Test Bank Accounting 25th Editon Warren Chapter 11 Current Liabili PDF

Chapter 11--Current Liabilities and Payroll
Student: ___________________________________________________________________________
1. Receiving payment prior to delivering goods or services causes a current liability to be incurred.
True False
2. For a current liability to exist, the following two tests must be met. The liability must be due usually within
a year and must be paid out of current assets.
True False
3. All long-term liabilities eventually become current liabilities.

True False
4. The borrower is the one who issues a note payable to a creditor.

True False
5. Notes payable may be issued to creditors to satisfy accounts payable created earlier.
True False
6. Interest expense is reported in the operating expense section of the income statement.
True False
7. A loan in which the lender deducts interest from the amount borrowed before the money is advanced to the
borrower is called an interest bearing note.
True False
8. For an interest bearing note payable, the amount borrowed is equal to the face amount of the note.
True False
9. The amount of money a borrower receives from the lender is called discount rate.
True False
10. The proceeds of a discounted note are equal to the face value of the note.
True False
11. The discount on a note payable is charged to an account that has a normal credit balance.
True False
12. The proceeds from discounting a $20,000, 60-day, note payable at 6% is $20,200.
True False
13. Amounts withheld from each employee for Social Security and Medicare varies by state.
True False
14. Form W-4 is a form authorizing employers to withhold a portion of employee earnings for payment of an
employee’s federal income taxes.
True False
15. Form W-2 is called the Wage and Tax Statement.

True False
16. If, prior to the last weekly payroll period of the calendar year, the cumulative earnings for an employee are
$98,800, earnings subject to social security tax are $100,000, and the tax rate is 6.0%, the employer's social
security tax on the $2,000 gross earnings paid on the last day of the year is $120.
True False
17. An employee's take home pay is equal to gross pay less all voluntary deductions.
True False
18. Taxes deducted from an employee's earnings to finance social security and Medicare benefits are called
FICA taxes.
True False
19. Generally, all deductions made from an employee's gross pay are required by law.
True False
20. Payroll taxes are based on the employee's net pay.

True False
21. Most employers are required to withhold federal unemployment taxes from employee earnings.
True False
22. FICA tax is a payroll tax that is paid only by employers.

True False
23. Medicare taxes are withheld from an employee's pay only until the employee has earned a specific amount
each year.
True False
24. Medicare taxes are paid by both the employee and the employer.
True False
25. Federal unemployment taxes are paid by the employer and the employee.
True False
26. Federal unemployment compensation taxes that are collected by the federal government are not paid
directly to the unemployed but are allocated among the states for use in state programs.
True False
27. Like many taxes deducted from employee earnings, federal income taxes are subject to a maximum amount
per employee per year.
True False
28. Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid.
True False
29. FICA tax becomes a liability to the federal government at the time an employee's payroll is prepared.
True False
30. Payroll taxes only include social security taxes and federal unemployment and state unemployment taxes.
True False
31. Federal income taxes withheld increase the employer's payroll tax expense.
True False
32. The use of a separate payroll bank account is not an advantageous control, because it creates more
complexity in reconciliation functions for a company and invites theft.
True False
33. Employers are required to compute and report payroll taxes on a calendar-year basis, even if a different
fiscal year is used for financial reporting and income tax purposes.
True False
34. Payroll taxes levied against employers become an employer liability at the time the employee wages are
incurred.
True False
35. For paying their payroll, most employers use payroll checks drawn on a special bank account.
True False
36. The payroll register is a multicolumn form used to assemble the data related for all employees.
True False
37. The total net pay for a period is determined from the payroll register.
True False
38. Internal controls for cash payments also apply to payrolls.

True False
39. While separation of duties may play a strong role in the internal control of inventory, it is not significant in
controlling payroll.
True False
40. For proper matching of revenues and expenses, the estimated cost of fringe benefits must be recognized as
an expense of the period during which the employee earns the benefits.
True False
41. Depending upon when an unfunded pension liability is to be paid, it will be classified on the balance sheet
as either a long-term or a current liability.
True False
42. During the first year of operations, employees earned vacation pay of $35,000. The vacations will be taken
during the second year. The vacation pay expense should be recorded in the second year as the vacations are
taken by the employees.
True False
43. One of the more popular defined contribution plans is the 401k plan.
True False
44. A defined contribution plan promises employees a fixed annual pension benefit.
True False
45. In a defined benefits plan, the employer bears the investment risks in funding a future retirement income
benefit.
True False
46. The accounting for defined benefit plans is usually very easy and straight forward.
True False
47. During the first year of operations, a company granted warranties on its products. The estimated cost of the
product warranty liability at the end of the year is $8,500. The product warranty expense of $8,500 should be
recorded in the years of the expenditures to repair the products covered by the warranty payments.
True False
48. Obligations that depend on past events and that are based on future possible events are contingent
liabilities.
True False
49. In order to be a recorded contingent liability, the liability must be possible and easily estimated.
True False
50. The journal entry to record the cost of warranty repairs that were incurred during the current period, but
related to sales made in prior years, includes a debit to Warranty Expense.
True False
51. Current liabilities are

A. due, but not receivable for more than one year
B. due, but not payable for more than one year
C. due and receivable within one year
D. due and payable within one year
52. Notes may be issued

A. when assets are purchased
B. to creditor's to temporarily satisfy an account payable created earlier
C. when borrowing money
D. all of the above
53. On June 8, Alton Co. issued an $95,000, 6%, 120-day note payable to Seller Co. What is the due date of
the note?
A. October 8
B. October 7
C. October 6
D. October 5
54. On June 8, Alton Co. issued an $90,000, 6%, 120-day note payable to Seller Co. Assuming a 360-day year
for your calculations, what is the maturity value of the note?
A. $90,450
B. $90,000
C. $91,800
D. $95,400
55. On July 8, Alton Co. issued an $80,000, 6%, 120-day note payable to Seller Co. Assume that the fiscal year
of Alton Co. ends July 31. Using the 360-day year in your calculations, what is the amount of interest expense
recognized by Alton in the current fiscal year?
A. $1,200.00
B. $106.67
C. $306.67
D. $400.00
56. On June 8, Alton Co. issued an $80,000, 6%, 120-day note payable to Seller Co. Assume that the fiscal
year of Seller Co. ends June 30. Using the 360-day year in your calculations, what is the amount of interest
revenue recognized by Seller in the following year?
A. $1,200.00
B. $1,208.89
C. $1,306.67
D. $1,600.00
57. On June 8, Alton Co. issued an $80,000, 6%, 120-day note payable on an overdue account payable to Seller
Co. Assume that the fiscal year of Alton Co. ends June 30. Which of the following relationships is true?
A. Alton is the creditor and credits Accounts Receivable
B. Seller is the creditor and debits Accounts Receivable
C. Seller is the borrower and credits Accounts Payable
D. Alton is the borrower and debits Accounts Payable
58. A business borrowed $40,000 on March 1 of the current year by signing a 60-day, 9% interest bearing
note. Assuming a 360-day year, when the note is paid on April 30, the entry to record the payment should
include a
A. debit to Interest Payable $600
B. debit to Interest Expense $600
C. credit to Cash for $40,000
D. credit to Cash for $46,300
59. When a borrower receives the face amount of a discounted note less discount, this amount is known as:
A. the note proceeds
B. the note discount
C. the note deferred interest
D. the note principal
60. Assuming a 360-day year, the interest charged by the bank, at the rate of 9%, on a 90-day, discounted note
payable of $100,000 is
A. $9,000
B. $2,250
C. $750
D. $1,000
61. Assuming a 360-day year, when a $40,000, 90-day, 9% interest-bearing note payable matures, total payment
will amount to:
A. $40,900
B. $43,600
C. $900
D. $3,600
62. Assuming a 360-day year, proceeds of $48,750 were received from discounting a $50,000, 90-day note at a
bank. The discount rate used by the bank in computing the proceeds was
A. 6.25%
B. 10.00%
C. 10.26%
D. 9.75%
63. Mobile Co. issued a $45,000, 60-day, discounted note to Guarantee Bank. The discount rate is 6%. At
maturity, assuming a 360-day year, the borrower will pay:
A. $45,450
B. $42,300
C. $45,000
D. $44,550
64. Chang Co. issued a $50,000, 120-day, discounted note to Guarantee Bank. The discount rate is
6%. Assuming a 360-day year, the cash proceeds to Chang Co. are
A. $49,750
B. $47,000
C. $49,000
D. $51,000
65. The journal entry a company uses to record the issuance of a note for the purpose of converting an existing
account payable would be
A. debit Cash; credit Accounts Payable
B. debit Accounts, Payable; credit Cash
C. debit Cash; credit Notes Payable
D. debit Accounts Payable; credit Notes Payable
66. The journal entry a company uses to record the issuance of an interest-bearing note for the purpose of
borrowing funds for the business is
A. debit Accounts Payable; credit Notes Payable
B. debit Cash; credit Notes Payable
C. debit Notes Payable; credit Cash
D. debit Cash and Interest Expense; credit Notes Payable
67. The journal entry a company uses to record the issuance of a discounted note for the purpose of borrowing
funds for the business is
A. debit Cash and Interest Expense; credit Notes Payable
B. debit Cash and Interest Payable; credit Notes Payable
C. debit Accounts Payable; credit Notes Payable
D. debit Notes Payable; credit Cash
68. The journal entry a company uses to record the payment of a discounted note is
A. debit Notes Payable and Interest Expense; credit Cash
B. debit Notes Payable; credit Cash
D. debit Accounts Payable; credit Cash
69. The journal entry a company uses to record the payment of an interest-bearing note is
A. debit Cash; credit Notes Payable
B. debit Accounts Payable; credit Cash
C. debit Notes Payable and Interest Expense; credit Cash
D. debit Notes Payable and Interest Receivable; credit Cash
70. A current liability is a debt that is reasonably expected to be paid

A. between 6 months and 18 months.
B. out of currently recognized revenues.
C. within one year.
D. out of cash currently on hand.
71. Grayson Bank agrees to lend the Trust Company $120,000 on January 1. Trust Company signs a $120,000,
8%, 9-month note. The entry made by Trust Company on January 1 to record the proceeds and issuance of the
note is:
A. Interest Expense 9,600

Cash 110,400
Notes Payable 120,000
B. Cash 120,000
C. Cash 129,600
Interest Expense 9,600
D. Notes Payable 120,000

Interest Payable 7,200
Cash 120,000
72. The journal entry to record the conversion of an $4,700 accounts payable to a notes payable would be:
A. Cash 4,700
Notes Payable 4,700
B. Notes Receivable 4,700

Notes Payable 4,700
C. Notes Payable 4,700

Cash 4,700
D. Accounts Payable 4,700

Notes Payable 4,700
73. Current liabilities are:

A. due and receivable within one year.
B. due and to be paid out of current assets within one year.
C. due, but not payable for more than one year.
D. payable if a possible subsequent event occurs.
74. Which of the following would most likely be classified as a current liability?
A. Two-year Notes Payable
B. Bonds Payable
C. Mortgage Payable
D. Unearned Rent
will amount to:
A. $31,500
B. $1,500
C. $30,375
D. $375
76. The current portion of long-term debt should

A. be classified as a long-term liability.
B. not be separated from the long-term portion of debt.
C. be paid immediately.
D. be reclassified as a current liability.
77. On January 5, 2014, Garrett Company, a calendar-year company, issued $1,000,000 of notes payable, of
which $200,000 is due on January 1 for each of the next five years. The proper balance sheet presentation on
December 31, 2014, is
A. Current Liabilities, $1,000,000.
B. Current Liabilities, $200,000; Long-term Debt, $800,000.
C. Long-term Debt, $1,000,000
D. Current Liabilities, $800,000; Long-term Debt, $200,000.
78. On October 30, Seba Salon, Inc. issued a 90-day note with a face amount of $60,000 to Reyes Products, Inc.
for merchandise inventory. Assuming a 360-day year, determine the proceeds of the note assuming the note is
discounted at 8%.
A. $55,200
B. $64,800
C. $58,800
D. $61,200
79. Proper payroll accounting methods are important for a business for all the reasons below except
A. good employee morale requires timely and accurate payroll payments.
B. payroll is subject to various federal and state regulations.
C. to help a business with cash flow problems by delayed payments of payroll taxes to federal and state
agencies.
D. payroll and related payroll taxes have a significant effect on the net income of most businesses.
80. The amount of federal income taxes withheld from an employee's gross pay is recorded as a(n)
A. payroll expense
B. contra account
C. asset
D. liability
81. Which statement below is not a determinate in calculating the amount of federal income taxes withheld
from an individuals pay?
A. filing status
B. types of earnings
C. gross pay
D. number of exemptions
82. Which of the following would be used to compute the federal income taxes to be withheld from an
employee's earnings?
A. FICA tax rate
B. wage and tax statement
C. FUTA tax rate
D. wage bracket and withholding table
83. Which of the following taxes would be deducted in determining an employee's net pay?
A. FUTA taxes
B. SUTA taxes
C. FICA taxes
D. all of the above
84. For which of the following taxes is there no ceiling on the amount of employee annual earnings subject to
the tax?
A. only Social Security tax
B. only Medicare tax
C. only unemployment compensation tax
D. none of the above
85. Most employers are required to withhold from employees which of the following employment taxes?
A. FICA tax
B. FICA tax, state and federal unemployment compensation tax
C. only state unemployment compensation tax
D. only federal unemployment compensation tax
86. An employee receives an hourly rate of $40, with time and a half for all hours worked in excess of 40 during
a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350;
cumulative earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of
$100,000; and Medicare tax rate, 1.5% on all earnings. What is the gross pay for the employee?
A. $775.00
B. $1,840.00
C. $1,960.00
D. $1,562.60
$100,000; and Medicare tax rate, 1.5% on all earnings. What is the net amount to be paid to the employee?
A. $713.75
B. $935.15
C. $764.75
D. $873.77
88. Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B
are $99,350 and $91,000 respectively. Their earnings for the last completed payroll period of the year are $850
each. The maximum amount of earnings subject to social security tax at 6% is $100,000. All earnings are
subject to Medicare tax of 1.5%. Assuming that the payroll will be paid on December 29, what will be the
employer's total FICA tax for this payroll period on the two salary amounts of $850 each?
A. $127.50
B. $115.50
C. $112.50
D. $0
89. The total earnings of an employee for a payroll period is referred to as

A. take-home pay
B. pay net of taxes
C. net pay
D. gross pay
A. $1,032.00
B. $1,143.00
C. $1,053.60
D. $1,166.40
91. Payroll taxes levied against employees become liabilities

A. the first of the following month
B. when salary is accrued
C. when data is entered in a payroll register
D. at the end of an accounting period
92. The following totals for the month of June were taken from the payroll register of Arcon Company:
Salaries expense $14,000

Social security and Medicare Taxes withheld 1,050
Income Taxes withheld 2,600
Retirement Savings 1,000
The entry to record the payment of net pay would include a

A. debit to Salaries Payable for $14,000
B. Debit to Salaries Payable for $9,350
C. Credit to Salaries Expense for $9,350
D. Credit to Salaries Payable for $9,350
93. Which of the following will have no effect on an employee’s take-home pay?
A. Social security tax
B. Unemployment tax
C. Marital status
D. Number of exemptions claimed
94. Which of the following are included in the employer's payroll taxes?
A. SUTA taxes
B. FUTA taxes
C. FICA taxes
D. all of the above
95. Which of the following is required to be withheld from employee's gross pay?
A. both federal and state unemployment compensation
B. only federal unemployment compensation tax
C. only federal income tax
D. only state unemployment compensation tax
96. Each year there is a ceiling for the amount that is subject to all of the following except
A. social security tax
B. federal income tax
C. federal unemployment tax
D. state unemployment tax
97. Assuming no employees are subject to ceilings for their earnings, Moore Company has the following
information for the pay period of December 15 - 31, 20xx.
Gross payroll $16,000 Federal income tax withheld $4,000

Social security rate 6% Federal unemployment tax rate .8%
Medicare rate 1.5% State unemployment tax rate 5.4%
Salaries Payable would be recorded for

A. $16,000
B. $ 9,808
C. $10,800
D. $11,040
98. Most employers are levied a tax on payrolls for

A. sales tax
B. medical insurance premiums
C. federal unemployment compensation tax
D. union dues
99. Payroll entries are made with data from the

A. wage and tax statement
B. employee's earning record
C. employer's quarterly federal tax return
D. payroll register
100. Which of the following forms is typically given to employees at the end of the calendar year so that
employees can file their individual income tax forms?
A. Employee’s Withholding Allowance Certificate (W-4)
B. Wage and Tax Statement (Form W-2)
C. Employer's Quarterly Federal Tax Return (Form 941)
D. 401k plans
101. The employee earnings record would contain which column that the payroll register would probably not
contain?
A. deductions
B. payment
C. earnings
D. cumulative earnings
102. The detailed record indicating the data for each employee for each payroll period and the cumulative total
earnings for each employee is called the
A. payroll register
B. payroll check
C. employee's earnings record
D. employer's earnings record
103. An employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40
during the week. Payroll data for the current week are as follows: hours worked, 48; federal income tax
withheld, $120; cumulative earnings for the year prior to this week, $24,500; Social security tax rate, 6% on
maximum of $100,000; and Medicare tax rate, 1.5% on all earnings; state unemployment compensation tax,
3.4% on the first $7,000; federal unemployment compensation tax, .8% on the first $7,000. What is the net
amount to be paid to the employee?
A. $568.74
B. $601.50
C. $660.00
D. $574.90
104. Use the following information to answer the following questions.
The following totals for the month of April were taken from the payroll register of Magnum Company.
Salaries $12,000
FICA taxes withheld 900
Income taxes withheld 2,500
Medical insurance deductions 450
Federal Unemployment Taxes 32
State Unemployment Taxes 216
The journal entry to record the monthly payroll on April 30 would include a
A. credit to Salaries Payable for $8,150
B. debit to Salaries Expense for $7,902
C. debit to Salaries Payable for $8,150
D. debit to Salaries Payable for $7,902
Salaries $12,000
The entry to record accrual of employer’s payroll taxes would include a
A. debit to Payroll Tax Expense for $248
B. debit to FICA Taxes Payable for $1,800
C. credit to Payroll Tax Expense for $248
D. debit to Payroll Tax Expense for $1,148
106. The following totals for the month of April were taken from the payroll register of Magnum Company.
Salaries $10,000
Unemployment Taxes 420

A. debit to Payroll Tax Expense for $1,170
A. $569.87
B. $539.00
C. $625.00
D. $544.88
108. The following totals for the month of June were taken from the payroll register of Young Company:

Social security and 1,125
Medicare Taxes
withheld
Income Taxes 3,000
withheld
Retirement Savings 500
Salaries subject to
federal and state
unemployment taxes of 6.2 percent 4,000
The entry to record the accrual of employer’s payroll taxes would include a
A. debit to Payroll Taxes Expense for $2,498
B. debit to Social Security and Medicare Tax Payable for $2,250
C. debit to Payroll Taxes Expense for $1,373
D. Debit to Payroll Tax Expense for $1,125
Assuming no employees are subject to ceilings for their earnings, Jensen Company has the following
information for the pay period of January 15 - 31, 20xx.

Salaries Payable would be recorded in the amount of:

A. $8,200
B. $6,830
C. $8,630
D. $7,450

Assuming that all wages are subject to federal and state unemployment taxes, the Payroll Taxes Expense would be recorded as:
A. $1,370
B. $750
C. $620
D. $2,870
111. Assume that social security taxes are payable at a 6% rate on the first $100,000 of earnings and Medicare
taxes are payable at a 1.5% rate with no maximum earnings, and that federal and state unemployment
compensation taxes total 4.6% on the first $7,000 of earnings. If an employee, George Jones, earns $2,500 for
the current week and Jones' year-to-date earnings before this week were $6,800, what is the total payroll taxes
related to the current week?
A. $187.50
B. $196.70
C. $344.50
D. $9.20
112. Which of the following is an example of a variable component of a payroll system?

A. hours worked
B. medicare tax rate
C. rate of pay
D. social security number
113. An aid in internal control over payrolls that indicates employee attendance is
A. time card
B. voucher system
C. payroll register
D. employee's earnings record
114. Which of the following is not an internal control procedure for payroll?
A. observe clocking in and out time for the employees
B. payroll depends on a fired employee's supervisor to notify them when an employee has been fired
C. payroll requires employees to show identification when picking up their paychecks
D. changes in pay rates on a computerized system must be tested by someone independent of payroll
115. A pension plan which requires the employer to make annual pension contributions, with no promise to
employees regarding future pension payments, is termed
A. funded
B. unfunded
C. defined benefit
D. defined contribution
116. During its first year of operations, a company granted employees vacation privileges and pension rights
estimated at a cost of $21,500 and $15,000. The vacations are expected to be taken in the next year and the
pension rights are expected to be paid in the future 5-30 years. What is the total cost of vacation pay and
pension rights to be recognized in the first year?
A. $15,000
B. $36,500
C. $6,500
D. $21,500
117. A pension plan which promises employees a fixed annual pension benefit, based on years of service and
compensation, is called a(n)
A. defined contribution plan
B. defined benefit plan
C. unfunded plan
D. compensation plan
118. Vacation pay payable is reported on the balance sheet as a(n)

A. current liability or long-term liability, depending upon when the vacations will be taken by employees
B. current liability
C. expense
D. long-term liability
119. An unfunded pension liability is reported on the balance sheet as

A. current liability
B. owner's equity
C. long-term liability
D. current liability or long-term liability, depending upon when the pension liability is to be paid
120. The journal entry a company uses to record accrued vacation privileges for its employees at the end of the
year is
A. debit Vacation Pay Expense; credit Vacation Pay Payable
B. debit Vacation Pay Payable; credit Vacation Pay Expense
C. debit Salary Expense; credit Cash
D. debit Salary Expense; credit Salaries Payable
121. The journal entry a company uses to record fully funded pension rights for its salaried employees at the
end of the year is
A. debit Salary Expense; credit Cash
B. debit Pension Expense; credit Unfunded Pension Liability
C. debit Pension Expense; credit Unfunded Pension Liability and Cash
D. debit Pension Expense; credit Cash
122. The journal entry a company uses to record partially funded pension rights for its salaried employees, at
the end of the year is
123. The journal entry a company uses to record pension rights that have not been funded for its salaried
employees, at the end of the year is
124. Zennia Company provides its employees with varying amount of vacation per year, depending on the
length of employment. The estimated amount of the current year’s vacation cost is $135,000. The journal
entry to record the adjusting entry required on December 31, the end of the current year, to record the current
month’s accrued vacation pay is
A. $135,000
B. $67,500
C. $0
D. $11,250
125. Quick assets include

A. cash; cash equivalents, receivables, prepaid expenses, and inventory
B. cash; cash equivalents, receivables, and prepaid expenses
C. cash; cash equivalents, receivables, and inventory
D. cash; cash equivalents, and receivables
126. Which of the following is the most desirable quick ratio?
A. 1.20
B. 1.00
C. 0.95
D. 0.50
127. Another name for the quick ratio is

A. quick cash ratio
B. current ratio
C. working capital ratio
D. acid-test ratio
128. Based on the following data, what is the acid-test ratio, rounded to one decimal point?
Accounts payable $ 30,000

Accounts receivable 60,000
Accrued liabilities 5,000
Cash 30,000
Intangible assets 50,000
Inventory 69,000
Long-term investments 80,000
Long-term liabilities 100,000
Marketable securities 30,000
Fixed assets 670,000
Prepaid expenses 1,000
A. 3.4
B. 3.0
C. 2.2
D. 1.8
129. Research Company sells merchandise with a one year warranty. In 2012, sales consisted of 2,500
units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made
in 2012 and 70% in 2013. In the 2012 income statement, Research should show warranty expense of
A. $25,000
B. $7,500
C. $17,500
D. $0
130. During September, Excom sold 100 radios for $50 each. Each radio cost Excom $30 to purchase, and
carried a two-year warranty. If 5% of the goods sold typically need to be replaced over the warranty period and
one is actually replaced during September, for what amount in September would Excom debit Product Warranty
Expense?
A. $50
B. $150
C. $30
D. $120
131. The Crafter Company had the following assets and liabilities as of December 31, 2012:
ASSETS
Cash $35,000
Inventory 30,000
Equipment 50,000
LIABILITIES
Current portion of long-term debt 10,000
Accounts payable 2,000
Long-term debt 25,000
Determine the quick ratio for the end of the year (rounded to one decimal point).
A. 6.7
B. 13.0
C. 4.2
D. 3.5
132. Garrett Company sells merchandise with a one year warranty. In 2012, sales consisted of 3,500 units. It
is estimated that warranty repairs will average $15 per unit sold, and 30% of the repairs will be made in 2012
and 70% in 2013. In the 2012 income statement, Garrett should show warranty expense of
A. $36,750
B. $15,750
C. $52,500
D. $0
133. Elgin Company sells merchandise with a one year warranty. Sales consisted of 2,500 units in 2012 and
2,000 units in 2013. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs
will be made in 2012 and 70% in 2013 for the 2012 sales. Similarly, 30% of repairs will be made in 2013 and
70% in 2014 for the 2013 sales. In the 2013 income statement, how much of the warranty expense shown will
be due to 2012 sales?
A. $7,500
B. $17,500
C. $25,000
D. $0
134. The cost of a product warranty should be included as an expense in the
A. period the cash is collected for a product sold on account
B. future period when the cost of repairing the product is paid
C. period of the sale of the product
D. future period when the product is repaired or replaced
135. Power Company sells merchandise with a one year warranty. In 2012, sales consisted of 1,600 units. It is
estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in 2012 and
70% in 2013. In the 2012 income statement, Power should show warranty expense of
A. $4,800
B. $11,200
C. $16,000
D. $0
136. During May, Blast sold 650 portable CD players for $50 each. Each CD player cost Blast $25 to purchase
and carried a one-year warranty. If 10 percent of the goods sold typically need to be replaced over the warranty
period, what amount should Blast debit Product Warranty Expense for in May?
A. $3,250
B. $1,625
C. $ 650
D. $1,300
137. Estimating and recording product warranty expense in the period of the sale best follows which of the
following accounting concepts?
A. cost concept
B. business entity concept
C. matching concept
D. materiality concept
ASSETS
Cash $28,000
Inventory 20,000
Equipment 50,000
LIABILITIES
A. 5.3
B. 3.6
C. 3.3
D. 2.3
139. The journal entry a company uses to record the estimated accrued product warranty liability is
A. debit Product Warranty Expense; credit Product Warranty Payable
B. debit Product Warranty Payable; credit Cash
C. debit Product Warranty Expense; credit Cash
D. debit Product Warranty Payable; credit Product Warranty Expense

A. 2.20
B. 1.80
C. 1.95
D. 1.50
141. According to a summary of the payroll of Scotland Company, $450,000 was subject to the 7.0% social
security tax and $500,000 was subject to the 1.5% Medicare tax. Federal income tax withheld was
$98,000. Also, $15,000 was subject to state (4.2%) and federal (0.8%) unemployment taxes. The journal entry
to record accrued salaries would include:
A. a debit to Salary Payable of $313,000
B. a credit to Salary Payable of $363,000
C. a debit to Salary Expense of $363,000
D. a credit to Salary Expense of $313,000
to record accrued payroll taxes would include:
A. a debit to SUTA Payable of $630
B. a debit to SUTA Payable of $18,900
C. a credit to SUTA Payable of $630
D. a credit to SUTA Payable of $18,900
144. A business issued a 120-day, 6% note for $10,000 to a creditor on account. The company uses a 360-day
year for interest calculations. Journalize the entries to record (a) the issuance of the note and (b) the payment of
the note at maturity, including interest.
Ref Account Debit Credit
145. On August 1, Batson Company issued a 60-day note with a face amount of $140,000 to Jergens Company
for merchandise inventory. (Assume a 360-day year is used for interest calculations.)
a. Determine the proceeds of the note assuming the note carries an interest rate of 6%.
b. Determine the proceeds of the note assuming the note is discounted at 6%.
146. Journalize the following, assuming a 360-day year is used for interest calculations:
Apr. 30 Issued a $150,000, 30-day, 6% note dated April 30 to Misner Co. on account.
May 30 Paid Misner Co. the amount owed on the note dated April 30.
147. Roseland Design borrowed $700,000 on a 90-day note from CorpOne Funding Company. CorpOne
discounts the note at 8%. (Assume a 360-day year is used for interest calculations.)
Required:
(1) Journalize Roseland’s entries to record:
a. The issuance of the note.
b. The payment of the note at maturity.
(2) Journalize CorpOne’s entries to record:
a. The receipt of the note.
b. The receipt of the payment of the note at maturity.
148. A borrower has two alternatives for a loan: (a) issue a $480,000, 60-day, 8% note or (2) issue a $480,000,
60-day note that the creditor discounts at 8%. (Assume a 360-day year is used for interest calculations.)
Required:
(1) Calculate the amount of the interest expense for each option.
(2) Determine the proceeds received by the borrower in each situation.

149. Dixon Sales has seven sales employees which receive weekly paychecks. Each earns $10.25 per hour and
each has worked 40 hours in the pay period. Each employee pays 12% of gross in Federal Income Tax, 3% in
State Income Tax, 6% of gross in Social Security Tax, 1.5% of gross in Medicare Tax, and 1/2% in State
Disability Insurance. Journalize the recognition of the pay period ending January 19th which will be paid to the
employees January 26th. (Keep in mind that none of the employees is subject to a ceiling amount for social
security.)
150. Mobile Sales has five sales employees which receive weekly paychecks. Each earns $11.50 per hour and
Disability Insurance. Journalize the recognition the pay period ending January 19th which will be paid to the
security.)
151. John Woods’ weekly gross earnings for the present week were $2,500. Woods has two
exemptions. Using $80 value for each exemption, what is Woods’ federal income tax withholding?
Single person (including head

of household)
If amount of wages (after
subtracting
withholding allowance) is:
The amount of income tax
withholding is: of excess over:
Not over $51 $0
Over- But not over- of excess over -

$51 -$192......10% -$51
$192 -$620......$14.10 plus 15% -$192
$620 -$1,409....$78.30 plus 25% -$620
$1,409 -$3,013....$275.55 plus 28% -$1,409
$3,013 -$6,508....$724.67 plus 33% -$3,013
$6,508 ...............$1,878.02 plus 35% -$6,508
152. Carmen Flores’ weekly gross earnings for the week ending Dec. 7th were $2,500, and her federal income
tax withholding was $525. Prior to this week Flores had earned $98,000 for the year. Assuming the social
security rate is 6% on the first $100,000 of annual earnings and Medicare is 1.5% of all earnings, what is
Flores’ net pay?
153. An employee earns $40 per hour and 1.5 times that rate for all hours in excess of 40 hours per
week. Assume that the employee worked 60 hours during the week, and that the gross pay prior to the current
week totaled $58,000. Assume further that the social security tax rate was 7.0% (on earnings up to $100,000),
the Medicare tax rate was 1.5%, and the federal income tax to be withheld was $614.
Required:
(1) Determine the gross pay for the week.
(2) Determine the net pay for the week.
3.4% on the first $7,000; federal unemployment compensation tax, .8% on the first $7,000. Prepare the journal
entries to record the salaries expense and the employer payroll tax expense.
155. Townson Company had gross wages of $200,000 during the week ended December 10. The amount of
wages subject to social security tax was $180,000, while the amount of wages subject to federal and state
unemployment taxes was $24,000. Tax rates are as follows:
Social security 6.0%
Medicare 1.5%
State unemployment 5.3%
Federal unemployment 0.8%

The total amount withheld from employee wages for federal taxes was $32,000.
Required:
(1) Journalize the entry to record the payroll for the week of December 10.
(2) Journalize the entry to record the payroll tax expense incurred for the week of December 10.
$98,000. Also, $15,000 was subject to state (4.2%) and federal (0.8%) unemployment taxes.
Required:
(1) Journalize the entry to record the accrual of payroll.
(2) Journalize the entry to record the accrual of payroll taxes.
157. The payroll register of Seaside Architecture Company indicates $970 of Social Security and $257 of
Medicare tax withheld on total salaries of $16,500 for the period. Federal withholding for the period totaled
$4,235. Provide the journal entry for the period’s payroll.
158.
The payroll register of Seaside Architecture Company indicates $870 of Social Security and $217 of Medicare
tax withheld on total salaries of $14,500 for the period. Assume earnings subject to state and federal
unemployment compensation taxes are $5,250. at the federal rate of 0.8% and state rate of 5.4%. Provide the
journal entry to record the payroll tax expense for the period.
159. List five internal controls that relate directly to payroll.
160. The payroll summary for December 31 for Waters Co. revealed total earnings of $80,000. Earnings
subject to 6% social security tax were $60,000; earnings subject to 1.5% Medicare tax were $80,000; and
earnings of $3,000 were subject to 4.3% state and 0.8% federal unemployment compensation tax. Journalize
the entry to record the accrual of payroll taxes.
161. Darius Company has the following information for the pay period of January 15 - 31, 20xx.

Assuming no employees are subject to ceilings for their earnings, calculate Salaries Payable and Employer Payroll Taxes Payable.
withheld, $950; Social security tax rate, 6.5% on maximum of $100,000; and Medicare tax rate, 1.5% on all
earnings; state unemployment compensation tax, 3.4% on the first $7,000; federal unemployment compensation
tax, .8% on the first $7,000.
Calculate the employer's payroll tax expense if:
a. this is the first payroll of the year and the employee has no cumulative earnings for the year to date.
b. the employee’s cumulative earnings for the year prior to this week equal $6,200.
c. the employee’s cumulative earnings for the year prior to this week equal $98,700.
163. The following totals for the month of February were taken from the payroll register of Arcon Company:

Social security and medicare taxes withheld 975
Retirement savings 500
Salaries subject to federal and state unemployment 4,000
taxes of 6.2%
How much is the total payroll expense for Arcon Company for this payroll?
Assume that the monthly salaries expense remains the same for the entire year and no employees are hired or fired during that time. Based on what
you learned in Chapter 11 about payroll taxes, do you expect the total payroll expense to stay the same every month? Explain.
164. According to a summary of the payroll of Sinclair Company, $505,000 was subject to the 6.0% social
security tax and $545,000 was subject to the 1.5% Medicare tax. Also, $10,000 was subject to state and federal
unemployment taxes.
Required:
(1) Calculate the employer’s payroll taxes using the following rates: State unemployment, 4.2%; Federal unemployment, 0.8%.
165. Martin Services Company provides their employees vacation benefits and a defined contribution pension
plan. Employees earned vacation pay of $39,500 for the period. The pension plan requires a contribution to
the plan administrator equal to 9% of employee salaries. Salaries were $750,000 during the period. Provide
the journal entry for (a.) the vacation pay and (b.) the pension benefit.
166. Below are two independent sets of transactions for Welcott Company:
(1) Welcott provides its employees with varying amounts of vacation per year, depending on the length of
employment. The estimated amount of the current year’s vacation pay is $78,000. Journalize the adjusting
entry required on January 31, the end of the first month of 2010, to record the accrued vacation pay.
(2) Welcott maintains a defined contribution pension plan for its employees. The plan requires quarterly
installments to be paid to the funding agent, Northern Trust, by the fifteenth of the month following the end of
each quarter. Assuming that the pension cost is $119,600 for the quarter ended December 31, journalize entries
to record (a) the accrued pension liability on December 31 and (b) the payment to the funding agent on January
15.
167. Ecco Company sold $150,000 of kitchen appliances during September under a 6 month warranty. The
cost to repair defects under the warranty is estimated at 6% of the sales price. On October 15 a customer
required a $200 part replacement, plus $85 labor under the warranty.
Provide the journal entry for (a.) the estimated expense on September 30 and (b.) the October 15 warranty
work.
168. Florida Keys Construction installs swimming pools. They calculate that warranty obligations are 3% of
gross sales. For the year just ending Florida Keys’ gross sales were $1,450,000. Due to previous quarter
recognitions, the Warranty Liability account has a credit balance of $28,700. Determine the year’s total
warranty liability and journalize any necessary value to establish the year’s liability at December 31st.
169. Aqua Construction installs swimming pools. They calculate that warranty obligations are 5% of gross
sales. For the year just ending Aqua’s gross sales were $1,500,000. Due to previous quarter recognitions, the
Warranty Liability account has a credit balance of $48,700. Determine the year’s total warranty liability and
journalize any necessary value to establish the year’s liability at December 31st.
170. Lamar Industries warrants its products for one year. The estimated product warranty is 3% of
sales. Assume that sales were $190,000 for June. In July, a customer received warranty repairs requiring $185
of parts and $50 of labor.
Required:
(1) Journalize the adjusting entry required at June 30, the end of the first month of the current year, to record the accrued product
warranty.
(2) Journalize the entry to record the warranty work provided in July.
171. Hadley Industries warrants its products for one year. The estimated product warranty is 4% of
Required:
warranty.
172. The current assets and current liabilities for Kolbie Company and Newton Company are shown as follows
at the end of 2012.
Kolbie Company ( in millions) Newton Company (in millions)

For the Year ending December 31, For the Year ending December 31,
2012 2012
Current Assets:
Cash and cash equivalents $8,352 $8,546
Short-term investments 6,034 752
Accounts receivable 3,029 5,152
Inventories 346 660
Other current assets* 2,195 2,829
Total current assets $19,956 $17,939
Current Liabilities:
Accounts payable $4,970 $10,430
Accrued and other current liabilities 3,329 6,361
Total current liabilities $8,299 $16,791
*These represent prepaid expenses and other non-quick current assets.
Required:
(1) Determine the quick ratio for both companies. Round to two decimal places.
(2) Interpret the quick ratio difference between the two companies.
173. The Core Company had the following assets and liabilities as of December 31, 2012:
ASSETS
Cash $58,000
Inventory 20,000
Equipment 50,000
LIABILITIES
Calculate: Current Ratio, Working Capital and Quick Ratio
174. On October 1, Ramos Co. signed a $90,000, 60-day discounted note at the bank. The discount rate was
6%, and the note was paid on November 30. (Assume a 360-day year is used for interest calculations.)
(a) Journalize the entries for October 1 and November 30.

(b) Assume that Ramos Co. signed a 6% note. Journalize the entries for October 1 and November 30.
175. Journalize the following entries on the books of the borrower and creditor. Label accordingly. (Assume a
360-day year is used for interest calculations.)
Jun. 1 Regis Co. purchased merchandise on account from Winthrop Co., $60,000, terms n/30.
Jun. 30 Regis Co. issued a 60-day, 5% note for $60,000 on account.
Aug. 29 Regis Co. paid the amount due.
176. Journalize the following entries on the books of Winston Co. for August 1, September 1, and November
30. (Assume a 360-day year is used for interest calculations.)
Aug. 1 Winston Co. purchased merchandise for $75,000 on account from Bagley Co., terms n/30.
Sept. 1 Winston Co. issued a 90-day, 6% note for $75,000 on account.
Nov. 30 Winston Co. paid the amount due.
177. The following information is for employee Ella Dodd for the week ended March 15.
Total hours worked: 48

Rate: $15 per hour, with double time for all hours in excess of 40
Federal income tax withheld: $200
United Fund deduction: $50
Cumulative earnings prior to current week: $6,400
Tax rates:
Social security: 6% on maximum earnings of $100,000. Medicare tax:
1.5% on all earnings.
State unemployment: 3.4% on maximum earnings of $7,000; on employer
Federal unemployment: 0.8% on maximum earnings of $7,000; on employer
(a) Determine (1) total earnings, (2) total deductions, and (3) cash paid.
(b) Determine each of the employer's payroll taxes related to the earnings of Ella Dodd for the week ended March 15.
178. The summary of the payroll for the monthly pay period ending July 15 indicated the following:
Sales salaries $125,000

Federal income tax withheld 32,300
Office salaries 35,000
Medical insurance withheld 7,370
Social security tax withheld 10,200
Medicare tax withheld 2,550
Journalize the entries to record (a) the payroll and (b) the employer's payroll tax expense for the month. The state unemployment tax rate is 3.1%,
and the federal unemployment tax rate is 0.8%. Only $25,000 of salaries are subject to unemployment taxes.
179. Excel Products Inc. pays its employees semimonthly. The summary of the payroll for December 31,
2012 indicated the following:
Salary expense $120,000

For the year ended 2012, $40,000 of the December 31 payroll is subject to social security tax of 6%; $120,000 is subject to Medicare tax of 1.5%;
$10,000 is subject to state unemployment tax of 4.3% and federal unemployment tax of 0.8%. As of January 1, 2013 all of the $120,000 is subject to
all payroll taxes. Present the journal entries for payroll tax expense if the employees are paid (a) December 31 of the current year, (b) January 2 of
the following year.
180. Journalize the following transactions:
Dec. 31 The accrued product warranty for the year is estimated to be 1.5% of net sales. Sales for the year totaled $8,000,000, and sales
returns and allowances were $240,000.
31 The accrued vacation pay for the year is estimated to be $46,000.
31 Paid Reliable Insurance Co. $85,000 as fund trustee for the pension plan. The annual pension cost is $109,000.
181. Journalize the following transactions for Riley Corporation:
31 Paid First Insurance Co. $55,000 as fund trustee for the pension plan. The annual pension cost is $87,000.
182. Several months ago, Jones Company experienced a spill of hazardous materials into the White River from
one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $405,000. The
company contested the fine. In addition, an employee is seeking $180,000 damages related to the spill. Finally,
a homeowner has sued the company for $260,000. Although the homeowner lives 30 miles downstream from
the plant, he believes that the spill has reduced his home’s resale value by $260,000.
Jones’ legal counsel believes the following will happen in relationship to these incidents:
(a) It is probable that the EPA fine will stand.
(b) An out-of-court-settlement for $165,000 has recently been reached with the employee, with the final papers to be signed next
week.
(c) Counsel believes that the homeowner’s case is much weaker and will be decided in favor of Jones Company.
(d) Other litigation related to the spill is possible, but the damage amounts are uncertain.
Required:
(1) Based on this information, journalize the contingent liabilities associated with the spill. Use the account “Damage Awards and
Fines” to recognize the expense for the period.
(2) Prepare any note disclosure related to the spill.
183. For Company A and Company B:
(a) Calculate the quick ratio for each company.

(b) Comment on which one is more able to meet current liabilities.
Company A Company B
Account Dr Cr Dr Cr
Cash $21 $ 25
Cash Equivalents 8 10
Trade Notes Receivable 7 6
Accounts Receivable 6 7
Prepaid Expenses 5 5
Merchandise Inventory 14 8
Fixed Assets 20 55
Accumulated Depreciation-
Fixed Assets $ 5 $ 25
Accounts Payable 26 8
Current Accrued Liabilities 13 19
Mortgage Payable 17 24
Capital 20 40
Total $81 $81 $116 $116
Chapter 11--Current Liabilities and Payroll Key
1. Receiving payment prior to delivering goods or services causes a current liability to be incurred.
TRUE
2. For a current liability to exist, the following two tests must be met. The liability must be due usually within
a year and must be paid out of current assets.
TRUE
3. All long-term liabilities eventually become current liabilities.

TRUE
4. The borrower is the one who issues a note payable to a creditor.

TRUE
5. Notes payable may be issued to creditors to satisfy accounts payable created earlier.
TRUE
6. Interest expense is reported in the operating expense section of the income statement.
FALSE
7. A loan in which the lender deducts interest from the amount borrowed before the money is advanced to the
borrower is called an interest bearing note.
FALSE
8. For an interest bearing note payable, the amount borrowed is equal to the face amount of the note.
TRUE
9. The amount of money a borrower receives from the lender is called discount rate.
FALSE
10. The proceeds of a discounted note are equal to the face value of the note.
FALSE
11. The discount on a note payable is charged to an account that has a normal credit balance.
FALSE
12. The proceeds from discounting a $20,000, 60-day, note payable at 6% is $20,200.
FALSE
13. Amounts withheld from each employee for Social Security and Medicare varies by state.
FALSE
14. Form W-4 is a form authorizing employers to withhold a portion of employee earnings for payment of an
employee’s federal income taxes.
TRUE
15. Form W-2 is called the Wage and Tax Statement.

TRUE
16. If, prior to the last weekly payroll period of the calendar year, the cumulative earnings for an employee are
$98,800, earnings subject to social security tax are $100,000, and the tax rate is 6.0%, the employer's social
security tax on the $2,000 gross earnings paid on the last day of the year is $120.
FALSE
17. An employee's take home pay is equal to gross pay less all voluntary deductions.
FALSE
18. Taxes deducted from an employee's earnings to finance social security and Medicare benefits are called
FICA taxes.
TRUE
19. Generally, all deductions made from an employee's gross pay are required by law.
FALSE
20. Payroll taxes are based on the employee's net pay.

FALSE
21. Most employers are required to withhold federal unemployment taxes from employee earnings.
FALSE
22. FICA tax is a payroll tax that is paid only by employers.

FALSE
23. Medicare taxes are withheld from an employee's pay only until the employee has earned a specific amount
each year.
FALSE
24. Medicare taxes are paid by both the employee and the employer.
TRUE
25. Federal unemployment taxes are paid by the employer and the employee.
FALSE
26. Federal unemployment compensation taxes that are collected by the federal government are not paid
directly to the unemployed but are allocated among the states for use in state programs.
TRUE
27. Like many taxes deducted from employee earnings, federal income taxes are subject to a maximum amount
per employee per year.
FALSE
28. Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid.
TRUE
29. FICA tax becomes a liability to the federal government at the time an employee's payroll is prepared.
FALSE
30. Payroll taxes only include social security taxes and federal unemployment and state unemployment taxes.
FALSE
31. Federal income taxes withheld increase the employer's payroll tax expense.
FALSE
32. The use of a separate payroll bank account is not an advantageous control, because it creates more
complexity in reconciliation functions for a company and invites theft.
FALSE
33. Employers are required to compute and report payroll taxes on a calendar-year basis, even if a different
fiscal year is used for financial reporting and income tax purposes.
TRUE
34. Payroll taxes levied against employers become an employer liability at the time the employee wages are
incurred.
FALSE
35. For paying their payroll, most employers use payroll checks drawn on a special bank account.
TRUE
36. The payroll register is a multicolumn form used to assemble the data related for all employees.
TRUE
37. The total net pay for a period is determined from the payroll register.
TRUE
38. Internal controls for cash payments also apply to payrolls.

TRUE
39. While separation of duties may play a strong role in the internal control of inventory, it is not significant in
controlling payroll.
FALSE
40. For proper matching of revenues and expenses, the estimated cost of fringe benefits must be recognized as
an expense of the period during which the employee earns the benefits.
TRUE
41. Depending upon when an unfunded pension liability is to be paid, it will be classified on the balance sheet
as either a long-term or a current liability.
TRUE
42. During the first year of operations, employees earned vacation pay of $35,000. The vacations will be taken
during the second year. The vacation pay expense should be recorded in the second year as the vacations are
taken by the employees.
FALSE
43. One of the more popular defined contribution plans is the 401k plan.
TRUE
44. A defined contribution plan promises employees a fixed annual pension benefit.
FALSE
45. In a defined benefits plan, the employer bears the investment risks in funding a future retirement income
benefit.
TRUE
46. The accounting for defined benefit plans is usually very easy and straight forward.
FALSE
47. During the first year of operations, a company granted warranties on its products. The estimated cost of the
product warranty liability at the end of the year is $8,500. The product warranty expense of $8,500 should be
recorded in the years of the expenditures to repair the products covered by the warranty payments.
FALSE
48. Obligations that depend on past events and that are based on future possible events are contingent
liabilities.
FALSE
49. In order to be a recorded contingent liability, the liability must be possible and easily estimated.
FALSE
50. The journal entry to record the cost of warranty repairs that were incurred during the current period, but
related to sales made in prior years, includes a debit to Warranty Expense.
FALSE
51. Current liabilities are

A. due, but not receivable for more than one year
B. due, but not payable for more than one year
C. due and receivable within one year
D. due and payable within one year
52. Notes may be issued

A. when assets are purchased
B. to creditor's to temporarily satisfy an account payable created earlier
C. when borrowing money
D. all of the above
53. On June 8, Alton Co. issued an $95,000, 6%, 120-day note payable to Seller Co. What is the due date of
the note?
A. October 8
B. October 7
C. October 6
D. October 5
54. On June 8, Alton Co. issued an $90,000, 6%, 120-day note payable to Seller Co. Assuming a 360-day year
for your calculations, what is the maturity value of the note?
A. $90,450
B. $90,000
C. $91,800
D. $95,400
55. On July 8, Alton Co. issued an $80,000, 6%, 120-day note payable to Seller Co. Assume that the fiscal year
of Alton Co. ends July 31. Using the 360-day year in your calculations, what is the amount of interest expense
recognized by Alton in the current fiscal year?
A. $1,200.00
B. $106.67
C. $306.67
D. $400.00
56. On June 8, Alton Co. issued an $80,000, 6%, 120-day note payable to Seller Co. Assume that the fiscal
year of Seller Co. ends June 30. Using the 360-day year in your calculations, what is the amount of interest
revenue recognized by Seller in the following year?
A. $1,200.00
B. $1,208.89
C. $1,306.67
D. $1,600.00
57. On June 8, Alton Co. issued an $80,000, 6%, 120-day note payable on an overdue account payable to Seller
Co. Assume that the fiscal year of Alton Co. ends June 30. Which of the following relationships is true?
A. Alton is the creditor and credits Accounts Receivable
B. Seller is the creditor and debits Accounts Receivable
C. Seller is the borrower and credits Accounts Payable
D. Alton is the borrower and debits Accounts Payable
58. A business borrowed $40,000 on March 1 of the current year by signing a 60-day, 9% interest bearing
note. Assuming a 360-day year, when the note is paid on April 30, the entry to record the payment should
include a
A. debit to Interest Payable $600
B. debit to Interest Expense $600
C. credit to Cash for $40,000
D. credit to Cash for $46,300
59. When a borrower receives the face amount of a discounted note less discount, this amount is known as:
A. the note proceeds
B. the note discount
C. the note deferred interest
D. the note principal
60. Assuming a 360-day year, the interest charged by the bank, at the rate of 9%, on a 90-day, discounted note
payable of $100,000 is
A. $9,000
B. $2,250
C. $750
D. $1,000
will amount to:
A. $40,900
B. $43,600
C. $900
D. $3,600
62. Assuming a 360-day year, proceeds of $48,750 were received from discounting a $50,000, 90-day note at a
bank. The discount rate used by the bank in computing the proceeds was
A. 6.25%
B. 10.00%
C. 10.26%
D. 9.75%
63. Mobile Co. issued a $45,000, 60-day, discounted note to Guarantee Bank. The discount rate is 6%. At
maturity, assuming a 360-day year, the borrower will pay:
A. $45,450
B. $42,300
C. $45,000
D. $44,550
64. Chang Co. issued a $50,000, 120-day, discounted note to Guarantee Bank. The discount rate is
6%. Assuming a 360-day year, the cash proceeds to Chang Co. are
A. $49,750
B. $47,000
C. $49,000
D. $51,000
65. The journal entry a company uses to record the issuance of a note for the purpose of converting an existing
account payable would be
A. debit Cash; credit Accounts Payable
B. debit Accounts, Payable; credit Cash
D. debit Accounts Payable; credit Notes Payable
66. The journal entry a company uses to record the issuance of an interest-bearing note for the purpose of
borrowing funds for the business is
A. debit Accounts Payable; credit Notes Payable
B. debit Cash; credit Notes Payable
C. debit Notes Payable; credit Cash
D. debit Cash and Interest Expense; credit Notes Payable
67. The journal entry a company uses to record the issuance of a discounted note for the purpose of borrowing
funds for the business is
A. debit Cash and Interest Expense; credit Notes Payable
B. debit Cash and Interest Payable; credit Notes Payable
C. debit Accounts Payable; credit Notes Payable
D. debit Notes Payable; credit Cash
68. The journal entry a company uses to record the payment of a discounted note is
A. debit Notes Payable and Interest Expense; credit Cash
B. debit Notes Payable; credit Cash
D. debit Accounts Payable; credit Cash
69. The journal entry a company uses to record the payment of an interest-bearing note is
A. debit Cash; credit Notes Payable
B. debit Accounts Payable; credit Cash
C. debit Notes Payable and Interest Expense; credit Cash
D. debit Notes Payable and Interest Receivable; credit Cash
70. A current liability is a debt that is reasonably expected to be paid

A. between 6 months and 18 months.
B. out of currently recognized revenues.
C. within one year.
D. out of cash currently on hand.
71. Grayson Bank agrees to lend the Trust Company $120,000 on January 1. Trust Company signs a $120,000,
8%, 9-month note. The entry made by Trust Company on January 1 to record the proceeds and issuance of the
note is:
A. Interest Expense 9,600

Cash 110,400
B. Cash 120,000
C. Cash 129,600
D. Notes Payable 120,000

Interest Payable 7,200
Cash 120,000
72. The journal entry to record the conversion of an $4,700 accounts payable to a notes payable would be:
A. Cash 4,700
Notes Payable 4,700
B. Notes Receivable 4,700

Notes Payable 4,700
C. Notes Payable 4,700

Cash 4,700
D. Accounts Payable 4,700

Notes Payable 4,700
73. Current liabilities are:

A. due and receivable within one year.
B. due and to be paid out of current assets within one year.
C. due, but not payable for more than one year.
D. payable if a possible subsequent event occurs.
74. Which of the following would most likely be classified as a current liability?
A. Two-year Notes Payable
B. Bonds Payable
C. Mortgage Payable
D. Unearned Rent
will amount to:
A. $31,500
B. $1,500
C. $30,375
D. $375
76. The current portion of long-term debt should

A. be classified as a long-term liability.
B. not be separated from the long-term portion of debt.
C. be paid immediately.
D. be reclassified as a current liability.
77. On January 5, 2014, Garrett Company, a calendar-year company, issued $1,000,000 of notes payable, of
which $200,000 is due on January 1 for each of the next five years. The proper balance sheet presentation on
December 31, 2014, is
A. Current Liabilities, $1,000,000.
B. Current Liabilities, $200,000; Long-term Debt, $800,000.
C. Long-term Debt, $1,000,000
D. Current Liabilities, $800,000; Long-term Debt, $200,000.
78. On October 30, Seba Salon, Inc. issued a 90-day note with a face amount of $60,000 to Reyes Products, Inc.
for merchandise inventory. Assuming a 360-day year, determine the proceeds of the note assuming the note is
discounted at 8%.
A. $55,200
B. $64,800
C. $58,800
D. $61,200
79. Proper payroll accounting methods are important for a business for all the reasons below except
A. good employee morale requires timely and accurate payroll payments.
B. payroll is subject to various federal and state regulations.
C. to help a business with cash flow problems by delayed payments of payroll taxes to federal and state
agencies.
D. payroll and related payroll taxes have a significant effect on the net income of most businesses.
80. The amount of federal income taxes withheld from an employee's gross pay is recorded as a(n)
A. payroll expense
B. contra account
C. asset
D. liability
81. Which statement below is not a determinate in calculating the amount of federal income taxes withheld
from an individuals pay?
A. filing status
B. types of earnings
C. gross pay
D. number of exemptions
82. Which of the following would be used to compute the federal income taxes to be withheld from an
employee's earnings?
A. FICA tax rate
B. wage and tax statement
C. FUTA tax rate
D. wage bracket and withholding table
83. Which of the following taxes would be deducted in determining an employee's net pay?
A. FUTA taxes
B. SUTA taxes
C. FICA taxes
D. all of the above
84. For which of the following taxes is there no ceiling on the amount of employee annual earnings subject to
the tax?
A. only Social Security tax
B. only Medicare tax
C. only unemployment compensation tax
D. none of the above
85. Most employers are required to withhold from employees which of the following employment taxes?
A. FICA tax
B. FICA tax, state and federal unemployment compensation tax
C. only state unemployment compensation tax
D. only federal unemployment compensation tax
$100,000; and Medicare tax rate, 1.5% on all earnings. What is the gross pay for the employee?
A. $775.00
B. $1,840.00
C. $1,960.00
D. $1,562.60
A. $713.75
B. $935.15
C. $764.75
D. $873.77
88. Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B
are $99,350 and $91,000 respectively. Their earnings for the last completed payroll period of the year are $850
each. The maximum amount of earnings subject to social security tax at 6% is $100,000. All earnings are
subject to Medicare tax of 1.5%. Assuming that the payroll will be paid on December 29, what will be the
employer's total FICA tax for this payroll period on the two salary amounts of $850 each?
A. $127.50
B. $115.50
C. $112.50
D. $0
89. The total earnings of an employee for a payroll period is referred to as

A. take-home pay
B. pay net of taxes
C. net pay
D. gross pay
A. $1,032.00
B. $1,143.00
C. $1,053.60
D. $1,166.40
91. Payroll taxes levied against employees become liabilities

A. the first of the following month
B. when salary is accrued
C. when data is entered in a payroll register
D. at the end of an accounting period
92. The following totals for the month of June were taken from the payroll register of Arcon Company:

Social security and Medicare Taxes withheld 1,050
Income Taxes withheld 2,600
Retirement Savings 1,000
The entry to record the payment of net pay would include a

A. debit to Salaries Payable for $14,000
B. Debit to Salaries Payable for $9,350
C. Credit to Salaries Expense for $9,350
D. Credit to Salaries Payable for $9,350
93. Which of the following will have no effect on an employee’s take-home pay?
A. Social security tax
B. Unemployment tax
C. Marital status
D. Number of exemptions claimed
94. Which of the following are included in the employer's payroll taxes?
A. SUTA taxes
B. FUTA taxes
C. FICA taxes
D. all of the above
95. Which of the following is required to be withheld from employee's gross pay?
A. both federal and state unemployment compensation
B. only federal unemployment compensation tax
C. only federal income tax
D. only state unemployment compensation tax
96. Each year there is a ceiling for the amount that is subject to all of the following except
A. social security tax
B. federal income tax
C. federal unemployment tax
D. state unemployment tax
97. Assuming no employees are subject to ceilings for their earnings, Moore Company has the following
information for the pay period of December 15 - 31, 20xx.

Salaries Payable would be recorded for

A. $16,000
B. $ 9,808
C. $10,800
D. $11,040
98. Most employers are levied a tax on payrolls for

A. sales tax
B. medical insurance premiums
C. federal unemployment compensation tax
D. union dues
99. Payroll entries are made with data from the

A. wage and tax statement
B. employee's earning record
C. employer's quarterly federal tax return
D. payroll register
100. Which of the following forms is typically given to employees at the end of the calendar year so that
employees can file their individual income tax forms?
A. Employee’s Withholding Allowance Certificate (W-4)
B. Wage and Tax Statement (Form W-2)
C. Employer's Quarterly Federal Tax Return (Form 941)
D. 401k plans
101. The employee earnings record would contain which column that the payroll register would probably not
contain?
A. deductions
B. payment
C. earnings
D. cumulative earnings
102. The detailed record indicating the data for each employee for each payroll period and the cumulative total
earnings for each employee is called the
A. payroll register
B. payroll check
C. employee's earnings record
D. employer's earnings record
A. $568.74
B. $601.50
C. $660.00
D. $574.90
Salaries $12,000
The journal entry to record the monthly payroll on April 30 would include a
A. credit to Salaries Payable for $8,150
B. debit to Salaries Expense for $7,902
C. debit to Salaries Payable for $8,150
D. debit to Salaries Payable for $7,902
Salaries $12,000
A. debit to Payroll Tax Expense for $248
106. The following totals for the month of April were taken from the payroll register of Magnum Company.
Salaries $10,000
Unemployment Taxes 420

A. debit to Payroll Tax Expense for $1,170
A. $569.87
B. $539.00
C. $625.00
D. $544.88
108. The following totals for the month of June were taken from the payroll register of Young Company:

Social security and 1,125
Medicare Taxes
withheld
Income Taxes 3,000
withheld
Retirement Savings 500
Salaries subject to
federal and state
unemployment taxes of 6.2 percent 4,000
The entry to record the accrual of employer’s payroll taxes would include a
A. debit to Payroll Taxes Expense for $2,498
B. debit to Social Security and Medicare Tax Payable for $2,250
C. debit to Payroll Taxes Expense for $1,373
D. Debit to Payroll Tax Expense for $1,125

Salaries Payable would be recorded in the amount of:

A. $8,200
B. $6,830
C. $8,630
D. $7,450

Assuming that all wages are subject to federal and state unemployment taxes, the Payroll Taxes Expense would be recorded as:
A. $1,370
B. $750
C. $620
D. $2,870
111. Assume that social security taxes are payable at a 6% rate on the first $100,000 of earnings and Medicare
taxes are payable at a 1.5% rate with no maximum earnings, and that federal and state unemployment
compensation taxes total 4.6% on the first $7,000 of earnings. If an employee, George Jones, earns $2,500 for
the current week and Jones' year-to-date earnings before this week were $6,800, what is the total payroll taxes
related to the current week?
A. $187.50
B. $196.70
C. $344.50
D. $9.20
112. Which of the following is an example of a variable component of a payroll system?

A. hours worked
B. medicare tax rate
C. rate of pay
D. social security number
113. An aid in internal control over payrolls that indicates employee attendance is
A. time card
B. voucher system
C. payroll register
D. employee's earnings record
114. Which of the following is not an internal control procedure for payroll?
A. observe clocking in and out time for the employees
B. payroll depends on a fired employee's supervisor to notify them when an employee has been fired
C. payroll requires employees to show identification when picking up their paychecks
D. changes in pay rates on a computerized system must be tested by someone independent of payroll
115. A pension plan which requires the employer to make annual pension contributions, with no promise to
employees regarding future pension payments, is termed
A. funded
B. unfunded
C. defined benefit
D. defined contribution
116. During its first year of operations, a company granted employees vacation privileges and pension rights
estimated at a cost of $21,500 and $15,000. The vacations are expected to be taken in the next year and the
pension rights are expected to be paid in the future 5-30 years. What is the total cost of vacation pay and
pension rights to be recognized in the first year?
A. $15,000
B. $36,500
C. $6,500
D. $21,500
117. A pension plan which promises employees a fixed annual pension benefit, based on years of service and
compensation, is called a(n)
A. defined contribution plan
B. defined benefit plan
C. unfunded plan
D. compensation plan
118. Vacation pay payable is reported on the balance sheet as a(n)

A. current liability or long-term liability, depending upon when the vacations will be taken by employees
B. current liability
C. expense
D. long-term liability
119. An unfunded pension liability is reported on the balance sheet as

A. current liability
B. owner's equity
C. long-term liability
D. current liability or long-term liability, depending upon when the pension liability is to be paid
120. The journal entry a company uses to record accrued vacation privileges for its employees at the end of the
year is
A. debit Vacation Pay Expense; credit Vacation Pay Payable
B. debit Vacation Pay Payable; credit Vacation Pay Expense
C. debit Salary Expense; credit Cash
D. debit Salary Expense; credit Salaries Payable
121. The journal entry a company uses to record fully funded pension rights for its salaried employees at the
end of the year is
122. The journal entry a company uses to record partially funded pension rights for its salaried employees, at
the end of the year is
123. The journal entry a company uses to record pension rights that have not been funded for its salaried
employees, at the end of the year is
124. Zennia Company provides its employees with varying amount of vacation per year, depending on the
length of employment. The estimated amount of the current year’s vacation cost is $135,000. The journal
entry to record the adjusting entry required on December 31, the end of the current year, to record the current
month’s accrued vacation pay is
A. $135,000
B. $67,500
C. $0
D. $11,250
125. Quick assets include

A. cash; cash equivalents, receivables, prepaid expenses, and inventory
B. cash; cash equivalents, receivables, and prepaid expenses
C. cash; cash equivalents, receivables, and inventory
D. cash; cash equivalents, and receivables
A. 1.20
B. 1.00
C. 0.95
D. 0.50
127. Another name for the quick ratio is

A. quick cash ratio
B. current ratio
C. working capital ratio
D. acid-test ratio
128. Based on the following data, what is the acid-test ratio, rounded to one decimal point?
Accounts payable $ 30,000

Accrued liabilities 5,000
Cash 30,000
Intangible assets 50,000
Inventory 69,000
Long-term investments 80,000
Long-term liabilities 100,000
Marketable securities 30,000
Fixed assets 670,000
Prepaid expenses 1,000
A. 3.4
B. 3.0
C. 2.2
D. 1.8
129. Research Company sells merchandise with a one year warranty. In 2012, sales consisted of 2,500
units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made
in 2012 and 70% in 2013. In the 2012 income statement, Research should show warranty expense of
A. $25,000
B. $7,500
C. $17,500
D. $0
130. During September, Excom sold 100 radios for $50 each. Each radio cost Excom $30 to purchase, and
carried a two-year warranty. If 5% of the goods sold typically need to be replaced over the warranty period and
one is actually replaced during September, for what amount in September would Excom debit Product Warranty
Expense?
A. $50
B. $150
C. $30
D. $120
ASSETS
Cash $35,000
Inventory 30,000
Equipment 50,000
LIABILITIES
A. 6.7
B. 13.0
C. 4.2
D. 3.5
132. Garrett Company sells merchandise with a one year warranty. In 2012, sales consisted of 3,500 units. It
is estimated that warranty repairs will average $15 per unit sold, and 30% of the repairs will be made in 2012
and 70% in 2013. In the 2012 income statement, Garrett should show warranty expense of
A. $36,750
B. $15,750
C. $52,500
D. $0
133. Elgin Company sells merchandise with a one year warranty. Sales consisted of 2,500 units in 2012 and
2,000 units in 2013. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs
will be made in 2012 and 70% in 2013 for the 2012 sales. Similarly, 30% of repairs will be made in 2013 and
70% in 2014 for the 2013 sales. In the 2013 income statement, how much of the warranty expense shown will
be due to 2012 sales?
A. $7,500
B. $17,500
C. $25,000
D. $0
134. The cost of a product warranty should be included as an expense in the
A. period the cash is collected for a product sold on account
B. future period when the cost of repairing the product is paid
C. period of the sale of the product
D. future period when the product is repaired or replaced
135. Power Company sells merchandise with a one year warranty. In 2012, sales consisted of 1,600 units. It is
estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in 2012 and
70% in 2013. In the 2012 income statement, Power should show warranty expense of
A. $4,800
B. $11,200
C. $16,000
D. $0
136. During May, Blast sold 650 portable CD players for $50 each. Each CD player cost Blast $25 to purchase
and carried a one-year warranty. If 10 percent of the goods sold typically need to be replaced over the warranty
period, what amount should Blast debit Product Warranty Expense for in May?
A. $3,250
B. $1,625
C. $ 650
D. $1,300
137. Estimating and recording product warranty expense in the period of the sale best follows which of the
following accounting concepts?
A. cost concept
B. business entity concept
C. matching concept
D. materiality concept
ASSETS
Cash $28,000
Inventory 20,000
Equipment 50,000
LIABILITIES
A. 5.3
B. 3.6
C. 3.3
D. 2.3
139. The journal entry a company uses to record the estimated accrued product warranty liability is
A. debit Product Warranty Expense; credit Product Warranty Payable
B. debit Product Warranty Payable; credit Cash
C. debit Product Warranty Expense; credit Cash
D. debit Product Warranty Payable; credit Product Warranty Expense

A. 2.20
B. 1.80
C. 1.95
D. 1.50
to record accrued payroll taxes would include:
A. a debit to SUTA Payable of $630
B. a debit to SUTA Payable of $18,900
C. a credit to SUTA Payable of $630
D. a credit to SUTA Payable of $18,900
144. A business issued a 120-day, 6% note for $10,000 to a creditor on account. The company uses a 360-day
year for interest calculations. Journalize the entries to record (a) the issuance of the note and (b) the payment of
the note at maturity, including interest.

a. Accounts Payable 10,000
b. Notes Payable 10,000
Interest Expense 200*
Cash 10,200
*$10,000 ´ 6% ´ 120/360 = $200
145. On August 1, Batson Company issued a 60-day note with a face amount of $140,000 to Jergens Company
for merchandise inventory. (Assume a 360-day year is used for interest calculations.)
a. Determine the proceeds of the note assuming the note carries an interest rate of 6%.
b. Determine the proceeds of the note assuming the note is discounted at 6%.
a. $140,000
b. $138,600 $140,000 - ($140,000 ´ 6% ´ 60/360)
146. Journalize the following, assuming a 360-day year is used for interest calculations:
Apr. 30 Issued a $150,000, 30-day, 6% note dated April 30 to Misner Co. on account.
May 30 Paid Misner Co. the amount owed on the note dated April 30.
Apr. 30 Accounts Payable-Misner Co 150,000

May 30 Notes Payable 150,000

Interest Expense 750
Cash 150,750
147. Roseland Design borrowed $700,000 on a 90-day note from CorpOne Funding Company. CorpOne
discounts the note at 8%. (Assume a 360-day year is used for interest calculations.)
Required:
(1) Journalize Roseland’s entries to record:
a. The issuance of the note.
b. The payment of the note at maturity.
(2) Journalize CorpOne’s entries to record:
a. The receipt of the note.
b. The receipt of the payment of the note at maturity.

(1) a. Cash 6
8
6,
0
0
0
Intere 1
st 4,
Expe 0
nse 0
0
*
Note7
s 0
Paya0,
ble 0
0
0
b. Notes 7
Payab 0
le 0,
0
0
0
Cas 7
h 0
0,
0
0
0
(2) a. Notes 7
Recei 0
vable 0,
0
0
0
Cas 6
h 8
6,
0
0
0
Inter 1
est 4,
Rev 0
enue 0
0
*
b. Cash 7
0
0,
0
0
0
Note7
s 0
Rec 0,
eiva 0
ble 0
0
*$700,00
0 ´ 8% ´
90/360
148. A borrower has two alternatives for a loan: (a) issue a $480,000, 60-day, 8% note or (2) issue a $480,000,
60-day note that the creditor discounts at 8%. (Assume a 360-day year is used for interest calculations.)
Required:
(1) Calculate the amount of the interest expense for each option.
(2) Determine the proceeds received by the borrower in each situation.
(1) $480,000
´ 8% ´
60/360 =
$6,400 for
each
alternativ
e.
(2) (1) $480,000 simple-interest note: $480,000 proceeds
(2) $480,000 discounted note: $480,000 – $6,400 interest = $473,600 proceeds
149. Dixon Sales has seven sales employees which receive weekly paychecks. Each earns $10.25 per hour and
Disability Insurance. Journalize the recognition of the pay period ending January 19th which will be paid to the
security.)
Jan 19
Sales Wages Expense 2,870.00 (7 employees ´ 40 hours ´ 10.25)

Federal Income Tax Payable 344.40 ($2,870.00 ´ 12%)
State Income Tax Payable 86.10 ($2,870.00 ´ 3%)
Social Security Tax Payable 172.20 ($2,870.00 ´ 6%)
Medicare Tax Payable 43.05 ($2,870.00 ´ 1.5%)
State Disability Insurance 14.35 ($2,870.00 ´ 0.5%)
Sales Wages Payable 2,209.90 Wages Expense - Deductions
150. Mobile Sales has five sales employees which receive weekly paychecks. Each earns $11.50 per hour and
Disability Insurance. Journalize the recognition the pay period ending January 19th which will be paid to the
security.)
Jan 19
Sales Wages Expense 2,300.00 (5 employees ´ 40 hours ´ 11.50)

Federal Income Tax Payable 276.00 ($2,300.00 ´ 12%)
State Income Tax Payable 69.00 ($2,300.00 ´ 3%)
Social Security Tax Payable 138.00 ($2,300.00 ´ 6%)
Medicare Tax Payable 34.50 ($2,300.00 ´ 1.5%)
State Disability Insurance 11.50 ($2,300.00 ´ 0.5%)
Sales Wages Payable 1,771.00 Wages Expense - Deductions
151. John Woods’ weekly gross earnings for the present week were $2,500. Woods has two
exemptions. Using $80 value for each exemption, what is Woods’ federal income tax withholding?
Single person (including head

of household)
If amount of wages (after
subtracting
withholding allowance) is:
The amount of income tax
withholding is: of excess over:
Not over $51 $0
Over- But not over- of excess over -

$51 -$192......10% -$51
$192 -$620......$14.10 plus 15% -$192
$620 -$1,409....$78.30 plus 25% -$620
$1,409 -$3,013....$275.55 plus 28% -$1,409
$3,013 -$6,508....$724.67 plus 33% -$3,013
$6,508 ...............$1,878.02 plus 35% -$6,508
Total wage payment $2,500

Allowance per exemption $80
Multiplied by allowances claimed on W-4 ´ 2 $160
Amount subject to withholding $2,340
Base withholding from wage bracket above $275.55

Plus: 28% of excess over $1,409 260.68
Federal income tax withholding $536.23
152. Carmen Flores’ weekly gross earnings for the week ending Dec. 7th were $2,500, and her federal income
tax withholding was $525. Prior to this week Flores had earned $98,000 for the year. Assuming the social
security rate is 6% on the first $100,000 of annual earnings and Medicare is 1.5% of all earnings, what is
Flores’ net pay?
Total wage payment $2,500.00

Less: Federal income tax withholding 525.00
Earnings subject to social security tax ($100,000 - $98,000) 2,000
Social security tax rate ´ 6%
Social security tax 120.00
Medicare tax ($2,500 ´ 1.5%) 37.50
Net pay $1,817.50
153. An employee earns $40 per hour and 1.5 times that rate for all hours in excess of 40 hours per
week. Assume that the employee worked 60 hours during the week, and that the gross pay prior to the current
week totaled $58,000. Assume further that the social security tax rate was 7.0% (on earnings up to $100,000),
the Medicare tax rate was 1.5%, and the federal income tax to be withheld was $614.
Required:
(1) Determine the gross pay for the week.
(2) Determine the net pay for the week.
(1) Regular pay (40 $1,600.00

hrs. ´ $40)
Overtime pay 1,200.00
(20 hrs. ´ $60)
Gross pay $2,800.00
(2) Gross pay $ 2,800.00

Less: Social security tax (7% ´ $2,800) $196.00
Medicare tax (1.5% ´ $2,800) 42.00
Federal withholding 614.00 852.00
Net pay $1,948.00
3.4% on the first $7,000; federal unemployment compensation tax, .8% on the first $7,000. Prepare the journal
entries to record the salaries expense and the employer payroll tax expense.
Salary Expense ($15 x 40 + $22.50 x 6) 735.00

Social Security Taxes Payable ($735 x 6%) 44.10
Medicare Taxes Payable ($735 x 1.5%) 11.03
Federal Withholding Taxes Payable 120.00
Salaries Payable 559.87
Payroll Tax Expense 86.00

Social Security Taxes Payable ($735 x 6%) 44.10
Medicare Taxes Payable ($735 x 1.5%) 11.03
State Unemployment Comp. Taxes Payable ($735 x 3.4%) 24.99
Fed. Unemployment Comp. Taxes Payable ($735 x 0.8%) 5.88
155. Townson Company had gross wages of $200,000 during the week ended December 10. The amount of
wages subject to social security tax was $180,000, while the amount of wages subject to federal and state
unemployment taxes was $24,000. Tax rates are as follows:
Social security 6.0%
Medicare 1.5%
State unemployment 5.3%
Federal unemployment 0.8%
The total amount withheld from employee wages for federal taxes was $32,000.
Required:
(1) Journalize the entry to record the payroll for the week of December 10.
(2) Journalize the entry to record the payroll tax expense incurred for the week of December 10.
(1) Wage 200,0
s 00
Expe
nse
Socia 10,800
l
Secur
ity
Tax
Payab
le
($180
,000
x 6%)
Medi 3,000
care
Tax
Payab
le
($200
,000
x
1.5%)
Empl 32,000
oyees
Feder
al
Inco
me
Tax
Payab
le
Wage 154,200
s
Payab
le
To record unfunded pension cost for the quarter.
(2) Payro 15,26

ll Tax 4
Expe
nse
Socia 10,800
l
Secur
ity
Tax
Payab
le
Medi 3,000
care
Tax
Payab
le
State 1,272
Unem
ploy
ment
Tax
Payab
le
($24,
000 x
5.3%)
Feder 192
al
Unem
ploy
ment
Tax
Payab
le
($24,
000 x
0.8%)
$98,000. Also, $15,000 was subject to state (4.2%) and federal (0.8%) unemployment taxes.
Required:
(1) Journalize the entry to record the accrual of payroll.

(1) Sal 500,00
ari 0
es
Ex
pe
nse
31,500
So
cia
l
Se
cur
ity
Ta
x
Pa
ya
ble
(7.
0%
x
$4
50,
00
0)
7,500
Me
dic
are
Ta
x
(1.
5%
´
$5
00,
00
0)
98,000
E
mp
loy
ees
Fe
d.
Inc
.
Ta
x
Pa
ya
ble
363,000
Sal
ari
es
Pa
ya
ble
(2) Pa 39,750
yro
ll
Ta
x
Ex
pe
nse
Social 31,500
Securit
y Tax
Payabl
e
Medica 7,500
re Tax
Payabl
e
State 630
Unemp
loymen
t Tax
Payabl
e
Federal 120
Unemp
loymen
t Tax
Payabl
e
157. The payroll register of Seaside Architecture Company indicates $970 of Social Security and $257 of
Medicare tax withheld on total salaries of $16,500 for the period. Federal withholding for the period totaled
$4,235. Provide the journal entry for the period’s payroll.
Salary Expense 16,500

Social Security Taxes Payable 970
Medicare Taxes Payable 257
Federal Withholding Taxes Payable 4,235
Salaries Payable 11,038
158.
The payroll register of Seaside Architecture Company indicates $870 of Social Security and $217 of Medicare
tax withheld on total salaries of $14,500 for the period. Assume earnings subject to state and federal
unemployment compensation taxes are $5,250. at the federal rate of 0.8% and state rate of 5.4%. Provide the
journal entry to record the payroll tax expense for the period.
Payroll Tax Expense 1,412.50

Social Security Taxes Payable 870.00
Medicare Tax Payable 217.00
State Unemployment Tax Payable 283.50*
Federal Unemployment Tax Payable 42.00**
* $5,250 ´ 5.4% **$5,250 ´ 0.8%
159. List five internal controls that relate directly to payroll.
All of the cash payment controls.

Proper written authorization of additions and deletions of employees.
Proper written authorization of payroll rate changes.
Independent testing of changes in computerized payrolls.
Control of employee attendance records.
Verification that employees are correctly recording their time and attendance.
Blank payroll checks controlled and accounted for.
Controlled access to check signing machine.
Separate payroll bank account.
160. The payroll summary for December 31 for Waters Co. revealed total earnings of $80,000. Earnings
subject to 6% social security tax were $60,000; earnings subject to 1.5% Medicare tax were $80,000; and
earnings of $3,000 were subject to 4.3% state and 0.8% federal unemployment compensation tax. Journalize
the entry to record the accrual of payroll taxes.
Payroll Tax Expense 4,953

Social Security Tax Payable ($60,000 x 6%) 3,600
Medicare Tax Payable ($80,000 x 1.5%) 1,200
State Unemployment Compensation Tax Payable ($3,000 x 4.3%) 129
Federal Unemployment Compensation Tax Payable ($3,000 x 0.8%) 24
161. Darius Company has the following information for the pay period of January 15 - 31, 20xx.

Assuming no employees are subject to ceilings for their earnings, calculate Salaries Payable and Employer Payroll Taxes Payable.
Salaries Payable:
Gross payroll $20,000

Less: Social security ($20,000 x 6%) $1,200
Medicare ($20,000 x 1.5%) 300
Federal income tax withheld 2,500 4,000
$16,000
Employer Payroll Taxes Payable:
Social security ($20,000 x 6%) $1,200

Medicare ($20,000 x 1.5%) 300
Federal unemployment ($20,000 x .8%) 160
State unemployment ($20,000 x 5.4%) 1,080
$2,740
withheld, $950; Social security tax rate, 6.5% on maximum of $100,000; and Medicare tax rate, 1.5% on all
earnings; state unemployment compensation tax, 3.4% on the first $7,000; federal unemployment compensation
tax, .8% on the first $7,000.
Calculate the employer's payroll tax expense if:
a. this is the first payroll of the year and the employee has no cumulative earnings for the year to date.
b. the employee’s cumulative earnings for the year prior to this week equal $6,200.
c. the employee’s cumulative earnings for the year prior to this week equal $98,700.
Employee wages = (40 x $45 + 8 x $67.50) $2,340
a. Social security: $2,340 x 6.5% $152.10

Medicare: $2,340 x 1.5% 35.10
State unemployment: $2,340 x 3.4% 79.56
Federal unemployment: $2,340 x 0.8% 18.72
Total $285.48
b. Social security: $2,340 x 6.5% $152.10

Medicare: $2,340 x 1.5% 35.10
State unemployment: $800 x 3.4% 27.20
Federal unemployment: $800 x 0.8% 6.40
Total $220.80
c. Social security: $1,300 x 6.5% $ 84.50

Medicare: $2,340 x 1.5% 35.10
Total $119.60
163. The following totals for the month of February were taken from the payroll register of Arcon Company:

Social security and medicare taxes withheld 975
Retirement savings 500
Salaries subject to federal and state unemployment 4,000
taxes of 6.2%
How much is the total payroll expense for Arcon Company for this payroll?
Assume that the monthly salaries expense remains the same for the entire year and no employees are hired or fired during that time. Based on what
you learned in Chapter 11 about payroll taxes, do you expect the total payroll expense to stay the same every month? Explain.
Total payroll expense: $13,000 salaries + $975 matching social security and medicare taxes +
$248 ($4,000 x 6.2%) unemployment taxes = $14,223
Total payroll expense is not expected to stay the same every month. The salaries subject to unemployment
taxes should soon be zero and it is possible that some employees may exceed the limit for social security tax
before the year ends, so total payroll expense should decrease.
164. According to a summary of the payroll of Sinclair Company, $505,000 was subject to the 6.0% social
security tax and $545,000 was subject to the 1.5% Medicare tax. Also, $10,000 was subject to state and federal
unemployment taxes.
Required:
(1) Calculate the employer’s payroll taxes using the following rates: State unemployment, 4.2%; Federal unemployment, 0.8%.

(1) So $30,300
cia
l
sec
uri
ty
tax
(6
%
´
$5
05,
00
0)
Me 8,175
dic
are
tax
(1.
5%
´
$5
45,
00
0)
Sta 420
te
un
em
plo
ym
ent
(4.
2%
´
$1
0,0
00)
Fe 80
der
al
un
em
plo
ym
ent
(0.
8%
´
$1
0,0
00)
$38,975
(2) Pa 38,975
yro
ll
Ta
x
Ex
pe
nse
Social 30,300
Securit
y Tax
Payabl
e
Medica 8,175
re Tax
Payabl
e
State 420
Unemp
loymen
t Tax
Payabl
e
Federal 80
Unemp
loymen
t Tax
Payabl
e
165. Martin Services Company provides their employees vacation benefits and a defined contribution pension
plan. Employees earned vacation pay of $39,500 for the period. The pension plan requires a contribution to
the plan administrator equal to 9% of employee salaries. Salaries were $750,000 during the period. Provide
the journal entry for (a.) the vacation pay and (b.) the pension benefit.
a.
Vacation Pay 39,500

Expense
Vacation Pay Payable 39,500
b.
Pension Expense 67,500
Cash 67,500
166. Below are two independent sets of transactions for Welcott Company:
(1) Welcott provides its employees with varying amounts of vacation per year, depending on the length of
employment. The estimated amount of the current year’s vacation pay is $78,000. Journalize the adjusting
entry required on January 31, the end of the first month of 2010, to record the accrued vacation pay.
(2) Welcott maintains a defined contribution pension plan for its employees. The plan requires quarterly
installments to be paid to the funding agent, Northern Trust, by the fifteenth of the month following the end of
each quarter. Assuming that the pension cost is $119,600 for the quarter ended December 31, journalize entries
to record (a) the accrued pension liability on December 31 and (b) the payment to the funding agent on January
15.
(1) Vacat 6,500

ion
Pay
Expe
nse
Va 6,500
cat
ion
Pa
y
Pa
ya
ble
Vac
atio
n
pay
accr
ued
for
Janu
ary,
$78,
000
´
1/12
.
(2)
a. Dec. 31 Pe 119,
nsi 600
on
Ex
pe
nse
Unf 119,60
und 0
ed
Pens
ion
Liab
ility
To
record
quarter
ly
pensio
n cost.
b. Jan. 15 Un 119,
fun 600
de
d
Pe
nsi
on
Lia
bili
ty
Cas 119,60
h 0
167. Ecco Company sold $150,000 of kitchen appliances during September under a 6 month warranty. The
cost to repair defects under the warranty is estimated at 6% of the sales price. On October 15 a customer
required a $200 part replacement, plus $85 labor under the warranty.
Provide the journal entry for (a.) the estimated expense on September 30 and (b.) the October 15 warranty
work.
a.
Product 9,000*
Warranty
Expense
Product Warranty Payable 9,000
*$150,000 ´ 6%
b.
Product Warranty 285
Payable
Supplies 200
Wages Payable 85
168. Florida Keys Construction installs swimming pools. They calculate that warranty obligations are 3% of
gross sales. For the year just ending Florida Keys’ gross sales were $1,450,000. Due to previous quarter
recognitions, the Warranty Liability account has a credit balance of $28,700. Determine the year’s total
warranty liability and journalize any necessary value to establish the year’s liability at December 31st.
Due to sales, $1,450,000, warranty liability is $43,500 ($1,450,000 ´ 3%). Since $28,700 has already been
recognized, $14,800 (or $43,500 - $28,700) must still be recognized.
Dec 31st Warranty 14,800

Expense
Warranty 14,800
Payable
169. Aqua Construction installs swimming pools. They calculate that warranty obligations are 5% of gross
sales. For the year just ending Aqua’s gross sales were $1,500,000. Due to previous quarter recognitions, the
Warranty Liability account has a credit balance of $48,700. Determine the year’s total warranty liability and
journalize any necessary value to establish the year’s liability at December 31st.
Due to sales, $1,500,000, warranty liability is $75,000 ($1,500,000 ´ 5%) . Since $48,700 has already been
recognized, $26,300 ($75,000 - $48,700) must still be recognized.
Dec 31st Warranty 26,300

Expense
Warranty 26,300
Payable
170. Lamar Industries warrants its products for one year. The estimated product warranty is 3% of
Required:
warranty.
(1) P 5,70
r 0
o
d
u
ct
W
ar
ra
nt
y
E
x
p
e
n
s
e
Prod 5,70
uct 0
War
rant
y
Paya
ble
To
reco
rd
warr
anty
expe
nse
for
June
,
3% ´
$190,0
00.
(2) P 235
r
o
d
u
ct
W
ar
ra
nt
y
P
a
y
a
bl
e
Sup 185
plies
Wag 50
es
Paya
ble
171. Hadley Industries warrants its products for one year. The estimated product warranty is 4% of
Required:
warranty.
(1) P 8,40
r 0
o
d
u
ct
W
ar
ra
nt
y
E
x
p
e
n
s
e
Prod 8,40
uct 0
War
rant
y
Paya
ble
To
reco
rd
warr
anty
expe
nse
for
June
4% ´
$210,0
00.
(2) P 280
r
o
d
u
ct
W
ar
ra
nt
y
P
a
y
a
bl
e
Sup 205
plies
Wag 75
es
Paya
ble
172. The current assets and current liabilities for Kolbie Company and Newton Company are shown as follows
at the end of 2012.
Kolbie Company ( in millions) Newton Company (in millions)

For the Year ending December 31, For the Year ending December 31,
2012 2012
Current Assets:
Cash and cash equivalents $8,352 $8,546
Short-term investments 6,034 752
Accounts receivable 3,029 5,152
Inventories 346 660
Other current assets* 2,195 2,829
Total current assets $19,956 $17,939
Current Liabilities:
Accounts payable $4,970 $10,430
Accrued and other current liabilities 3,329 6,361
Total current liabilities $8,299 $16,791
*These represent prepaid expenses and other non-quick current assets.
Required:
(1) Determine the quick ratio for both companies. Round to two decimal places.
(2) Interpret the quick ratio difference between the two companies.
(1)
Kolbie Co. Newton Co.
Quick Ratio 2.10 0.86
Quick Ratio = Quick Assets /
Current Liabilities
Kolbie Co.:
Quick Ratio = ($19,956 – 346 –

2,195) / $8,299 = 2.10
Newton Co.:
Quick Ratio = ($17,939 – 660 –

2,829)/ $16,791 = 0.86
(2) It is clear that Kolbie’s short-term

liquidity is stronger than Newton’s.
Kolbie’s quick ratio is 144% [(2.10 –
0.86)/0.86] higher. Kolbie has a
much stronger relative cash and
short-term investment position than
does Newton. Kolbie’s cash and
short-term investments are over 72%
of total current assets (173% of
current liabilities), compared to
Newton’s 52% of total current assets
(55% of current liabilities). In
addition, Newton’s relative accounts
payable position is larger than
Kolbie’s, indicating the possibility
that Newton has longer supplier
payment terms than does Kolbie. A
quick ratio of 2.10 for Kolbie
suggests ample flexibility to make
strategic investments with its excess
cash, while a quick ratio of 0.86 for
Newton indicates an efficient but
tight quick asset management policy.
173. The Core Company had the following assets and liabilities as of December 31, 2012:
ASSETS
Cash $58,000
Inventory 20,000
Equipment 50,000
LIABILITIES
Calculate: Current Ratio, Working Capital and Quick Ratio
Current Ratio: ($58,000 + $25,000 + $20,000) / ($20,000 + $12,000) = 3.2
Working Capital: $103,000 - $32,000 = $71,000
Quick Ratio: ($58,000 + $25,000) / ($20,000 + $12,000) = 2.6
174. On October 1, Ramos Co. signed a $90,000, 60-day discounted note at the bank. The discount rate was
6%, and the note was paid on November 30. (Assume a 360-day year is used for interest calculations.)
(a) Journalize the entries for October 1 and November 30.

(b) Assume that Ramos Co. signed a 6% note. Journalize the entries for October 1 and November 30.
(a) Oct. 1 Cash 89,100

Nov. 30 Notes Payable 90,000

Cash 90,000
(b) Oct. 1 Cash 90,000


Cash 90,900
175. Journalize the following entries on the books of the borrower and creditor. Label accordingly. (Assume a
360-day year is used for interest calculations.)
Jun. 1 Regis Co. purchased merchandise on account from Winthrop Co., $60,000, terms n/30.
Jun. 30 Regis Co. issued a 60-day, 5% note for $60,000 on account.
Aug. 29 Regis Co. paid the amount due.
Regis Co.
(Borrower)
June 1 Merchandise Inventory 60,000

Accounts Payable 60,000
30 Accounts Payable 60,000

Aug. 29 Notes Payable 60,000

Cash 60,500
Winthrop Co.
(Creditor)
June 1 Accounts Receivable 60,000

Sales 60,000
30 Notes Receivable 60,000

Accounts Receivable 60,000
Aug. 29 Cash 60,500

Notes Receivable 60,000
Interest Revenue 500
176. Journalize the following entries on the books of Winston Co. for August 1, September 1, and November
30. (Assume a 360-day year is used for interest calculations.)
Aug. 1 Winston Co. purchased merchandise for $75,000 on account from Bagley Co., terms n/30.
Sept. 1 Winston Co. issued a 90-day, 6% note for $75,000 on account.
Nov. 30 Winston Co. paid the amount due.
Aug. 1 Merchandise Inventory 75,000

Accounts Payable 75,000
Sept. 1 Accounts Payable 75,000


Cash 76,125
177. The following information is for employee Ella Dodd for the week ended March 15.
Total hours worked: 48

Rate: $15 per hour, with double time for all hours in excess of 40
Federal income tax withheld: $200
United Fund deduction: $50
Cumulative earnings prior to current week: $6,400
Tax rates:
Social security: 6% on maximum earnings of $100,000. Medicare tax:
1.5% on all earnings.
State unemployment: 3.4% on maximum earnings of $7,000; on employer
Federal unemployment: 0.8% on maximum earnings of $7,000; on employer
(a) Determine (1) total earnings, (2) total deductions, and (3) cash paid.
(b) Determine each of the employer's payroll taxes related to the earnings of Ella Dodd for the week ended March 15.
(a)
(1) 40 hours at $15 $600.00

8 hours at $30 240.00 $840.00
(2) Deductions:
Income tax $200.00
United Fund deduction 50.00
Social Security tax, 6% of $840 50.40
Medicare tax, 1.5% of $840 12.60 313.00
(3) Cash paid $527.00
(b)
Social security and Medicare taxes, 7.5% of $840 $63.00
State unemployment tax, 3.4% ´ $600 20.40
Federal unemployment tax, 0.8% ´ $600 4.80
Total $88.20
178. The summary of the payroll for the monthly pay period ending July 15 indicated the following:
Sales salaries $125,000

Office salaries 35,000
Medical insurance withheld 7,370
Social security tax withheld 10,200
Medicare tax withheld 2,550
Journalize the entries to record (a) the payroll and (b) the employer's payroll tax expense for the month. The state unemployment tax rate is 3.1%,
and the federal unemployment tax rate is 0.8%. Only $25,000 of salaries are subject to unemployment taxes.
(a)
Sales Salaries Expense 125,000

Office Salaries Expense 35,000
Social Security Tax Payable 10,200
Medicare Tax Payable 2,550
Federal Income Tax Payable 32,300
Medical Insurance Payable 7,370
Salaries Payable 107,580
(b)
Payroll Taxes Expense 13,725

State Unemployment Tax Payable 775
Federal Unemployment Tax Payable 200
179. Excel Products Inc. pays its employees semimonthly. The summary of the payroll for December 31,
2012 indicated the following:
Salary expense $120,000

For the year ended 2012, $40,000 of the December 31 payroll is subject to social security tax of 6%; $120,000 is subject to Medicare tax of 1.5%;
$10,000 is subject to state unemployment tax of 4.3% and federal unemployment tax of 0.8%. As of January 1, 2013 all of the $120,000 is subject to
all payroll taxes. Present the journal entries for payroll tax expense if the employees are paid (a) December 31 of the current year, (b) January 2 of
the following year.
(a)
Social Security Tax, 6% on $40,000 $2,400

Medicare Tax, 1.5% on $120,000 1,800
State Unemployment, 4.3% on $10,000 430
Federal Unemployment, .8% on $10,000 80
Total Payroll Tax Expense $4,710

State Unemployment Tax Payable 430
(b)
Social Security Tax, 6% on $120,000 $ 7,200
Medicare Tax, 1.5% on $120,000 1,800
State Unemployment Tax, 4.3% on $120,000 5,160
Federal Unemployment Tax, .8% on $120,000 960
Total Payroll Tax Expense $15,120

State Unemployment Tax Payable 5,160
180. Journalize the following transactions:
31 Paid Reliable Insurance Co. $85,000 as fund trustee for the pension plan. The annual pension cost is $109,000.
Dec. 31 Product Warranty Expense 116,400

Product Warranty Payable 116,400*
*$7,760,000 ´ .015 = $116,400
31 Vacation Pay Expense 46,000

31 Pension Expense 109,000

Cash 85,000
Unfunded Pension Liability 24,000
181. Journalize the following transactions for Riley Corporation:
31 Paid First Insurance Co. $55,000 as fund trustee for the pension plan. The annual pension cost is $87,000.
Dec. 31 Product Warranty Expense 221,250
Product Warranty Payable 221,250*
*$8,850,000 ´ .025 = $221,250
31 Vacation Pay Expense 75,000

31 Pension Expense 87,000

Cash 55,000
Unfunded Pension Liability 32,000
182. Several months ago, Jones Company experienced a spill of hazardous materials into the White River from
one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $405,000. The
company contested the fine. In addition, an employee is seeking $180,000 damages related to the spill. Finally,
a homeowner has sued the company for $260,000. Although the homeowner lives 30 miles downstream from
the plant, he believes that the spill has reduced his home’s resale value by $260,000.
Jones’ legal counsel believes the following will happen in relationship to these incidents:
(a) It is probable that the EPA fine will stand.
(b) An out-of-court-settlement for $165,000 has recently been reached with the employee, with the final papers to be signed next
week.
(c) Counsel believes that the homeowner’s case is much weaker and will be decided in favor of Jones Company.
(d) Other litigation related to the spill is possible, but the damage amounts are uncertain.
Required:
(1) Based on this information, journalize the contingent liabilities associated with the spill. Use the account “Damage Awards and
Fines” to recognize the expense for the period.
(2) Prepare any note disclosure related to the spill.

(1) Dama 570,000
ge
Awar
ds
and
Fines
EPA Fines Payable 405,000
Litigation Claims Payable 165,000
Note:
The
“dam
age
award
s and
fines”
woul
d be
disclo
sed
on the
inco
me
state
ment
under
“Othe
r
expen
ses.”
(2) The
comp
any
exper
ience
da
hazar
dous
mater
ials
spill
at one
of its
plants
durin
g the
previ
ous
perio
d.
This
spill
has
result
ed in
a
numb
er of
lawsu
its to
which
the
comp
any is
a
party.
The
Envir
onme
ntal
Prote
ction
Agen
cy
(EPA
) has
fined
the
comp
any
$405,
000,
which
the
comp
any is
conte
sting
in
court.
Altho
ugh
the
comp
any
does
not
admit
fault,
legal
couns
el
believ
183. For Company A and Company B:
(a) Calculate the quick ratio for each company.

(b) Comment on which one is more able to meet current liabilities.
Company A Company B
Account Dr Cr Dr Cr
Cash $21 $ 25
Cash Equivalents 8 10
Trade Notes Receivable 7 6
Accounts Receivable 6 7
Prepaid Expenses 5 5
Merchandise Inventory 14 8
Fixed Assets 20 55
Accumulated Depreciation-
Fixed Assets $ 5 $ 25
Accounts Payable 26 8
Current Accrued Liabilities 13 19
Mortgage Payable 17 24
Capital 20 40
Total $81 $81 $116 $116
(a) Company A Quick ratio: $42 ÷ $39 = 1.08

Company B Quick ratio: $48 ÷ $27 = 1.78
(b) Company B would be more liquid.

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Chapter 11--Current Liabilities and Payroll

3. All long-term liabilities eventually become current liabilities.

4. The borrower is the one who issues a note payable to a creditor.

15. Form W-2 is called the Wage and Tax Statement.

20. Payroll taxes are based on the employee's net pay.

22. FICA tax is a payroll tax that is paid only by employers.

38. Internal controls for cash payments also apply to payrolls.

51. Current liabilities are

52. Notes may be issued

70. A current liability is a debt that is reasonably expected to be paid

A. Interest Expense 9,600

D. Notes Payable 120,000

B. Notes Receivable 4,700

C. Notes Payable 4,700

D. Accounts Payable 4,700

73. Current liabilities are:

76. The current portion of long-term debt should

89. The total earnings of an employee for a payroll period is referred to as

91. Payroll taxes levied against employees become liabilities

Salaries expense $14,000

The entry to record the payment of net pay would include a

Gross payroll $16,000 Federal income tax withheld $4,000

Salaries Payable would be recorded for

98. Most employers are levied a tax on payrolls for

99. Payroll entries are made with data from the

104. Use the following information to answer the following questions.

105. Use the following information to answer the following questions.

The entry to record accrual of employer’s payroll taxes would include a

Salaries expense $15,000

109. Use the following information to answer the following questions.

Gross payroll $10,000 Federal income tax withheld $1,800

Salaries Payable would be recorded in the amount of:

110. Use the following information to answer the following questions.

Gross payroll $10,000 Federal income tax withheld $1,800

112. Which of the following is an example of a variable component of a payroll system?

118. Vacation pay payable is reported on the balance sheet as a(n)

119. An unfunded pension liability is reported on the balance sheet as

125. Quick assets include

127. Another name for the quick ratio is

Accounts payable $ 30,000

140. Which of the following is the most desirable quick ratio?

Ref Account Debit Credit

(1) Journalize Roseland’s entries to record:

a. The issuance of the note.

b. The payment of the note at maturity.

(2) Journalize CorpOne’s entries to record:

a. The receipt of the note.

b. The receipt of the payment of the note at maturity.

(2) Determine the proceeds received by the borrower in each situation.

Single person (including head

Not over $51 $0

Over- But not over- of excess over -

(1) Determine the gross pay for the week.

(2) Determine the net pay for the week.

Social security 6.0%

State unemployment 5.3%

Federal unemployment 0.8%