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Exam 9: Accounting for Current Liabilities and Payroll

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Question 31

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Vacation pay is considered a contingent liability to the extent that the obligation exists due to work already performed.

A) True
B) False

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Question 32

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John Rogers and Kim Thompson both perform work for Apex Manufacturing. John is considered to be an employee, and Kim is considered to be an independent contractor. How is this possible? How does is affect payroll taxes?

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For Kim to be considered an independent ...

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Question 33

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The issuer of a note payable is also known as the maker.

What is the effect of the recognition of warranty expense on the statement of cash flows?

On August 1, 2012, Lincoln & Co. borrowed money from the bank by issuing a one year, $12,000 face value discount note. The note carried a 6% discount rate. Required: a) Prepare the journal entry to record the issuance of the note. b) Compute the amount of interest expense that will be shown on the 2012 income statement and prepare the appropriate journal entry. c) What is the total amount of cash that will be paid to the bank at the maturity of the note on August 1, 2013? Prepare all necessary journal entries on August 1, 2013 (assume the note was paid in full). d) Prepare the liabilities section of the balance sheet at December 31, 2012.

Employers must withhold unemployment taxes from employee salaries.

Joseph Company issued a one-year, 6% note to Community Bank.

Bacchus Co. had sales of $400,000 in 2013. The company expects to incur warranty expenses amounting to 3% of sales. There were $6,500 of warranty obligations paid in cash during 2013. Based on this information:

On a classified balance sheet, the financial statement user will be able to distinguish between:

Selling $65 of merchandise to a customer for $100 in a state where the sales tax rate is 4%:

Charles Co. repaid a note payable on September 30, 2013. The 8-month note had been issued on February 1, 2013. The $10,400 cash payment included a $10,000 repayment of principal and a $400 payment for interest.

Which of the following items is not classified as a current asset?

At the end of 2012, Durango Company recorded an adjusting entry for its obligation under product warranties. During 2013, it replaced products to its customers under the terms of the warranties. The 2013 warranty settlements should be recorded as asset use transactions.

The following is a list of balance sheet accounts (in random order) and balances for the National Supply Company. They have been updated as of December 31, 2013. Required: Prepare a classified balance sheet for National Supply Company at December 31, 2013.

Peyton Company sold merchandise to a customer for $880 cash in a state where the sales tax rate is 5%. (Ignore the effect of cost of goods sold.)

Albertson Co. purchased a $3,000 machine by making a $500 cash down payment and issuing a $2,500 note payable for the remaining balance.

The December 31, 2013 balance sheet of Rollins Company shows current assets of $16,000 and current liabilities of $10,000. On January 1, 2014 the company recorded the following entries: After the two journal entries were recorded, the company current ratio is:

Forbes Company has been named as the defendant in a class action lawsuit. Indicate whether each of the following statements regarding the lawsuit is true or false. _____ a) If the outcome is likely, a liability should be recognized on the balance sheet for the full amount of the suit, even if the company's attorneys estimate the outcome be much lower. _____ b) If the outcome is likely, but cannot be reasonably estimated, the contingency should be disclosed in the footnotes to the financial statements. _____ c) If the outcome is reasonably possible, the contingency should be disclosed in the footnotes to the financial statements. _____ d) Every lawsuit, regardless how frivolous, should be disclosed in the footnotes to the financial statements. _____ e) If an active hurricane season has been predicted for the Florida gulf coast, businesses in that region should disclose contingencies for catastrophic loss in the footnotes to their financial statements.

Based on this information alone, the amount of total liabilities appearing on Munson's 2013 balance sheet would be:

Which of the following represents the correct journal entry to record a taxable cash sale of $800 if the sales tax rate is 5%?