Hhofma3e Ch10 Tif Testgen

Current Liabilities and Payroll
10) Which of the following correctly describes the unearned revenue account?
A) The unearned revenue account represents revenue that has been collected, but not yet earned.
B) The unearned revenue account represents revenue that has been earned and collected.
C) The unearned revenue account represents revenue that has been earned, but not yet collected.
D) The unearned revenue account represents revenue that has neither been earned nor collected.
Answer: A
Diff: 1
LO: 10-1
EOC: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
11) Which of the following is a liability created when a company receives cash for services to be provided in the
future?
A) Unearned revenue
B) Accrued liability
C) Service revenue
D) Estimated warranty payable
Answer: A
Diff: 2
LO: 10-1
EOC: P10-15A
12) Sales revenue for a sporting goods store amounted to $215,000 for the current period. All sales are on account
and are subject to a sales tax of 7%. Which of the following would be included in the journal entry to record these
sales?
A) A debit to Sales revenue for $215,000
B) A credit to Accounts receivable for $215,000
C) A debit to Sales tax payable for $15,050
D) A debit to Accounts receivable for $230,050
Answer: D
Explanation: D) Calculation: $215,000 + ($215,000 7%) = $230,050
Diff: 2
LO: 10-1
EOC: P10-15A
AACSB: Analytic Skills
13) Which of the following would be included in the journal entry to record the payment of accrued sales tax?
A) A debit to Sales tax payable
B) A credit to Sales tax expense
C) A debit to Sales tax expense
D) A credit to Sales tax payable
Answer: A
Diff: 2
LO: 10-1
EOC: P10-15A

14) Which of the following correctly describes Interest payable?
A) Interest payable is shown on the balance sheet as a current liability.
B) Interest payable is shown on the income statement as an operating expense.
C) Interest payable is shown on the balance sheet as a current asset.
D) Interest payable is shown on the balance sheet as a long-term liability.
Answer: A
Diff: 1
LO: 10-1
EOC: P10-15A
15) Where does Unearned subscription revenue appear on the balance sheet?
A) Long-term investments
B) Current liabilities or long-term liabilities
C) Current assets or long-term investments
D) Long-term assets
Answer: B
Diff: 1
LO: 10-1
EOC: P10-15A
16) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of accrued interest
on December 31, 2015?
A) $200
B) $267
C) $133
D) $800
Answer: B
Explanation: B) Calculation: $20,000 8% 2/12 = $267
Diff: 2
LO: 10-1
EOC: E10-9
17) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of interest expense
recorded in the year 2016?
A) $800
B) $133
C) $200
D) $267
Answer: B
Explanation: B) Calculation: $20,000 8% 1/12= $133
Diff: 2
LO: 10-1
EOC: E10-9

18) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. Which of the following would be
included in the journal entry required on the note's maturity date?
A) A credit to Note payable for $20,400
B) A credit to Cash for $10,000
C) A debit to Interest expense for $133
D) A debit to Interest payable for $133
Answer: C
Diff: 3
LO: 10-1
EOC: E10-9
19) Which of the following is associated with cash received in advance for services to be performed in the future?
A) Accounts payable
B) Estimated warranty payable
C) Accrued expense
D) Unearned revenue
Answer: D
Diff: 1
LO: 10-1
20) Joe signs a $5,000, 8%, 6-month note dated September 1, 2012. What is Joe's 2013 interest expense for this
note?
A) $133
B) $200
C) $400
D) $67
Answer: D
Explanation: D) Calculation: $5,000 8% 2/12= $67
Diff: 2
LO: 10-1
EOC: E10-9
21) ABC Company signed a 5-year note payable for $80,000 at 9% annual interest. What is the interest expense for
December 31, 2013 if the note was signed on May 1, 2013?
A) $7,200
B) $4,800
C) $2,400
D) $36,000
Answer: B
Explanation: B) Calculation: $80,000 9% 8/12 = $4,800
Diff: 2
LO: 10-1
EOC: E10-9

