Q: If a company's fiscal year ends on September 30, and it must accrue interest expense at 10% for a $8,000 note payable issued on January 1, what is the accrued interest expense at year-end?

$8,000 \times 0.10 \times \frac{9}{12} = $600

Q: An employee earns a gross salary of $50,000. What is the total FICA tax withheld for Social Security and Medicare?

$50,000 \times 0.062 + $50,000 \times 0.0145 = $3,100 + $725 = $3,825

Q: A company issues a $10,000 note payable on March 1 with 12% annual interest, due in one year. What is the interest expense to be accrued at year-end on December 31?

$10,000 \times 0.12 \times \frac{10}{12} = $1,000

Q: If an employee earns $2,000 in gross salary for a pay period, and the FICA rate is 6.2% (up to $137,700) and Medicare is 1.45%, what is the total amount withheld for FICA and Medicare?

$2,000 \times 0.062 + $2,000 \times 0.0145 = $124 + $29 = $153

Question 1

Which of the following best describes a short-term note payable?

Accepted Answer

A written promise to pay a certain amount of money within one year or the operating cycle, whichever is longer, often used to finance business operations.

Question 2

A company purchases inventory on January 1, 2024, for $8,000 in exchange for a short-term note payable due in one year with 10% interest. What is the total amount the company will pay at maturity?

Accepted Answer

$8,800

Question 3

If a company's fiscal year ends on September 30, and it must accrue interest expense at 10% for a $8,000 note payable issued on January 1, what is the accrued interest expense at year-end?

Accepted Answer

$8,000 	imes 0.10 	imes \frac{9}{12} = $600

Question 4

Which of the following is NOT an example of an accrued liability?

Accepted Answer

Unearned revenue from advance customer payments

Question 5

On a Saturday, an Amazon store has cash sales of $200,000 and collects an additional 5% sales tax. What is the correct journal entry for the sales tax liability?

Accepted Answer

Debit Cash $210,000; Credit Sales Revenue $200,000; Credit Sales Tax Payable $10,000

Question 6

Which payroll liability is created when an employer withholds Social Security and Medicare taxes from employees' paychecks?

Accepted Answer

FICA Tax Payable

Question 7

An employee earns a gross salary of $50,000. What is the total FICA tax withheld for Social Security and Medicare?

Accepted Answer

$50,000 	imes 0.062 + $50,000 	imes 0.0145 = $3,100 + $725 = $3,825

Question 8

Which of the following best explains why warranty expense must be recorded in the same period as the related sales revenue?

Accepted Answer

To comply with the matching principle in accrual accounting, ensuring expenses are matched with the revenues they help generate.

Question 9

Black & Decker estimates that 3% of its $100,000 sales will require warranty replacement. What is the estimated warranty expense for the year?

Accepted Answer

$100,000 	imes 0.03 = $3,000

Question 10

If actual warranty claims for Black & Decker are $2,800, but the company estimated $3,000, what is the impact on the accrued warranties payable account after claims are settled?

Accepted Answer

The accrued warranties payable account will have a remaining balance of $200.

Question 11

Which of the following is NOT a form of employee compensation that creates payroll liabilities?

Accepted Answer

Interest on notes payable

Question 12

A company issues a $10,000 note payable on March 1 with 12% annual interest, due in one year. What is the interest expense to be accrued at year-end on December 31?

Accepted Answer

$10,000 	imes 0.12 	imes \frac{10}{12} = $1,000

Question 13

Which of the following best describes the purpose of accrued liabilities in financial accounting?

Accepted Answer

To recognize expenses that have been incurred but not yet paid, ensuring financial statements reflect all obligations.

Question 14

If an employee earns $2,000 in gross salary for a pay period, and the FICA rate is 6.2% (up to $137,700) and Medicare is 1.45%, what is the total amount withheld for FICA and Medicare?

Accepted Answer

$2,000 	imes 0.062 + $2,000 	imes 0.0145 = $124 + $29 = $153

Question 15

Which of the following is a correct application of the accrual accounting principle?

Accepted Answer

Recognizing salary expense in the period employees perform work, even if payment occurs later.

Question 16

A company collects $50,000 in cash sales and $2,500 in sales tax. What is the correct amount to credit to Sales Tax Payable?

Accepted Answer

$2,500

Question 17

Which of the following would NOT be considered a current liability?

Accepted Answer

A note payable due in three years

Question 18

If a company estimates warranty expense at 4% of sales, and actual claims are only 2% of sales, what adjustment is needed at year-end?

Accepted Answer

Decrease the accrued warranties payable by the difference between estimated and actual claims.

Question 19

Which of the following is the correct formula to calculate interest expense accrued on a note payable?

Accepted Answer

$	ext{Principal} 	imes 	ext{Interest Rate} 	imes \frac{	ext{Time}}{12}$

Chapter 8: Current and Contingent Liabilities – Financial Accounting Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards