Multiple-Choice Questions

1. Payroll taxes typically include all of the following except:

a. Social Security tax

b. Federal excise tax

c. Medicare tax

d. Federal income tax

2. When a credit is made to the state income tax payable account, the corresponding debit is made to:

a. Tax Expense

b. Cash

c. Wages Expense

d. Tax Payable

3. When should a contingent liability be recognized?

a. When the contingent liability is probable

b. When a reasonable estimation can be made

c. A and B

d. neither A nor B

4. Which of the following is true?

a. A contingent liability should always be recorded in the footnotes to the financial statements.

b. A contingent liability should always be recorded within the financial statements.

c. A company can choose to record a contingent liability either within its financial statements or in the footnotes to the financial statements.

d. No journal entries or footnotes are necessary if the possibility of a contingent liability is remote.

5. Warranty expense is:

a. Recorded in the period of sale.

b. Recorded as it is incurred.

c. Capitalized as a warranty asset.

d. None of the above.

6. To record warranties, the adjusting journal entry would be:

a. A debit to Warranty Expense and a credit to Estimated Warranty Liability.

b. A debit to Warranty Expense and a debit to Cash.

c. A debit to Estimated Warranty Liability and a credit to Warranty Expense.

d. A debit to Estimated Warranty Liability and a credit to Cash.

7. How is the current ratio calculated?

a. Current Assets/Current Liabilities

b. (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities

c. (Cash + Marketable Securities)/Current Liabilities

d. Cash flows from Operating Activities/Current Liabilities

8. How is the cash ratio calculated?

a. Current Assets/Current Liabilities

b. (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities

c. (Cash + Marketable Securities)/Current Liabilities

d. Cash Flows from Operating Activities/Current Liabilities