22) ABC signed a 5-year, 9% note payable for $80,000 on May 1, 2012. Which account will be credited when the
note paid at maturity?
A) Note payable
B) Interest expense
C) Interest payable
D) Cash
Answer: D
Diff: 2
LO: 10-1
EOC: E10-9
23) The face amount of a promissory note is called the:
A) discount of the note.
B) time of the note.
C) interest rate of the note.
D) principal of the note.
Answer: D
Diff: 1
LO: 10-1
24) The journal entry for accrued interest on a note payable includes:
A) debiting Interest expense and crediting Cash.
B) debiting Interest expense and crediting accrued Interest payable.
C) debiting accrued Interest expense and crediting Cash.
D) crediting accrued Interest expense.
Answer: B
Diff: 2
LO: 10-1
EOC: E10-9
25) Face value of a note payable plus total interest is called:
A) maturity value.
B) face value.
C) proceeds.
D) principal.
Answer: A
Diff: 2
LO: 10-1
26) The person who promises to pay a certain amount of money at a specified date in the future is called the:
A) endorser of the note.
B) maker of the note.
C) discounter of the note.
D) payee of the note.
Answer: B
Diff: 1
LO: 10-1
27) RGF Manufacturing recently signed a $200,000, 4-month note on June 22. The interest rate is 5%. How much
total interest will be due on the note?
A) $10,000
B) $3,833
C) $3,333
D) $203,780
Answer: C
Explanation: C) Calculation: $200,000 5% 4/12= $3,333
Diff: 2
LO: 10-1
EOC: E10-9
28) Archie's had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be credited to
Sales revenue?
A) $6,758.00
B) $7,231.06
C) $473.06
D) $458.00
Answer: A
Diff: 2
LO: 10-1
EOC: E10-9
29) Archie's had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be debited to
Cash?
A) $6,758.00
B) $7,231.06
C) $473.06
D) $866.06
Answer: B
Explanation: B) Calculation: $6,758 + ($6,758 7%) = $7,231.06
Diff: 2
LO: 10-1
EOC: P10-15A
30) Carter Company records sales on account of $950,500. The company operates in a state that imposes a 5% sales
tax. Which of the following would be the amount of the sales tax payable to the state?
A) $47,525
B) $50,500
C) $45,000
D) $55,000
Answer: A
Explanation: A) Calculation: $950,500 5%= $47,525
Diff: 2
LO: 10-1
EOC: P10-15A
31) On June 20, 2013, Parker Services received $2,400 in advance from a customer for one month's service. The
journal entry to record the receipt of cash would be which of the following?
A) Debit Unearned service revenue $2,400 and credit Cash $2,400.
B) Debit Cash $2,400 and credit Service revenue $2,400.
C) Debit Unearned service revenue $2,400 and credit Service revenue $2,400.
D) Debit Cash $2,400 and credit Unearned service revenue $2,400.
Answer: D
Diff: 1
LO: 10-1
EOC: P10-15A
32) On June 20, 2013, Parker Services received $2,400 in advance from a customer for one month's service. The
journal entry to adjust the accounts at the end of June would be which of the following?
A) Debit Service revenue $1,600 and credit Unearned service revenue $1,600.
B) Debit Unearned service revenue $800 and credit Service revenue $800.
C) Debit Unearned service revenue $2,400 and credit Service revenue $2,400.
D) Debit Service revenue $800 and credit Accounts receivable $800.
Answer: B
Diff: 2
LO: 10-1
EOC: P10-15A
33) Ace Appliances sells dishwashers with a 3-year warranty. In 2012, there are $90,000 of sales revenues for
dishwashers. The company estimates warranty expense at 3% of revenues. What is the 2012 warranty expense?
A) $2,700
B) $800
C) $0
D) $3,000
Answer: A
Explanation: A) Calculation: $90,000 3% = $2,700
Diff: 2
LO: 10-1
EOC: E10-12
34) Associated Foods had cash sales of $787,000 during the month of August. Sales taxes of 7% were collected on
the sales. Prepare an aggregate journal entry to record the sales revenue and sales tax for the month.
Answer:
Cash
Sales revenue
Sales tax payable
842,090
787,000
55,090
Explanation: Calculations: $787,000 + ($787,000 7%) = $842,090

This question is not available in MyAccountingLab.
Diff: 2
LO: 10-1
EOC: P10-15A
35) Model Maker sold 6,000 one-year prepaid subscriptions to its monthly magazine for $40 per subscription. The
subscription year runs from September to August. What is the December 31 adjusting entry for subscription
revenue?
Answer:
Unearned subscription revenue
Subscription revenue
80,000
80,000
Explanation: Calculations: $6,000 $40 4/12 = $80,000

Diff: 2
LO: 10-1
EOC: P10-15A
36) On March 1, 2012, Archer Sales purchases inventory for $200,000 by signing a note payable. The note is for 3
months and bears interest at a rate of 9%. Please provide the journal entry for this transaction.
Answer:
Inventory
Short-term notes payable
200,000
200,000
Explanation: This question is not available in MyAccountingLab.

Diff: 1
LO: 10-1
EOC: E10-9
37) On March 1, 2012, Archer Sales purchases inventory for $200,000 by signing a note payable. The note is for 3
months and bears interest at a rate of 9%. Please provide the journal entry at the end of May when the note is
settled.
Answer:
Interest expense
Cash
200,000
4,500
204,500
Explanation: Calculations: ($200,000 9%) 3/12 = $4,500

Diff: 2
LO: 10-1
EOC: E10-9
38) On October 1, 2012, Archer Sales borrows $100,000 by signing a note payable. The note is for 6 months and
bears interest at a rate of 9%. Please provide the journal entry to accrue interest expense at the end of 2012.
Answer:
Interest expense
Interest payable
2,250
2,250
Explanation: Calculations: ($100,000 9%) 3/12 = $2,250

Diff: 2
LO: 10-1
EOC: E10-9
39) On October 1, 2012, Archer Sales borrows $100,000 by signing a note payable. The note is for 6 months and
bears interest at a rate of 9%. Archer properly accrued interest at the end of 2012. Please provide the journal entry
made at the end of March, 2013 when Archer settles the note.
Answer:
Interest payable
Interest expense
Cash
100,000
2,250
2,250
104,500
Explanation: Calculations: $100,000 + ($100,000 9%) 6/12 = $104,500

Diff: 3
LO: 10-1
EOC: E10-9
40) Barnaby Sales made total cash sales in January of $500,000, and they are subject to a 6% sales tax. Please
provide the summary entry to record sales revenues and sales tax payable.
Answer:
Cash
Sales tax payable
Sales revenue
530,000
30,000
500,000
Explanation: Calculations: $500,000 6% = $30,000

Diff: 2
LO: 10-1
EOC: E10-8
41) Charter Services sells a service plan for commercial computer maintenance. The price is $1,200 per year, paid
in advance. On December 1, 2013, Charter sells a service plan to a new customer for cash. Please provide the
journal entry to record this transaction.
Answer:
Cash
Unearned service revenue
1,200
1,200

Diff: 1
LO: 10-1
EOC: P10-15A
10
42) Charter Services sells a service plan for commercial computer maintenance. The price is $1,200 per year, paid
in advance. On December 1, 2013, Charter sells a service plan to a new customer for cash. Please provide the
journal entry to record the adjustment needed on December 31, 2013.
Answer:
Unearned service revenue
Service revenue
100
100
Explanation: Calculations: $1,200 1/12 = $100

Diff: 1
LO: 10-1
EOC: P10-15A
Learning Objective 10-2
1) When the likelihood of an actual loss is probable, and the amount can be estimated, it should be recorded as an
expense and as a liability.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: S10-3
2) The entry to estimate warranty payable includes a credit to Warranty expense.
Answer: FALSE
Diff: 1
LO: 10-2
EOC: E10-12
3) A contingent liability that has a remote possibility of becoming an actual loss is included in a note to the financial
statements.
Answer: FALSE
Diff: 1
LO: 10-2
EOC: S10-3
11
4) A contingent liability that will probably become an actual liability, and can be reasonably estimated, must be
recorded as an expense.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: S10-3
5) Contingent liabilities sometimes pose an ethical challenge because they are not real liabilities and are easy to
overlook.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: S10-3
AACSB: Reflective Thinking
6) Estimated warranty payable would be included in the liability section of the balance sheet.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: E10-12
7) Estimated warranty payable would be included in the operating expense section of the income statement.
Answer: FALSE
Diff: 1
LO: 10-2
EOC: E10-12
8) Warranty expense would be included in the liability section of the balance sheet.
Answer: FALSE
Diff: 1
LO: 10-2
EOC: E10-12
9) Warranty expense would be included in the operating expense section of the income statement.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: E10-12
12
10) A certain contingent liability was evaluated at year-end, and considered to have a remote possibility of becoming
an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial
statement, this could be considered unethical behavior.
Answer: FALSE
Diff: 1
LO: 10-2
EOC: E10-12
11) A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of
becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the
financial statement, this could be considered unethical behavior.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: E10-12
12) A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become
an actual liability, and the amount could be reasonably estimated. If the accountant decided NOT to report it on the
balance sheet or in the notes to the financial statement, this could be considered unethical behavior.
Answer: TRUE
Diff: 1
LO: 10-2
EOC: E10-12
13) Which of the following principles requires that warranty expense be recorded in the period that revenue is
recorded?
A) Consistency principle
B) Matching principle
C) Revenue principle
D) Materiality concept
Answer: B
Diff: 1
LO: 10-2
EOC: E10-12
13
14) A company has been sued for product failures allegedly resulting in injuries to the individuals bringing the
lawsuit. The company's lawyers believe it is more than remote, but less than probable, that the lawsuit will result in
an actual liability. Which of the following actions should be taken by the company's management?
A) The liability should be estimated and recorded as an expense.
B) The situation should be described in a note to the financial statements.
C) The possible liability should be ignored.
D) Management should consider resigning.
Answer: B
Diff: 2
LO: 10-2
EOC: S10-3
15) A restaurant has been sued because a customer claims to have found a bug in her chili. The company's lawyers
believe there is only a remote possibility that the lawsuit will result in an actual liability. Which of the following
actions should be taken by the company's management?
A) The situation should be described in a note to the financial statements.
B) The possible liability should be ignored.
C) The liability should be estimated and recorded as an expense.
D) Management should consider resigning.
Answer: B
Diff: 2
LO: 10-2
EOC: S10-3
16) Which of the following is TRUE of a contingent liability?
A) It is a potential liability that depends on a future event.
B) It is an actual liability that is difficult to estimate.
C) It is an actual liability that depends on a past event.
D) It is a liability resulting from a lawsuit settled in court.
Answer: A
Diff: 1
LO: 10-2
EOC: S10-3
14
dishwashers. The company estimates warranty expense at 3% of revenues. What is the total estimated warranty
payable for Ace regarding the sales in 2013?
A) $2,700
B) $600
C) $1,400
D) $3,000
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
dishwashers. The company estimates warranty expense at 3% of revenues. What is the 2013 warranty expense?
A) $2,700
B) $800
C) $0
D) $3,000
Answer: A
Diff: 2
LO: 10-2
EOC: E10-12
19) In which of the following periods should the expense for warranty costs be recorded?
A) The period when the product is sold
B) The period when the product is repaired or replaced
C) The period when cash is paid to repair or replace the product
D) The period when cash is collected for the sale of the product
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
15
20) Which of the following accounting principles requires that warranty expenses must be estimated and recognized
in the same period as the related sales revenue is recognized?
A) The matching principle
B) The full disclosure principle
C) The revenue recognition principle
D) The conservatism principle
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
21) Booker Company reported sales revenue for 2013 of $800,000. The products were sold with a six-month
warranty. Members of Booker's management estimate the cost of the warranty will be equal to 3% of sales revenue.
Which of the following is included in the entry to record the actual amounts paid out as a result of warranty claims?
A) A debit to Estimated warranty payable for the actual amount of payments
B) A credit to Estimated warranty payable for $24,000
C) A debit to Estimated warranty payable for $24,000
D) A debit to Warranty expense for the actual amount of payments
Answer: A
Diff: 2
LO: 10-2
EOC: E10-12
22) Which of the following is included in the entry to record warranty expense?
A) A debit to Warranty expense
B) A credit to Inventory
C) A credit to Warranty expense
D) A debit to Estimated warranty payable
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
23) Which of the following is included in the entry to record estimated warranty payable?
A) A credit to Estimated warranty payable
B) A credit to Inventory
C) A credit to Warranty expense
D) A debit to Estimated warranty payable
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
24) In which of the following periods should the estimated warranty liability be debited?
16
A) The period when cash is paid to repair or replace the product

B) The period when the product is sold
C) The period when cash is collected for the sale of the product
D) The period when the product is shipped to the customer
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
25) Which of the following is NOT an exact liability?
A) FICA tax payable
B) Income tax payable
C) Warranty payable
D) Accounts payable
Answer: C
Diff: 1
LO: 10-2
EOC: S10-3
26) Which of the following is the proper treatment for a liability that exists, but the exact amount of which is not
known?
A) The liability should be treated as a contingent liability.
B) The amount of the liability should be estimated and recorded.
C) The liability should be ignored.
D) The liability should be reported in the notes to the financial statements.
Answer: B
Diff: 2
LO: 10-2
EOC: P10-15A
27) A pending lawsuit which might result in a liability is considered a(n):
A) contingent liability.
B) current liability.
C) legal liability.
D) unearned revenue.
Answer: A
Diff: 1
LO: 10-2
17
28) 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
7,500
C)
Warranty expense
10,000
10,000
D)
Warranty expense
10,000
Sales revenue
10,000
Answer: C
Diff: 1
LO: 10-2
EOC: E10-12
payments. Which of the following is the entry needed to record the disbursement of warranty payments?
A)
7,500
Cash
7,500
B)
Warranty expense
7,500
7,500
C)
Warranty expense
10,000
10,000
D)
Warranty expense
10,000
Sales revenue
10,000
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
18
30) 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.
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
LO: 10-2
EOC: E10-12
31) 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.
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: 2
LO: 10-2
EOC: E10-12
19
32) 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. 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: 1
LO: 10-2
EOC: E10-12
33) 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. 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: 2
LO: 10-2
EOC: E10-12
34) A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of
becoming an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the
financial statement, what effect would this have on the financial reporting of the company?
A) There would be no effect.
B) The liabilities on the balance sheet would be understated.
C) The information about the transaction would be inadequately disclosed in the notes.
D) The net income of the company would be understated.
Answer: C
Diff: 1
LO: 10-2
EOC: E10-12
20
35) A certain contingent liability was evaluated at year-end, and considered to have a remote possibility of becoming
an actual liability. If the accountant decided NOT to report it on the balance sheet or in the notes to the financial
statement, what effect would this have on the financial reporting of the company?
Answer: A
Diff: 1
LO: 10-2
EOC: E10-12
36) A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become
an actual liability, and the amount could be reasonably estimated. If the accountant decided NOT to report it on the
balance sheet or in the notes to the financial statement, what effect would it have on the financial reporting of the
company?
Answer: B
Diff: 1
LO: 10-2
EOC: E10-12
37) Southwest Company's records indicate that February sales on account were $111,000. The company's
management estimates the liability for warranties to be 4.0% of sales. Please provide the journal entry to record
warranty expense.
Answer:
Warranty expense
4,440
4,440

Diff: 2
LO: 10-2
EOC: E10-12
21
payments. Please provide the journal entry to record the warranty expense.
Answer:
Warranty expense
10,000
10,000

Diff: 2
LO: 10-2
EOC: E10-12
payments. Please provide the journal entry to record the disbursement of warranty payments.
Answer:
Cash
7,500
7,500

Diff: 2
LO: 10-2
EOC: E10-12
Learning Objective 10-3
1) Gross pay is the total amount of salary, wages, commissions, and bonuses earned by an employee during a pay
period.
Answer: TRUE
Diff: 1
LO: 10-3
22
2) The old age, survivors, and disability insurance portion of FICA taxes is imposed on all of an individual
employee's earnings.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
3) Payroll tax expense includes the employer's portion of FICA taxes, state unemployment taxes, and federal
unemployment taxes.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-13
4) State and federal unemployment taxes are withheld from each employee's paycheck.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
5) FUTA (federal unemployment compensation) tax is paid by the employee and deducted from gross pay.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
6) SUTA (state unemployment compensation) tax is paid by the employee and deducted from gross pay.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
7) SUTA (state unemployment compensation) tax is paid by the employer only and is not deducted from gross pay.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-13
23
8) FUTA (federal unemployment compensation) tax is paid by the employer only and is not deducted from gross
pay.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-13
9) FICA tax is paid by the employer only and is not deducted from gross pay.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
10) FICA tax is paid by both the employer and the employee.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-13
11) Gross pay is the total amount of compensation earned by an employee, before any deductions are made.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-13
12) Net pay is the total amount of compensation earned by an employee, before any deductions are made.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-13
13) Federal unemployment tax is a tax expense that is borne by the employer alone, and is not deducted from the
employee's pay.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-18
24
14) Employer FICA is a tax expense that is paid out by the employer and recorded as a payroll tax expense.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-18
15) FICA tax is a tax which is paid both by the employer and the employee in equal amounts.
Answer: TRUE
Diff: 1
LO: 10-3
EOC: E10-18
16) FICA tax is a tax which is paid by the employer only and is not deducted from the employee's pay.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-18
17) FICA tax is a tax which is paid by the employee only.
Answer: FALSE
Diff: 1
LO: 10-3
EOC: E10-18
18) Which of the following is paid by the employee only?
A) FICA
B) FUTA
C) Employee income tax
D) State unemployment tax
Answer: C
Diff: 1
LO: 10-3
EOC: E10-13
25
19) Which of the following is paid by both the employee and the employer?
A) FICA
B) FUTA
C) Employee income tax
D) State unemployment tax
Answer: A
Diff: 1
LO: 10-3
EOC: E10-13
20) Sue works 46 hours at her job during the week. She is paid $13.30/hour and receives overtime at the rate of
time-and-one-half for hours worked over forty. What is Sue's gross pay for the week?
A) $611.80
B) $917.70
C) $651.70
D) Some other amount
Answer: C
Explanation: C) Calculation: (40 $13.30) + (6 $13.30 1.5) = $651.70
Diff: 2
LO: 10-3
EOC: E10-13
21) Sue works 46 hours at her job during the week. She is paid $13.30/hour and receives overtime at the rate of
time-and-one-half for hours worked over forty. Sue is taxed for federal income taxes at 15% and 7.65% for OASDI
and Medicare. All of her income is taxable. What is Sue's net pay?
A) $651.70
B) $147.61
C) $504.08
D) $532.00
Answer: C
Explanation: C) Calculation: $651.70 - ($651.70 15%) - ($651.70 7.65%) = $504.08
Diff: 3
LO: 10-3
EOC: E10-13
22) Which of the following are NOT required to be deducted from employees' paychecks?
A) Federal income tax
B) FICA
C) State income tax
D) Charitable contributions
Answer: D
Diff: 2
LO: 10-3
EOC: E10-13
26
23) For which of the following taxes is there a ceiling on the amount of annual earnings subject to the tax?
A) FICA
B) Medicare
C) Federal income tax
D) State income tax
Answer: A
Diff: 1
LO: 10-3
EOC: E10-13
24) Which of the following taxes does NOT have a limit on the amount of tax paid per individual?
A) Federal income taxes
B) FICA taxes
C) Federal unemployment taxes
D) State unemployment taxes
Answer: A
Diff: 1
LO: 10-3
EOC: S10-13
25) Which of the following is NOT an expense of the employer?
A) State unemployment taxes
B) FICA taxesemployer's portion
C) Employee income taxes
D) Federal unemployment taxes
Answer: C
Diff: 1
LO: 10-3
EOC: E10-13
26) Which of the following is pay over and above base salary, usually paid for exceptional performance?
A) Commissions
B) Benefits
C) Wages
D) Bonuses
Answer: D
Diff: 1
LO: 10-3
EOC: E10-13
27
27) Which of the following is pay stated as a percentage of a sale amount?

