Hhofma3e Ch10 Tif Testgen

Current Liabilities and Payroll

Current Liabilities and Payroll

10) Which of the following correctly describes the unearned revenue account?

A) The unearned revenue account represents revenue that has been collected, but not yet earned.

B) The unearned revenue account represents revenue that has been earned and collected.

C) The unearned revenue account represents revenue that has been earned, but not yet collected.

D) The unearned revenue account represents revenue that has neither been earned nor collected.

Answer: A

Diff: 1

LO: 10-1

EOC: Accounting Vocabulary

AACSB: Content/Knowledge

AICPA Business: Strategic/Critical Thinking

AICPA Functional: Measurement, Reporting

11) Which of the following is a liability created when a company receives cash for services to be provided in the future?

A) Unearned revenue

B) Accrued liability

C) Service revenue

D) Estimated warranty payable

Answer: A

Diff: 2

LO: 10-1

EOC: P10-15A




12) Sales revenue for a sporting goods store amounted to $215,000 for the current period. All sales are on account and are subject to a sales tax of 7%. Which of the following would be included in the journal entry to record these sales?

A) A debit to Sales revenue for $215,000

B) A credit to Accounts receivable for $215,000

C) A debit to Sales tax payable for $15,050

D) A debit to Accounts receivable for $230,050

Answer: D

Explanation: D) Calculation: $215,000 + ($215,000 7%) = $230,050

Diff: 2

LO: 10-1

EOC: P10-15A

AACSB: Analytic Skills



13) Which of the following would be included in the journal entry to record the payment of accrued sales tax?

A) A debit to Sales tax payable

B) A credit to Sales tax expense

C) A debit to Sales tax expense

D) A credit to Sales tax payable

Answer: A

Diff: 2

LO: 10-1

EOC: P10-15A




14) Which of the following correctly describes Interest payable?

A) Interest payable is shown on the balance sheet as a current liability.

B) Interest payable is shown on the income statement as an operating expense.

C) Interest payable is shown on the balance sheet as a current asset.

D) Interest payable is shown on the balance sheet as a long-term liability.

Answer: A

Diff: 1

LO: 10-1

EOC: P10-15A




15) Where does Unearned subscription revenue appear on the balance sheet?

A) Long-term investments

B) Current liabilities or long-term liabilities

C) Current assets or long-term investments

D) Long-term assets

Answer: B

Diff: 1

LO: 10-1

EOC: P10-15A




16) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of accrued interest on December 31, 2015?

A) $200

B) $267

C) $133

D) $800

Answer: B

Explanation: B) Calculation: $20,000 8% 2/12 = $267

Diff: 2

LO: 10-1

EOC: E10-9




17) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of interest expense recorded in the year 2016?

A) $800

B) $133

C) $200

D) $267

Answer: B

Explanation: B) Calculation: $20,000 8% 1/12= $133

Diff: 2

LO: 10-1

EOC: E10-9




18) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. Which of the following would be included in the journal entry required on the note's maturity date?

A) A credit to Note payable for $20,400

B) A credit to Cash for $10,000

C) A debit to Interest expense for $133

D) A debit to Interest payable for $133

Answer: C

Diff: 3

LO: 10-1

EOC: E10-9




19) Which of the following is associated with cash received in advance for services to be performed in the future?

A) Accounts payable

B) Estimated warranty payable

C) Accrued expense

D) Unearned revenue

Answer: D

Diff: 1

LO: 10-1





20) Joe signs a $5,000, 8%, 6-month note dated September 1, 2012. What is Joe's 2013 interest expense for this note?

A) $133

B) $200

C) $400

D) $67

Answer: D

Explanation: D) Calculation: $5,000 8% 2/12= $67

Diff: 2

LO: 10-1

EOC: E10-9




21) ABC Company signed a 5-year note payable for $80,000 at 9% annual interest. What is the interest expense for December 31, 2013 if the note was signed on May 1, 2013?

A) $7,200

B) $4,800

C) $2,400

D) $36,000

Answer: B

Explanation: B) Calculation: $80,000 9% 8/12 = $4,800

Diff: 2

LO: 10-1

EOC: E10-9




22) ABC signed a 5-year, 9% note payable for $80,000 on May 1, 2012. Which account will be credited when the note paid at maturity?

A) Note payable

B) Interest expense

C) Interest payable

D) Cash

Answer: D

Diff: 2

LO: 10-1

EOC: E10-9




23) The face amount of a promissory note is called the:

A) discount of the note.

B) time of the note.

C) interest rate of the note.

D) principal of the note.

Answer: D

Diff: 1

LO: 10-1





24) The journal entry for accrued interest on a note payable includes:

A) debiting Interest expense and crediting Cash.

B) debiting Interest expense and crediting accrued Interest payable.

C) debiting accrued Interest expense and crediting Cash.

D) crediting accrued Interest expense.

Answer: B

Diff: 2

LO: 10-1

EOC: E10-9




25) Face value of a note payable plus total interest is called:

A) maturity value.

B) face value.

C) proceeds.

D) principal.

Answer: A

Diff: 2

LO: 10-1





26) The person who promises to pay a certain amount of money at a specified date in the future is called the:

A) endorser of the note.

B) maker of the note.

C) discounter of the note.

D) payee of the note.

Answer: B

Diff: 1

LO: 10-1





27) RGF Manufacturing recently signed a $200,000, 4-month note on June 22. The interest rate is 5%. How much total interest will be due on the note?

A) $10,000

B) $3,833

C) $3,333

D) $203,780

Answer: C

Explanation: C) Calculation: $200,000 5% 4/12= $3,333

Diff: 2

LO: 10-1

EOC: E10-9




28) Archie's had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be credited to Sales revenue?

