1. All of the following statements regarding liabilities are true except:
A. A liability is a probable future payment of assets or services.
B. Unearned future wages to be paid to employees should be recorded as liabilities.
C. For a liability to be reported, it must be a present obligation that results from a past transaction or event, and requires a future payment of assets or services.
D. Information about liabilities is more useful when the balance sheet identifies them as either current or long term.
E. Liabilities can involve uncertainty in whom to pay.
2. Obligations to be paid within one year or the company's operating cycle, whichever is longer, are:
A. Current assets.
B. Current liabilities.
C. Earned revenues.
D. Operating cycle liabilities.
E. Bills.
3. Obligations not expected to be paid within the longer of one year or the company's operating cycle are reported as:
A. Current assets.
B. Current liabilities.
C. Long-term liabilities.
D. Operating cycle liabilities.
E. Bills.
4. All of the following statements regarding uncertainty in liabilities are true except:
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 can have an obligation of a known amount to a known creditor but not know when it must be paid.
D. A company only records liabilities when it knows whom to pay, when to pay, and how much to pay.
E. A company can be aware of an obligation but not know how much will be required to settle it.
5. In order to be reported, liabilities must:
A. Be certain.
B. Sometimes be estimated.
C. Be for a specific amount.
D. Always have a definite date for payment.
E. Involve an outflow of cash.
6. All of the following are true of known liabilities except:
A. Include accounts payable, notes payable, and payroll.
B. Are obligations set by agreements, contracts, or laws.
C. Are measurable.
D. Are definitely determinable.
E. May depend on some future event occurring.
7. Accounts payable are:
A. Amounts owed to suppliers for products and/or services purchased on credit.
B. Long-term liabilities.
C. Estimated liabilities.
D. Not usually due on specific dates.
E. Always payable within 30 days.
8. Amounts received in advance from customers for future products or services:
A. Are revenues.
B. Increase income.
C. Are liabilities.
D. Are not allowed under GAAP.
E. Require an outlay of cash in the future.
9. When a company is obligated for sales taxes payable, it is reported as a(n):
A. Estimated liability.
B. Contingent liability.
C. Current liability.
D. Business expense.
E. Long-term liability.
10. Which of the following do not apply to unearned revenues?
A. Also called deferred revenues.
B. Amounts received in advance from customers for future delivery of products or services.
C. Also called collections in advance.
D. Also called prepayments.
E. Amounts to be received in the future from customers for delivery of products or services in the current period.
11. 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.
E. Debit Cash, credit Revenue.
12. 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 not requiring future payment.
D. An obligation arising from the purchase of goods or services on credit.
E. An obligation arising from a future event.
13. Contingent liabilities are recorded or disclosed unless they are:
A. Probable and estimable.
B. Remote.
C. Reasonably possible.
D. Probable and not estimable.
E. Possible and estimable.
14. 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.
E. The future event is probable but not estimable.
15. Debt guarantees are:
A. Never disclosed in the financial statements.
B. Considered to be contingent liabilities.
C. A bad business practice.
D. Recorded as liabilities even though it is highly unlikely that the original debtor will default.
E. Considered to be current liabilities.
16. In the accounting records of a defendant, lawsuits:
A. Are estimated liabilities.
B. Should always be recorded.
C. Should always be disclosed.
D. Should be recorded if payment for damages is probable and the amount can be reasonably estimated.
E. Should never be recorded.
17. Uncertainties such as natural disasters are:
A. Not contingent liabilities because they are future events not arising from past transactions or events.
B. Contingent liabilities because they are future events arising from past transactions or events.
C. Disclosed because of their usefulness to financial statements.
D. Estimated liabilities because the amounts are uncertain.
E. Reported in the same way as debt guarantees.
18. The times interest earned ratio reflects:
A. A company's ability to pay its operating expenses on time.
B. A company's ability to pay interest even if sales decline.
C. A company's profitability.
D. The relation between income and debt.
E. The relation between assets and liabilities.
19. Interest expense is not:
A. Incurred on current liabilities.
B. Likely to stay the same when sales change.
C. A fixed expense.
D. Likely to fluctuate when sales change.
E. A factor in determining a company's borrowing risk.
20. Times interest earned is calculated by:
A. Multiplying interest expense by income.
B. Dividing interest expense by income before interest expense.
C. Dividing income before interest expense and income taxes by interest expense.
D. Multiplying interest expense by income before interest expense.
E. Dividing income before interest expense by interest expense and income taxes.
21. If the times interest earned ratio:
A. Increases, then risk increases.
B. Increases, then risk decreases.
C. Is greater than 1.5, the company is in default.
D. Is less than 1.5, the company is carrying too little debt.
E. Is greater than 3.0, the company is likely carrying too much debt.
22. A company's had fixed interest expense of $5,000, its income before interest expense and income taxes is $17,000, and its net income is $9,400. The company's times interest earned ratio equals:
A. 0.5.
B. 1.8.
C. 1.9.
D. 3.4.
E. 0.3.
23. The correct times interest earned computation is:
A. (Net income + Interest expense + Income taxes)/Interest expense.
B. (Net income + Interest expense - Income taxes)/Interest expense.
C. (Net income - Interest expense - Income taxes)/Interest expense.
D. (Net income - Interest expense + Income taxes)/Interest expense.
E. Interest expense/(Net income + Interest expense + Income taxes expense).
24. A company's income before interest expense and income taxes is $350,000 and its interest expense is $100,000. Its times interest earned ratio is:
A. 0.29
B. 3.50
C. 2.50
D. 1.75
E. 0.50
25. A company's fixed interest expense is $8,000, its income before interest expense and income taxes is $32,000. Its net income is $9,600. The company's times interest earned ratio equals:
A. 0.25.
B. 0.30.
C. 0.83.
D. 3.33.
E. 4.0.
26. The difference between the amount received from issuing a note payable and the amount repaid at maturity is referred to as:
A. Interest.
B. Principle.
C. Face Value.
D. Cash.
E. Accounts Payable.
27. A short-term note payable:
A. Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.
