Pay And Download
Complete Test Bank With Answers
Sample Questions Posted Below
Accounting, Vol. 2, 9e Cdn. Ed. (Horngren)
Chapter 11 Current Liabilities and Payroll
Objective 11-1
1) Accrued interest on a note payable should be credited to interest payable.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
2) Interest payable is a contra liability account and is deducted from the note payable on the balance sheet.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
3) A $45,000, 10%, 90-day note payable comes to maturity. The amount to be paid at maturity including interest is $43,890.41.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
4) An unearned revenue arises when a company receives cash from its customers in advance of earning the revenue.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
5) Current portion of long-term debt refers to the amount of principle on a note payable that must be paid within a year.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
6) The entry to record unearned revenue received in advance includes a debit to unearned revenue and a credit to cash.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
7) Sales tax payable is recorded as a debit when recording a sale of merchandise.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
8) The failure to record an accrued liability causes a company to overstate its net income.
Answer: TRUE
Diff: 3 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-1 Account for current liabilities of known amount
9) The only way to reduce a current liability is to pay out cash.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-1 Account for current liabilities of known amount
10) Operating lines of credit are popular because they do not carry any interest charges.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
11) Interest must be accrued on all current notes payable. For long-term notes the interest is accrued at the maturity of the note.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
12) Notes payable normally require the borrower to pay interest.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
13) A $15,000, 8%, 9-month note payable requires an interest payment of $900 at maturity, if no interest was previously paid.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
14) The rate of provincial sales taxes is the same in every province.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
15) The Federal Government collects all the PST and GST for the country and then passes on the collection of the PST to the individual provincial governments.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
16) Most lines of credit are payable on demand.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
17) The province of Alberta has the lowest PST rate in Canada of 3%.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
18) The methods of recording GST and HST are similar.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
19) In some provinces individual consumers must pay both HST and PST.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
20) In provinces with PST, businesses must pay the tax when they are the final consumer of the goods.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
21) Secured operating lines of credit normally have lower rates of interest than unsecured operating lines of credit.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
22) Long-term debt refers to obligations that have to be paid within a year of the balance sheet date.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
23) Which of the following liabilities creates no expense on the part of the company?
A) Employment Insurance payable
B) Canada Pension Plan payable
C) GST payable
D) estimated warranty payable
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
24) When a company issues a short-term note payable:
A) the note payable account is credited.
B) the note payable is debited.
C) the interest expense is credited.
D) the interest expense account is debited.
Answer: A
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
25) Unearned revenue represents revenue that has:
A) been earned and collected.
B) been earned but not yet collected.
C) been collected but not yet earned.
D) not been collected nor earned.
Answer: C
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
26) Sales revenue for Joe’s Sporting Goods for the current period amounted to $215,000. Joe’s Sporting Goods records GST when merchandise is sold. All sales are on account. The GST rate is 5%. The journal entry would include a debit to:
A) Accounts Receivable for $215,000.
B) Accounts Receivable for $225,750.
C) GST Payable for $10,750.
D) Sales Revenue for $215,000.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
27) Amounts owed to suppliers for products or services purchased on open accounts are called:
A) notes payable.
B) unearned revenues.
C) accounts payable.
D) accrued expenses.
Answer: C
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
Table 11-1
A $10,000, 90-day, 12% note payable was issued on November 1, 2013.
28) Referring to Table 11-1, what is the amount of the accrued interest on December 31, 2013?
A) $394.52
B) $95.34
C) $101.92
D) $197.26
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
29) Referring to Table 11-1, what is the amount of interest expense recorded in 2014?
A) $98.63
B) $193.97
C) $101.92
D) $120.00
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
30) Referring to Table 11-1, the entry on the maturity date would include a:
A) credit to Interest Payable for $98.63.
B) debit to Interest Expense for $98.63.
C) credit to Note Payable for $10,295.89.
D) credit to Cash for $10,000.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
31) Stardust Company issued a five-year, interest-bearing note payable for $50,000 on January 1, 2013. Each January, Stardust is required to pay $10,000 principal on the note. What is the amount that will be reported on the current portion of long-term notes payable on the December 31, 2014 balance sheet?
A) $10,000
B) $40,000
C) $30,000
D) $20,000
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
32) Camrey Company issued a five-year, interest-bearing note payable for $50,000 on January 1, 2013. Each January Camrey is required to pay $10,000 principal on the note. What is the amount that will be reported on the long-term portion of long-term notes payable on the December 31, 2014 balance sheet?
A) $10,000
B) $40,000
C) $30,000
D) $20,000
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
Table 11-2
A $6,000, 120-day, 8% note payable is signed at the bank on October 2, 2013 to borrow cash for the purchase of a car.
33) Referring to Table 11-2, what is the amount of cash that is payable at the maturity of the note?
A) $6,157.81
B) $5,921.16
C) $5,842.19
D) $6,000.00
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
34) Referring to Table 11-2, the adjusting entry on December 31, 2013, would include a:
A) debit to Interest Expense for $147.81.
B) credit to Interest Expense for $118.36.
C) debit to Note Payable for $118.36.
D) credit to Interest Payable for $118.36.
Answer: D
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
35) The entry to accrue sales tax expense includes a:
A) debit to Sales Tax Expense.
B) credit to Sales Tax Payable.
C) debit to Sales Tax Payable.
D) There is no accrual of sales tax expense.
Answer: D
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
36) Lippman Company Ltd. collects 5% GST on sales. If sales are $963,000, the proper accounting includes:
A) $101,115 credit to Sales.
B) $48,150 credit to GST Payable.
C) $48,150 debit to GST Recoverable.
D) $963,000 debit to Accounts Receivable.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
37) The journal entry to remit GST to the Receiver General includes:
A) credit to GST Payable.
B) debit to GST Recoverable.
C) credit to GST Recoverable and debit to GST Payable.
D) debit to GST Recoverable and credit to GST Payable.
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
38) A company borrows $5,000 on November 1, 2013, giving a 10%, 180-day note payable. The adjusting entry on December 31, 2013, would include a:
A) credit to Interest Payable for $82.19.
B) credit to Interest Payable for $123.29.
C) debit to Interest Expense for $82.19.
D) credit to Cash for $82.19.
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
39) A company borrows $15,000 on November 1, 2013, giving a 6%, 90-day note payable. The adjusting entry on December 31, 2013, would include a:
A) credit to Interest Payable for $73.97.
B) credit to Interest Payable for $147.95.
C) debit to Interest Expense for $221.92.
D) credit to Cash for $147.95.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
40) A company gives a $100,000, 120-day note at the bank at 9%. How much will the company pay the bank at maturity?
A) $102,958.90
B) $97,041.10
C) $98,520.55
D) $101,479.45
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
41) A company gives a $40,000, six-month note at the bank at 8%. How much will the company pay the bank at maturity?
A) $40,000
B) $43,200
C) $41,600
D) $38,400
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
42) A company gives a $50,000, 60-day note at the bank at 7%. How much will the company pay the bank at maturity?
A) $50,287.67
B) $49,424.66
C) $49,712.33
D) $50,575.34
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
43) Failure to record accrued interest on a note payable causes a company to:
A) overstate interest income.
B) understate interest expense.
C) understate retained earnings.
D) overstate interest expense and understate retained earnings.
Answer: B
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-1 Account for current liabilities of known amount
44) Short-term notes payable:
A) are an unusual form of financing.
B) are generally due within one year.
C) are classified on the balance sheet as non-current.
D) are shown on the balance sheet as a reduction to notes receivable.
Answer: B
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
45) The entry to accrue interest on a note payable would include a:
A) debit to Note Payable.
B) credit to Interest Receivable.
C) credit to Interest Revenue.
D) debit to Interest Expense.
Answer: D
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
Table 11-3
Bentley Enterprises purchased $8,000 of inventory by issuing a six-month, 7.5% note payable on November 1, 2013. Bentley has a December 31 year end.
46) Referring to Table 11-3, the amount of accrued interest on December 31, 2013, would be:
A) $200.00
B) $100.00
C) $50.00
D) $300.00
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
47) Refer to Table 11-3. The entry on May 1, 2014, to pay the note payable and interest would include a:
A) debit to Interest Expense of $300.00.
B) debit to Interest Payable of $100.00.
C) credit to Interest Payable of $200.00.
D) credit to Cash of $8,000.00.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
48) Refer to Table 11-3. The amount of interest expense recognized in 2013 would be:
A) $200.00
B) $50.00
C) $100.00
D) $300.00
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
49) The portion of a long-term debt payable within the year is classified as a current liability. The interest payable on the debt is:
A) added to the face value of the debt.
B) classified separately from the principal amount of the debt.
C) not recorded until maturity of the debt.
D) accrued on the anniversary date of the debt.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
Table 11-4
Lumas Company gives a $50,000, 180-day note payable to its bank at 9% on September 15, 2013 for a cash loan. Lumas has a December 31 year end.
50) Refer to Table 11-4 The entry to record the loan with the note on September 15, 2013, would include a:
A) debit to Cash of $50,000.
B) debit to Interest Expense of $2,219.18.
C) credit to Note Payable, Short Term of $52,219.18.
D) debit to Note Payable for $50,000.
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
51) Refer to Table 11-4. The adjusting entry necessary at December 31, 2013, would be:
A)
| Interest Expense | 1,319.18 | |
| Interest Payable | 1,319.18 |
B)
| Note Payable | 1,319.18 | |
| Interest Payable | 1,319.18 |
C)
| Interest Expense | 1,319.18 | |
| Note Payable | 1,319.18 |
D) no adjusting entry is necessary
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
52) Refer to Table 11-4. The entry on the maturity date to record the payment of the note payable plus accrued interest would include a:
A) credit to Note Payable of $50,000.00.
B) debit to Interest Payable of $900.00.
C) credit to Cash of $52,219.18.
D) debit to Interest Expense of $1,319.18.
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
Table 11-5
On March 1, 2014, William Browning received $15,000 in advance for services to be provided over the next 12 months.
53) Refer to Table 11-5. The entry on March 1, 2014, would include a:
A) credit to Sales Revenue for $15,000.
B) credit to Unearned Revenue for $15,000.
C) debit to Sales Revenue for $15,000.
D) debit to Unearned Revenue for $15,000.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
54) Refer to Table 11-5. The adjusting entry on December 31, 2014, would include a:
A) debit to Sales Revenue for $12,500.
B) debit to Unearned Revenue for $12,500.
C) credit to Sales Revenue for $2,500.
D) debit to Unearned Revenue for $2,500.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
55) All of the following are unearned revenues except:
A) deferred revenues.
B) accrued revenues.
C) revenues collected in advance.
D) customer prepayments.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
56) Liabilities that exist but whose exact amount is not known must be:
A) ignored.
B) estimated.
C) reported in the notes to the financial statements.
D) treated as a contingent liability.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
57) GST Tax Expense would appear:
A) on the balance sheet as a current liability.
B) on the income statement as an expense.
C) There is no such account.
D) on the balance sheet as a long-term liability.
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
Table 11-10
Benny’s Bagels operates in a province that has HST collected by the federal government at a rate of 12%. During the month of December 2013 Benny’s Bagels purchased baking materials for $12,000; bought a new oven for $15,000; paid salaries of $14,000; and, had cash sales of $35,000.
58) Refer to Table 11-10. What is the correct journal entry to record the payments made during December that require HST?
A)
| Inventory | 12,000 | |
| Equipment | 15,000 | |
| Salaries expense | 14,000 | |
| HST recoverable | 4,920 | |
| Cash | 45,920 |
B)
| Inventory | 12,000 | |
| Equipment | 15,000 | |
| HST recoverable | 3,240 | |
| Cash | 30,240 |
C)
| Inventory | 12,000 | |
| Equipment | 15,000 | |
| HST payable | 3,240 | |
| Cash | 30,240 |
D)
| Inventory | 12,000 | |
| Equipment | 15,000 | |
| Salaries expense | 14,000 | |
| Cash | 41,000 |
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
59) Refer to Table 11-10. What is the correct journal entry to record the sales made during December?
A)
| Cash | 35,000 | |
| HST payable | 4,200 | |
| Sales | 30,800 |
B)
| Cash | 35,000 | |
| Sales revenue | 35,000 |
C)
| Cash | 35,000 | |
| HST recoverable | 4,200 | |
| Sales revenue | 39,200 |
D)
| Cash | 39,200 | |
| HST payable | 4,200 | |
| Sales revenue | 35,000 |
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
60) Refer to Table 11-10. What is the correct journal entry to record the payment of the HST amount owing at the end of December?
A)
| HST payable | 4,200 | |
| HST recoverable | 3,240 | |
| Cash | 960 |
B)
| HST payable | 4,200 | |
| HST receivable | 720 | |
| HST recoverable | 4,920 |
C)
| HST receivable | 960 | |
| Cash | 960 |
D)
| HST recoverable | 4,200 | |
| HST payable | 3,240 | |
| Cash | 960 |
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
Table 11-11
On April 1st 2013 Maudlin Sales purchased inventory for $80,000 by signing a one-year note payable, due March 31, 2014. The note bears interest at an annual rate of 8%.
61) Refer to Table 11-11. What is the correct journal entry to record the purchase of inventory if Maudlin Sales uses a periodic inventory system?
A)
| Inventory | 80,000 | |
| Notes payable | 80,000 |
B)
| Purchases | 80,000 | |
| Notes payable | 80,000 |
C)
| Purchases | 86,400 | |
| Accounts payable | 86,400 |
D)
| Inventory | 86,400 | |
| Notes payable | 86,400 |
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
62) Refer to Table 11-11. What is the correct adjusting journal entry on December 31, 2013?
A)
| Interest revenue | 4,800 | |
| Interest payable | 4,800 |
B)
| Interest expense | 5,184 | |
| Interest payable | 5,184 |
C)
| Interest expense | 4,800 | |
| Interest payable | 4,800 |
D)
| Interest receivable | 4,800 | |
| Interest revenue | 4,800 |
Answer: C
Explanation: C) $80,000 × 9/12 × .08 = $4,800
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
63) Refer to Table 11-11. What is the correct journal entry on March 31, 2014?
A)
| Notes payable | 80,000 | |
| Interest payable | 4,800 | |
| Interest expense | 1,600 | |
| Cash | 86,400 |
B)
| Notes payable | 86,400 | |
| Interest payable | 5,184 | |
| Cash | 91,584 |
C)
| Notes payable | 80,000 | |
| Interest receivable | 4,800 | |
| Cash | 84,800 |
D)
| Notes payable | 80,000 | |
| Cash | 80,000 |
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
Table 11-12
On April 1st 2013 Jamboree Sales purchased inventory for $40,000 by signing a one-year note payable, due March 31, 2014. The note bears interest at an annual rate of 8%.
64) Refer to Table 11-11. What is the correct journal entry to record the purchase of inventory if Maudlin Sales uses a periodic inventory system?
A)
| Inventory | 40,000 | |
| Notes payable | 40,000 |
B)
| Purchases | 40,000 | |
| Notes payable | 40,000 |
C)
| Purchases | 43,200 | |
| Accounts payable | 43,200 |
D)
| Inventory | 43,200 | |
| Notes payable | 43,200 |
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
65) Refer to Table 11-11. What is the correct adjusting journal entry on December 31, 2013?
A)
| Interest revenue | 2,400 | |
| Interest payable | 2,400 |
B)
| Interest expense | 2,592 | |
| Interest payable | 2,592 |
C)
| Interest expense | 2,400 | |
| Interest payable | 2,400 |
D)
| Interest receivable | 2,400 | |
| Interest revenue | 2,400 |
Answer: C
Explanation: C) $80,000 × 9/12 × .08 = $4,800
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
66) Refer to Table 11-11. What is the correct journal entry on March 31, 2014?
A)
| Notes payable | 40,000 | |
| Interest payable | 2,400 | |
| Interest expense | 800 | |
| Cash | 43,200 |
B)
| Notes payable | 43,200 | |
| Interest payable | 2,592 | |
| Cash | 45,792 |
C)
| Notes payable | 40,000 | |
| Interest receivable | 2,400 | |
| Cash | 42,400 |
D)
| Notes payable | 40,000 | |
| Cash | 40,000 |
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
Match the following.
A) contingent liability
B) liability
C) interest payable
D) Operating line of credit
67) A potential liability that depends on a future event arising out of past events
Diff: 1
Learning Outcome:
Type: MA
A-06 Define internal controls and discuss the internal control principles
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
68) An obligation to transfer assets or to provide services in the future
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
69) An account related to notes payable
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
70) A bank loan that is negotiated once, then drawn down upon when needed
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
Answers: 67) A 68) B 69) C 70) D
71) Federated Express purchased equipment costing $75,000 on October 2, 2013, by paying 30% down and signing an 8%, 120-day note payable for the balance. Federated’s year end is December 31.
1) Prepare journal entries to:
a) record the purchase of the equipment on October 2, 2013
b) record the accrual of interest on December 31, 2013
c) record payment of the note on January 30, 2014
2) Determine the balance of any current liabilities associated with the note as of December 31, 2009.
Answer:
1) General Journal
| Date | Accounts | Debit | Credit |
| 2013 | |||
| Oct. 2 | Equipment | 75,000.00 | |
| Cash | 22,500.00 | ||
| Note Payable | 52,500.00 | ||
| Dec. 31 | Interest Expense | 1,035.62 | |
| Interest Payable | 1,035.62 | ||
| 2014 | |||
| Jan. 30 | Interest Payable | 1,035.62 | |
| Interest Expense | 345.20 | ||
| Note Payable | 52,500.00 | ||
| Cash | 53,880.82 |
2) December 31, 2013 Balance Sheet
Note payable$52,500.00
Interest payable1,035.62
Diff: 3 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
72) Stanton Delivery purchased a truck costing $100,000 on September 3, 2013, by paying $4,000 down and signing a 10%, 180-day note payable for the balance. Stanton’s year end is December 31.
1) Prepare journal entries to:
a) record the purchase of the truck on September 3, 2013
b) record the accrual of interest on December 31, 2013
c) record payment of the note on February 2, 2014
2) Determine the balance of any current liabilities associated with the note as of December 31, 2013.
Answer:
1) General Journal
| Date | Accounts | Debit | Credit |
| 2013 | |||
| Sept. 3 | Truck | 100,000.00 | |
| Cash | 4,000.00 | ||
| Note Payable | 96,000.00 | ||
| Dec. 31 | Interest Expense | 3,129.86 | |
| Interest Payable | 3,129.86 | ||
| 2014 | |||
| Feb. 2 | Interest Payable | 3,129.86 | |
| Interest Expense | 1,604.38 | ||
| Note Payable | 96,000.00 | ||
| Cash | 100,734.24 |
2) December 31, 2013 Balance Sheet
Note payable$96,000.00
Interest payable3,129.86
Diff: 3 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
73) The Cart Company, whose year end is December 31, entered into the following transactions relating to notes payable during 2013:
Nov. 15 Purchased inventory costing $45,000 by signing a 60-day,
6% note payable.
Dec. 1 Purchased additional inventory costing $30,000 by signing a 120-day,
7% note payable.
Dec. 13 Gave a 180-day, $20,000 note payable at the bank at 7.5% for a cash loan.
Prepare any necessary adjusting entries related to the above notes as of December 31, 2013.
Answer: General Journal
| Date | Accounts | Debit | Credit |
| Dec. 31 | Interest Expense | 340.27 | |
| Interest Payable | 340.27 | ||
| 31 | Interest Expense | 172.60 | |
| Interest Payable | 172.60 | ||
| 31 | Interest Expense | 73.97 | |
| Interest Payable | 73.97 |
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
74) Very Bouys Inc. had cash sales of $650,000 during the month of December and collected the 8% sales tax on these sales required by the province in which Very Bouys operates. Very Bouys must remit the sales tax to the province.
Required:
Prepare all necessary journal entries to account for the collection and payment of the sales tax assuming Very Bouys maintains a separate sales tax account.
Answer: General Journal
| Date | Accounts | Debit | Credit |
| Dec. 31 | Cash | 702,000 | |
| Sales Revenue | 650,000 | ||
| Sales Tax Payable | 52,000 | ||
| 31 | Sales Tax Payable | 52,000 | |
| Cash | 52,000 |
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
75) Newtowne Furniture Gallery issued two notes payable during 2013. Pertinent data on these notes are shown below:
Note Amount Rate Term Date Issued
A $10,00010%120 daysNovember 1
B$12,5009%60 daysDecember 1
In addition to the above two notes, Newtowne Furniture Gallery gave a $50,000, 8%, 180-day note to the First City Bank on September 2, 2013 for a cash loan.
Prepare adjusting entries on December 31, 2013, for the above three notes.
Answer: General Journal
| Date | Accounts | Debit | Credit |
| Dec. 31 | Interest Expense | 164.38 | |
| Interest Payable | 164.38 | ||
| 31 | Interest Expense | 92.47 | |
| Interest Payable | 92.47 | ||
| 31 | Interest Expense | 1,315.07 | |
| Interest Payable | 1,315.07 |
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
76) Record journal entries for the following transactions for Sampson Company. Sampson uses a perpetual inventory system.
Nov. 1 Purchased merchandise on account from County Suppliers, $2,000,
terms n/30.
15Purchased merchandise from Shuping Wholesalers, $5,000, by issuing a
60-day, 12% note.
30Paid the amount due to County Suppliers.
Dec. 1 Gave a 90-day, $25,000, 12% note to the FP Bank for a cash loan.
Dec. 31 Recorded any necessary adjusting entries.
Answer: General Journal
| Date | Accounts | Debit | Credit |
| Nov. 1 | Inventory | 2,000.00 | |
| Accounts Payable | 2,000.00 | ||
| 15 | Inventory | 5,000.00 | |
| Note Payable | 5,000.00 | ||
| 30 | Accounts Payable | 2,000.00 | |
| Cash | 2,000.00 | ||
| Dec. 1 | Cash | 25,000.00 | |
| Note Payable | 25,000.00 | ||
| 31 | Interest Expense | 75.62 | |
| Interest Payable | 75.62 | ||
| 31 | Interest Expense | 246.58 | |
| Interest Payable | 246.58 |
Diff: 2 Type: SA
Learning Outcome: A-16 Define and use the different types of financial statement analysis tools
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
77) Faulkner Company engaged in the following transactions regarding unearned rent during 2013:
Feb. 1 Collected $6,000 from a tenant who was paying for a two-year lease.
(Lease A)
Mar. 1 Collected $3,600 from a tenant who was paying for a one-year lease.
(Lease B)
Apr. 1 Collected $7,200 from a tenant who was paying for a one-year lease.
(Lease C)
a) Prepare journal entries for the above transactions.
b) Prepare adjusting entries on December 31, 2013, for the above transactions.
Answer: General Journal
| Date | Accounts | Debit | Credit |
| Feb. 1 | Cash | 6,000 | |
| Unearned Rent Revenue (A) | 6,000 | ||
| Mar. 1 | Cash | 3,600 | |
| Unearned Rent Revenue (B) | 3,600 | ||
| Apr. 1 | Cash | 7,200 | |
| Unearned Rent Revenue (C) | 7,200 | ||
| Adjusting Entries | |||
| Dec. 31 | Unearned Rent Revenue (A) | 2,750 | |
| Rent Revenue | 2,750 | ||
| 31 | Unearned Rent Revenue (B) | 3,000 | |
| Rent Revenue | 3,000 | ||
| Unearned Rent Revenue (C) | 5,400 | ||
| Rent Revenue | 5,400 |
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
78) The Big Hill Outdoor Shop Corp. is a retail store that uses the perpetual inventory system. A GST rate of 5 percent is applicable to all sales and purchases.
Record the following transactions for The Big Hill Outdoor Shop. Explanations are not required.
Jan. 4Purchased equipment for $20,000 plus GST, signing a three-month,
10 percent note payable.
10Purchased merchandise for resale costing $14,000 plus GST on account.
31Recorded the month’s cash sales of $180,000 plus GST.
31Paid the monthly income tax instalment of $4,200.
Feb. 7Sent January’s GST to the Receiver General.
Answer: Journal
| Date | Accounts | Debit | Credit |
| Jan. 4 | Equipment | 20,000 | |
| GST Recoverable | 1,000 | ||
| Notes Payable | 21,000 | ||
| 10 | Inventory | 14,000 | |
| GST Recoverable | 700 | ||
| Accounts Payable | 14,700 | ||
| 31 | Cash | 189,000 | |
| GST Payable | 9,000 | ||
| Sales | 180,000 | ||
| 31 | Income Tax Expense | 4,200 | |
| Cash | 4,200 | ||
| Feb. 7 | GST Payable | 9,000 | |
| GST Recoverable | 1,700 | ||
| Cash | 7,300 |
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
Table 11-8
BCN Bank agrees to lend Samson Company $80,000 on January 1. Samson Company signs an $80,000, 5%, 9-month note.
79) Refer to Table 11-8. Prepare the entry made by Samson Company on January 1 to record the proceeds and issue of the note.
Answer: Journal
| Date | Accounts | Debit | Credit |
| Jan. 1 | Cash | 80,000 | |
| Notes Payable | 80,000 |
Diff: 1 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
80) Refer to Table 11-8. Prepare the adjusting journal entry made by Samson Company on June 30.
Answer: Journal
| Date | Accounts | Debit | Credit |
| June 30 | Interest Expense * | 2,000 | |
| Interest Payable | 2,000 |
* $80,000 × 0.05 × 6/12 = $2,000
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
81) Refer to Table 11-8. Prepare the entry that Samson Company will make to pay off the note and interest at maturity assuming that interest has been accrued to June 30.
Answer: Journal
| Date | Accounts | Debit | Credit |
| June 30 | Interest Expense * | 1,000 | |
| Interest Payable | 2,000 | ||
| Note Payable | 80,000 | ||
| Cash | 83,000 |
* $80,000 × 0.05 × 3/12 = $1,000
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
82) Jenny’s Jewellery operates in a province that has HST collected by the federal government at a rate of 12%. During the month of December 2013, Jenny’s Jewellery purchased materials used in the production of jewellery for $24,000; bought new equipment for $6,000; paid salaries of $15,000; and, had cash sales of $55,000.
Prepare the following general journal entries dated on December 31st:
1. to record the payments made during December that require HST using a compound journal entry
2. to record the sales made during December
3. to record the payment of the HST amount owing at the end of December
Answer: Journal
| Date | Accounts | Debit | Credit |
| Dec 31 | Materials Inventory | 24,000 | |
| Equipment | 6,000 | ||
| HST Recoverable | 3,600 | ||
| Cash | 33,600 | ||
| Dec 31 | Cash | 61,600 | |
| Sales | 55,000 | ||
| HST Payable | 6,600 | ||
| Dec 31 | HST Payable | 6,600 | |
| HST Recoverable | 3,600 | ||
| Cash | 3,000 |
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
83) On April 1st 2013 Prickley Sales purchased inventory for $20,000 by signing a one-year note payable, due March 31, 2014. The note bears interest at an annual rate of 6%. Prickley Sales uses the periodic method for recording inventory.