A) $6,758.00

B) $7,231.06

C) $473.06

D) $458.00

Answer: A

Diff: 2

LO: 10-1

EOC: E10-9




29) Archie's had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be debited to Cash?

A) $6,758.00

B) $7,231.06

C) $473.06

D) $866.06

Answer: B

Explanation: B) Calculation: $6,758 + ($6,758 7%) = $7,231.06

Diff: 2

LO: 10-1

EOC: P10-15A




30) Carter Company records sales on account of $950,500. The company operates in a state that imposes a 5% sales tax. Which of the following would be the amount of the sales tax payable to the state?

A) $47,525

B) $50,500

C) $45,000

D) $55,000

Answer: A

Explanation: A) Calculation: $950,500 5%= $47,525

Diff: 2

LO: 10-1

EOC: P10-15A




31) On June 20, 2013, Parker Services received $2,400 in advance from a customer for one month's service. The journal entry to record the receipt of cash would be which of the following?

A) Debit Unearned service revenue $2,400 and credit Cash $2,400.

B) Debit Cash $2,400 and credit Service revenue $2,400.

C) Debit Unearned service revenue $2,400 and credit Service revenue $2,400.

D) Debit Cash $2,400 and credit Unearned service revenue $2,400.

Answer: D

Diff: 1

LO: 10-1

EOC: P10-15A




32) On June 20, 2013, Parker Services received $2,400 in advance from a customer for one month's service. The journal entry to adjust the accounts at the end of June would be which of the following?

A) Debit Service revenue $1,600 and credit Unearned service revenue $1,600.

B) Debit Unearned service revenue $800 and credit Service revenue $800.

C) Debit Unearned service revenue $2,400 and credit Service revenue $2,400.

D) Debit Service revenue $800 and credit Accounts receivable $800.

Answer: B

Diff: 2

LO: 10-1

EOC: P10-15A




33) Ace Appliances sells dishwashers with a 3-year warranty. In 2012, there are $90,000 of sales revenues for dishwashers. The company estimates warranty expense at 3% of revenues. What is the 2012 warranty expense?

A) $2,700

B) $800

C) $0

D) $3,000

Answer: A

Explanation: A) Calculation: $90,000 3% = $2,700

Diff: 2

LO: 10-1

EOC: E10-12




34) Associated Foods had cash sales of $787,000 during the month of August. Sales taxes of 7% were collected on the sales. Prepare an aggregate journal entry to record the sales revenue and sales tax for the month.

Answer: Cash842,090

Sales revenue787,000

Sales tax payable55,090

Explanation: Calculations: $787,000 + ($787,000 7%) = $842,090

This question is not available in MyAccountingLab.

Diff: 2

LO: 10-1

EOC: P10-15A




35) Model Maker sold 6,000 one-year prepaid subscriptions to its monthly magazine for $40 per subscription. The subscription year runs from September to August. What is the December 31 adjusting entry for subscription revenue?

Answer: Unearned subscription revenue80,000

Subscription revenue80,000

Explanation: Calculations: $6,000 $40 4/12 = $80,000


Diff: 2

LO: 10-1

EOC: P10-15A




36) On March 1, 2012, Archer Sales purchases inventory for $200,000 by signing a note payable. The note is for 3 months and bears interest at a rate of 9%. Please provide the journal entry for this transaction.

Answer: Inventory200,000

Short-term notes payable200,000

Explanation: This question is not available in MyAccountingLab.

Diff: 1

LO: 10-1

EOC: E10-9




37) On March 1, 2012, Archer Sales purchases inventory for $200,000 by signing a note payable. The note is for 3 months and bears interest at a rate of 9%. Please provide the journal entry at the end of May when the note is settled.

Answer: Short-term notes payable200,000

Interest expense4,500

Cash204,500

Explanation: Calculations: ($200,000 9%) 3/12 = $4,500


Diff: 2

LO: 10-1

EOC: E10-9




38) On October 1, 2012, Archer Sales borrows $100,000 by signing a note payable. The note is for 6 months and bears interest at a rate of 9%. Please provide the journal entry to accrue interest expense at the end of 2012.

Answer: Interest expense2,250

Interest payable2,250

Explanation: Calculations: ($100,000 9%) 3/12 = $2,250


Diff: 2

LO: 10-1

EOC: E10-9




39) On October 1, 2012, Archer Sales borrows $100,000 by signing a note payable. The note is for 6 months and bears interest at a rate of 9%. Archer properly accrued interest at the end of 2012. Please provide the journal entry made at the end of March, 2013 when Archer settles the note.

Answer: Short-term notes payable100,000

Interest payable2,250

Interest expense2,250

Cash104,500

Explanation: Calculations: $100,000 + ($100,000 9%) 6/12 = $104,500


Diff: 3

LO: 10-1

EOC: E10-9




40) Barnaby Sales made total cash sales in January of $500,000, and they are subject to a 6% sales tax. Please provide the summary entry to record sales revenues and sales tax payable.

Answer: Cash530,000

Sales tax payable30,000

Sales revenue500,000

Explanation: Calculations: $500,000 6% = $30,000


Diff: 2

LO: 10-1

EOC: E10-8




41) Charter Services sells a service plan for commercial computer maintenance. The price is $1,200 per year, paid in advance. On December 1, 2013, Charter sells a service plan to a new customer for cash. Please provide the journal entry to record this transaction.

Answer: Cash1,200

Unearned service revenue1,200


Diff: 1

LO: 10-1

EOC: P10-15A




42) Charter Services sells a service plan for commercial computer maintenance. The price is $1,200 per year, paid in advance. On December 1, 2013, Charter sells a service plan to a new customer for cash. Please provide the journal entry to record the adjustment needed on December 31, 2013.