B. Is a contingent liability.
C. Is an estimated liability.
D. Is not a liability until the due date.
E. Cannot be used to extend the payment period for an account payable.
28. Short-term notes payable:
A. Cannot replace an account payable.
B. Can be issued in return for money borrowed from a bank.
C. Are not negotiable.
D. Are a conditional promise to pay.
E. Rarely involve interest charges.
29. On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. What amount of interest expense is accrued at December 31 on the note?
A. $0
B. $75
C. $900
D. $225
E. $300
30. On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the adjusting entry for the accrued interest at December 31 on the note?
A. Debit interest expense, $0; credit interest payable, $0.
B. Debit interest payable, $120; credit interest expense, $120.
C. Debit interest expense, $120; credit interest payable, $120.
D. Debit interest expense, $720; credit interest payable, $720.
E. Debit interest payable, $240; credit interest expense, $240.
31. On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the maturity value of the note on March 1?
A. $9,000
B. $720
C. $9,120
D. $9,720
E. $9,240
32. On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. 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?
A. Debit Notes Payable $9,000; debit Interest Payable $120; credit Cash $9,120.
B. Debit Cash $9,240; credit Notes Payable $9,240.
C. Debit Notes Payable $9,240; credit Interest Payable $120; credit Interest Expense $120; credit Cash $9,000.
D. Debit Notes Payable $9,000; debit Interest Payable $120; debit Interest Expense $120; credit Cash $9,240.
E. Debit Notes Payable $9,000; debit Interest Expense $240; credit Cash $9,240.
33. 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. Filing Form 940, the Annual Federal Unemployment Tax Return.
D. Maintaining individual earnings records for each employee.
E. Recording an expense for the employee Federal Income Tax withholding.
34. Gross pay is:
A. Take-home pay.
B. Total compensation earned by an employee before any deductions.
C. Salaries after taxes are deducted.
D. Deductions withheld by an employer.
E. The amount of the paycheck.
35. The employer should record deductions from employee pay as:
A. Employee receivables.
B. Payroll taxes.
C. Current liabilities.
D. Wages payable.
E. Employee payables.
36. FICA taxes include:
A. Social Security and Medicare taxes.
B. Charitable giving.
C. Employee state income tax.
D. Federal and state unemployment taxes.
E. Employee federal income tax.
37. The amount of federal income taxes withheld from an employee's paycheck is determined by:
A. Current earnings for the pay period 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%.
E. Tax tables provided by the state in which the employee works.
38. Recording employee payroll deductions may involve:
A. Liabilities to the employer.
B. Liabilities to federal and state governments.
C. Expenses for state unemployment.
D. Expenses for the gross wages and salaries.
E. Expenses for the employer portion of any medical insurance.
39. The Federal Insurance Contributions Act (FICA) requires that each employer file a:
A. W-4.
B. Form 941.
C. Form 1040.
D. Form 1099.
E. W-2.
40. An employee earned $37,000 during the year working for an employer when the maximum limit for Social Security was $117,000. 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. $2,294.00.
B. $536.50.
C. $2,830.50.
D. $1,757.50.
E. $8,950.50.
41. Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of $8,260. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45%. The FUTA tax rate of .6% and the SUTA tax rate of 5.4% are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld from her earnings was $1,325.17. Her net pay for the month is:
A. $6,422.71
B. $6,246.94
C. $6,302.94
D. $5,868.94
E. $7,194.11
42. Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of $8,260. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45%. The FUTA tax rate of 0.6% and the SUTA tax rate of 5.4% are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld from her earnings was $1,325.17. What is the total amount of taxes withheld from the Portia's earnings?
A. $3,097.17
B. $2,443.21
C. $1,957.06
D. $1,722.00
E. $1,495.36
43. Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45% for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. His net pay for the month is:
A. $3,510.14
B. $3,857.30
C. $4,190.84
D. $4,538.00
E. $3,162.98
44. Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45% for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. What is the total amount of taxes withheld from the Trey's earnings?
A. $1,375.02
B. $746.50
C. $962.06
D. $1,027.86
E. $680.70
45. The annual Federal Unemployment Tax Return is:
A. Form 940.
B. Form 1099.
C. Form 104.
D. Form W-2.
E. Form W-4.
46. The Wage and Tax Statement given to each employee annually is:
A. Form 940.
B. Form 941.
C. Form 1040.
D. Form W-2.
E. Form W-4.
47. A bank that is authorized to accept deposits of amounts payable to the federal government is a:
A. Credit union.
B. FDIC insured bank.
C. Federal depository bank.
D. National bank.
E. Federal Reserve Bank.
48. An employer's federal unemployment taxes (FUTA) are reported:
A. Annually.
B. Semiannually.
C. Quarterly.
D. Monthly.
E. Weekly.
49. The rate that a state assigns reflecting a company's stability or instability in employing workers is the:
A. FICA rate.
B. Tax withholding rate.
C. Pay rate.
D. Credit rating.
E. Merit rating.
50. Employer payroll taxes:
A. Are added expenses beyond that for 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.
E. Are payable for up to a maximum $117,000 of employee earnings.