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Exam 9: Accounting for Current Liabilities

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Question 81

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Cantrell Company is required by law to collect and remit sales taxes to the state. If Cantrell has $8,000 of cash sales that are subject to an 8% sales tax, what is the journal entry to record the cash sales?

A) Debit Cash $8,000; credit Sales $7,360; credit Sales Taxes Payable $640.
B) Debit Sales Taxes Payable $640; debit Cash $7,360; credit Sales $8,000.
C) Debit Cash $8,000; credit Sales $8,000; and record the taxes when paid.
D) Debit Cash $8,640; credit Sales $8,000; credit Sales Taxes Payable $640.
E) Debit Accounts Receivable $8,640; credit Sales $8,000; credit Sales Taxes Payable $640.

F) A) and D)
G) A) and E)

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Question 82

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When the number of withholding allowances claimed on Form W-4 increases, the amount of income tax withheld decreases.

A) True
B) False

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Question 83

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A liability may exist even if there is uncertainty about whom to pay, when to pay, or how much to pay.

On November 1, Casey's Snowboards signed a $12,000, 90-day, 5% note payable to cover a past due account payable. a. What amount of interest expense on this note should Casey's Snowboards report on year-end December 31? b. Prepare Casey's journal entry to record the issuance of the note payable. c. Prepare Casey's adjusting journal entry at the end of the year. d. Prepare Casey's journal entry to record the payment of the note on February 1 of the following year.

Richardson Fields receives $31,680 cash in advance ticket sales for 11 home soccer games. Record the advance ticket sales on March 31. Record the revenue earned for the first game played on August 17.

Gross pay less all deductions is called ____________________.

A company sells tablet computers for $1,300 each. The price includes a two-year warranty. During the current year, the company sells 400 tablets. On the basis of past experience, the warranty costs are estimated to be $280 per tablet. The actual warranty costs (paid in cash) by the company during the current year were $65,000. Prepare general journal entries to record the (a) estimated warranty expense and (b) warranty repair costs during current year.

On December 1, Williams Company borrowed $45,000 cash from Second National Bank by signing a 90-day, 9% note payable. a. Prepare Williams' journal entry to record the issuance of the note payable. b. Prepare Williams' journal entry to record the accrued interest due at December 31. c. Prepare Williams' journal entry to record the payment of the note on March 1 of the next year.

A company's employees had the following earnings records at the close of the current payroll period: $\begin{array} { | l | r | r | } \hline \text { Employees } & \text { Earning through Prior Pay Period } & \text { Earning this Pay Period } \\\hline \text { F. Argent } & \$ 11,300 & \$ 3,900 \\\hline \text { A. Garza } & 6,100 & 2,500 \\\hline \text { L. Hong } & 9,500 & 3,100 \\\hline \text { R. Levinson } & 4,800 & 1,400 \\\hline \text { J. Young } & 10,000 & 3,000 \\\hline\end{array}$ The company's payroll taxes expense on each employee's earnings includes: FICA Social Security taxes of 6.2% on the first $117,000 of earnings plus 1.45% FICA Medicare on all wages; 0.6% federal unemployment taxes on the first $7,000; and 2.5% state unemployment taxes on the first $7,000. Compute the employer's total payroll taxes expense for the current pay period.

The times interest earned ratio is calculated by dividing interest expense by income before interest expense and income taxes.

A company has 90 employees and a weekly payroll of $117,000. The FICA-social security tax withheld totals $7,254 and the FICA-Medicare tax withheld totals $1,696.50. The total withholding for federal income tax is $16,500. Prepare the journal entry to accrue this week's salaries expense and withholdings.

A company's income before interest expense and taxes is $250,000 and its interest expense is $100,000. Its times interest earned ratio is 2.5. Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest Expense Times Interest Earned Ratio = $250,000/$100,000 = 2.5

Estimated liabilities commonly arise from all of the following except:

Trade accounts payable are amounts owed to suppliers for products or services purchased on credit.

A company's income before interest expense and income taxes in 2014 and 2015 is $225,000 and $250,000, respectively. Its interest expense was $45,000 for both years. Calculate the company's times interest earned ratio, and comment on its level of risk.

A high value for the times interest earned ratio means that a company is a lower risk borrower.

Drake Company pays its employees for two weeks of vacation each year. The total annual cost of the vacation benefit is $109,920. Prepare the journal entry to record the monthly accrued vacation expense.

A short-term note payable is a written promise to pay a specified amount on a definite future date within one year or the operating cycle, whichever is shorter.

A potential lawsuit claim is disclosed when the claim can be reasonably estimated and it is reasonably possible.

Times interest earned is computed by dividing income before interest expense and income taxes by _______________________.