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Exam 9: Accounting for Current Liabilities and Payroll

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Question 41

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Which of the following accounts appear in the liabilities section of the balance sheet?

A) Accounts payable, notes payable, allowance for doubtful accounts
B) Warranties payable, discount on notes payable, accounts payable
C) Notes payable, discount on notes payable, credit card receivables
D) Accounts payable, allowance for doubtful accounts, warranties payable

E) C) and D)
F) B) and D)

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Question 42

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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 = NAOn April 1, Year 2, Jenkins Company repaid a $20,000, one-year, 6% note and interest to Community Bank. Interest on the note had been accrued on December 31, Year 1.

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Repaying the note and interest decrease...

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Question 43

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Independent contractors must be individuals who are employed by another company.

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 = NAPearl Company sold merchandise to a customer for $800 cash in a state where the sales tax rate is 5%. (Ignore the effect of cost of goods sold.)

Yang Company sold merchandise for $10,000 cash. The event is subject to a state sales tax of 9%. Recognizing the sale will require Yang to

On October 1, Year 1, Harrison Company borrowed money by issuing a $24,000 face value discount note to its bank. The note had an 8% discount rate and had a one-year term to maturity. The amount of cash that Harrison received on that date was $22,080.

What type of account is Discount on Notes Payable?

Vacation pay is considered a contingent liability.

Madison Company issued an interest-bearing note payable with a face value of $24,000 and a stated interest rate of 8% to Metropolitan Bank on August 1, Year 1. The note carried a one-year term. Based on this information alone, what is the amount of total liabilities appearing on Madison's balance sheet as of December 31, Year 1?

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 paid Jason Hewitt for work he performed as an independent contractor. The amount owed had not been previously accrued.

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 = NAAllen Company purchased a $30,000 machine by making a $5,000 cash down payment and issuing a $25,000 note payable for the remaining balance.

According to GAAP a contingent liability can be classified as

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 recognition of the warranty obligation to the customer who purchased this merchandise on the Year 1 financial statements?

The December 31, Year 1, balance sheet of Rowan Company shows current assets of $32,000 and current liabilities of $20,000. On January 1, Year 2, the company had the following two transactions: 1) Issued common stock for $10,000 cash 2) Received a $6,000 cash payment for its accounts receivable After the two transactions are recorded, what is the company's current ratio?

Clarion Company provides a one-year warranty on all merchandise it sells. In Year 1, the company recorded sales of $500,000. It estimated that the warranty costs on these sales would amount to $2,000. In July of Year 2, Clarion paid $250 to satisfy a warranty claim. Indicate whether each of the following statements is true or false. a)Clarion's adjustment to record the warranty at the end of Year 1 decreased total assets and total stockholders' equity.b)Clarion's adjustment to record the warranties at the end of Year 1 increased Clarion's total liabilities.c)The transaction, dated in July of Year 2, decreased total assets and net income for Year 2.d)The $250 payment to satisfy a warranty claim in July of Year 2, decreased Clarion's total liabilities.e)The adjustment to record the warranty at the end of Year 1 did not affect Clarion's revenue for the year.

Monthly remittance of sales tax due has no effect on the income statement, but reduces cash flow from operating activities.

Indicate whether each of the following statements is true or false. a)The amount of federal tax withheld from an employee's salary depends on the employee's gross pay and the number of withholding allowances the employee claims.b)Withheld taxes are recorded in the payroll tax expense account.c)An employer will submit $8,250 in FICA taxes for an employee who earns $55,000 annually. (Assume a Social Security rate of 6 percent on the first $110,000 of income and a Medicare rate of 1.5 percent on all earnings.)d)A voluntary deduction, such as a charitable contribution, creates a liability when it is withheld from employee pay.e)If an employer records gross pay of $2,400 and withholds $700 of that amount, then the employer will recognize $1,700 in salary expense.

Yang Company sold merchandise for $4,000. The event is subject to a state sales tax of 9%. Based on this information, Yang would be required to

What is the effect of the recognition of warranty expense on the statement of cash flows?

Baltimore Company issued a $9,000 face value discount note to Bank of the Chesapeake on March 1, Year 1. The note had a 5% discount rate and a one-year term to maturity. After accruing all interest expense due as of April 1, Year 2, Baltimore Company made the cash payment for the full amount due (i.e., principal and interest) to Bank of the Chesapeake. How does the cash payment affect Baltimore's financial statements?