expense is an expense that has been incurred, but has not yet been paid.
Answer: TRUE
Diff: 1
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

6) When a note is payable in installments, the installments must be separately recorded in two different accounts-Short-term notes payable and Long-term notes payable-depending on the due dates of the installments.
Answer: TRUE
Diff: 2
LO: 10-1
EOC: E10-8
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

7) Which of the following is an amount for products or services purchased on account?
A) Accounts payable
B) Unearned revenue
C) Accrued expense
D) Estimated warranty payable
Answer: A
Diff: 1
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

8) Which of the following is a characteristic of a current liability?
A) A current liability is a liability that is due within 30 days.
B) A current liability is a liability that is due within one year or one operating cycle, whichever is longer.
C) A current liability is a liability that is due within 10 days.
D) A current liability is a liability that is due in longer than a one-year period, or one operating cycle.
Answer: B
Diff: 1
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
9) Which of the following occurs when a company records accrued interest expense on a note payable?
A) Interest expense is credited.
B) Note payable is credited.
C) Cash is debited.
D) Interest payable is credited.
Answer: D
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

10) Which of the following correctly describes the unearned revenue account?
A) The unearned revenue account represents revenue that has been collected, but not yet earned.
B) The unearned revenue account represents revenue that has been earned and collected.
C) The unearned revenue account represents revenue that has been earned, but not yet collected.
D) The unearned revenue account represents revenue that has neither been earned nor collected.
Answer: A
Diff: 1
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

11) Which of the following is a liability created when a company receives cash for services to be provided in the future?
A) Unearned revenue
B) Accrued liability
C) Service revenue
D) Estimated warranty payable
Answer: A
Diff: 2
LO: 10-1
EOC: P10-15A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
12) Sales revenue for a sporting goods store amounted to $215,000 for the current period. All sales are on account and are subject to a sales tax of 7%. Which of the following would be included in the journal entry to record these sales?
A) A debit to Sales revenue for $215,000
B) A credit to Accounts receivable for $215,000
C) A debit to Sales tax payable for $15,050
D) A debit to Accounts receivable for $230,050
Answer: D
Explanation: D) Calculation: $215,000 + ($215,000 7%) = $230,050
Diff: 2
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

13) Which of the following would be included in the journal entry to record the payment of accrued sales tax?
A) A debit to Sales tax payable
B) A credit to Sales tax expense
C) A debit to Sales tax expense
D) A credit to Sales tax payable
Answer: A
Diff: 2
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

14) Which of the following correctly describes Interest payable?
A) Interest payable is shown on the balance sheet as a current liability.
B) Interest payable is shown on the income statement as an operating expense.
C) Interest payable is shown on the balance sheet as a current asset.
D) Interest payable is shown on the balance sheet as a long-term liability.
Answer: A
Diff: 1
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
15) Where does Unearned subscription revenue appear on the balance sheet?
A) Long-term investments
B) Current liabilities or long-term liabilities
C) Current assets or long-term investments
D) Long-term assets
Answer: B
Diff: 1
LO: 10-1
EOC: P10-15A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

16) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of accrued interest on December 31, 2015?
A) $200
B) $267
C) $133
D) $800
Answer: B
Explanation: B) Calculation: $20,000 8% 2/12 = $267
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

17) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of interest expense recorded in the year 2016?
A) $800
B) $133
C) $200
D) $267
Answer: B
Explanation: B) Calculation: $20,000 8% 1/12= $133
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
18) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. Which of the following would be included in the journal entry required on the notes maturity date?
A) A credit to Note payable for $20,400
B) A credit to Cash for $10,000
C) A debit to Interest expense for $133
D) A debit to Interest payable for $133
Answer: C
Diff: 3
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

19) Which of the following is associated with cash received in advance for services to be performed in the future?
A) Accounts payable
B) Estimated warranty payable
C) Accrued expense
D) Unearned revenue
Answer: D
Diff: 1
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

20) Joe signs a $5,000, 8%, 6-month note dated September 1, 2012. What is Joes 2013 interest expense for this note?
A) $133
B) $200
C) $400
D) $67
Answer: D
Explanation: D) Calculation: $5,000 8% 2/12= $67
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
21) ABC Company signed a 5-year note payable for $80,000 at 9% annual interest. What is the interest expense for December 31, 2013 if the note was signed on May 1, 2013?
A) $7,200
B) $4,800
C) $2,400
D) $36,000
Answer: B
Explanation: B) Calculation: $80,000 9% 8/12 = $4,800
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
22) ABC signed a 5-year, 9% note payable for $80,000 on May 1, 2012. Which account will be credited when the note paid at maturity?
A) Note payable
B) Interest expense
C) Interest payable
D) Cash
Answer: D
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

23) The face amount of a promissory note is called the:
A) discount of the note.
B) time of the note.
C) interest rate of the note.
D) principal of the note.
Answer: D
Diff: 1
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
24) The journal entry for accrued interest on a note payable includes:
A) debiting Interest expense and crediting Cash.
B) debiting Interest expense and crediting accrued Interest payable.
C) debiting accrued Interest expense and crediting Cash.
D) crediting accrued Interest expense.
Answer: B
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

25) Face value of a note payable plus total interest is called:
A) maturity value.
B) face value.
C) proceeds.
D) principal.
Answer: A
Diff: 2
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

26) The person who promises to pay a certain amount of money at a specified date in the future is called the:
A) endorser of the note.
B) maker of the note.
C) discounter of the note.
D) payee of the note.
Answer: B
Diff: 1
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
27) RGF Manufacturing recently signed a $200,000, 4-month note on June 22. The interest rate is 5%. How much total interest will be due on the note?
A) $10,000
B) $3,833
C) $3,333
D) $203,780
Answer: C
Explanation: C) Calculation: $200,000 5% 4/12= $3,333
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

28) Archies had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be credited to Sales revenue?
A) $6,758.00
B) $7,231.06
C) $473.06
D) $458.00
Answer: A
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

29) Archies had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be debited to Cash?
A) $6,758.00
B) $7,231.06
C) $473.06
D) $866.06
Answer: B
Explanation: B) Calculation: $6,758 + ($6,758 7%) = $7,231.06
Diff: 2
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
30) Carter Company records sales on account of $950,500. The company operates in a state that imposes a 5% sales tax. Which of the following would be the amount of the sales tax payable to the state?
A) $47,525
B) $50,500
C) $45,000
D) $55,000
Answer: A
Explanation: A) Calculation: $950,500 5%= $47,525
Diff: 2
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

31) On June 20, 2013, Parker Services received $2,400 in advance from a customer for one months service. The journal entry to record the receipt of cash would be which of the following?
A) Debit Unearned service revenue $2,400 and credit Cash $2,400.
B) Debit Cash $2,400 and credit Service revenue $2,400.
C) Debit Unearned service revenue $2,400 and credit Service revenue $2,400.
D) Debit Cash $2,400 and credit Unearned service revenue $2,400.
Answer: D
Diff: 1
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

32) On June 20, 2013, Parker Services received $2,400 in advance from a customer for one months service. The journal entry to adjust the accounts at the end of June would be which of the following?
A) Debit Service revenue $1,600 and credit Unearned service revenue $1,600.
B) Debit Unearned service revenue $800 and credit Service revenue $800.
C) Debit Unearned service revenue $2,400 and credit Service revenue $2,400.
D) Debit Service revenue $800 and credit Accounts receivable $800.
Answer: B
Diff: 2
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

33) Ace Appliances sells dishwashers with a 3-year warranty. In 2012, there are $90,000 of sales revenues for dishwashers. The company estimates warranty expense at 3% of revenues. What is the 2012 warranty expense?
A) $2,700
B) $800
C) $0
D) $3,000
Answer: A
Explanation: A) Calculation: $90,000 3% = $2,700
Diff: 2
LO: 10-1
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

34) Associated Foods had cash sales of $787,000 during the month of August. Sales taxes of 7% were collected on the sales. Prepare an aggregate journal entry to record the sales revenue and sales tax for the month.

Answer:
Cash 842,090
Sales revenue 787,000
Sales tax payable 55,090

Explanation: Calculations: $787,000 + ($787,000 7%) = $842,090

This question is not available in MyAccountingLab.
Diff: 2
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
35) Model Maker sold 6,000 one-year prepaid subscriptions to its monthly magazine for $40 per subscription. The subscription year runs from September to August. What is the December 31 adjusting entry for subscription revenue?

Answer:
Unearned subscription revenue 80,000
Subscription revenue 80,000

Explanation: Calculations: $6,000 $40 4/12 = $80,000

This question is not available in MyAccountingLab.
Diff: 2
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
36) On March 1, 2012, Archer Sales purchases inventory for $200,000 by signing a note payable. The note is for 3 months and bears interest at a rate of 9%. Please provide the journal entry for this transaction.