Prepare the required journal entries from April 1, 2013 through March 31, 2014.
Answer: Journal
| Date | Accounts | Debit | Credit |
| Apr.1 | Purchases | 20,000 | |
| Notes Payable | 20,000 | ||
| Dec.31 | Interest Expense | 900 | |
| Interest Payable | 900 | ||
| Mar.31 | Notes Payable | 20,000 | |
| Interest Payable | 900 | ||
| Interest Expense | 300 | ||
| Cash | 21,200 | ||
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
84) On April 1st 2013 Grimley Sales purchased inventory for $40,000 by signing a one-year note payable, due March 31, 2014. The note bears interest at an annual rate of 8%. Grimley Sales uses the perpetual method for recording inventory.
Prepare the required journal entries from April 1, 2013 through March 31, 2014.
Answer: Journal
| Date | Accounts | Debit | Credit |
| Apr.1 | Inventory | 40,000 | |
| Notes Payable | 40,000 | ||
| Dec.31 | Interest Expense | 2,400 | |
| Interest Payable | 2,400 | ||
| Mar.31 | Notes Payable | 40,000 | |
| Interest Payable | 2,400 | ||
| Interest Expense | 800 | ||
| Cash | 43,200 | ||
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount
Objective 11-2
1) The matching objective requires that a company record warranty expense at the time the repair is made.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-01 Identify and apply accounting concepts and principles found in the Conceptual Framework
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
2) Sales for the current year amount to $900,000. The company estimates warranty expense to be 5% of sales. The journal entry to accrue the estimated warranty expense includes a debit to estimated warranty payable for $45,000.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
3) A corporation’s journal entry to accrue income tax owed at year end includes a debit to income tax payable.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
4) A contingent liability is a potential liability that depends on a future event arising out of a past transaction.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
5) Businesses do not accrue contingent gains but do report actual gains.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
6) Corporations and individuals both pay income tax.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
7) The law requires all employers to provide paid vacations to their employees.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
8) Because contingent liabilities are not real liabilities, they are easy to overlook.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
9) The law requires most employers to provide a minimum number of weeks holiday per year.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
10) A contingent liability is an actual liability that is estimated when things go wrong.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
11) Warranty expense is debited in the period that:
A) the product is repaired.
B) the product is sold.
C) the cash is collected from the customer.
D) either the product is sold or the cash is collected.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
12) What entry is required when a business estimates warranty payable each period based on sales revenue?
A)
| Estimated Warranty Payable |
| Warranty Expense |
B)
| Warranty Expense |
| Sales |
C)
| Warranty Expense |
| Estimated Warranty Payable |
D)
| Inventory |
| Estimated Warranty Payable |
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
13) Estimating a warranty expense in the same period as the sales revenue is recognized is an example of:
A) the recognition criteria for revenues.
B) the matching objective.
C) the full-disclosure principle.
D) conservatism.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-01 Identify and apply accounting concepts and principles found in the Conceptual Framework
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
14) Bachman Merchandising has ten employees who each earn $180 per day. If they accumulate vacation time at the rate of 1.5 vacation days for each month worked, the amount of vacation benefits that should be accrued at the end of the month is:
A) $1,800.
B) $180.
C) $270.
D) $2,700.
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
15) All of the following are estimated liabilities except:
A) corporate income tax payable.
B) vacation pay payable.
C) employee income tax payable.
D) warranty payable.
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
16) Warranty expense is debited:
A) in the period the product under warranty is repaired or replaced.
B) in the period the revenue from selling the product was earned.
C) the timing will depend on the length of the warranty period.
D) in the period when the payment for the sale is received.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
17) Sales revenue for Booker Company for 2014 amounted to $800,000. The products sold carry a six-month warranty. Management estimates the cost of the warranty to be 3% of sales revenue. Booker should:
A) debit Warranty Expense in 2014 for $24,000.
B) debit Estimated Warranty Payable in 2014 for $24,000.
C) debit Warranty Expense when the products are repaired or replaced in either 2014 or 2015.
D) credit Estimated Warranty Payable in either 2010 or 2011 when the products are repaired or replaced.
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
18) Accruing warranty expense is prescribed by the:
A) recognition criteria for revenues.
B) matching objective.
C) full-disclosure principle.
D) going-concern assumption.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-01 Identify and apply accounting concepts and principles found in the Conceptual Framework
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
19) Vacation pay expense should be debited:
A) when the employee takes vacation.
B) when the employee has performed a service to the company and earned the vacation.
C) is never debited.
D) when the employee returns from vacation.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
20) BCB Corporation has made 11 monthly payments for its estimated annual income tax totalling $160,000. At year end, income tax expense for BCB Corporation amounts to $185,000. The adjusting entry will involve a:
A) debit to Income Tax Payable for $25,000.
B) debit to Income Tax Expense for $185,000.
C) debit to Income Tax Expense for $25,000.
D) credit to Income Tax Payable for $185,000.
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
21) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Which of the following is the entry needed to record the estimated warranty expense?
A)
| Estimated warranty payable | 7,500 | |
| Cash | 7,500 |
B)
| Warranty expense | 7,500 | |
| Estimated warranty payable | 7,500 |
C)
| Warranty expense | 10,000 | |
| Estimated warranty payable | 10,000 |
D)
| Warranty expense | 10,000 | |
| Sales revenue | 10,000 |
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
22) A contingent liability that is likely and can be reasonably estimated should be:
A) disclosed in a note to the financial statements.
B) accrued with a journal entry.
C) either disclosed in a note or accrued with a journal entry.
D) ignored until the liability materializes.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
23) Franconia Sales offers warranties on all their electronic goods. Warranty expense is estimated at 2% of sales revenue. In 2013, Franconia had $500,000 of sales. In the same year, Franconia paid out $7,500 of warranty payments. Which of the following is the entry needed to record the disbursement of warranty payments?
A)
| Estimated warranty payable | 7,500 | |
| Cash | 7,500 |
B)
| Warranty expense | 7,500 | |
| Estimated warranty payable | 7,500 |
C)
| Warranty expense | 10,000 | |
| Estimated warranty payable | 10,000 |
D)
| Warranty expense | 10,000 | |
| Sales revenue | 10,000 |
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
24) A contingent liability that has a remote chance of occurrence and an uncertain amount should be:
A) disclosed in a note to the financial statements.
B) accrued with a journal entry.
C) either disclosed in a note or accrued with a journal entry.
D) ignored until the liability materializes.
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
25) A contingent gain that is likely and can be reasonably estimated should be:
A) disclosed in a note to the financial statements.
B) accrued with a journal entry.
C) either disclosed in a note or accrued with a journal entry.
D) ignored until the actual gain materializes.
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
Table 11-13
Arc Digital starts the year with balances in its Estimated warranty payable account and Warranty expense account as shown below. During the year, there were $190,000 of sales and $3,200 of warranty repair payments. Arc Digital estimates warranty expense at 1.5% of sales.
26) Refer to Table 11-13. At the end of the year, what was the balance in the warranty expense account?
A) $2,850 debit
B) $1,250 credit
C) $3,200 debit
D) $1,420 debit
Answer: A
Explanation: A) Calculations: $190,000 × 1.5% = $2,850
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
27) Refer to Table 11-13. At the end of the year, what was the balance in the estimated warranty payable account?
A) $2,850 debit
B) $1,050 credit
C) $3,200 debit
D) $1,420 debit
Answer: B
Explanation: B) Calculations: $1,400 + $2,850 – $3,200 = $1,050
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
Table 11-14
Tractor World offers warranties on all their tractors. They estimate warranty expense at 2.4% of sales. At the beginning of 2013, the estimated warranty payable account had a credit balance of $900. During the year, Tractor World had $285,000 of sales, and had to pay out $5,100 in warranty payments.
28) Refer to Table 11-14. At the end of the year, how much warranty expense was reported on the income statement?
A) $2,640
B) $5,100
C) $4,200
D) $6,840
Answer: D
Explanation: D) Calculations: $285,000 × .024 = $6,840
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
29) Refer to Table 11-14. At the end of the year, what balance in estimated warranty payable would be included in the balance sheet?
A) $2,640
B) $5,100
C) $4,200
D) $6,840
Answer: A
Explanation: A) Calculations: $900 + $6,840 – $5,100 = $2,640
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
Match the following.
A) warranty
30) Product guarantee against defects
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-2 Account for current liabilities that must be estimated
Answers: 30) A
31) Bill’s Bargain Vacuums warrants all of its products for one full year against any defect in manufacturing. Sales for 2013 and 2014 were $758,000 and $871,000, respectively. Bill’s Bargain Vacuums expects warranty claims to run 4.5% of annual sales. Bill’s paid $30,150 and $38,290, respectively, in 2013 and 2014 in warranty claims.
1) Compute Bill’s warranty expense for 2013 and 2014.
2) Compute the balance in estimated warranty payable on December 31, 2014, assuming the January 1, 2013, balance in the account was $2,980.
Answer: 1) 2013 ($758,000 × 0.045) = $34,110
2014 ($871,000 × 0.045) = $39,195
2) $2,980 + $34,110 – $30,150 + $39,195 – $38,290 = $7,845
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
32) For each of the following contingent situations, state the proper accounting treatment.
a) Glendale Company is involved in several lawsuits at the end of the current year involving a defective product. Glendale’s legal counsel feels it is probable that Glendale will incur losses of $500,000.
b) Riverside Company is involved with Canada Revenue Agency in a tax dispute. Riverside’s legal counsel feels it is possible, but not likely that Riverside will incur losses of $200,000.
c) Daniels Company is involved in a lawsuit, which its legal counsel feels has no merit. Legal counsel advises Daniels the chances of incurring a loss are extremely remote.
d) Sparks Brothers is involved in a lawsuit against a supplier and is anticipating a cash settlement in its favour of $500,000. Legal counsel advises Sparks Brothers that the chances of winning the suit and being awarded the $500,000 are excellent.
Answer:
a) accrue
b) disclose in notes
c) ignore
d) ignore
Diff: 3 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-2 Account for current liabilities that must be estimated
Table 11-9
During 2013, Cougar Manufacturing launched a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 3% within 12 months following sale and 5% in the second 12 months following sale. Sales and actual warranty claims for the years ended December 31, 2013 and 2014 were as follows:
Actual
Warranty
SalesClaims
2013 $400,000 $19,000
2014 500,000 32,000
$900,000$51,000
33) Refer to Table 11-9. Prepare the journal entry at December 31, 2013 for the accrual of warranty expenses.
Answer: Journal
| Date
2013 |
Accounts | Debit | Credit |
| Dec. 31 | Warranty Expense * | 32,000 | |
| Estimated Warranty Payable | 32,000 |
* $400,000 × (0.03 + 0.05) = $32,000
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
34) Refer to Table 11-9. Prepare the journal entry at December 31, 2014 for the accrual of warranty expenses.
Answer: Journal
| Date
2014 |
Accounts | Debit | Credit |
| Dec. 31 | Warranty Expense * | 40,000 | |
| Estimated Warranty Payable | 40,000 |
* $500,000 × (0.03 + 0.05) = $40,000
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
35) Refer to Table 11-9. Calculate the balance of the Estimated Warranty Payable account at December 31, 2013 for Cougar Manufacturing.
Answer: Opening Balance January 1, 2013nil
2013 Accrual $400, 000 × (0.03 + 0.05) 32,000
Less warranty claims in 2013 19,000
Balance December 31, 2013 13,000
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
36) Refer to Table 11-9. Calculate the balance of the Estimated Warranty Payable account at December 31, 2014 for Cougar Manufacturing.
Answer: Opening Balance January 1, 2013nil
Add 2013 Accrual $400,000 × (0.03 + 0.05) 32,000
Less warranty claims in 2013 19,000
Add: 2014 Accrual $500,000 × (0.03 + 0.05) 40,000
Less warranty claims in 2014 32,000
Balance December 31, 2014 21,000
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
37) Western Yard Equipment offers warranties on all their lawn mowers. They estimate warranty expense at 1.4% of sales. At the beginning of 2013, the estimated warranty payable account had a credit balance of $1,200. During the year, Western Yard Equipment had $485,000 of sales, and had to pay out $8,730 in warranty payments.
Required:
1. Prepare the required journal entries to record warranty expense and payments. Use December 31 for the journal entry date.
2. What is the balance of the warrantee liability at the end of 2013? Indicate whether the balance is a debit or a credit.
Answer: Journal
| Date | Accounts | Debit | Credit |
| Dec 31 | Warranty Expense | 6,790 | |
| Estimated Warranty Payable | 6,790 | ||
| Dec.31 | Estimated Warranty Payable | 8,730 | |
| Cash | 8,730 | ||
Estimated warranty payable balance December 31, 2013:
$1,200 + $6,790 – $8,730 = $740 debit
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-2 Account for current liabilities that must be estimated
38) Explain the accounting for warranties. Be specific and include in your discussion the principle or objective that governs the accounting method.
Answer: A warranty is a company’s guarantee of its products against defects. If a repair is necessary within the warranty period, the company will generally fix the product at no cost to the consumer.
When the product is sold, the company does not know the exact amount of warranty costs it will incur. The matching objective, however, requires that the company record warranty expense in the same time period that the sale was recorded. Therefore, the company must estimate warranty costs at the time the sale is recorded and make an entry as follows:
Warranty Expense
Estimated Warranty Payable
Upon the payment of actual warranty costs or the delivery of a new product, the company would make the following entry:
Estimated Warranty Payable
Cash or Inventory
Diff: 2 Type: ES
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-2 Account for current liabilities that must be estimated
39) Define a contingent liability. Discuss the CICA Handbook‘s guidelines on reporting contingencies. Give an example of a contingent liability and indicate how it should be reported.
Answer: A contingent liability is not an actual liability, but rather a potential liability that depends on the outcome of a future event arising out of a past transaction.
The CICA Handbook requires that contingent gains be ignored and only actual gains reported. Contingent losses, however, should sometimes be reported before the actual loss occurs. The guidelines for contingent losses are complicated and relate directly to the probability of occurrence.
Specifically, the CICA Handbook requires the recording of a liability if the loss is more likely than not to occur and if the amount can be reasonably estimated. Warranty expense and vacation pay expense are examples of this.
If a loss is likely, but cannot be reasonably estimated, the loss should be reported in the notes to the financial statements. Pending lawsuits against the company are an example of this.
If a loss is remote, unlikely to occur, there is no need to report it at all. The possibility of a foreign government confiscating the assets of a company operating within that country is an example of this.
If it is not possible to determine the likelihood of a loss, than note disclosure is required.
Diff: 3 Type: ES
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-2 Account for current liabilities that must be estimated
40) Answer the following questions briefly and concisely.
a) Why is it important for a company to separate the current portion of long-term debt from the long-term debt?
b) How would the under accrual of warranty expense affect a company’s financial statements?
c) What is the difference between a liability and a contingent liability?
d) What are contingent gains and how are they treated?
Answer:
a) It is important for a company to separate out the current portion of long-term debt since not doing so would mislead the users of the financial statements. Ratios such as the current ratio and acid-test ratio would be distorted.
b) The under accrual of warranty expense would cause expenses to be understated and net income to be overstated. Retained earnings (Capital) would be overstated and liabilities would be understated.
c) A liability is an economic obligation payable to an individual or organization outside the business. A contingent liability is a potential liability that will become an actual liability only if a future event occurs.
d) Contingent gains are potential gains that will materialize only if a future event occurs. Contingent gains are not recognized and accrued until the gains are realized because of the conservatism principle of accounting.
Diff: 3 Type: ES
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-2 Account for current liabilities that must be estimated
Objective 11-3
1) Gross pay is the total amount of compensation earned by the employee less deductions.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
2) Employee income tax is an optional deduction, which is withheld from the employee’s pay.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
3) Payroll deductions withheld from employees become a liability of the employer.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
4) Employment Insurance premiums are imposed on both the employer and the employee.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
5) Canada Pension Plan (CPP) contributions, employment insurance (EI), and personal income taxes are statutory(legally required) payroll deductions.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
6) The cost of coverage for worker’s compensation premiums is the responsibility of the employee.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
7) Tina Martin works as a cost accountant receiving $520 for a 40-hour work week. She is paid time and one-half for anything over 40 hours. If Tina works 47 hours, her total pay is:
A) $611.00.
B) $520.00.
C) $656.50.
D) $567.00.
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-3 Compute payroll amounts
8) The total amount of employee compensation before deductions are taken out is referred to as:
A) gross pay.
B) net pay.
C) compensation after withholdings.
D) take-home pay.
Answer: A
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
9) Net pay is equal to:
A) gross pay minus all deductions.
B) all deductions plus all withholdings.
C) take-home pay plus all deductions.
D) straight time plus overtime, if any.
Answer: A
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
10) All of the following are optional deductions except:
A) charitable contributions.
B) medical insurance.
C) payroll savings programs.
D) employee income taxes.
Answer: D
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
11) All of the following are forms of employee compensation except:
A) salary.
B) subcontractor fee.
C) wages.
D) commissions.
Answer: B
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
12) The total payroll expense of the employer is equal to:
A) net pay plus employee withholdings.
B) gross pay plus employees’ income tax.
C) net pay plus employer payroll taxes and fringe benefits.
D) gross pay plus employer payroll contributions and fringe benefits.
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
Table 11-6
Peter Tomach works for a manufacturing company. He earns $600 a week for a 40-hour week and time and a half for anything over 40 hours per week. During the first week of the year, Peter worked 49 hours. The income tax withholdings are 15% of gross earnings. Canada Pension Plan deductions are 4.95% of gross earnings and Employment Insurance deductions are 1.83% of gross earnings. Ignore the basic Canada Pension Plan exemption.
