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Exam 9: Accounting for Current Liabilities and Payroll

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Question 71

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When a company borrows money by issuing a discount note, the company will receive an amount of cash that is

A) less than the face value of the note.
B) greater than the face value of the note.
C) equal to the face value of the note.
D) greater than the liquidation value of the note.

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

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Question 72

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A classified balance sheet is one that distinguishes between operating and non-operating assets.

A) True
B) False

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Question 73

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The Wage and Tax Statement, Form W-2, is sent to the employee annually to report earnings and withheld taxes.

Why does the recording of a taxable sale increase a company's liabilities?

What is (are) the term(s) used to describe the party who borrows money as evidenced by a note payable?

On December 31, Year 2, Bates Company paid $60,000 to Municipal Bank to pay off the face value of a discount note that Bates had issued one year earlier. Show the effects of the payment and recognition of Year 2 interest on the note.

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 = NASierra Mining is the defendant in a $3 million lawsuit involving damage to the environment. Sierra's attorneys have advised the company that the outcome of the lawsuit is probable, and the likely settlement will be $750,000.

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.How would the adjustment to record interest expense on December 31, Year 1 affect the financial statements?

A company with a high current ratio should be concerned that it is not maximizing its earnings potential.

GrayCo has initiated a lawsuit against FinCo for a copyright violation. Negotiations between the lawyers representing the two companies suggest that it is probable that GrayCo will win the case and will collect a $2,000,000 settlement fee. Generally Accepted Accounting Principles

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, Mr. Ortega's net pay for January 31, Year 1 is

Tom Toys has sales of $250,000 in Year 1. Tom warrants its products and estimates warranty expense to be 2% of sales. Which of the following shows how the year end adjusting entry for warranty expense would affect the company's financial statements?

The current ratio is a measure of a company's liquidity.

Which of the following items would most likely not be classified as a current asset?

Which of the following would not likely appear on a classified balance sheet?

FICA taxes are recorded both as salary expense and as payroll tax expense.

In September of Year 1, Hansen Company issued a note payable to borrow money from its bank. Principal and interest on the note would come due in June Year 2. Interest expense on this note must be accrued at the end of Year 1 for the period from issuance of the note to the last day of the accounting period.

Homer Security Systems experienced an event that had the following effects on its financial statements. Which of the following events would have caused these effects?

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 recorded accrued vacation pay.

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 = NAJoseph Company issued a one-year, 6% note to Community Bank.