Answer:
Inventory 200,000
Short-term notes payable 200,000

Explanation: This question is not available in MyAccountingLab.
Diff: 1
LO: 10-1
EOC: E10-9
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
37) On March 1, 2012, Archer Sales purchases inventory for $200,000 by signing a note payable. The note is for 3 months and bears interest at a rate of 9%. Please provide the journal entry at the end of May when the note is settled.

Answer:
Short-term notes payable 200,000
Interest expense 4,500
Cash 204,500

Explanation: Calculations: ($200,000 9%) 3/12 = $4,500

This question is not available in MyAccountingLab.
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

38) On October 1, 2012, Archer Sales borrows $100,000 by signing a note payable. The note is for 6 months and bears interest at a rate of 9%. Please provide the journal entry to accrue interest expense at the end of 2012.

Answer:
Interest expense 2,250
Interest payable 2,250

Explanation: Calculations: ($100,000 9%) 3/12 = $2,250

This question is not available in MyAccountingLab.
Diff: 2
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
39) On October 1, 2012, Archer Sales borrows $100,000 by signing a note payable. The note is for 6 months and bears interest at a rate of 9%. Archer properly accrued interest at the end of 2012. Please provide the journal entry made at the end of March, 2013 when Archer settles the note.

Answer:
Short-term notes payable 100,000
Interest payable 2,250
Interest expense 2,250
Cash 104,500

Explanation: Calculations: $100,000 + ($100,000 9%) 6/12 = $104,500

This question is not available in MyAccountingLab.
Diff: 3
LO: 10-1
EOC: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

40) Barnaby Sales made total cash sales in January of $500,000, and they are subject to a 6% sales tax. Please provide the summary entry to record sales revenues and sales tax payable.

Answer:
Cash 530,000
Sales tax payable 30,000
Sales revenue 500,000

Explanation: Calculations: $500,000 6% = $30,000

This question is not available in MyAccountingLab.
Diff: 2
LO: 10-1
EOC: E10-8
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
41) Charter Services sells a service plan for commercial computer maintenance. The price is $1,200 per year, paid in advance. On December 1, 2013, Charter sells a service plan to a new customer for cash. Please provide the journal entry to record this transaction.

Answer:
Cash 1,200
Unearned service revenue 1,200

Explanation: This question is not available in MyAccountingLab.
Diff: 1
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

42) Charter Services sells a service plan for commercial computer maintenance. The price is $1,200 per year, paid in advance. On December 1, 2013, Charter sells a service plan to a new customer for cash. Please provide the journal entry to record the adjustment needed on December 31, 2013.

Answer:
Unearned service revenue 100
Service revenue 100

Explanation: Calculations: $1,200 1/12 = $100

This question is not available in MyAccountingLab.
Diff: 1
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

Learning Objective 10-2

1) When the likelihood of an actual loss is probable, and the amount can be estimated, it should be recorded as an expense and as a liability.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: S10-3
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2) The entry to estimate warranty payable includes a credit to Warranty expense.
Answer: FALSE
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3) A contingent liability that has a remote possibility of becoming an actual loss is included in a note to the financial statements.
Answer: FALSE
Diff: 1
LO: 10-2
EOC: S10-3
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

4) A contingent liability that will probably become an actual liability, and can be reasonably estimated, must be recorded as an expense.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: S10-3
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

5) Contingent liabilities sometimes pose an ethical challenge because they are not real liabilities and are easy to overlook.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: S10-3
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

6) Estimated warranty payable would be included in the liability section of the balance sheet.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
7) Estimated warranty payable would be included in the operating expense section of the income statement.
Answer: FALSE
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

8) Warranty expense would be included in the liability section of the balance sheet.
Answer: FALSE
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

9) Warranty expense would be included in the operating expense section of the income statement.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

10) A certain contingent liability was evaluated at year-end, and considered to have a remote possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, this could be considered unethical behavior.
Answer: FALSE
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

11) A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, this could be considered unethical behavior.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
12) A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become an actual liability, and the amount could be reasonably estimated. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, this could be considered unethical behavior.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

13) Which of the following principles requires that warranty expense be recorded in the period that revenue is recorded?
A) Consistency principle
B) Matching principle
C) Revenue principle
D) Materiality concept
Answer: B
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

14) A company has been sued for product failures allegedly resulting in injuries to the individuals bringing the lawsuit. The companys lawyers believe it is more than remote, but less than probable, that the lawsuit will result in an actual liability. Which of the following actions should be taken by the companys management?
A) The liability should be estimated and recorded as an expense.
B) The situation should be described in a note to the financial statements.
C) The possible liability should be ignored.
D) Management should consider resigning.
Answer: B
Diff: 2
LO: 10-2
EOC: S10-3
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
15) A restaurant has been sued because a customer claims to have found a bug in her chili. The companys lawyers believe there is only a remote possibility that the lawsuit will result in an actual liability. Which of the following actions should be taken by the companys management?
A) The situation should be described in a note to the financial statements.
B) The possible liability should be ignored.
C) The liability should be estimated and recorded as an expense.
D) Management should consider resigning.
Answer: B
Diff: 2
LO: 10-2
EOC: S10-3
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

16) Which of the following is TRUE of a contingent liability?
A) It is a potential liability that depends on a future event.
B) It is an actual liability that is difficult to estimate.
C) It is an actual liability that depends on a past event.
D) It is a liability resulting from a lawsuit settled in court.
Answer: A
Diff: 1
LO: 10-2
EOC: S10-3
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

17) Ace Appliances sells dishwashers with a 3-year warranty. In 2013, there are $90,000 of sales revenues for dishwashers. The company estimates warranty expense at 3% of revenues. What is the total estimated warranty payable for Ace regarding the sales in 2013?
A) $2,700
B) $600
C) $1,400
D) $3,000
Answer: A
Explanation: A) Calculation: $90,000 3% = $2,700
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
18) Ace Appliances sells dishwashers with a 3-year warranty. In 2013, there are $90,000 of sales revenues for dishwashers. The company estimates warranty expense at 3% of revenues. What is the 2013 warranty expense?
A) $2,700
B) $800
C) $0
D) $3,000
Answer: A
Explanation: A) Calculation: $90,000 3% = $2,700
Diff: 2
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

19) In which of the following periods should the expense for warranty costs be recorded?
A) The period when the product is sold
B) The period when the product is repaired or replaced
C) The period when cash is paid to repair or replace the product
D) The period when cash is collected for the sale of the product
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

20) Which of the following accounting principles requires that warranty expenses must be estimated and recognized in the same period as the related sales revenue is recognized?
A) The matching principle
B) The full disclosure principle
C) The revenue recognition principle
D) The conservatism principle
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
21) Booker Company reported sales revenue for 2013 of $800,000. The products were sold with a six-month warranty. Members of Bookers management estimate the cost of the warranty will be equal to 3% of sales revenue. Which of the following is included in the entry to record the actual amounts paid out as a result of warranty claims?
A) A debit to Estimated warranty payable for the actual amount of payments
B) A credit to Estimated warranty payable for $24,000
C) A debit to Estimated warranty payable for $24,000
D) A debit to Warranty expense for the actual amount of payments
Answer: A
Diff: 2
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

22) Which of the following is included in the entry to record warranty expense?
A) A debit to Warranty expense
B) A credit to Inventory
C) A credit to Warranty expense
D) A debit to Estimated warranty payable
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

23) Which of the following is included in the entry to record estimated warranty payable?
A) A credit to Estimated warranty payable
B) A credit to Inventory
C) A credit to Warranty expense
D) A debit to Estimated warranty payable
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
24) In which of the following periods should the estimated warranty liability be debited?
A) The period when cash is paid to repair or replace the product
B) The period when the product is sold
C) The period when cash is collected for the sale of the product
D) The period when the product is shipped to the customer
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

25) Which of the following is NOT an exact liability?
A) FICA tax payable
B) Income tax payable
C) Warranty payable
D) Accounts payable
Answer: C
Diff: 1
LO: 10-2
EOC: S10-3
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

26) Which of the following is the proper treatment for a liability that exists, but the exact amount of which is not known?
A) The liability should be treated as a contingent liability.
B) The amount of the liability should be estimated and recorded.
C) The liability should be ignored.
D) The liability should be reported in the notes to the financial statements.
Answer: B
Diff: 2
LO: 10-2
EOC: P10-15A
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
27) A pending lawsuit which might result in a liability is considered a(n):
A) contingent liability.
B) current liability.
C) legal liability.
D) unearned revenue.
Answer: A
Diff: 1
LO: 10-2
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

28) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Which of the following is the entry needed to record the estimated warranty expense?
A)
Estimated warranty payable 7,500
Cash 7,500
B)
Warranty expense 7,500
Estimated warranty payable 7,500
C)
Warranty expense 10,000
Estimated warranty payable 10,000
D)
Warranty expense 10,000
Sales revenue 10,000

Answer: C
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
29) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Which of the following is the entry needed to record the disbursement of warranty payments?
A)
Estimated warranty payable 7,500
Cash 7,500
B)
Warranty expense 7,500
Estimated warranty payable 7,500
C)
Warranty expense 10,000
Estimated warranty payable 10,000
D)
Warranty expense 10,000
Sales revenue 10,000

Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

30) Arc Digital starts the year with balances in its Estimated warranty payable account and Warranty expense account as shown below. During the year, there were $190,000 of sales and $3,200 of warranty repair payments. Arc Digital estimates warranty expense at 1.5% of sales.

At the end of the year, what was the balance in the Warranty expense account?
A) $2,850 debit
B) $1,250 credit
C) $3,200 debit
D) $1,420 debit
Answer: A
Explanation: A) Calculations: $190,000 1.5% = $2,850
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
31) Arc Digital starts the year with balances in its Estimated warranty payable account, and Warranty expense account as shown below. During the year, there were $190,000 of sales and $3,200 of warranty repair payments. Arc Digital estimates warranty expense at 1.5% of sales.

At the end of the year, what was the balance in the Estimated warranty payable account?
A) $2,850 debit
B) $1,050 credit
C) $3,200 debit
D) $1,420 debit
Answer: B
Explanation: B) Calculations: $1,400 + $2,850 $3,200 = $1,050
Diff: 2
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

32) Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% of sales. At the beginning of 2013, the Estimated warranty payable account had a credit balance of $900. During the year, Tractor World had $285,000 of sales, and had to pay out $5,100 in warranty payments. At the end of the year, how much warranty expense was reported on the income statement?
A) $2,640
B) $5,100
C) $4,200
D) $6,840
Answer: D
Explanation: D) Calculations: $285,000 .024 = $6,840
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
33) Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% of sales. At the beginning of 2013, the Estimated warranty payable account had a credit balance of $900. During the year, Tractor World had $285,000 of sales, and had to pay out $5,100 in warranty payments. At the end of the year, what balance in Estimated warranty payable would be included in the balance sheet?
A) $2,640
B) $5,100
C) $4,200
D) $6,840
Answer: A
Explanation: A) Calculations: $900 + $6,840 $5,100 = $2,640
Diff: 2
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

34) A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would this have on the financial reporting of the company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
Answer: C
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

35) A certain contingent liability was evaluated at year-end, and considered to have a remote possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would this have on the financial reporting of the company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
36) A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become an actual liability, and the amount could be reasonably estimated. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would it have on the financial reporting of the company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
Answer: B
Diff: 1
LO: 10-2
EOC: E10-12
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

37) Southwest Companys records indicate that February sales on account were $111,000. The companys management estimates the liability for warranties to be 4.0% of sales. Please provide the journal entry to record warranty expense.

Answer:
Warranty expense 4,440
Estimated warranty payable 4,440

Explanation: This question is not available in MyAccountingLab.
Diff: 2
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

38) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Please provide the journal entry to record the warranty expense.

Answer:
Warranty expense 10,000
Estimated warranty payable 10,000

Explanation: This question is not available in MyAccountingLab.
Diff: 2
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

39) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Please provide the journal entry to record the disbursement of warranty payments.

Answer:
Estimated warranty payable 7,500
Cash 7,500

Explanation: This question is not available in MyAccountingLab.
Diff: 2
LO: 10-2
EOC: E10-12
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

Learning Objective 10-3

1) Gross pay is the total amount of salary, wages, commissions, and bonuses earned by an employee during a pay period.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

2) The old age, survivors, and disability insurance portion of FICA taxes is imposed on all of an individual employees earnings.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3) Payroll tax expense includes the employers portion of FICA taxes, state unemployment taxes, and federal unemployment taxes.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

4) State and federal unemployment taxes are withheld from each employees paycheck.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

5) FUTA (federal unemployment compensation) tax is paid by the employee and deducted from gross pay.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

6) SUTA (state unemployment compensation) tax is paid by the employee and deducted from gross pay.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
7) SUTA (state unemployment compensation) tax is paid by the employer only and is not deducted from gross pay.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

8) FUTA (federal unemployment compensation) tax is paid by the employer only and is not deducted from gross pay.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

9) FICA tax is paid by the employer only and is not deducted from gross pay.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

10) FICA tax is paid by both the employer and the employee.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

11) Gross pay is the total amount of compensation earned by an employee, before any deductions are made.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
12) Net pay is the total amount of compensation earned by an employee, before any deductions are made.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

13) Federal unemployment tax is a tax expense that is borne by the employer alone, and is not deducted from the employees pay.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-18
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

14) Employer FICA is a tax expense that is paid out by the employer and recorded as a payroll tax expense.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-18
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

15) FICA tax is a tax which is paid both by the employer and the employee in equal amounts.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-18
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

16) FICA tax is a tax which is paid by the employer only and is not deducted from the employees pay.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-18
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
17) FICA tax is a tax which is paid by the employee only.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-18
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

18) Which of the following is paid by the employee only?
A) FICA
B) FUTA
C) Employee income tax
D) State unemployment tax
Answer: C
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

19) Which of the following is paid by both the employee and the employer?
A) FICA
B) FUTA
C) Employee income tax
D) State unemployment tax
Answer: A
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

20) Sue works 46 hours at her job during the week. She is paid $13.30/hour and receives overtime at the rate of time-and-one-half for hours worked over forty. What is Sues gross pay for the week?
A) $611.80
B) $917.70
C) $651.70
D) Some other amount
Answer: C
Explanation: C) Calculation: (40 $13.30) + (6 $13.30 1.5) = $651.70
Diff: 2
LO: 10-3
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
21) Sue works 46 hours at her job during the week. She is paid $13.30/hour and receives overtime at the rate of time-and-one-half for hours worked over forty. Sue is taxed for federal income taxes at 15% and 7.65% for OASDI and Medicare. All of her income is taxable. What is Sues net pay?
A) $651.70
B) $147.61
C) $504.08
D) $532.00
Answer: C
Explanation: C) Calculation: $651.70 ($651.70 15%) ($651.70 7.65%) = $504.08
Diff: 3
LO: 10-3
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

22) Which of the following are NOT required to be deducted from employees paychecks?
A) Federal income tax
B) FICA
C) State income tax
D) Charitable contributions
Answer: D
Diff: 2
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
23) For which of the following taxes is there a ceiling on the amount of annual earnings subject to the tax?
A) FICA
B) Medicare
C) Federal income tax
D) State income tax
Answer: A
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
24) Which of the following taxes does NOT have a limit on the amount of tax paid per individual?
A) Federal income taxes
B) FICA taxes
C) Federal unemployment taxes
D) State unemployment taxes
Answer: A
Diff: 1
LO: 10-3
EOC: S10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

25) Which of the following is NOT an expense of the employer?
A) State unemployment taxes
B) FICA taxesemployers portion
C) Employee income taxes
D) Federal unemployment taxes
Answer: C
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

26) Which of the following is pay over and above base salary, usually paid for exceptional performance?
A) Commissions
B) Benefits
C) Wages
D) Bonuses
Answer: D
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

27) Which of the following is pay stated as a percentage of a sale amount?
A) Bonuses
B) Benefits
C) Wages
D) Commissions
Answer: D
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

28) Which of the following are deducted in arriving at an employees net pay?
A) Federal income taxes
B) FICA taxesemployers portion
C) Federal unemployment taxes
D) State unemployment taxes
Answer: A
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

29) Which of the following deductions must be matched by the employer, resulting in both a deduction from gross pay and an expense to the employer?
A) Federal income taxes
B) Federal unemployment taxes
C) FICA taxes
D) Charitable deductions
Answer: C
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
30) Which of the following are pay amounts stated at an hourly rate?
A) Bonuses
B) Commissions
C) Wages
D) Benefits
Answer: C
Diff: 1
LO: 10-3
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

31) Toms gross pay for the week is $800. Toms deduction for federal income tax is based on a rate of 18%. Tom has no voluntary deductions. Toms yearly pay is under the limit for OASDI. What is the amount of Toms net pay?
A) $594.80
B) $738.80
C) $656.00
D) $533.60
Answer: A
Explanation: A) Calculations: $800.00 ($800 .0765) ($800 .18) = $594.80
Diff: 2
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

32) Marys gross pay for the week is $1,000. Marys deduction for federal income tax is based on a rate of 20%. Mary has voluntary deductions of $150. Her yearly pay is under the limit for OASDI. What is the amount of her net pay?
A) $594.80
B) $773.50
C) $650.00
D) $573.50
Answer: D
Explanation: D) Calculations: $1,000.00 ($1,000 .0765) ($1,000 .20) $150 = $573.50
Diff: 2
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
33) Toms gross pay for the week is $800. Toms deduction for federal income tax is based on a rate of 18%. Tom has no voluntary deductions. Toms yearly pay is under the limit for OASDI. What is the amount of FICA withheld from Toms pay?
A) $67.80
B) $61.20
C) $65.00
D) $533.60
Answer: B
Explanation: B) Calculations: $800 .0765 = $61.20
Diff: 1
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

34) Marys gross pay for the week is $1,000. Marys deduction for federal income tax is based on a rate of 20%. Mary has voluntary deductions of $150. Her yearly pay is under the limit for OASDI. What is the amount of FICA deducted from her pay?
A) $59.80
B) $76.50
C) $65.00
D) $153.00
Answer: B
Explanation: B) Calculations: $1,000 .0765 = $76.50
Diff: 1
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

35) Toms gross pay for this month is $8,150. His gross pay year-to-date, prior to this month, totaled $101,000. What is the amount of FICA withheld from Toms pay for this month?
A) $623.48
B) $359.60
C) $477.78
D) $118.18
Answer: C
Explanation: C) Calculations: $106,800 $101,000 = $5,800
($5,800 6.20%) + ($8,150 1.45 %) = $477.78
Diff: 3
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
36) Toms gross pay for this month is $8,150. His gross pay year-to-date, prior to this month totaled $101,000. Toms rate for federal income tax is 24%. His voluntary deductions total $900. What is the amount of Toms net pay?
A) $4,816.22
B) $5,716.00
C) $4,670.52
D) $4,290.65
Answer: A
Explanation: A) Calculations: $8,150 $477.78 ($8,150 24%) $900 = $4,816.22
Diff: 3
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

37) Toms gross pay for the week is $800. Toms deduction for federal income tax is based on a rate of 18%. Tom has no voluntary deductions. Toms yearly pay is under the limit for OASDI. How much is the amount of FICA tax that Toms employer must record as payroll tax expense and pay to Social Security?
A) $68.00
B) $61.20
C) $122,40
D) $144.00
Answer: B
Explanation: B) Calculations: $800 7.65% = $61.20
Diff: 1
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

38) Toms gross pay for the week is $800. Toms yearly pay is under the limit for OASDI. Assume that the rate for state and federal unemployment compensation taxes is 6.2% and that Toms pay year-to-date has not yet exceeded the $7,000 cap. How much is the amount of state and federal unemployment tax that Toms employer must record as payroll tax expense and pay to the federal and state governments?
A) $61.20
B) $38.80
C) $99.20
D) $49.60
Answer: D
Explanation: D) Calculations: $800 6.2% = $49.60
Diff: 1
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
39) Toms gross pay for the week is $800. Toms yearly pay is under the limit for OASDI. Assume that the rate for state and federal unemployment compensation taxes is 6.2% and that Toms pay year-to-date has previously exceeded the $7,000 cap. How much is the amount of state and federal unemployment tax that Toms employer must record as payroll tax expense and pay to the federal and state governments?
A) $0
B) $38.80
C) $99.20
D) $49.60
Answer: A
Diff: 1
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

40) Toms gross pay for the week is $800. Toms yearly pay is under the limit for OASDI. Assume that the rate for state and federal unemployment compensation taxes is 6.2% and that Toms pay year-to-date has not yet exceeded the $7,000 cap. How much is the total amount of payroll taxes that Toms employer must record as payroll tax expenses?
A) $61.20
B) $38.80
C) $110.80
D) $49.60
Answer: C
Explanation: C) Calculations: ($800 7.65%) + ($800 6.2%) = $110.80
Diff: 2
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

41) Toms gross pay for the week is $800. Toms yearly pay is under the limit for OASDI. Assume that the rate for state and federal unemployment compensation taxes is 6.2% and that Toms pay year-to-date has previously exceeded the $7,000 cap. How much is the total amount of payroll taxes that Toms employer must record as payroll tax expenses?
A) $61.20
B) $38.80
C) $110.80
D) $49.60
Answer: A
Explanation: A) Calculations: ($800 7.65%) = $61.20
Diff: 2
LO: 10-3
EOC: E10-18
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
Learning Objective 10-4

1) The Statewide Sales Company has gross pay for March of $45,000. The first journal entry in the payroll cycle to record salary expense would include a credit to Cash for $45,000.
Answer: FALSE
Diff: 1
LO: 10-4
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

2) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%.

Art has a deduction of $320 for health insurance and $80 for United Way. The second entry in the payroll cycle to record the disbursement of his net pay should include a credit to cash for $2,574.
Answer: TRUE
Explanation: Calculations:
$4,000 18% = $720
$4,000 7.65% = $306
$4,000 $720 $306 $320 $80 = $2,574
Diff: 3
LO: 10-4
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

3) Art Parrish is the sole employee of Parrish Sales. His company pays a portion of his health insurance premium, and also contributes to a retirement plan in his name. The company share of the health insurance premium is $400 and the company contribution to the retirement plan is $550. The third journal entry in the payroll cycle to record the employee benefits to be paid by the company should include a credit to cash for $950.
Answer: FALSE
Diff: 2
LO: 10-4
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
4) Art Parrish is the sole employee of Parrish Sales. His company pays a portion of his health insurance premium, and also contributes to a retirement plan in his name. The company share of the health insurance premium is $400 and the company contribution to the retirement plan is $550. The third journal entry in the payroll cycle to record the employee benefits paid by the company should include a credit to Employee benefits payable for $950.
Answer: TRUE
Diff: 2
LO: 10-4
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

5) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. The fifth journal entry in the payroll cycle to record the payment by the company of payroll taxes to the government includes a debit to FICA payable of $306.
Answer: FALSE
Explanation: Calculations: $4,000 7.65% 2 = $612
Diff: 3
LO: 10-4
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

6) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. The fifth journal entry in the payroll cycle to record the payment by the company of payroll taxes to the government includes a debit to FICA payable of $612.
Answer: TRUE
Explanation: Calculations: $4,000 7.65% 2 = $612
Diff: 3
LO: 10-4
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

7) Parrish Sales withholds $720 from Art Parrishs paycheck for federal income tax. This amount is part of the companys payroll tax expense.
Answer: FALSE
Diff: 2
LO: 10-4
EOC: E10-13
AACSB: Reflective Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
8) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. The total amount of FICA that the company pays to the government on Art Parrishs behalf is $612.
Answer: TRUE
Explanation: Calculations: $4,000 7.65% 2 = $612
Diff: 2
LO: 10-4
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

9) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. The total amount of FICA that will be recorded as company expense totals $612.
Answer: FALSE
Explanation: Calculations: $4,000 7.65% = $306
Diff: 2
LO: 10-4
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

10) Ensuring efficiency of the payroll process is one of the two key controls for payroll.
Answer: TRUE
Diff: 1
LO: 10-4
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

11) Internal controls over payroll focus on operational efficiency and safeguarding of payroll disbursements.
Answer: TRUE
Diff: 1
LO: 10-4
EOC: E10-13
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
12) Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2012, Dans gross pay was $4,400 and Pats gross pay was $5,200. All earnings are subject to FICA taxes of 7.65%. Which of the following would be included in the entry to record the salary expense for January?
A) A debit to Salary payable to employees for $734.40
B) A debit to FICA tax payable for $734.40
C) A credit to FICA tax payable for $734.40
D) A credit to Salary expense for $734.40
Answer: C
Explanation: C) Calculation: ($4,400 + $5,200) 7.65% = $734.40
Diff: 2
LO: 10-4
EOC: E10-13
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting

13) Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2012, Dans gross pay was $4,400 and Pats gross pay was $5,200. All earnings are subject to FICA taxes of 8%. Which of the following would be included in the entry to record the payroll tax expense to be paid out by Lone Star Company for January?
A) A debit to FICA tax payable for $734.40
B) A credit to FICA tax payable for $734.40
C) A credit to Salary expense for $734.40
D) A debit to Salary payable to employees $734.40
Answer: B
Explanation: B) Calculation: ($4,400 + $5,200) 7.65% = $734.40
Diff: 2
LO: 10-4
EOC: E10-13
AACSB: Analytic

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