13) Referring to Table 11-6. The amount of Peter’s gross pay is:
A) $600.00.
B) $735.00.
C) $802.50.
D) $824.50.
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-3 Compute payroll amounts
Table 11-7
Camparound Canada has 24 employees who are paid on a monthly basis. For the most recent month, gross earnings were $68,000. The income tax withholdings are 15% of gross earnings. Canada Pension Plan deductions are 4.95% of gross earnings and Employment Insurance deductions are 1.83% of gross earnings. All employees have $15 per month withheld for charitable contributions. Ignore the basic Canada Pension Plan exemption.
14) Referring to Table 11-7, the employer’s total share of CPP and EI payroll costs are:
A) $4,637.60.
B) $1,780.24.
C) $4,620.40.
D) $5,108.16.
Answer: D
Explanation: D) ($68,000 × .0495) + [$68,000 × (.0183 × 1.4)] = $5,108.16
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-3 Compute payroll amounts
15) Referring to Table 11-7, the employees’ total net pay is:
A) $68,000.00.
B) $53,189.60.
C) $52,829.60.
D) $57,800.00.
Answer: C
Explanation: C) $68,000 – [$68,000 × (0.15 + .0495 + .0183)] – (24 × $15) = $52,829.60
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-3 Compute payroll amounts
16) Referring to Table 11-7, Camparound Canada’s total payroll cost for the month is:
A) $72,637.60.
B) $73,108.16.
C) $72,620.40.
D) $69,780.24.
Answer: B
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-3 Compute payroll amounts
Match the following.
A) gross pay
B) employees’ income tax payable
C) deductions
D) benefits
E) Canada Pension Plan contributions
F) net pay
G) Employment Insurance contributions
H) Workers’ Compensation premiums
17) A contribution withheld from employees’ pay and matched by the employer
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
18) A contribution withheld from employees’ pay and matched by the employer at the rate of 1.4 times that of the employee’s contribution
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
19) Income tax deducted from employees’ total compensation
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
20) Premiums paid by employers which is used to pay benefits to employees who are injured at work
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
21) Total amount of employee compensation before taxes and other deductions are taken out
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
22) The amount of employee compensation that the employee actually takes home
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
23) Amounts withheld from an employee’s cheque
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
24) Extra compensation items not paid directly to the employee
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-3 Compute payroll amounts
Answers: 17) E 18) G 19) B 20) H 21) A 22) F 23) C 24) D
25) Data Services has five hourly employees. Some employees work overtime each week and are paid time and one-half for all work exceeding 40 hours per week. Based on the data below, compute gross pay for each employee.
| Employee | Hours Worked | Pay Rate Per Hour |
| Mary Jarvis | 45 | $12.00 |
| Wilson Sparks | 50 | $13.50 |
| Eunice Cope | 38 | $11.00 |
| Elmer Beauchamp | 44 | $10.00 |
| Jennifer White | 40 | $12.50 |
Answer: Mary Jarvis (40 × $12) + (5 × $12 × 1.5) = $480 + $90 = $570.00
Wilson Sparks (40 × $13.50) + (10 × $13.50 × 1.5) = $540 + $202.50 = $742.50
Eunice Cope (38 × $11) = $418
Elmer Beauchamp 40 × $10) + (4 × $10 × 1.5) = $400 + $60 = $460
Jennifer White (40 × $12.50) = $500
Diff: 1 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-3 Compute payroll amounts
26) The Brown Roof Company has three employees: an hourly employee, a salaried employee, and an employee who works for a flat fee plus commissions. Payroll information for the most recent week is as follows:
Juan is paid $14 per hour with time and one-half for all hours over 40 per week. Juan worked 49 hours this week.
Maria is paid a salary of $900 per week plus a bonus whenever sales exceed $100,000 for any given week. Sales this week were $100,900. The bonus is 5% of sales in excess of $100,000.
Li is paid a flat $100 per week plus a 10% commission on all her sales. Li’s sales for this week amount to $6,800.
Employee income taxes equal 15% of gross earnings. CPP and Employment Insurance deductions equal 4.95% and 1.83% of gross earnings respectively. Juan has $10 per week withheld for a charity organization. All employees pay $20 per week for union dues.
a) Compute the gross pay for each employee.
b) Determine the total net pay for all employees combined (ignore annual exemption for the CPP deduction calculation).
[Note: Round all answers to the nearest whole dollar in part (a).]
Answer:
a) Juan (40 × $14) + (9 × $14 × 1.5) = $749
Maria[$900 + ($900 × 0.05)] = $945
Li[$100 + ($6,800 × 0.10)] = $780
Total gross pay for all employees = $749 + $945 + $780 = $2,474
b) Income tax withheld (0.15 × $2,474) = $371.10
CPP withheld (0.0495 × $2,474) = $122.46
Employment Insurance withheld (0.0183 × $2,474) = $45.27
Union dues withheld (3 × 20) = $60.00
Charitable donations $10.00
Total deductions $608.83
Net pay ($2,474.00 – $608.83) = $1,865.17
Diff: 3 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-3 Compute payroll amounts
Table 11-17
Grant Caballero works for a media company. He earns $3,000 a week for a 40-hour week and time and a half for anything over 40 hours per week. During the first week of the year, Grant worked 45 hours. The income tax withholdings are 25% of gross earnings. Canada Pension Plan deductions are 4.95% of gross earnings and Employment Insurance deductions are 1.83% of gross earnings. The worker’s compensation premium is 1.6% of gross earnings. Both Grant and the company contribute 5% of gross earnings into a group RRSP. In addition Grant has $25 deducted from his weekly pay to contribute to his favorite charity, Accounting Students’ Tutor Fund.
27) Refer to Table 11-17. What is the amount of the employee’s share of the Canada Pension Plan payable amount if the exemption is used in the calculation?
Answer: [$3,562.50 – ($3,500/52 weeks)] × 1.83% = $63.96
Diff: 3 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-3 Compute payroll amounts
Objective 11-4
1) The entry to record the employer’s contribution for Employment Insurance (EI) and Canada Pension Plan (CPP) includes a debit to Employee Benefits Expense.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-4 Record basic payroll transactions
2) The entry to record the salary owed to employees and corresponding deductions includes a debit to salary payable.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-4 Record basic payroll transactions
3) All of the following are payroll costs that are expenses of the employer except:
A) Workers’ Compensation Plan premiums.
B) Employee income taxes.
C) Employment Insurance premiums.
D) Canada Pension Plan contributions.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-4 Record basic payroll transactions
Table 11-6
Peter Tomach works for a manufacturing company. He earns $600 a week for a 40-hour week and time and a half for anything over 40 hours per week. During the first week of the year, Peter worked 49 hours. The income tax withholdings are 15% of gross earnings. Canada Pension Plan deductions are 4.95% of gross earnings and Employment Insurance deductions are 1.83% of gross earnings. Ignore the basic Canada Pension Plan exemption.
4) Referring to Table 11-6. The entry to record salary expense includes a:
A) debit to Salary Payable to Employees.
B) debit to Employee Income Tax Expense.
C) credit to Employee Income Tax Payable.
D) credit to Employee Benefits Expense.
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-4 Record basic payroll transactions
5) Referring to Table 11-6. The entry to record the employer’s portion of Canada Pension Plan expense includes a:
A) credit to Salary Payable to Employees.
B) credit to Employee Benefits Expense.
C) debit to Salary Expense.
D) credit to Canada Pension Plan Payable.
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-4 Record basic payroll transactions
6) Referring to Table 11-6, the entry to record the payroll for Peter would include a:
A) debit to Salary Payable to Employees for $802.50.
B) credit to Employee Income Tax Payable for $120.38.
C) credit to Canada Pension Plan Payable for $15.01.
D) credit to Employee Benefits Expense for $54.73.
Answer: B
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
7) Referring to Table 11-6, the entry to record the payroll costs imposed on the employer would include a:
A) debit to Canada Pension Plan Expense of $39.72.
B) credit to Employee Income Tax Payable for $120.38.
C) debit to Salary Expense for $600.
D) credit to Employment Insurance Payable for $15.01.
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
Table 11-7
Camparound Canada has 24 employees who are paid on a monthly basis. For the most recent month, gross earnings were $68,000. The income tax withholdings are 15% of gross earnings. Canada Pension Plan deductions are 4.95% of gross earnings and Employment Insurance deductions are 1.83% of gross earnings. All employees have $15 per month withheld for charitable contributions. Ignore the basic Canada Pension Plan exemption.
8) Referring to Table 11-7, the entry to record salary expense includes a:
A) credit to Salary Expense for $68,000.00.
B) debit to Employment Insurance Payable for $1,742.16.
C) debit to Employee Income Tax Payable for $10,200.00.
D) credit to Canada Pension Plan Payable for $3,366.00.
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
9) Referring to Table 11-7, the entry to record the employer’s payroll costs includes a:
A) debit to Payroll Tax Payable for $14,484.
B) credit to Employee Income Tax Payable for $10,200.
C) debit to Canada Pension Plan Expense for $3,366.
D) credit to Canada Pension Plan Expense for $3,366.
Answer: C
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
Table 11-15
Sally Lee works for a tugboat company. She earns $900 a week for a 40-hour week and time and a half for anything over 40 hours per week. During the first week of the year, Sally worked 43 hours. The income tax withholdings are 20% of gross earnings. Canada Pension Plan deductions are 4.95% of gross earnings and Employment Insurance deductions are 1.83% of gross earnings. The worker’s compensation premium is 1.6% of gross earnings. Ignore the basic Canada Pension Plan exemption.
10) Refer to Table 11-15. What is the correct journal entry to record the salary expense?
A)
| Salary expense – regular | 900.00 | |
| Income tax payable | 180.00 | |
| CPP payable | 44.55 | |
| EI payable | 16.47 | |
| Cash | 658.98 | |
| Salary expense – overtime | 101.25 | |
| Cash | 101.25 |
B)
| Salary expense | 1,001.25 | |
| Income tax payable | 200.25 | |
| CPP payable | 49.56 | |
| EI payable | 18.32 | |
| Cash | 733.12 |
C)
| Salary expense | 1,001.25 | |
| Income tax payable | 200.25 | |
| CPP payable | 49.56 | |
| EI payable | 18.32 | |
| Worker’s compensation payable | 16.02 | |
| Cash | 717.10 |
D)
| Salary expense | 1,001.25 | |
| Income tax payable | 200.25 | |
| CPP payable | 49.56 | |
| EI payable | 25.65 | |
| Cash | 728.79 |
Answer: B
Explanation: B) Gross pay = $900 + [($900/40) × 1.5 × 3)] = $1,001.25
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
11) Refer to Table 11-15. What is the amount of the CPP deduction if the basic exemption is included in the calculation?
A) $0
B) $49.56
C) $52.89
D) $46.23
Answer: D
Explanation: D) [$1,001.25 – ($3,500/52 weeks)] × 4.95% = $46.23
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-4 Record basic payroll transactions
12) Refer to Table 11-15. What is the correct journal entry to record the employer’s share of the withholdings?
A)
| Employee benefits expense | 91.23 | |
| CPP payable | 49.56 | |
| EI payable | 25.65 | |
| Worker’s compensation payable | 16.02 |
B)
| Employee benefits expense | 83.90 | |
| CPP payable | 49.56 | |
| EI payable | 18.32 | |
| Worker’s compensation payable | 16.02 |
C)
| Employee benefits expense | 75.21 | |
| CPP payable | 49.56 | |
| EI payable | 25.65 |
D)
| Employee benefits expense | 67.88 | |
| CPP payable | 49.56 | |
| EI payable | 18.32 |
Answer: A
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
Table 11-16
Sandra Singh works as the manager for the Shmenge Brothers music store. She earns $1,200 a week for a 40-hour week and time and a half for anything over 40 hours per week. During the first week of the year, Sandra worked 46 hours. The income tax withholdings are 20% of gross earnings. Canada Pension Plan deductions are 4.95% of gross earnings and Employment Insurance deductions are 1.83% of gross earnings. The worker’s compensation premium is 1.6% of gross earnings. Ignore the basic Canada Pension Plan exemption.
13) Refer to Table 11-16. What is the correct journal entry to record the salary expense?
A)
| Salary expense – regular | 1,200.00 | |
| Income tax payable | 240.00 | |
| CPP payable | 59.40 | |
| EI payable | 21.96 | |
| Cash | 878.64 | |
| Salary expense – overtime | 270.00 | |
| Cash | 270.00 |
B)
| Salary expense | 1,470.00 | |
| Income tax payable | 294.00 | |
| CPP payable | 72.77 | |
| EI payable | 26.90 | |
| Cash | 1,076.33 |
C)
| Salary expense | 1,470.00 | |
| Income tax payable | 294.00 | |
| CPP payable | 72.77 | |
| EI payable | 26.90 | |
| Worker’s compensation payable | 23.52 | |
| Cash | 1,052.81 |
D)
| Salary expense | 1,470.00 | |
| Income tax payable | 294.00 | |
| CPP payable | 72.77 | |
| EI payable | 37.66 | |
| Cash | 1,065.57 |
Answer: B
Explanation: B) Gross pay = $1,200 + [($1,200/40) × 1.5 × 6)] = $1,470.00
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
14) Refer to Table 11-16. What is the amount of the CPP deduction if the basic exemption is included in the calculation?
A) $0
B) $72.77
C) $76.11
D) $69.43
Answer: D
Explanation: D) [$1,470.00 – ($3,500/52 weeks)] × 4.95% = $69.43
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-4 Record basic payroll transactions
15) Refer to Table 11-16. What is the correct journal entry to record the employer’s share of the withholdings?
A)
| Employee benefits expense | 123.19 | |
| CPP payable | 72.77 | |
| EI payable | 26.90 | |
| Worker’s compensation payable | 23.52 |
B)
| Employee benefits expense | 133.95 | |
| CPP payable | 72.77 | |
| EI payable | 37.66 | |
| Worker’s compensation payable | 23.52 |
C)
| Employee benefits expense | 99.67 | |
| CPP payable | 72.77 | |
| EI payable | 26.90 |
D)
| Employee benefits expense | 110.43 | |
| CPP payable | 72.77 | |
| EI payable | 37.66 |
Answer: B
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
16) Harold Munster earned $2,400 in wages and $650 in sales commissions for the month of November. Harold’s payroll deductions include income tax of 15 percent, Canada Pension of 4.95 percent on earnings and Employment Insurance of 1.83 percent on earnings.
Prepare the journal entries to record the payroll and the payroll taxes imposed on Harold Munster. Explanations are not required and ignore the annual exemption for the CPP calculation.
Answer: General Journal
| Date | Accounts | Debit | Credit |
| Nov. 30 | Salary Expense | 3,050.00 | |
| Employee Withheld Inc. Tax Payable | 457.50 | ||
| Canada Pension Payable | 150.98 | ||
| Employment Insurance Payable | 55.82 | ||
| Salary Payable | 2,385.70 | ||
| 30 | Employee Benefits Expense | 229.13 | |
| Canada Pension Payable | 150.98 | ||
| Employment Insurance Payable | 78.15 |
Diff: 3 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
17) M & D Company has numerous employees who are paid on a monthly basis. Payroll information for August of the current year is given below.
Employee compensation $135,000
Union dues 1,450
Charitable contributions 875
Employee CPP contributions 4,320
Employee EI contributions 2,336
Employee income tax withheld 20,250
Prepare the journal entries to record the August payroll and the payroll benefits expense for M & D Company for August. Also prepare the entries to record the payment of payroll withholdings to the government and other agencies on September 15. Explanations are not required.
Answer:
General Journal
| Date | Accounts | Debit | Credit |
| Aug. 31 | Salary Expense | 135,000 | |
| Employee Withheld Inc. Tax Payable | 20,250 | ||
| Canada Pension Plan Payable | 4,320 | ||
| Employment Insurance Payable | 2,336 | ||
| Union Dues Payable | 1,450 | ||
| Charitable Contributions Payable | 875 | ||
| Salary Payable | 105,769 | ||
| 31 | Employee Benefits Expense | 7,590.40 | |
| Canada Pension Plan Payable | 4,320 | ||
| Employment Insurance Payable | 3,270.40 | ||
| Sept. 15 | Employee Income Tax Payable | 20,250 | |
| Canada Pension Plan Payable | 8,640 | ||
| Employment Insurance Payable | 5,606.40 | ||
| Cash | 34,496.40 | ||
| 15 | Charitable Contributions Payable | 875 | |
| Union Dues Payable | 1,450 | ||
| Cash | 2,325 |
Diff: 3 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
Table 11-17
Grant Caballero works for a media company. He earns $3,000 a week for a 40-hour week and time and a half for anything over 40 hours per week. During the first week of the year, Grant worked 45 hours. The income tax withholdings are 25% of gross earnings. Canada Pension Plan deductions are 4.95% of gross earnings and Employment Insurance deductions are 1.83% of gross earnings. The worker’s compensation premium is 1.6% of gross earnings. Both Grant and the company contribute 5% of gross earnings into a group RRSP. In addition Grant has $25 deducted from his weekly pay to contribute to his favorite charity, Accounting Students’ Tutor Fund.
18) Refer to Table 11-17. Prepare the journal entries to record the salary expense and the employer’s share of the withholdings for the first week in January. Ignore the basic Canada Pension Plan exemption.
Answer: Journal
| Date | Accounts | Debit | Credit |
| Jan 7 | Salary Expense | 3,562.50 | |
| Income Tax Payable | 890.63 | ||
| CPP Payable | 176.34 | ||
| EI Payable | 65.19 | ||
| RRSP Payable | 178.13 | ||
| AS Tutor Fund Payable | 25.00 | ||
| Cash | 2,227.21 | ||
| Jan 7 | Benefits Expense | 502.74 | |
| CPP Payable | 176.34 | ||
| EI Payable | 91.27 | ||
| WCB Payable | 57.00 | ||
| RRSP Payable | 178.13 | ||
Explanation: Gross pay = $3,000 + ($3,000/40 hours) × 1.5 × 5 = $3,562.50
Diff: 3 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-4 Record basic payroll transactions
Objective 11-5
1) The components of the payroll system are a payroll register, payroll cheques, and an earnings record for each employee.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
2) The duties of hiring and terminating employees should be separated from payroll accounting and from access to pay cheques.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-06 Define internal controls and discuss the internal control principles
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
3) Current liabilities:
A) are subtracted from long-term liabilities on the balance sheet.
