ACC 201 (Chapter 9)– Multiple Choice Questions

Which of the following statements regarding liabilities is false?

A. A liability 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.

B. Potential future wages to be paid to employees should be recorded as liabilities.

C. Long-term liabilities are obligations due after one year, or the company’s operating cycle if

longer.

D. Liabilities are classified as either current or long term.

Potential future wages to be paid to employees should be recorded as liabilities

Which of the following statements regarding uncertainty in liabilities is false?

A. Liabilities can involve uncertainty in whom to pay.

B. A company can create a liability with a known amount even when the holder of the note may

not be known until the maturity date.

C. A company only records liabilities when it knows whom to pay, when to pay, and how

much to pay. Without all three, a liability cannot be recorded.

D. A company can be aware of an obligation but not know how much it will be required to pay.

A company only records liabilities when it knows whom to pay, when to pay, and how

much to pay. Without all three, a liability cannot be recorded

Accounts payable are:

A. Amounts owed to suppliers for products or services purchased on credit.

B. Amounts received in advance from customers for future services.

C. Also referred to as unearned revenues.

D. Always payable within 30 days.

Amounts owed to suppliers for products or services purchased on credit.

Amounts received in advance from customers for future products or services:

A. Are revenues.

B. Increase income.

C. Are liabilities.

D. Require an outlay of cash in the future.

Are liabilities

Sales taxes payable is reported as a(n):

A. Estimated liability.

B. Contingent liability.

C. Current liability.

D. Business expense.

Current liability.

If a company has advance ticket sales totaling $2,000,000 for the upcoming football season, the

receipt of cash would be journalized as:

A. Debit Sales, credit Unearned Revenue.

B. Debit Unearned Revenue, credit Sales.

C. Debit Cash, credit Unearned Revenue.

D. Debit Unearned Revenue, credit Cash.

Debit Cash, credit Unearned Revenue

A contingent liability is:

A. Always of a specific amount.

B. A potential obligation that depends on a future event arising from a past transaction or

event.

C. An obligation that will never require a future payment.

D. An obligation arising from a future event.

potential obligation that depends on a future event arising from a past transaction or

event.

Contingent liabilities must be recorded if:

A. The future event is probable, and the amount owed can be reasonably estimated.

B. The future event is remote.

C. The future event is reasonably possible but not estimable.

D. The amount owed cannot be reasonably estimated.

The future event is probable, and the amount owed can be reasonably estimated.

Debt guarantees are:

A. Never disclosed in the financial statement notes.

B. Considered to be contingent liabilities.

C. Recorded as liabilities even though it is highly unlikely that the original debtor will default.

D. Considered to be an unearned revenue

Considered to be contingent liabilities

In the accounting records of a defendant, lawsuits:

A. Are known liabilities.

B. Should always be recorded as a liability.

C. Should always be disclosed in financial statement notes.

D. Should be recorded if payment for damages is probable and the amount can be

reasonably estimated.

Should be recorded if payment for damages is probable and the amount can be

reasonably estimated

Interest expense is not:

A. Reported on the income statement.

B. A fixed expense.

C. Likely to vary due to short-term changes in sales or other operating activities.

D. A factor in determining a company's borrowing risk.

Likely to vary due to short-term changes in sales or other operating activities.

When a note comes due, the difference between the amount borrowed and the amount repaid is:

A. Interest.

B. Principal.

C. Face Value.

D. Accounts Payable.

Interest

Short-term notes payable:

A. Cannot replace an account payable.

B. Can be issued in return for money borrowed from a bank.

C. Are normally categorized as noncurrent liabilities.

D. Rarely involve interest charges.

Can be issued in return for money borrowed from a bank.

On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of

$21,600. What is the adjusting entry for the accrued interest at December 31 on the note?

Note: Use 360 days a year.

A. Debit Interest Payable, $192; credit Interest Expense, $192.

B. Debit Interest Payable, $576; credit Interest Expense, $576.

C. Debit Interest Expense, $384; credit Interest Payable, $384.

D. Debit Interest Expense, $288; credit Interest Payable, $288.

Debit Interest Expense, $288; credit Interest Payable, $288.

On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of

$21,600. What is the maturity value (principal plus interest) of the note on March 1?

Note: Use 360 days a year.

A. $21,888

B. $21,984

C. $22,176

D. $21,792

$22,176

On November 1, Alan Company signed a 120-day, 10% note payable, with a face value of

$27,000. Alan made the appropriate year-end accrual. What is the journal entry as of March 1 to

record the payment of the note assuming no reversing entry was made?

Note: Use 360 days a year.

A. Debit Notes Payable $27,900; credit Interest Payable $450; credit Interest Expense $450;

credit Cash $27,000.

B. Debit Notes Payable $27,000; debit Interest Payable $450; debit Interest Expense $450;

credit Cash $27,900.

C. Debit Cash $27,450; credit Notes Payable $27,450.

D. Debit Notes Payable $27,000; debit Interest Expense $900; credit Cash $27,900.

Debit Notes Payable $27,000; debit Interest Payable $450; debit Interest Expense $450;

credit Cash $27,900.

Employers' responsibilities for payroll do not include:

A. Providing each employee with an annual report of his or her wages subject to FICA and

federal income taxes along with the amount of these taxes withheld.

B. Filing Form 941, the Employer's Quarterly Federal Tax Return.

C. Maintaining individual earnings records for each employee.

D. Recording the employee Federal Income Tax withholding as a debit to the Federal

Income Tax Expense account.

Recording the employee Federal Income Tax withholding as a debit to the Federal

Income Tax Expense account.

Gross pay is:

A. Take-home pay.

B. Total compensation earned by an employee before any deductions.

C. Salaries after taxes are deducted.

D. The amount of the paycheck.

Total compensation earned by an employee before any deductions.

The employer should record payroll deductions as:

A. Employee receivables.

B. Payroll taxes.

C. Current liabilities.

D. Wages payable.

Current liabilities

FICA taxes include:

A. Social Security and Medicare taxes.

B. Charitable giving.

C. Employee state income tax.

D. Federal and state unemployment taxes.

Social Security and Medicare taxes.

The amount of federal income taxes withheld from an employee's paycheck is determined by:

A. The employee’s income and number of withholding allowances the employee claims.

B. The employer's merit rating.

C. The amount of social security taxes withheld.

D. Multiplying the gross pay by 6.2%.

The employee’s income and number of withholding allowances the employee claims.

The Federal Insurance Contributions Act (FICA) requires that each employer file a:

A. W-4.

B. Form 941.

C. Form 1040.

D. Form 1099.

Form 941

An employee earned $45,600 during the year working for an employer when the maximum limit

for Social Security was $132,900. The FICA tax rate for Social Security is 6.2% and the FICA tax

rate for Medicare is 1.45%. The employee's annual FICA taxes amount is:

A. $2,166.00.

B. $6,315.60.

C. $2,827.20.

D. $3,488.40.

$3,488.40

The Wage and Tax Statement given to each employee annually is:

A. Form 940.

B. Form 1040.

C. Form W-2.

D. Form W-4.

Form W-2

The rate that a state assigns based on a company's stability in employing workers is the:

A. FICA rate.

B. Tax withholding rate.

C. Credit rating.

D. Merit rating.

Merit rating

Employer payroll taxes:

A. Are an added expense beyond the wages and salaries earned by employees.

B. Represent the federal taxes withheld from employees.

C. Represent the social security taxes withheld from employees.

D. Are paid by the employee.

Are an added expense beyond the wages and salaries earned by employees.

Which of the following is not an employer payroll tax?

A. Social Security tax equal to that withheld from employees.

B. Medicare tax equal to that withheld from employees.

C. Federal unemployment tax.

D. Federal income tax equal to that withheld from employees.

Federal income tax equal to that withheld from employees.

The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both taxes are applied to the

first $7,000 of an employee's pay. Assume that an employee earned total wages of $9,100. What

is the amount of total unemployment taxes the employer must pay on this employee's wages?

A. $420.00.

B. $491.40.

C. $54.60.

D. $546.00.

$420.00

An employee earned $43,300 working for an employer in the current year. The current rate for

FICA Social Security is 6.2% payable on earnings up to $132,900 maximum per year, and the

rate for FICA Medicare 1.45%. The employer's total FICA payroll tax for this employee is:

A. $8,950.50.

B. $5,638.05.

C. $3,312.45.

D. $0, since the FICA tax is only deducted from an employee's pay.

$3,312.45

Employee vacation benefits:

A. Are estimated liabilities.

B. Are contingent liabilities.

C. Are recorded as an expense when the employee takes a vacation.

D. Are recorded as an expense when the employee retires.

Are estimated liabilities

A company sold $12,000 worth of bicycles with an extended warranty. The company’s

experience is that warranty expense averages 2% of sales. The company should:

A. Consider the warranty expense a remote liability since the rate is only 2%.

B. Recognize warranty expense at the time the warranty work is performed.

C. Recognize warranty expense and liability in the year of the sale.

D. Recognize warranty liability when the company purchases the bicycles.

Recognize warranty expense and liability in the year of the sale.

A company sold $12,000 worth of bicycles with an extended warranty. The company’s

experience is that warranty expense averages 2% of sales. The current period’s entry to record the

warranty expense is:

A. Debit Warranty Expense $240; credit Cash $240.

B. Debit Prepaid Warranties $240; credit Warranty Expense $240.

C. Debit Sales Allowances $240; credit Estimated Warranty Liability $240.

D. Debit Warranty Expense $240; credit Estimated Warranty Liability $240.

Debit Warranty Expense $240; credit Estimated Warranty Liability $240

Springfield Company offers a bonus plan to its employees and the amount of the employee

bonuses for the current year is estimated to be $959,000 to be paid during January of the

following year. The journal entry on December 31 to record the bonuses is:

A. Debit Employee Bonus Expense $959,000; credit Prepaid Employee Bonus $959,000.

B. Debit Estimated Bonus Payable $959,000; credit Cash $959,000.

C. No entry since the bonuses are not paid until January.

D. Debit Employee Bonus Expense $959,000; credit Bonus Payable $959,000.

Debit Employee Bonus Expense $959,000; credit Bonus Payable $959,000