Answer: Unearned service revenue100

Service revenue100

Explanation: Calculations: $1,200 1/12 = $100


Diff: 1

LO: 10-1

EOC: P10-15A




Learning Objective 10-2

1) When the likelihood of an actual loss is probable, and the amount can be estimated, it should be recorded as an expense and as a liability.

Answer: TRUE

Diff: 1

LO: 10-2

EOC: S10-3




2) The entry to estimate warranty payable includes a credit to Warranty expense.

Answer: FALSE

Diff: 1

LO: 10-2

EOC: E10-12




3) A contingent liability that has a remote possibility of becoming an actual loss is included in a note to the financial statements.

Answer: FALSE

Diff: 1

LO: 10-2

EOC: S10-3




4) A contingent liability that will probably become an actual liability, and can be reasonably estimated, must be recorded as an expense.

Answer: TRUE

Diff: 1

LO: 10-2

EOC: S10-3




5) Contingent liabilities sometimes pose an ethical challenge because they are not real liabilities and are easy to overlook.

Answer: TRUE

Diff: 1

LO: 10-2

EOC: S10-3

AACSB: Reflective Thinking



6) Estimated warranty payable would be included in the liability section of the balance sheet.

Answer: TRUE

Diff: 1

LO: 10-2

EOC: E10-12




7) Estimated warranty payable would be included in the operating expense section of the income statement.

Answer: FALSE

Diff: 1

LO: 10-2

EOC: E10-12




8) Warranty expense would be included in the liability section of the balance sheet.

Answer: FALSE

Diff: 1

LO: 10-2

EOC: E10-12




9) Warranty expense would be included in the operating expense section of the income statement.

Answer: TRUE

Diff: 1

LO: 10-2

EOC: E10-12




10) A certain contingent liability was evaluated at year-end, and considered to have a remote possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, this could be considered unethical behavior.

Answer: FALSE

Diff: 1

LO: 10-2

EOC: E10-12




11) A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, this could be considered unethical behavior.

Answer: TRUE

Diff: 1

LO: 10-2

EOC: E10-12




12) A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become an actual liability, and the amount could be reasonably estimated. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, this could be considered unethical behavior.

Answer: TRUE

Diff: 1

LO: 10-2

EOC: E10-12




13) Which of the following principles requires that warranty expense be recorded in the period that revenue is recorded?

A) Consistency principle

B) Matching principle

C) Revenue principle

D) Materiality concept

Answer: B

Diff: 1

LO: 10-2

EOC: E10-12




14) A company has been sued for product failures allegedly resulting in injuries to the individuals bringing the lawsuit. The company's lawyers believe it is more than remote, but less than probable, that the lawsuit will result in an actual liability. Which of the following actions should be taken by the company's management?

A) The liability should be estimated and recorded as an expense.

B) The situation should be described in a note to the financial statements.

C) The possible liability should be ignored.

D) Management should consider resigning.

Answer: B

Diff: 2

LO: 10-2

EOC: S10-3




15) A restaurant has been sued because a customer claims to have found a bug in her chili. The company's lawyers believe there is only a remote possibility that the lawsuit will result in an actual liability. Which of the following actions should be taken by the company's management?

A) The situation should be described in a note to the financial statements.

B) The possible liability should be ignored.

C) The liability should be estimated and recorded as an expense.

D) Management should consider resigning.

Answer: B

Diff: 2

LO: 10-2

EOC: S10-3




16) Which of the following is TRUE of a contingent liability?

A) It is a potential liability that depends on a future event.

B) It is an actual liability that is difficult to estimate.

C) It is an actual liability that depends on a past event.

D) It is a liability resulting from a lawsuit settled in court.

Answer: A

Diff: 1

LO: 10-2

EOC: S10-3




17) Ace Appliances sells dishwashers with a 3-year warranty. In 2013, there are $90,000 of sales revenues for dishwashers. The company estimates warranty expense at 3% of revenues. What is the total estimated warranty payable for Ace regarding the sales in 2013?

A) $2,700

B) $600

C) $1,400

D) $3,000

Answer: A


Diff: 1

LO: 10-2

EOC: E10-12




18) Ace Appliances sells dishwashers with a 3-year warranty. In 2013, there are $90,000 of sales revenues for dishwashers. The company estimates warranty expense at 3% of revenues. What is the 2013 warranty expense?

A) $2,700

B) $800

C) $0

D) $3,000

Answer: A


Diff: 2

LO: 10-2

EOC: E10-12




19) In which of the following periods should the expense for warranty costs be recorded?

A) The period when the product is sold

B) The period when the product is repaired or replaced

C) The period when cash is paid to repair or replace the product

D) The period when cash is collected for the sale of the product

Answer: A

Diff: 1

LO: 10-2

EOC: E10-12




20) Which of the following accounting principles requires that warranty expenses must be estimated and recognized in the same period as the related sales revenue is recognized?

A) The matching principle

B) The full disclosure principle

C) The revenue recognition principle

D) The conservatism principle

Answer: A

Diff: 1

LO: 10-2

EOC: E10-12




21) Booker Company reported sales revenue for 2013 of $800,000. The products were sold with a six-month warranty. Members of Booker's management estimate the cost of the warranty will be equal to 3% of sales revenue. Which of the following is included in the entry to record the actual amounts paid out as a result of warranty claims?

