Current Liabilities
Medium Test
Medium Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
a. the matching principle
b. the historical cost principle
c. either a. or b.
d. the materiality principle
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a. current liabilities are paid within one year or less of incurring the obligation
b. liquidity refers to the company’s ability to meet long term obligations
c. current liabilities have an affect on liquidity
d. both a. & c.
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made?
a. employee income taxes withheld
b. employer’s share of FICA
c. employee health insurance withheld
d. all of the above
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a. reported in the footnotes
b. reported as a liability
c. reported as an expense
d. reported as a liability and reported in the footnotes
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a. Warranty expense is an estimate that is recorded when the customer makes the claim.
b. Warranty expense is not an estimate because it is recorded when the customer makes a claim
c. Current liabilities is decreased when a customer makes a claim.
d. Net income is decreased when a customer makes a claim.
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a. FUTA
b. SUTA
c. FICA
d. Medicare
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a. salary expense is equal to the net pay for the week
b. salaries payable is equal to the amount of withholdings
c. withholdings paid by the employee are recorded as liabilities
d. withholdings of employees are recorded as a decrease to cash
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a. paid by the company and paid by the employee
b. paid by the company only
c. paid by the employee only
d. paid to the government every two weeks if employees are paid every two weeks
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a. depends on the price of goods sold
b. is set by the individual retail store owner
c. is set by the individual city or state
d. varies with inflation and deflation
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a. the amount that is remotely possible it will be paid
b. the amount that is actually paid
c. the lowest amount that is probable
d. the highest amount that is probable
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Total wages earned | 561,987 |
Total salaries earned | 856,452 |
Total federal income tax withholdings | 182,854 |
Total social security tax withholdings | 81,852 |
Medical insurance withholdings | 52,096 |
Employee health club fees withheld | 3,950 |
Employee parking fees withheld | 2,510 |
Federal unemployment tax was equal to 1.6% of total wages and salaries
State unemployment tax was equal to 0.4% of total wages and salaries
Medicare is taxed at 1.65% of total employee earnings
Record the transactions related to payroll for the company.
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Salaries expense | 856,452 |
Wages expense | 561,987 |
Federal income tax withholding payable | 182,854 |
Social security tax withholding payable | 81,852 |
Medicare tax withholding payable | 23,404** |
Medical insurance withholding payable | 52,096 |
Health club fees withholding payable | 3,950 |
Parking fees withholding | 2,510 |
Salaries payable | 1,071,773*** |
** computed as salaries plus wages expense x given %
*** salaries and wages expense less all withholdings (amount that balances the journal entry)
Payroll Tax Expense | 133,625 |
Social security tax withholding payable | 81,852 |
Medicare tax withholding payable | 23,404 |
FUTA Payable | 22,695** |
SUTA Payable | 5,674** |
The payroll tax expense is the total of all payables in this entry
Employers must pay the same amount as employees for social security and medicare.
Do not do both entries together in the same entry. There are two plugs which will not work if it is done as one entry.
Determine what the company must record and report to shareholders.
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When a contingency is remote, the situation and estimated amounts is not mentioned in the footnotes or the financial statements.
When a contingency is probable, the lowest estimated amount is recorded as an expense and a liability in the financial statements and the situation is disclosed.
Sales | Warranty Expense | Claims | |
Year 1 | 100,000 | 6,000 | 3,900 |
Year 2 | 220,000 | 13,200 | 8,580 |
The company had $280,000 sales and $11,000 in claims during year 3.
A. Make the entries to record the sales, estimated warranty expense, and claims for year 3 only.
B. Determine the amount of warranty liability that will be reported on the balance sheet at the end of year 3.
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Warranty Expense | Sales | Estimate used | |
Year 1 | 6,000 | 100,000 | 6% of sales |
Year 2 | 13,200 | 220,000 | 6% of sales |
The company will use a consistent estimated for year 3:
Year 3 sales 280,000
x % sales x .06
Estimated warranty expense 16,800
A. Record the sales, estimated warranty expense, and claims for year 3 only.
Warranty expense 16,800
Warranty liability 16,800
Cash 280,000
Sales 280,000
Warranty Liability 11,000
Cash or Inventory 11,000
B. The balance in the warranty liability account is equal to:
Total warranty expense recorded in all 3 years | 36,000 |
– Total claims paid in all 3 years | (23,480) |
= Warranty liability at the end of the 3rd year | 12,520 |