Accounting One - Chapter Eleven

Obligations that are due within one year are:

reported as a current liability.

A company can be aware of an obligation, but not know how much it will be required to pay. This is known as an uncertainty in:

whom to pay.

when to pay.

how much to pay.

how much to pay.

On February 13, a jewelry store sells an engagement ring with a sales price of $10,000 to a nervous young man, who pays in cash. The sale is subject to a 9.75 percent sales tax. Prepare the revenue portion of the journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Debit Cash $10,975

Credit Sales $10,000

Credit Sales Tax Payable $975

On March 1, a designer received a check for $7,500 from a customer for services to be provided after the customer chooses a color scheme for the first floor of her house. On July 31, the designer completed the design work for this customer. Prepare the July 31 journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

July 31

Debit Unearned Revenue $7,500

Credit Services Revenue $7500

Coolidge Company owes $1,000 for merchandise inventory purchased from Ross Company during April. The amount owed is now past-due. On June 15, Coolidge meets with Ross and convinces Ross to accept $400 cash and a 30-day, 10 percent, $600 note payable to replace the account payable. Prepare the June 15 journal entry for Coolidge entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Debit Accounts Payable $1000

Credit Notes Payable $600

Credit Cash $400

(from perspective of Coolidge)

On September 1, Vicario, Incorporated, borrows $100,000 from First National Bank at 6 percent annual interest. This note is due in 90 days. Prepare the September 1 journal entry for Vicario by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Debit Cash $100,000

Credit Notes Payable $100,000

On December 16, Carboy, Incorporated, borrows $120,000 cash from Third National Bank at 9 percent annual interest. The note is due in 45 days. At December 31, Carboy records any unpaid interest with an adjusting entry. On January 30 of the next year, Carboy pays the principal and interest owed on the bank note. Prepare the January 30 entry by Carboy for the payment (maturity) of the note plus interest by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Debit Notes Payable $120,000

Debit Interest Payable $450

Debit Interest Expense $900

Credit Cash $121,350

SMARTBOOK

SMARTBOOK

A(n) ______ (asset/liability/revenue) is a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events.

Field 1: liability

A ______ (long-term/current) liability is a liability due within one year or the company's operating cycle, whichever is longer.

Field 1: current, short-term, or short term

Ace Company borrowed $10,000 from Fair Rates Bank by signing a two-year note payable. Ace's operating cycle is 14 months. This note would be considered a ______ on the balance sheet.

long-term liability

A known liability is a measurable obligation arising from agreements, contracts, or laws. Known liabilities would include all of the following items, except:

notes payable.

payroll obligations.

unearned revenues.

warranties.

accounts payable.

A measurable obligation arising from agreements, contracts, or laws is called a ______ liability.

Field 1: known

A liability created by buying goods or services on credit is typically recorded to ______ ______.

Field 1: accounts

Field 2: payable

When a company has a current obligation to make a future payment to their supplier due to a shipment of supplies that were received last week, the company would record this transaction with an increase to an asset account and a(n) ______ account.

liability

Zion Co. sells $100 of merchandise and collects $10 sales tax. The sales tax is recorded to which account?

Sales tax payable

Which of the following items would be considered a current liability?

Notes payable, due in 3 months

Accounts payable, terms n/30

Wages payable

Fortiz Co. receives $85 for the sale of merchandise with a sales price of $80 and sales tax of $5. The entry to record the $5 sales tax would require which of the following?

Credit to Sales Tax Payable

Obligations due after one year or one operating cycle, whichever is longer, are considered to be:

long-term liabilities.

Amounts received in advance from customers for future products or services are typically recorded in a liability account called ______.

Unearned Revenues

A known liability is a measurable obligation arising from agreements, contracts, or laws. Known liabilities would include all of the following items, except:

warranties.

John Grey owns Grey's Snow Plowing. In October, Grey's collects $12,000 cash for 6 commercial accounts for which he will provide snowplowing for the entire season. To record this transaction, Grey will enter which of the following entries?

Credit to Unearned Plowing Revenue

Debit to Cash

Spot Co. purchases office supplies from Sally Supplies, Inc.. Spot does not pay cash for the purchase, and now owes the amount to Sally. This transaction would typically be recorded in which account in Spot's books?

Accounts Payable

A written promise to pay a specified amount on a stated future date within one year or the company's operating cycle, whichever is longer, is considered a ______.

short-term note payable

Bryne Co. sells merchandise and collects a 5% state sales tax. The tax is recorded on Bryne's general ledger as a(n) ______ account.

liability

Niwa Co. replaced a $3,000 account payable balance to Fiona Co. with a 60-day, $3,000 note bearing 5% annual interest. Niwa's entry to record this transaction would include which of the following entries?

Credit to Notes Payable

Debit to Accounts Payable

Damen's Co. sells merchandise with a list price of $500 and collects sales tax of $50. The sales tax would be recorded with a credit to which account?

Sales Tax Payable

Patel Paving collected $1,000 cash in advance from a customer to provide paving services next month. The entry to record this cash receipt would include the following entries?

Credit to Unearned Paving Fees

Debit to Cash

On January 1, Avers Co. borrowed $10,000 by extending their past-due account payable with a a 60-day, 8% interest-bearing note. On March 1, the due date, Avers pays the amount due in full. This entry would be recorded by Avers with a debit to (Accounts Payable/Notes Payable/Cash) __ in the amount of __.

Debit Notes Payable; $10,000

Debit Interest Expense $133

Credit Cash $10,133

A company sells 12-month subscriptions to popular magazines. During the month of May, the company sells $10,000 in magazines, which will start in June. The journal entry to record the sales not yet earned will include a credit to which account?

Unearned Subscription Revenue

Winn Co. signs a 60 day note payable for a $15,000 copy machine with an interest rate of 8%. Winn will record total interest expense of

$15,000 x .08 x (60/360) = $200.

Cadie Construction Co. signed a note promising to pay a cement supplier $1,000 60-days from now. As a result of this transaction, Cadie would record a(n) ______ on her balance sheet.

short-term note payable

______ is the difference between the amount borrowed and the amount repaid.

Field 1: Interest

Bushra Co. replaced a $1,000 account payable balance to Elin Co. with a 120-day, $1,000 note bearing 8% annual interest. Bushra's entry to record this transaction would include a credit to which account?

Notes Payable

The (principal/maturity) ______ of a note is the amount that the signer of a note agrees to pay back when it matures, not including interest.

Field 1: principal or face value

On June 1, Button Co. borrowed $1,000 cash from National Bank by signing a 120-day, 6% interest-bearing note. Button will record this transaction with a credit to ______ in the amount of ______.

Notes Payable; $1,000

On June 1, Sawyer Co. borrowed $5,000 by extending their past-due account payable with a 45-day, 12% interest-bearing note. On July 16, the due date, Sawyer pays the amount due in full. Sawyer would record this payment with a (debit/credit) ______ to Interest Expense in the amount of ______.

debit; $75

Sheldon has a $15,000 liability for a machine that has an interest rate of 10%. The interest expense for one year is?

$1,500

On March 1, Young Co. borrowed $1,000 cash from Superior Bank by signing a 120-day, 6% interest-bearing note. On June 29, Young pays the amount due in full. This entry would be recorded by Young with a credit to ______ in the amount of ______.

Cash; $1,020

$1,000 x .06 x (120/360) = $20. Cash will be credited for $1,000 + 20.

On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest note. On April 8, Lee Co. will pay National Bank a total of $101,500. The difference between the amount paid back to National Bank of $101,500 and the amount borrowed of $100,000 (or $1,500) represents ______ expense.

Field 1: interest

On December 1, Hansen Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest-bearing note. On December 31, Hansen will record an adjusting entry by debiting interest expense in the amount of ______.

You are recording the amount accrued from 12/1 - 12/31: $100,000x.06x(30/360)=$500.

On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest note. On April 8, Lee Co. will pay National Bank a total of $101,500. Principal on the note totals $______.

Field 1: 100000

On July 1, Scene Co. borrowed $15,000 cash from First Bank by signing a 30-day, 5% interest-bearing note. Scene will record this entry with a credit to Notes Payable in the amount of $______.

Field 1: 15000

On March 1, Young Co. borrowed $1,000 by extending their past-due account payable with a 120-day, 6% interest-bearing note. On June 29, the due date, Young pays the amount due in full. This entry would be recorded by Young with a credit to __ in the amount of __.

Cash; $1,020

______ is(are) the total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions such as taxes.

Gross pay

On January 1, Avers Co. borrowed $10,000 cash from Main St. Bank by signing a 60-day, 8% interest-bearing note. On March 1, Avers pays the amount due in full. The March 1 entry would be recorded by Avers with a debit to (Accounts Payable/Notes Payable/Cash) ______ in the amount of ______.

Notes Payable; $10,000

Jorge Lopez worked 40 hours this week and earned $1,000. Federal and state taxes, and other withholdings totaled $350. Jorge's net pay totals $______.

Field 1: 650 or $650

On November 1, Lance Co. borrows $90,000 cash from First Bank by signing a 90-day, 5% interest-bearing note. On December 31, Lance will record an adjusting entry by crediting ______ in the amount of ______.

Interest Payable; $750

Which of the following items is not a payroll deduction?

Net pay

On June 1, Button Co. borrowed $1,000 cash from National Bank by signing a 120-day, 6% interest-bearing note. Button will record this transaction with a credit to ______ in the amount of ______.

Notes Payable; $1,000

The Federal Insurance Contributions Act provides retirement, disability, survivorship, and medical benefits to qualified workers. Laws require employers to withhold ______ taxes from employees' pay to cover costs of the system.

FICA

Jorge Lopez worked 40 hours this week and earned $1,000 in total compensation. Federal and state taxes and other withholdings totaled $350. Jorge's gross pay totals $______.

Field 1: 1000 or 1,000

Employee income tax depends on:

employer's income

number of employee withholding allowances

number of employer withholding allowances

employee's income

number of employee withholding allowances

employee's income

Gross pay minus all deductions—including federal and state taxes, FICA and any voluntary deductions equals ______ pay.

Field 1: net, take-home, or take home

Examples of employee voluntary deductions may include all of the following except:

medical premiums.

charitable giving.

pension contributions.

unemployment taxes.

unemployment taxes.

Harvey Co. has current period employee salary expenses of $800. Employee withholdings total $300. The entry to accrue current period payroll will include a credit to Salaries ______ in the amount of $______.

Field 1: Payable

Field 2: 500

Amounts withheld from an employee's gross pay are called:

payroll deductions

Employers must pay employee taxes in addition to those paid by the employees. Which of the following is paid only by the employer?

Unemployment

Leo Calvin is required to have ______ taxes withheld from his pay in order to cover the cost of future retirement, disability, survivorship and medical benefits.

FICA

The federal government requires that employers are taxed on employee wages to provide unemployment benefits to qualified workers. These taxes are known as:

FUTA

Federal Unemployment Tax Act

Amounts withheld from employee's earnings for employee income tax is considered a ______ by the employer until the government is paid.

current liability

State unemployment taxes imposed on employers in order to provide unemployment benefits to qualified workers are known as (use acronym) ______.

Field 1: SUTA

State Unemployment Tax Act

Employers often withhold amounts from employees' earnings which arise from employee requests, contracts, unions, or other agreements. These withholdings are called employee ______ and include items such as medical premiums.

voluntary deductions

Employer taxes, such as SUTA, are recorded with a debit to Employer Tax Expense and a credit to SUTA (expense/payable) ______ until payments are submitted to the state.

Field 1: Payable

Teva Co. has current period employee salary expense of $2,000. Employee withholdings total $850. To accrue the current period payroll, Salaries Payable will be (debited/credited) ______ in the amount of ______.

credited; $1,150

2000-850=1150

Which of the following liabilities could be a multi-period known liability?

Accounts Payable

Wages Payable

Notes Payable

Unearned Subscription Revenues

Notes Payable

Unearned Subscription Revenues

Unemployment taxes are examples of (employee/employer) ______ required taxes.

Field 1: employer

A known obligation of an uncertain amount that can be reasonably estimated is called a(n) ______ liability.

Field 1: estimated

Federal government taxes implemented on employers in order to provide unemployment benefits to qualified workers are known as (use acronym) ______.

FUTA

Employee ______ are perks that are provided in addition to salaries and wages, such as all or part of medical, dental, life and disability insurance.

benefits

State unemployment taxes imposed on employers in order to provide unemployment benefits to qualified workers are known as:

SUTA

Abby Co. allows each employee two weeks of paid time off during each calendar year. Since employees are working for 50 weeks, rather than 52 weeks, Abby must accrue the paid time off during the 50 weeks that the employees work. The year-end adjusting entry is recorded as a credit to the ______ account.