B) must be of a known amount.
C) must be of an estimated amount.
D) are due within one year or one operating cycle, whichever is longer.
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
Table 11-3
Bentley Enterprises purchased $8,000 of inventory by issuing a six-month, 7.5% note payable on November 1, 2013. Bentley has a December 31 year end.
4) Refer to Table 11-3. The December 31, 2013, balance sheet would report:
A) an interest payable of $100.
B) an interest expense of $300.
C) a note payable of $8,100.
D) a note payable of $8,200.
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
Table 11-4
Lumas Company gives a $50,000, 180-day note payable to its bank at 9% on September 15, 2013 for a cash loan. Lumas has a December 31 year end.
5) Refer to Table 11-4. The December 31, 2013, balance sheet would report a(n):
A) note payable of $50,900.00.
B) interest payable of $51,319.18.
C) note payable of $1,319.18.
D) interest payable of $1,319.18.
Answer: D
Diff: 2 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
6) Interest payable is classified as a(n):
A) contra asset.
B) asset.
C) long-term liability.
D) current liability.
Answer: D
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
7) Reporting a current liability as long term:
A) overstates working capital.
B) understates the current ratio.
C) has no effect on the acid-test ratio.
D) understates working capital.
Answer: A
Diff: 3 Type: MC
Learning Outcome: A-16 Define and use the different types of financial statement analysis tools
Skill: Comprehension
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
8) All of the following are components of a payroll system except a(n):
A) payroll sinking fund.
B) payroll register.
C) payroll cheques.
D) employee earnings record.
Answer: A
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
9) The information needed to record salary expense for the period comes from the:
A) employee earnings record.
B) T1 Special.
C) TD1 form.
D) payroll register.
Answer: D
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
10) The payroll register includes a column for all of the following except:
A) income taxes.
B) Workers’ Compensation Board.
C) cheque number.
D) total deductions.
Answer: B
Diff: 3 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
11) Current liabilities on the balance sheet would include all of the following except:
A) accrued expenses.
B) estimated liabilities.
C) earned revenues.
D) unearned revenues.
Answer: C
Diff: 1 Type: MC
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
12) Which of the following is not an advantage of paying employees using electronic funds transfer (EFT)?
A) reduced salary expense.
B) reduced administrative costs.
C) no lost pay cheques.
D) ensures that appropriate employee is paid.
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-06 Define internal controls and discuss the internal control principles
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
13) Which of the following is an important internal control over payroll?
A) Separating the duties of the disbursement of paychecks from the recording of payroll transactions in the ledger.
B) Separating the duties of safeguarding property from record-keeping of property.
C) Separating the duties of approving invoices from signing disbursement checks.
D) Separating the duties of cash disbursement from bank reconciliations.
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-06 Define internal controls and discuss the internal control principles
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
Match the following.
14) A debt due to be paid within one year or one operating cycle, if the cycle is longer than one year A) current liability
Diff: 1 Type: MA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
Answers: 14) A
15) Given the list of items below, show how each would be classified on the balance sheet and indicate whether the amount is known or based on an estimate. The first item is completed as an example.
| Item | Account | Classification | Known
Amount or An Estimate |
| a) | Salary payable | current liability | known |
| b) | Sales tax payable | ||
| c) | Accounts payable | ||
| d) | Customer deposits payable | ||
| e) | Employee income tax payable | ||
| f) | Employment insurance payable | ||
| g) | Note payable (due in six months) | ||
| h) | Unearned rent revenue (to be earned in 12 months) | ||
| i) | Note payable (due in three months) | ||
| j) | Unearned rent revenue (to be earned in six months) | ||
| k) | Estimated warranty payable (to expire in three months) | ||
| l) | Contingent liability that is likely and cannot be reasonable estimated | ||
| m) | Estimated vacation pay liability |
Answer:
| Item | Account | Classification | Known
Amount or An Estimate |
| a) | Salary payable | current liability | known |
| b) | Sales tax payable | current liability | known |
| c) | Accounts payable | current liability | known |
| d) | Customer deposits payable | current liability | known |
| e) | Employee income tax payable | current liability | known |
| f) | Employment insurance payable | current liability | known |
| g) | Note payable (due in six months) | current liability | known |
| h) | Unearned rent revenue (to be earned in 12 months) | current liability | known |
| i) | Note payable (due in three months) | current liability | known |
| j) | Unearned rent revenue (to be earned in six months) | current liability | known |
| k) | Estimated warranty payable (to expire in three months) | current liability | estimate |
| l) | Contingent liability that is likely and cannot be reasonable estimated | not reported on face of balance sheet, disclose in note | estimate |
| m) | Estimated vacation pay liability | current liability | estimate |
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
Table 11-8
BCN Bank agrees to lend Samson Company $80,000 on January 1. Samson Company signs an $80,000, 5%, 9-month note.
16) Refer to Table 11-8. Show how the note and any related interest will appear on the June 30 balance sheet of Samson Company. Be specific about the classification of the amounts on the balance sheet.
Answer:
Current Liabilities:
Note Payable, due September 30$80,000
Interest Payable2,000
Diff: 2 Type: SA
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
17) Answer the following questions briefly and concisely.
a) Why is it important for a company to separate the current portion of long-term debt from the long-term debt?
b) How would the under accrual of warranty expense affect a company’s financial statements?
c) What is the difference between a liability and a contingent liability?
d) What are contingent gains and how are they treated?
Answer:
a) It is important for a company to separate out the current portion of long-term debt since not doing so would mislead the users of the financial statements. Ratios such as the current ratio and acid-test ratio would be distorted.
b) The under accrual of warranty expense would cause expenses to be understated and net income to be overstated. Retained earnings (Capital) would be overstated and liabilities would be understated.
c) A liability is an economic obligation payable to an individual or organization outside the business. A contingent liability is a potential liability that will become an actual liability only if a future event occurs.
d) Contingent gains are potential gains that will materialize only if a future event occurs. Contingent gains are not recognized and accrued until the gains are realized because of the conservatism principle of accounting.
Diff: 3 Type: ES
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-5 Account for payroll, implement payroll internal controls, and report payroll and other current liabilities on the balance sheet
Objective 11-6
1) Under IFRS the preferred term for accounts payable is provisions.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Knowledge
Objective: 11-6 Describe the impact on current liabilities of IFRS
2) Under both ASPE and IFRS, obligations to parties outside the company are typically carried at their fair value.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Knowledge
Objective: 11-6 Describe the impact on current liabilities of IFRS
3) With respect to current liabilities, in what area is the main difference between international financial reporting standards (IFRS) and accounting standards for private enterprises (ASPE)?
A) terminology
B) valuation
C) presentation
D) measurement
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Knowledge
Objective: 11-6 Describe the impact on current liabilities of IFRS
4) Under international financial reporting standards (IFRS) what is the preferred terminology for accrued liabilities?
A) provisions
B) obligations
C) trade payables
D) current debt
Answer: A
Diff: 2 Type: MC
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Knowledge
Objective: 11-6 Describe the impact on current liabilities of IFRS
Match the following.
A) provisions
5) Accrued liabilities
Diff: 1 Type: MA
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Knowledge
Objective: 11-6 Describe the impact on current liabilities of IFRS
Answers: 5) A
6) Describe the impact on current liabilities of international financial reporting standards.
Answer:
– Current liabilities are typically carried at their fair value, so the way Canadian companies now determine the values of their current liabilities will not change if they report under IFRS.
– Under IFRS, the preferred terms are trade payables and provisions for accounts payable and accrued liabilities, but these terms are optional for Canadian companies reporting under IFRS.
Diff: 2 Type: ES
Learning Outcome: A-18 Compare and contrast IFRS and ASPE
Skill: Comprehension
Objective: 11-6 Describe the impact on current liabilities of IFRS
PAGE \* MERGEFORMAT 73
© 2014 Pearson Canada Inc.
Add a review
Be the first to review “Accounting Volume 2 Canadian 9th Edition Horngren – Test Bank”
Related products
-
Bates’ Guide to Physical Examination and History Taking 12th Edition – Test Bank
Original price was: $35.00.$25.00Current price is: $25.00. -
Basic and Clinical Pharmacology 14th Edition by Katzung Trevor – Test Bank.
Original price was: $35.00.$25.00Current price is: $25.00. -
Maternity And Pediatric Nursing 4th Edition by Ricci Kyle -Test Bank
Original price was: $35.00.$25.00Current price is: $25.00. -
Evidence Based Practice 4th edition in Nursing And Healthcare – Test Bank
Original price was: $35.00.$25.00Current price is: $25.00.
There are no reviews yet.