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Exam 9: Accounting for Current Liabilities

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Question 31

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During August,Boxer Company sells $356,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 5% of the selling price.The warranty liability account has a credit balance of $12,800 before adjustment.Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs.The entry to record the customer warranty repairs is:

A) Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
B) Debit Warranty Expense $9,400; credit Estimated Warranty Liability $9,400.
C) Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.
D) Debit Estimated Warranty Liability $9,400; credit Parts Inventory $9,400.
E) Debit Estimated Warranty Liability $17,800; credit Parts Inventory $17,800.

F) None of the above
G) A) and B)

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Question 32

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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? (Use 360 days a year.)

A) $0
B) $75
C) $900
D) $225
E) $300

F) C) and E)
G) All of the above

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Question 33

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Hollow Company provides you with following information for two of its employees.The company is subject to the following taxes. $\begin{array} { | l | l | l | } \hline \text { Tax } & \text { Rate } & \text { Applied To } \\\hline \text { FICA-Social Security } & 6.20 \% & \text { First } \$ 118,500 \\\hline \text { FICA-Medicare } & 1.45 \% & \text { All gross pay } \\\hline \text { FUTA } & 0.60 \% & \text { First } \$ 7,000 \\\hline \text { SUTA } & 3.20 \% & \text { First } \$ 7,000 \\\hline\end{array}$ Compute amounts for each of these four taxes as applied to each employee's gross earnings for November. $\begin{array} { | l | l | } \hline \text { Gross Pay through October } & \text { Gross Pay for November } \\\hline \text { a. } \$ 6,400 & \$ 2,000 \\\hline \text { b. } \$ 112,000 & \$ 9,400 \\\hline\end{array}$

Match the following items with the appropriate designation (Estimated liability, Contingent liability, or Known liability) . -Sales taxes payable

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

A ________ is a potential obligation that depends on a future event arising from a past transaction or event.

The Wage and Tax Statement given to each employee annually is:

Contingent liabilities are recorded or disclosed unless they are:

Accounting for contingent liabilities covers three possibilities: (1)The future event is probable and the amount cannot be reasonably estimated; (2)The future event is remote or unlikely to recur; (3)The likelihood of the liability to occur is impossible.

During June,Vixen Company sells $850,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 3% of the selling price.Customers returned $14,000 of merchandise for warranty replacement during the month.The entry to record the estimated warranty provision at the end of the month is:

________ are amounts received in advance from customers for future products or services.

A bank that is authorized to accept deposits of amounts payable to the federal government is a:

Match the following items with the appropriate designation (Estimated liability, Contingent liability, or Known liability) . -Unearned revenues

An employer's federal unemployment taxes (FUTA) are reported:

During August,Boxer Company sells $356,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 5% of the selling price.The warranty liability account has a credit balance of $12,800 before adjustment.Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs.The entry to record the estimated warranty expense for the month is:

SaveMart had income before interest expense and income taxes of $12,581 million and interest expense of $1,063 million.Valueland had income before interest expense and income taxes of $3,596 million and interest expense of $1,143 million.Calculate the times interest earned for each company and comment on the results.

Companies with many employees often use a special ________ account to pay employees.

The chief executive officer earns $20,000 per month.As of May 31,her gross pay was $100,000.The tax rate for Social Security is 6.2% of the first $118,500 earned each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings.The current FUTA tax rate is 0.6%,and the SUTA tax rate is 5.4%.Both unemployment taxes are applied to the first $7,000 of an employee's pay. -What is the amount of FICA-Social Security withheld from this employee for the month of June?

A company had income before interest expense and income taxes of $186,000,and its interest expense is $55,000.Calculate the company's times interest earned ratio.

FUTA taxes are: