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Exam 11: Current Liabilities and Payroll

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Question 21

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A restaurant is being 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 not be shown in the financial statements.
C) The liability should be estimated and accrued as an expense.
D) An expense must be matched to the period in which the incident occurred.

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Question 22

Multiple Choice

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The journal entry for accrued interest on a note payable includes ________.

A) a debit to Interest Expense and credit to Cash
B) a debit to Interest Expense and credit to Interest Payable
C) a debit to Interest Payable and credit to Cash
D) a credit to Interest Expense and debit to Notes Payable

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Question 23

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Which of the following statements regarding vacation benefits is correct?

The IFRS definitions of current and long-term liabilities are much different than the U.S.GAAP definitions.

On October 1,2019,Norway Company borrowed $225,000 by signing a nine-month,8% note payable.Interest was accrued on December 31,2019.Prepare the journal entry on July,1,2020,the date the note was paid.Omit explanation.

A journal entry is prepared to reclassify the current portion of a note payable.

When a business records accrued interest expense on a note payable ________.

On August 31,2018,Allright Services received $3,500 in advance of performing the service.Which journal entry is needed to record the receipt of cash?

Dan Jones and Pat Smith are two employees of Lone Star Company.In January 2019,Dan's gross pay was $11,500,and Pat's gross pay was $15,400.All earnings are subject to FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.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 contingency was evaluated at year-end and considered to have a remote possibility of becoming an actual liability.If this is not reported on the balance sheet or in the notes to the financial statements,it could be considered a violation of generally accepted accounting principles.

Mario worked 48 hours during the work week.He earns wages of $18 per hour for straight time (40 hours).The company pays time-and-half for overtime.Mario's gross pay is $864.

Harrison,an employee of Safe Associates,Inc. ,has gross salary for March of $4,000.The entire amount is under the OASDI limit of $118,500 and thus subject to FICA.He is also subject to federal income tax at a rate of 18%.Harrison has a deduction of $320 for health insurance and $80 for United Way.Which of the following is included in the entry to record the disbursement of his net pay?

Dallas Company has gross pay for March of $50,000.The journal entry to record salaries expense would include a debit to Salaries and Wages Payable for $50,000.

The matching principle requires businesses to report Warranty Expense ________.

The employer is required to directly deposit the employee's take-home pay into the employee's bank account.

The matching principle requires businesses to record Warranty Expense when the warranty costs are incurred.

Venus Corp.sold goods,with a selling price of $17,221,for cash.The state sales tax rate is 8%.What amount is credited to the Sales Revenue account? (Round calculations to the nearest dollar. )

Which of the following is NOT a liability that must be estimated?

If a contingency that is probable can be reasonably estimated,a liability is recorded and an expense is accrued.

Employer FICA tax is paid by the employer and is added to the employee's earnings.