1. Copyright © 2007 Prentice-Hall. All rights reserved 1 Current Liabilities and Payroll Chapter 11

2. Copyright © 2007 Prentice-Hall. All rights reserved 2 Dina Company issued a 60-day note payable on December 1. What adjusting entry should be prepared on December 31? 1.Debit cash, credit note payable 2.Debit interest expense, credit note payable 3.Debit interest expense, credit interest payable 4.Debit interest payable, credit interest expense

3. Copyright © 2007 Prentice-Hall. All rights reserved 3 Answer: 3

4. Copyright © 2007 Prentice-Hall. All rights reserved 4 Emmett Company has a year-end of December 31 and issued a 60-day note payable on December 1. The entry to record the payment of the note in January would include 1.A debit to interest payable 2.A credit to note payable 3.A debit to cash 4.A credit to interest expense

5. Copyright © 2007 Prentice-Hall. All rights reserved 5 Answer: 1

6. Copyright © 2007 Prentice-Hall. All rights reserved 6 The adjusted trial balance for Young Company has the following liabilities: Accounts payable$1,000 Interest payable500 Notes Payable$5,000 The notes payable requires monthly principal payments of $100. What is the amount of total current liabilities?

7. Copyright © 2007 Prentice-Hall. All rights reserved 7 Answer: Current liabilities Accounts payable$1,000 Interest payable500 Currently maturing portion of Notes Payable ($100 X 12)1,200 Total$2,700 The rest of the notes payable is reported under long-term liabilities.

8. Copyright © 2007 Prentice-Hall. All rights reserved 8 On Sept. 1, Revale Company collected $600 for six months’ rent in advance. The $600 was credited to Unearned Rent. What is the December 31 adjusting entry? 1.Debit Cash $600, credit Unearned Rent $600 2.Debit Rent Receivable $600, credit Rent Revenue $600 3.Debit Unearned Rent $400, credit Rent Revenue $400 4.Debit Rent Receivable $400, credit Rent Revenue $400

9. Copyright © 2007 Prentice-Hall. All rights reserved 9 Answer: 3 Rent revenue for four months = $400

10. Copyright © 2007 Prentice-Hall. All rights reserved 10 Warranty expense should be recorded: 1. In the period when the warranty claims are paid 2. In the period when the sale was recorded 3. On the day of the sale 4. When the warranty period expires

11. Copyright © 2007 Prentice-Hall. All rights reserved 11 Answer: 2 The matching principle dictates that the expenses related to a sale be recognized in the same accounting period as the sale.

12. Copyright © 2007 Prentice-Hall. All rights reserved 12 When recording Warranty Expense, what account is credited? 1.Cash 2.Sales 3.Estimated Warranty Revenue 4.Estimated Warranty Payable

13. Copyright © 2007 Prentice-Hall. All rights reserved 13 Answer: 4

14. Copyright © 2007 Prentice-Hall. All rights reserved 14 When it is reasonably possible that a contingent liability will result in a realized loss, how is it reported? 1. It is not reported 2. Describe the situation in a note to the financial statements 3. Record an expense and liability based on estimated amounts

15. Copyright © 2007 Prentice-Hall. All rights reserved 15 Answer: 2

16. Copyright © 2007 Prentice-Hall. All rights reserved 16 Which of the following is not a required payroll deduction? 1.Employee income tax 2.FICA old age, survivors’, and disability insurance tax 3.FICA medicare tax 4.Pension contribution

17. Copyright © 2007 Prentice-Hall. All rights reserved 17 Answer: 4

18. Copyright © 2007 Prentice-Hall. All rights reserved 18 The employer pays all of the following payroll taxes except: 1.FICA tax 2.State unemployment tax 3.Income tax 4.Federal unemployment tax

19. Copyright © 2007 Prentice-Hall. All rights reserved 19 Answer: 3 Income tax is withheld from the employee’s paycheck. It is not a tax paid by the employer.

20. Copyright © 2007 Prentice-Hall. All rights reserved 20 Which of these taxes has no maximum annual tax? 1.FICA old age, survivors’, and disability insurance tax 2.FICA medicare tax 3.Federal unemployment tax 4.State unemployment tax

21. Copyright © 2007 Prentice-Hall. All rights reserved 21 Answer: 2

22. Copyright © 2007 Prentice-Hall. All rights reserved 22