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Exam 9: Accounting for Current Liabilities and Payroll

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Question 21

Multiple Choice

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Which of the following shows how paying off a warranty obligation will affect a company's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

E) A) and D)
F) All of the above

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Question 22

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Sales tax is reported as revenue when it is collected, and reported as an expense when it is paid.

A) True
B) False

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Question 23

Multiple Choice

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Which of the following statements is true regarding discount notes?

The following information is taken from the balance sheet of Menendez Company on January 1, Year 1: On January 1, Year 1 Menendez Company paid $2,000 cash to reduce its accounts payable. How will this transaction affect the current ratio?

Riley Company borrowed $36,000 on April 1, Year 1 from Titan Bank. The note issued by Riley carried a one-year term and a 7% annual interest rate. Riley earned cash revenues of $1,700 during Year 1 and $1,400 during Year 2. Assume no other transactions. Based on this information alone, what are the amounts of total liabilities that would appear on Riley's December 31 balance sheets for Year 1 and Year 2, respectively?

Which of the following is responsible for paying social security (FICA) tax?

How is the current ratio calculated? What is its significance in analyzing financial statements?

A classified balance sheet is necessary for calculating a company's current ratio.

If a company offers a warranty on the products it sells, the company records the warranty expense at the time that service is provided to customers under the terms of the warranty.

When do the effects of warranty obligations affect the statement of cash flows?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA.You do not need to enter amounts.Increase = I Decrease = D Not Affected = NACharles Company submitted payments for withheld state and federal employment taxes.

Recording an adjustment for product warranties is a claims exchange transaction.

How does the amortization of the discount on a note payable affect a company's financial statements?

At the beginning of Year 2, McKee, Incorporated had a balance in the Warranties Payable account of $15,600. During the year McKee sold for $650,000 several products that carried a two-year warranty. McKee estimated that warranty expense would be 3% of sales for the year. Required: a)If McKee's incurred actual warranty cost is $12,500 during Year 1, what is the balance in the Warranties Payable account after the adjustment for warranty expense?

Mr. Ortega earns a monthly salary of $4,000. Based on Mr. Ortega's Form W-4, the tax tables require withholding $450 per month for income taxes. Mr. Ortega has authorized his employer to deduct $190 per month for medical insurance and $15 per month for a charitable contribution to the Humane Society. Assume a FICA tax rate of 6%, a Medicare tax rate of 1.5%, and an Unemployment tax rate of 6% on the first $7,000 of income. Based on this information, the total amount of accrued payroll tax expense incurred by Mr. Ortega's employer for January is

Which of the following shows how remitting (paying) sales tax will affect the financial statements of the company making the payment?

In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer. Which of the following summarizes the effect of the payment of cash to settle the warranty claim in Year 2 on the financial statements?

Flora's Flower Market sells eight potted petunias to a customer for $50.00, plus 5% sales tax. Flora's will recognize $52.50 in sales revenue.

Riley Company borrowed $36,000 on April 1, Year 1 from Titan Bank. The note issued by Riley carried a one-year term and a 7% annual interest rate. Riley earned cash revenues of $1,700 during Year 1 and $1,400 during Year 2. Assume no other transactions. Based on this information alone, what is the amount of net income (loss) that will be reported on the Year 2 income statement?

Star Company has a contingent liability that has a likelihood of actual occurrence that is classified as probable. Also, the amount of the liability can be reasonably estimated. Under these circumstances, Star is required to