A) A debit to Estimated warranty payable for the actual amount of payments

B) A credit to Estimated warranty payable for $24,000

C) A debit to Estimated warranty payable for $24,000

D) A debit to Warranty expense for the actual amount of payments

Answer: A

Diff: 2

LO: 10-2

EOC: E10-12




22) Which of the following is included in the entry to record warranty expense?

A) A debit to Warranty expense

B) A credit to Inventory

C) A credit to Warranty expense

D) A debit to Estimated warranty payable

Answer: A

Diff: 1

LO: 10-2

EOC: E10-12




23) Which of the following is included in the entry to record estimated warranty payable?

A) A credit to Estimated warranty payable

B) A credit to Inventory

C) A credit to Warranty expense

D) A debit to Estimated warranty payable

Answer: A

Diff: 1

LO: 10-2

EOC: E10-12




24) In which of the following periods should the estimated warranty liability be debited?

A) The period when cash is paid to repair or replace the product

B) The period when the product is sold

C) The period when cash is collected for the sale of the product

D) The period when the product is shipped to the customer

Answer: A

Diff: 1

LO: 10-2

EOC: E10-12




25) Which of the following is NOT an exact liability?

A) FICA tax payable

B) Income tax payable

C) Warranty payable

D) Accounts payable

Answer: C

Diff: 1

LO: 10-2

EOC: S10-3




26) Which of the following is the proper treatment for a liability that exists, but the exact amount of which is not known?

A) The liability should be treated as a contingent liability.

B) The amount of the liability should be estimated and recorded.

C) The liability should be ignored.

D) The liability should be reported in the notes to the financial statements.

Answer: B

Diff: 2

LO: 10-2

EOC: P10-15A




27) A pending lawsuit which might result in a liability is considered a(n):

A) contingent liability.

B) current liability.

C) legal liability.

D) unearned revenue.

Answer: A

Diff: 1

LO: 10-2





28) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Which of the following is the entry needed to record the estimated warranty expense?A)Estimated warranty payable7,500

Cash7,500

B)Warranty expense7,500

Estimated warranty payable7,500

C)Warranty expense10,000


D)Warranty expense10,000

Sales revenue10,000

Answer: C

Diff: 1

LO: 10-2

EOC: E10-12




29) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Which of the following is the entry needed to record the disbursement of warranty payments?A)Estimated warranty payable7,500

Cash7,500

B)Warranty expense7,500


C)Warranty expense10,000


D)Warranty expense10,000

Sales revenue10,000

Answer: A

Diff: 1

LO: 10-2

EOC: E10-12




30) Arc Digital starts the year with balances in its Estimated warranty payable account and Warranty expense account as shown below. During the year, there were $190,000 of sales and $3,200 of warranty repair payments. Arc Digital estimates warranty expense at 1.5% of sales.

At the end of the year, what was the balance in the Warranty expense account?

A) $2,850 debit

B) $1,250 credit

C) $3,200 debit

D) $1,420 debit

Answer: A

Explanation: A) Calculations: $190,000 1.5% = $2,850

Diff: 1

LO: 10-2

EOC: E10-12




31) Arc Digital starts the year with balances in its Estimated warranty payable account, and Warranty expense account as shown below. During the year, there were $190,000 of sales and $3,200 of warranty repair payments. Arc Digital estimates warranty expense at 1.5% of sales.

At the end of the year, what was the balance in the Estimated warranty payable account?

A) $2,850 debit

B) $1,050 credit

C) $3,200 debit

D) $1,420 debit

Answer: B

Explanation: B) Calculations: $1,400 + $2,850 - $3,200 = $1,050

Diff: 2

LO: 10-2

EOC: E10-12




32) Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% of sales. At the beginning of 2013, the Estimated warranty payable account had a credit balance of $900. During the year, Tractor World had $285,000 of sales, and had to pay out $5,100 in warranty payments. At the end of the year, how much warranty expense was reported on the income statement?

A) $2,640

B) $5,100

C) $4,200

D) $6,840

Answer: D

Explanation: D) Calculations: $285,000 .024 = $6,840

Diff: 1

LO: 10-2

EOC: E10-12




33) Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% of sales. At the beginning of 2013, the Estimated warranty payable account had a credit balance of $900. During the year, Tractor World had $285,000 of sales, and had to pay out $5,100 in warranty payments. At the end of the year, what balance in Estimated warranty payable would be included in the balance sheet?

A) $2,640

B) $5,100

C) $4,200

D) $6,840

Answer: A

Explanation: A) Calculations: $900 + $6,840 - $5,100 = $2,640

Diff: 2

LO: 10-2

EOC: E10-12




34) A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would this have on the financial reporting of the company?

A) There would be no effect.

B) The liabilities on the balance sheet would be understated.

C) The information about the transaction would be inadequately disclosed in the notes.

D) The net income of the company would be understated.

Answer: C

Diff: 1

LO: 10-2

EOC: E10-12




35) A certain contingent liability was evaluated at year-end, and considered to have a remote possibility of becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would this have on the financial reporting of the company?





Answer: A

Diff: 1

LO: 10-2

EOC: E10-12




36) A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become an actual liability, and the amount could be reasonably estimated. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement, what effect would it have on the financial reporting of the company?





Answer: B

Diff: 1

LO: 10-2

EOC: E10-12




37) Southwest Company's records indicate that February sales on account were $111,000. The company's management estimates the liability for warranties to be 4.0% of sales. Please provide the journal entry to record warranty expense.

Answer: Warranty expense4,440



Diff: 2

LO: 10-2

EOC: E10-12




38) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Please provide the journal entry to record the warranty expense.

Answer: Warranty expense10,000



Diff: 2

LO: 10-2

EOC: E10-12




39) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Please provide the journal entry to record the disbursement of warranty payments.

