Q: Ryan Park works 42 hours in a week at $15 per hour, with overtime paid at time-and-a-half. What is his gross pay for the week?

$$15 \times 40 + 22.50$$ \times 2 = $630

Q: A company borrows $10,000 on a 6%, 5-month note payable on November 1. What is the interest expense accrued at December 31?

$$10,000 \times 6\% \times \frac{2}{12} = 100$$

Q: Smart Touch Learning estimates a 5% bonus on annual net income after deducting the bonus. If net income before the bonus is $315,000, what is the bonus amount?

$$315,000 \times 5\% = 15$$,000; \text{but must solve:} \ B = 0.05 \times (315,000 - B) \Rightarrow B = \frac{0.05 \times 315,000}{1.05} = $15,000

Q: The times-interest-earned ratio is calculated as:

$$\text{Times-interest-earned ratio} = \frac{\text{Net income} + \text{Income tax expense} + \text{Interest expense}}{\text{Interest expense}}$$

Question 1

Which of the following best describes a current liability?

Accepted Answer

A debt that is expected to be paid within one year or the entity’s operating cycle, whichever is longer.

Question 2

Smart Touch Learning makes taxable sales of $10,000 in December and collects a 6% sales tax. What is the correct journal entry to record the sales tax collected?

Accepted Answer

Debit Cash $$10,600; Credit Sales Revenue 10$$,000; Credit Sales Tax Payable $600

Question 3

Which of the following is NOT a required payroll deduction?

Accepted Answer

Charitable contributions

Question 4

Ryan Park works 42 hours in a week at $15 per hour, with overtime paid at time-and-a-half. What is his gross pay for the week?

Accepted Answer

$$15 	imes 40 + 22.50$$ 	imes 2 = $630

Question 5

Which of the following best describes unearned revenue?

Accepted Answer

Cash received before goods or services are provided.

Question 6

A company borrows $10,000 on a 6%, 5-month note payable on November 1. What is the interest expense accrued at December 31?

Accepted Answer

$$10,000 	imes 6\% 	imes \frac{2}{12} = 100$$

Question 7

Which of the following is an example of a current liability that must be estimated?

Accepted Answer

Warranty liability

Question 8

Smart Touch Learning estimates a 5% bonus on annual net income after deducting the bonus. If net income before the bonus is $315,000, what is the bonus amount?

Accepted Answer

$$315,000 	imes 5\% = 15$$,000; 	ext{but must solve:} \ B = 0.05 	imes (315,000 - B) \Rightarrow B = \frac{0.05 	imes 315,000}{1.05} = $15,000

Question 9

Which of the following best describes a contingent liability?

Accepted Answer

A potential liability that depends on a future event.

Question 10

The times-interest-earned ratio is calculated as:

Accepted Answer

$$	ext{Times-interest-earned ratio} = \frac{	ext{Net income} + 	ext{Income tax expense} + 	ext{Interest expense}}{	ext{Interest expense}}$$

Question 11

Which of the following is NOT an employer payroll tax?

Accepted Answer

Federal income tax

Question 12

A company sells $50,000 of goods subject to a 3% warranty estimate. What is the warranty expense recorded?

Accepted Answer

$$50,000 	imes 3\% = 1$$,500$

Question 13

Which of the following controls is NOT typically used to safeguard payroll disbursements?

Accepted Answer

Allowing the same person to hire, fire, and prepare payroll

Question 14

If a business knows a liability exists but does not know the exact amount, what should it do?

Accepted Answer

Estimate the amount and report it on the balance sheet

Question 15

Which of the following is true about sales tax collected by a business?

Accepted Answer

It is a current liability until remitted to the government

Question 16

Which of the following best describes the current portion of long-term notes payable?

Accepted Answer

The amount of long-term debt due within the next year

Question 17

Which of the following is an example of an optional payroll deduction?

Accepted Answer

Retirement plan contributions

Question 18

If a contingent liability is probable and the amount can be reasonably estimated, what is the correct accounting treatment?

Accepted Answer

Record the liability and disclose it in the notes

Question 19

Which of the following is the correct formula for net (take-home) pay?

Accepted Answer

$$	ext{Net pay} = 	ext{Gross pay} - 	ext{All deductions}$$

Question 20

Which of the following is NOT a characteristic of a liability?

Accepted Answer

It is an avoidable obligation

Chapter 11: Current Liabilities and Payroll – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards