Acct 300

1)A contingency was evaluated atyear-end. Management felt it was probable that this would become an actual liability and the amount could be reasonably estimated. If this was not reported on the balance sheet or in the notes to the financialstatements, what is the effect on the financial reporting of thecompany?

A.There would be no effect.

B.The net income of the company would be understated.

C.The information about the transaction would be inadequately disclosed in the notes.

D.The liabilities on the balance sheet would be understated.

2) State unemployment compensation tax(SUTA) is paid by the employer and is not deducted from anemployee's gross earnings.

True

False

3) Mountain Valley Sales Company has gross pay for March of$45,000. Which of the following is included in the journal entry to record salariesexpense?

A.debit Salaries and Wages Expense

B.debit Salaries and Wages Payable

C.debit Cash

D.credit Salaries and Wages Expense

4)MacintoshElectronics reported the following amounts on its2018incomestatement:

Year Ended December 31, 2018

Net income $48,000

Income tax expense $7200

Interest Expense $4,600

What isMacintosh'stimes-interest-earned ratio for2018?(Round to twodecimals.)

5)Dan Jones and Pat Smith are two employees of Lone Star Company. In January2019, Dan's gross pay was$9,000, andPat's gross pay was$15,900. All earnings are subject to FICAOASDI Tax of 6.2% and FICAMedicare 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 forJanuary?

A.a debit to FICAOASDI Taxes Payable for$ 361.05

B.a credit to FICAMedicare Taxes Payable for$ 361.05

C.a credit to Salaries Expense for$361.05

D.a debit to Salaries Payable to employees for$ 361.05

6)Net pay is the total amount of compensation that an employee takes home after the deductions are made.

True

False

7) Amy's gross pay for the week is$860. Her deduction for federal income tax is based on a rate of 20%. She has voluntary deductions of$150. Her yeartodate pay is under the limit for OASDI. What is her netpay? (Assume a FICAOASDI Tax of 6.2% and FICAMedicare Tax of 1.45%. Round all calculations to the nearestcent.)

A.$ 472.21

B.$ 622.21

C.$688.00

D.$ 538.00

8)A restaurant is being sued because a customer claims to have found a bug in her chili. Thecompany'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 thecompany's management?

A.The situation should be described in a note to the financial statements.

B.An expense must be matched to the period in which the incident occurred.

C.The possible liability should not be shown in the financial statements.

D.The liability should be estimated and accrued as an expense.

9)Vacation pay is an example a liability that exists but the exact amount is not known.

True

False

10) Social Security(FICA) tax is withheld from theemployees' pay and matched by the employer.

True

False

11) Sunset Company has a policy of accruing$2,600for every employee as a vacation benefit.Sarah, anemployee, took a vacation. Which of the following is the correct journal entry for the vacation benefitpaid?

A.Vacation Benefits Payable 2,167

Vacation Benefits Expense 2,167

B.Vacation Benefits Expense 2,600

Cash 2,600

C.Vacation Benefits Payable 2,600

Cash 2,600

D.Vacation Benefits Expense 2,167

Vacation Benefits Payable 2,167

12)Which of the following statements regarding Accounts Payable isincorrect?

A.Accounts payable represent debts owed to creditors.

B.Accounts payable occur because the business receives the goods or services before payment has been made.

C.Because accounts payable are typically due in 30days, they are current liabilities.

D.The Accounts Payable account is decreased with a credit.

15)Masterpiece Sales Company offers warranties on all their electronic goods. Warranty expense is estimated at 4% of sales revenue. In2019, the company had$595,000in sales. In the sameyear, Masterpiece Sales replaced defective goods with goods that had a cost of$10,500. Which of the following is the entry needed to record the replacement of the defectivegoods?

A.Warranty Expense 23,800

Estimated Warranty Payable 23,800

B.Estimated Warranty Payable 10,500

Merchandise Inventory 10,500

C.Warranty Expense 10,500

Estimated Warranty Payable 10,500

D.Warranty Expense 23,800

Merchandise Inventory 23,800

16)Known liabilities of estimated amounts are

A.ignored.(Record them whenpaid.)

B.reported on the balance sheet.

C.reported on the income statement.

D.reported only in the notes to the financial statements.

17) Maywood Company recently signed a$350,000, six-month note on August22, 2019. The interest rate is7%. How much interest will be due atmaturity?

A.$8,167

B.$12,250

C.$10,208

D.$24,500

18) To compute the interest for notespayable, multiply principal times the annual rate of interest.

True

False

19)Which of the following statements about thetimes-interest-earned ratio istrue?

A.Thetimes-interest-earned ratio is also called theinterest-coverage ratio.

B.Debt reduction leads to an increase in interest expense.

C.Thetimes-interest-earned ratio is calculated by dividing gross income by interest expense.

D.A lower ratio indicates a higher debt paying ability.