Vacation Benefits Payable

The journal entry to record employer tax accruals includes a debit to:

Payroll Tax Expense

Employee benefits that are paid by the employer are recorded in the Employee Benefit ______ account.

Field 1: Expense

Unearned subscription revenues that extends over multiple periods is an example of a ______ known liability.

multi-period

A ______ is when an employer provides employees with a percentage of the company's net income earned during the year.

bonus plan

A(n) ______ liability is a known obligation that is of an uncertain amount but that can be reasonably estimated.

estimated

A (repair/warranty) ______ is a seller's obligation to replace or fix a product (or service) that fails to perform as expected within a specified period.

Field 1: warranty

Which of the following items are considered employee benefits?

Medical insurance

Employee withholdings

Pension plans

State unemployment taxes

Medical insurance

Pension plans

Trighton's Trailer Co. sells trailers and provides a one-year warranty on all new trailer sales. Based on history, Trighton anticipates that 2% of trailers will be returned and will have a warranty cost of $100 per trailer. During the month, Victor sold 300 trailers for a total of $255,000. At the end of the month, Trighton will record $______ in warranty expense.

Field 1: 600

300*.02=6

6*100=600

Perez Co. sells automotive supplies and warranties them for a three-month period. Perez sold $10,000 of supplies during the month and anticipates that warranty repairs for these sales will total $250. The adjusting entry that Perez will make to record the warranty expense will include which of the following?

Credit to Estimated Warranty Liability

Debit to Warranty Expense

Theo Co. has two full-time employees who are provided health insurance at Theo's expense. At the end of the period, the cost of the insurance totals $1,400. The entry that Theo will make to accrue these costs include a debit to the ______ account.

Employee Benefits Expense

Angela Bennett is an employee of Marks Co. This past year, Angela received 1% of Marks net income, in addition to her annual salary. This added benefit is called a:

bonus plan

In order for a contingent liability to be recorded as a journal entry in the financial statements, it must be (probable/reasonably possible/remote) ______ and reasonably estimable.

Field 1: probable

Simar Sales Co. sells and installs kitchen appliances. Simar guarantees parts and labor for one year after installation. Simar would record potential claims in a(n) ______ account.

Estimated Warranty Liability

A potential legal claim is recorded

only if payment for damages is probable and the amount can be reasonably estimated.

Victor's Vacuum Sales Co. sells high quality vacuums and provides a one-year warranty on all new sales. Based on history, Victor anticipates that 3% of vacuums will be returned at a cost of $30 per vacuum. During the month, Victor sold 100 vacuums for a total of $35,000. At the end of the month, Victor will record ______ in Warranty Expense.

$90

100*.03 = 3

3*30=90

Keys Co. is located in Florida. An evacuation has been ordered due to Hurricane Edward, which is headed in the direction of Keys. Keys should record a contingent liability prior to the evacuation.

False

Reason:

Contingent liabilities cannot be recorded for future events.

Handy Holly Co. provides a variety of household repairs and warranties her work for a six-month period. Holly provided $13,000 of service fees during the month and anticipates that warranty repairs for these sales will total $400. The entry that Holly will make to record the estimated warranty expense will include a credit which account?

Estimated Warranty Liability

The ratio of income before interest expense (and any income taxes) divided by interest expense reflects the risk of a company not being able to pay fixed expenses if sales decline is called the ______ ratio.

times interest earned

Which of the following represent reasonably possible contingent liabilities?

debt guarantees

accounts payable

potential legal claims

warranties

debt guarantees

potential legal claims

When a company guarantees the payment of debt owed by a supplier, customer or another company, the guarantor usually discloses the guarantee as a (known/contingent)______ liability.

Field 1: contingent

Which of the following situations is not a contingent liability?

Future natural disaster

Kenesha Co. reported income before interest expense and income taxes of $30,000; interest expense of $3,000; and income taxes of $4,000. Calculate the times interest earned ratio.

30000/3000 = 10

Which of the following situations would not be required to be recorded in the financial statements or reported as a note to the financial statements?

The liability is probable, but the amount cannot be reasonably estimated.

The liability is possible, but cannot be reasonably estimated.

The liability is probable and estimated to be $10,000.

The liability is remote and estimated to be $30,000.

The liability is possible and estimated to be $25,000.

The liability is remote and estimated to be $30,000.