Answer: Estimated warranty payable7,500

Cash7,500


Diff: 2

LO: 10-2

EOC: E10-12




Learning Objective 10-3

1) Gross pay is the total amount of salary, wages, commissions, and bonuses earned by an employee during a pay period.

Answer: TRUE

Diff: 1

LO: 10-3





2) The old age, survivors, and disability insurance portion of FICA taxes is imposed on all of an individual employee's earnings.

Answer: FALSE

Diff: 1

LO: 10-3

EOC: E10-13




3) Payroll tax expense includes the employer's portion of FICA taxes, state unemployment taxes, and federal unemployment taxes.

Answer: TRUE

Diff: 1

LO: 10-3

EOC: E10-13




4) State and federal unemployment taxes are withheld from each employee's paycheck.

Answer: FALSE

Diff: 1

LO: 10-3

EOC: E10-13




5) FUTA (federal unemployment compensation) tax is paid by the employee and deducted from gross pay.

Answer: FALSE

Diff: 1

LO: 10-3

EOC: E10-13




6) SUTA (state unemployment compensation) tax is paid by the employee and deducted from gross pay.

Answer: FALSE

Diff: 1

LO: 10-3

EOC: E10-13




7) SUTA (state unemployment compensation) tax is paid by the employer only and is not deducted from gross pay.

Answer: TRUE

Diff: 1

LO: 10-3

EOC: E10-13




8) FUTA (federal unemployment compensation) tax is paid by the employer only and is not deducted from gross pay.

Answer: TRUE

Diff: 1

LO: 10-3

EOC: E10-13




9) FICA tax is paid by the employer only and is not deducted from gross pay.

Answer: FALSE

Diff: 1

LO: 10-3

EOC: E10-13




10) FICA tax is paid by both the employer and the employee.

Answer: TRUE

Diff: 1

LO: 10-3

EOC: E10-13




11) Gross pay is the total amount of compensation earned by an employee, before any deductions are made.

Answer: TRUE

Diff: 1

LO: 10-3

EOC: E10-13




12) Net pay is the total amount of compensation earned by an employee, before any deductions are made.

Answer: FALSE

Diff: 1

LO: 10-3

EOC: E10-13




13) Federal unemployment tax is a tax expense that is borne by the employer alone, and is not deducted from the employee's pay.

Answer: TRUE

Diff: 1

LO: 10-3

EOC: E10-18




14) Employer FICA is a tax expense that is paid out by the employer and recorded as a payroll tax expense.

Answer: TRUE

Diff: 1

LO: 10-3

EOC: E10-18




15) FICA tax is a tax which is paid both by the employer and the employee in equal amounts.

Answer: TRUE

Diff: 1

LO: 10-3

EOC: E10-18




16) FICA tax is a tax which is paid by the employer only and is not deducted from the employee's pay.

Answer: FALSE

Diff: 1

LO: 10-3

EOC: E10-18




17) FICA tax is a tax which is paid by the employee only.

Answer: FALSE

Diff: 1

LO: 10-3

EOC: E10-18




18) Which of the following is paid by the employee only?

A) FICA

B) FUTA

C) Employee income tax

D) State unemployment tax

Answer: C

Diff: 1

LO: 10-3

EOC: E10-13




19) Which of the following is paid by both the employee and the employer?

A) FICA

B) FUTA

C) Employee income tax

D) State unemployment tax

Answer: A

Diff: 1

LO: 10-3

EOC: E10-13




20) Sue works 46 hours at her job during the week. She is paid $13.30/hour and receives overtime at the rate of time-and-one-half for hours worked over forty. What is Sue's gross pay for the week?

A) $611.80

B) $917.70

C) $651.70

D) Some other amount

Answer: C

Explanation: C) Calculation: (40 $13.30) + (6 $13.30 1.5) = $651.70

Diff: 2

LO: 10-3

EOC: E10-13




21) Sue works 46 hours at her job during the week. She is paid $13.30/hour and receives overtime at the rate of time-and-one-half for hours worked over forty. Sue is taxed for federal income taxes at 15% and 7.65% for OASDI and Medicare. All of her income is taxable. What is Sue's net pay?

A) $651.70

B) $147.61

C) $504.08

D) $532.00

Answer: C

Explanation: C) Calculation: $651.70 - ($651.70 15%) - ($651.70 7.65%) = $504.08

Diff: 3

LO: 10-3

EOC: E10-13




22) Which of the following are NOT required to be deducted from employees' paychecks?

A) Federal income tax

B) FICA

C) State income tax

D) Charitable contributions

Answer: D

Diff: 2

LO: 10-3

EOC: E10-13




23) For which of the following taxes is there a ceiling on the amount of annual earnings subject to the tax?

A) FICA

B) Medicare

C) Federal income tax

D) State income tax

Answer: A

Diff: 1

LO: 10-3

EOC: E10-13




24) Which of the following taxes does NOT have a limit on the amount of tax paid per individual?

A) Federal income taxes

B) FICA taxes

C) Federal unemployment taxes

D) State unemployment taxes

Answer: A

Diff: 1

LO: 10-3

EOC: S10-13




25) Which of the following is NOT an expense of the employer?

A) State unemployment taxes

B) FICA taxesemployer's portion

C) Employee income taxes

D) Federal unemployment taxes

Answer: C

Diff: 1

LO: 10-3

EOC: E10-13




26) Which of the following is pay over and above base salary, usually paid for exceptional performance?

A) Commissions

B) Benefits

C) Wages

D) Bonuses

Answer: D

Diff: 1

LO: 10-3

EOC: E10-13




27) Which of the following is pay stated as a percentage of a sale amount?

A) Bonuses

B) Benefits

C) Wages

D) Commissions

Answer: D

Diff: 1

LO: 10-3

EOC: E10-13




28) Which of the following are deducted in arriving at an employee's net pay?


B) FICA taxesemployer's portion

C) Federal unemployment taxes

D) State unemployment taxes

Answer: A

Diff: 1

LO: 10-3

EOC: E10-13




29) Which of the following deductions must be matched by the employer, resulting in both a deduction from gross pay and an expense to the employer?


B) Federal unemployment taxes

C) FICA taxes

D) Charitable deductions

Answer: C

Diff: 1

LO: 10-3

EOC: E10-13




30) Which of the following are pay amounts stated at an hourly rate?

A) Bonuses

B) Commissions

C) Wages

D) Benefits

Answer: C

Diff: 1

LO: 10-3

EOC: E10-13




31) Tom's gross pay for the week is $800. Tom's deduction for federal income tax is based on a rate of 18%. Tom has no voluntary deductions. Tom's yearly pay is under the limit for OASDI. What is the amount of Tom's net pay?

A) $594.80

B) $738.80

C) $656.00

D) $533.60

Answer: A

Explanation: A) Calculations: $800.00 - ($800 .0765) - ($800 .18) = $594.80

Diff: 2

LO: 10-3

EOC: E10-18




32) Mary's gross pay for the week is $1,000. Mary's deduction for federal income tax is based on a rate of 20%. Mary has voluntary deductions of $150. Her yearly pay is under the limit for OASDI. What is the amount of her net pay?

A) $594.80

B) $773.50

C) $650.00

D) $573.50

Answer: D

Explanation: D) Calculations: $1,000.00 - ($1,000 .0765) - ($1,000 .20) - $150 = $573.50

Diff: 2

LO: 10-3

EOC: E10-18




33) Tom's gross pay for the week is $800. Tom's deduction for federal income tax is based on a rate of 18%. Tom has no voluntary deductions. Tom's yearly pay is under the limit for OASDI. What is the amount of FICA withheld from Tom's pay?

A) $67.80

B) $61.20

C) $65.00

D) $533.60

Answer: B

Explanation: B) Calculations: $800 .0765 = $61.20

Diff: 1

LO: 10-3

EOC: E10-18




34) Mary's gross pay for the week is $1,000. Mary's deduction for federal income tax is based on a rate of 20%. Mary has voluntary deductions of $150. Her yearly pay is under the limit for OASDI. What is the amount of FICA deducted from her pay?

A) $59.80

B) $76.50

C) $65.00

D) $153.00

Answer: B

Explanation: B) Calculations: $1,000 .0765 = $76.50

Diff: 1

LO: 10-3

EOC: E10-18




35) Tom's gross pay for this month is $8,150. His gross pay year-to-date, prior to this month, totaled $101,000. What is the amount of FICA withheld from Tom's pay for this month?

A) $623.48

B) $359.60

C) $477.78

D) $118.18

Answer: C

Explanation: C) Calculations: $106,800 - $101,000 = $5,800

($5,800 6.20%) + ($8,150 1.45 %) = $477.78

Diff: 3

LO: 10-3

EOC: E10-18




36) Tom's gross pay for this month is $8,150. His gross pay year-to-date, prior to this month totaled $101,000. Tom's rate for federal income tax is 24%. His voluntary deductions total $900. What is the amount of Tom's net pay?

A) $4,816.22

B) $5,716.00

C) $4,670.52

D) $4,290.65

Answer: A

Explanation: A) Calculations: $8,150 - $477.78 - ($8,150 24%) - $900 = $4,816.22

Diff: 3

LO: 10-3

EOC: E10-18




37) Tom's gross pay for the week is $800. Tom's deduction for federal income tax is based on a rate of 18%. Tom has no voluntary deductions. Tom's yearly pay is under the limit for OASDI. How much is the amount of FICA tax that Tom's employer must record as payroll tax expense and pay to Social Security?

A) $68.00

B) $61.20

C) $122,40

D) $144.00

Answer: B

Explanation: B) Calculations: $800 7.65% = $61.20

Diff: 1

LO: 10-3

EOC: E10-18




38) Tom's gross pay for the week is $800. Tom's yearly pay is under the limit for OASDI. Assume that the rate for state and federal unemployment compensation taxes is 6.2% and that Tom's pay year-to-date has not yet exceeded the $7,000 cap. How much is the amount of state and federal unemployment tax that Tom's employer must record as payroll tax expense and pay to the federal and state governments?

A) $61.20

B) $38.80

C) $99.20

D) $49.60

Answer: D

Explanation: D) Calculations: $800 6.2% = $49.60

Diff: 1

LO: 10-3

EOC: E10-18




39) Tom's gross pay for the week is $800. Tom's yearly pay is under the limit for OASDI. Assume that the rate for state and federal unemployment compensation taxes is 6.2% and that Tom's pay year-to-date has previously exceeded the $7,000 cap. How much is the amount of state and federal unemployment tax that Tom's employer must record as payroll tax expense and pay to the federal and state governments?

A) $0

B) $38.80

C) $99.20

D) $49.60

Answer: A

Diff: 1

LO: 10-3

EOC: E10-18




40) Tom's gross pay for the week is $800. Tom's yearly pay is under the limit for OASDI. Assume that the rate for state and federal unemployment compensation taxes is 6.2% and that Tom's pay year-to-date has not yet exceeded the $7,000 cap. How much is the total amount of payroll taxes that Tom's employer must record as payroll tax expenses?

A) $61.20

B) $38.80

C) $110.80

D) $49.60

Answer: C

Explanation: C) Calculations: ($800 7.65%) + ($800 6.2%) = $110.80

Diff: 2

LO: 10-3

EOC: E10-18




41) Tom's gross pay for the week is $800. Tom's yearly pay is under the limit for OASDI. Assume that the rate for state and federal unemployment compensation taxes is 6.2% and that Tom's pay year-to-date has previously exceeded the $7,000 cap. How much is the total amount of payroll taxes that Tom's employer must record as payroll tax expenses?

A) $61.20

B) $38.80

C) $110.80

D) $49.60

Answer: A

Explanation: A) Calculations: ($800 7.65%) = $61.20

Diff: 2

LO: 10-3

EOC: E10-18



12) Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2012, Dan's gross pay was $4,400 and Pat's gross pay was $5,200. All earnings are subject to FICA taxes of 7.65%. Which of the following would be included in the entry to record the salary expense for January?

A) A debit to Salary payable to employees for $734.40

B) A debit to FICA tax payable for $734.40

C) A credit to FICA tax payable for $734.40

D) A credit to Salary expense for $734.40

Answer: C

Explanation: C) Calculation: ($4,400 + $5,200) 7.65% = $734.40

Diff: 2

LO: 10-4

EOC: E10-13




13) Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2012, Dan's gross pay was $4,400 and Pat's gross pay was $5,200. All earnings are subject to FICA taxes of 8%. Which of the following would be included in the entry to record the payroll tax expense to be paid out by Lone Star Company for January?

A) A debit to FICA tax payable for $734.40

B) A credit to FICA tax payable for $734.40

C) A credit to Salary expense for $734.40

D) A debit to Salary payable to employees $734.40

Answer: B

Explanation: B) Calculation: ($4,400 + $5,200) 7.65% = $734.40

Diff: 2

LO: 10-4

EOC: E10-13




14) The Statewide Sales Company has gross pay for March of $45,000. Which of the following is the first journal entry in the payroll cycle to record salary expense?A)Salary expense45,000

Salary payable45,000

B)Salary payable45,000

Salary expense45,000

C)Salary expense45,000

Cash45,000

D)Cash45,000

Salary expense45,000

Answer: A

Diff: 1

LO: 10-4

EOC: E10-13




15) The Statewide Sales Company has gross pay for March of $45,000. Which of the following would be included in the first journal entry in the payroll cycle to record salary expense?

A) Credit Salary expense

B) Debit Cash

C) Debit Salary payable

D) Debit Salary expense

Answer: D

Diff: 1

LO: 10-4

EOC: E10-13




16) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800, and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. The second entry in the payroll cycle to record the disbursement of his net pay should include which of the following lines?

A) Debit to cash for $2,974

B) Credit to cash for $2,974

C) Debit to Employee income tax payable of $720

D) Debit to FICA tax payable of $306

Answer: A

Explanation: A) Calculations: $4,000 - ($4,000 18%) - ($4,000 7.65%) = $2,974

Diff: 3

LO: 10-4

EOC: E10-13




17) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800, and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. The second entry in the payroll cycle to record the disbursement of his net pay should include which of the following lines?

A) Credit to Salary payable for $4,000

B) Debit to Cash for $2,974

C) Debit to Employee income tax payable of $720

D) Credit to FICA tax payable of $306

Answer: D

Explanation: D) Calculations: $4,000 7.65% = $306

Diff: 3

LO: 10-4

EOC: E10-13




18) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. Art has a deduction of $320 for health insurance and $80 for United Way. The second entry in the payroll cycle to record the disbursement of his net pay should include which of the following line items?

A) Credit to Salary payable

B) Credit to Payable to the United Way

C) Debit FICA tax payable

D) Debit Cash

Answer: B

Diff: 3

LO: 10-4

EOC: E10-13




19) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. Art has a deduction of $320 for health insurance and $80 for United Way. The second entry in the payroll cycle to record the disbursement of his net pay should include which of the following line items?


B) Debit to Payable to the United Way

C) Debit FICA tax payable

D) Credit Cash

Answer: D

Diff: 3

LO: 10-4

EOC: E10-13




20) Art Parrish is the sole employee of Parrish Sales. His company pays a portion of his health insurance premium, and also contributes to a retirement plan in his name. The company share of the health insurance premium is $400 and the company contribution to the retirement plan is $550. The third journal entry in the payroll cycle to record the employee benefits to be paid by the company should include which of the following line items?

A) Debit Employee benefits payable

B) Credit Health insurance expense

C) Credit Retirement plan expense

D) Credit Employee benefits payable

Answer: D

Diff: 2

LO: 10-4

EOC: E10-13




21) Art Parrish is the sole employee of Parrish Sales. His company pays a portion of his health insurance premium, and also contributes to a retirement plan in his name. The company share of the health insurance premium is $400 and the company contribution to the retirement plan is $550. The third journal entry in the payroll cycle to record the employee benefits to be paid by the company should include which of the following line items?

A) Credit Cash

B) Debit Health insurance expense

C) Credit Retirement plan expense

D) Debit Employee benefits payable

Answer: B

Diff: 2

LO: 10-4

EOC: E10-13




22) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. The fourth journal entry in the payroll cycle to record the employer's payroll taxes should include which of the following line items?

A) Credit to Payroll tax expense

B) Debit to FICA tax payable

C) Credit to FICA tax payable

D) Credit to Cash

Answer: C

Diff: 2

LO: 10-4

EOC: E10-13




23) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. The fourth journal entry in the payroll cycle to record the employer's payroll taxes should include which of the following line items?

A) Debit to Payroll tax expense

B) Debit to FICA tax payable

C) Credit to Payroll tax expense

D) Credit to Cash

Answer: A

Diff: 2

LO: 10-4

EOC: E10-13




24) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. The fifth journal entry in the payroll cycle to record the payment by the company of payroll taxes to the government includes which of the following items?

A) Credit to Cash

B) Credit to Employee income tax payable

C) Credit to FICA tax payable

D) Debit to Salary payable

Answer: A

Diff: 2

LO: 10-4

EOC: E10-13




25) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. The fifth journal entry in the payroll cycle to record the payment by the company of payroll taxes to the government includes which of the following items?


B) Credit to Employee income tax payable

C) Debit to FICA tax payable

D) Debit to Salary payable

Answer: C

Diff: 2

LO: 10-4

EOC: E10-13




26) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. The fifth journal entry in the payroll cycle to record the payment by the company of the tax liability to the government includes a credit to cash for $1,332.

Answer: TRUE

Explanation: Calculations:

$4,000 18% = $720

$4,000 7.65% 2 = $612

$612 + 7$20 = $1,332

Diff: 2

LO: 10-4

EOC: E10-13




27) Which of the following is an important aspect of control over payroll?

A) Controls to limit salaries and wages so that they are no higher than competitors

B) Controls for efficiency in payroll procedures

C) Controls to screen potential employees for criminal records

D) Controls to monitor employee behavior, such as security cameras

Answer: B

Diff: 1

LO: 10-4

EOC: E10-13




28) Which of the following is a reason that many companies maintain two payroll bank accounts?

A) To avoid writing a paycheck to a fictitious person.

B) To prove an employee's hours worked.

C) To separate the duties of human resources personnel and accounting personnel.

D) To make bank reconciliations simpler.

Answer: D

Diff: 1

LO: 10-4

EOC: E10-13




29) Which of the following is a reason that many companies require a photo ID when employees pick up their paychecks?

A) To make sure an employee's work hours have been accurately reported

B) To avoid writing a paycheck to a fictitious person

C) To improve efficiency of the payroll disbursement process

D) To make sure all employees are legal adults

Answer: B

Diff: 1

LO: 10-4

EOC: E10-13




30) Good internal controls over payroll would include all of the following EXCEPT:

A) accounting for payroll should be separate from hiring and firing of employees.

B) disbursement of paychecks should be separate from the function of maintaining payroll records.

C) employees should clock in and out to insure accuracy of work hours.

D) cash receipts from customers should be separated from the accounting for accounts receivable.

Answer: D

Diff: 1

LO: 10-4

EOC: E10-13




31) Which of the following is a major control risk in the payroll area?

A) Theft of inventory by staff

B) Fictitious persons cashing paychecks

C) Expenses being recorded as assets in order to manipulate earnings

D) Contracts being awarded to relatives of employees

Answer: B

Diff: 1

LO: 10-4

EOC: E10-13




32) Which of the following is a control procedure to prevent fictitious persons cashing paychecks?

A) Having employees clock in and out of work

B) Keeping computerized records of payroll data

C) Serial numbering of paychecks

D) Requiring photo IDs for employees picking up their paychecks

Answer: D

Diff: 1

LO: 10-4

EOC: E10-13




33) Which of the following is an important internal control over payroll?

A) Separating the duties of the disbursement of paychecks from the recording of payroll transactions in the ledger

B) Separating the duties of safeguarding property from record-keeping of property

C) Separating the duties of approving invoices from signing disbursement checks

D) Separating the duties of cash disbursement from bank reconciliations

Answer: A

Diff: 1

LO: 10-4

EOC: E10-13




34) The Statewide Sales Company has gross pay for March of $45,000. Please provide the first journal entry in the payroll cycle to record salary expense.

Answer: Salary expense45,000

Salary payable45,000


Diff: 1

LO: 10-4

EOC: E10-13




35) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. Please provide the second entry in the payroll cycle to record the disbursement of his net pay.

Answer: Salary payable4,000

Employee income tax payable720

FICA tax payable306

Cash2,974


$4,000 18% = $720

$4,000 7.65% = $306


Diff: 3

LO: 10-4

EOC: E10-13




36) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. Art has a deduction of $320 for health insurance and $80 for United Way. Please provide the second entry in the payroll cycle to record the disbursement of his net pay.

Answer: Salary payable4,000

Employee income tax payable720

FICA tax payable306

Payable to health insurance320

Payable to United Way80

Cash2,574


$4,000 18% = $720

$4,000 7.65% = $306

$4,000 - $720 - $306 - $320 - $80 = $2,574


Diff: 3

LO: 10-4

EOC: E10-13




37) Art Parrish is the sole employee of Parrish Sales. His company pays a portion of his health insurance premium, and also contributes to a retirement plan in his name. The company share of the health insurance premium is $400 and the company contribution to the retirement plan is $550. Please provide the third journal entry in the payroll cycle to record the employee benefits paid by the company.

Answer: Health insurance expense400

Retirement plan expense550

Employee benefits payable950


Diff: 2

LO: 10-4

EOC: E10-13




38) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. Please provide the fourth journal entry in the payroll cycle to record the employer's payroll taxes.

Answer: Payroll tax expense306

FICA tax payable306

Explanation: Calculations: $4,000 7.65% = $306


Diff: 2

LO: 10-4

EOC: E10-13




39) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. Please provide the fifth journal entry in the payroll cycle to record the payment by the company of payroll taxes to the government.

Answer: Employee income tax payable720

FICA tax payable612

Cash1,332


$4,000 18% = $720

$4,000 7.65% 2 = $612


Diff: 3

LO: 10-4

EOC: E10-13




42

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