A) Bonuses
B) Benefits
C) Wages
D) Commissions
Answer: D
Diff: 1
LO: 10-3
EOC: E10-13
28) Which of the following are deducted in arriving at an employee's net pay?
B) FICA taxesemployer's portion
C) Federal unemployment taxes
D) State unemployment taxes
Answer: A
Diff: 1
LO: 10-3
EOC: E10-13
29) Which of the following deductions must be matched by the employer, resulting in both a deduction from gross
pay and an expense to the employer?
B) Federal unemployment taxes
C) FICA taxes
D) Charitable deductions
Answer: C
Diff: 1
LO: 10-3
EOC: E10-13
30) Which of the following are pay amounts stated at an hourly rate?
A) Bonuses
B) Commissions
C) Wages
D) Benefits
Answer: C
Diff: 1
LO: 10-3
EOC: E10-13
28
31) Tom's gross pay for the week is $800. Tom's deduction for federal income tax is based on a rate of 18%. Tom
has no voluntary deductions. Tom's yearly pay is under the limit for OASDI. What is the amount of Tom's net pay?
A) $594.80
B) $738.80
C) $656.00
D) $533.60
Answer: A
Explanation: A) Calculations: $800.00 - ($800 .0765) - ($800 .18) = $594.80
Diff: 2
LO: 10-3
EOC: E10-18
32) Mary's gross pay for the week is $1,000. Mary's deduction for federal income tax is based on a rate of 20%.
Mary has voluntary deductions of $150. Her yearly pay is under the limit for OASDI. What is the amount of her
net pay?
A) $594.80
B) $773.50
C) $650.00
D) $573.50
Answer: D
Explanation: D) Calculations: $1,000.00 - ($1,000 .0765) - ($1,000 .20) - $150 = $573.50
Diff: 2
LO: 10-3
EOC: E10-18
has no voluntary deductions. Tom's yearly pay is under the limit for OASDI. What is the amount of FICA withheld
from Tom's pay?
A) $67.80
B) $61.20
C) $65.00
D) $533.60
Answer: B
Explanation: B) Calculations: $800 .0765 = $61.20
Diff: 1
LO: 10-3
EOC: E10-18
29
34) Mary's gross pay for the week is $1,000. Mary's deduction for federal income tax is based on a rate of 20%.
Mary has voluntary deductions of $150. Her yearly pay is under the limit for OASDI. What is the amount of FICA
deducted from her pay?
A) $59.80
B) $76.50
C) $65.00
D) $153.00
Answer: B
Explanation: B) Calculations: $1,000 .0765 = $76.50
Diff: 1
LO: 10-3
EOC: E10-18
35) Tom's gross pay for this month is $8,150. His gross pay year-to-date, prior to this month, totaled $101,000.
What is the amount of FICA withheld from Tom's pay for this month?
A) $623.48
B) $359.60
C) $477.78
D) $118.18
Answer: C
Explanation: C) Calculations:
$106,800 - $101,000 = $5,800
($5,800 6.20%) + ($8,150 1.45 %) = $477.78
Diff: 3
LO: 10-3
EOC: E10-18
36) Tom's gross pay for this month is $8,150. His gross pay year-to-date, prior to this month totaled $101,000.
Tom's rate for federal income tax is 24%. His voluntary deductions total $900. What is the amount of Tom's net
pay?
A) $4,816.22
B) $5,716.00
C) $4,670.52
D) $4,290.65
Answer: A
Explanation: A) Calculations: $8,150 - $477.78 - ($8,150 24%) - $900 = $4,816.22
Diff: 3
LO: 10-3
EOC: E10-18
30
has no voluntary deductions. Tom's yearly pay is under the limit for OASDI. How much is the amount of FICA tax
that Tom's employer must record as payroll tax expense and pay to Social Security?
A) $68.00
B) $61.20
C) $122,40
D) $144.00
Answer: B
Explanation: B) Calculations: $800 7.65% = $61.20
Diff: 1
LO: 10-3
EOC: E10-18
38) Tom's gross pay for the week is $800. Tom's yearly pay is under the limit for OASDI. Assume that the rate for
state and federal unemployment compensation taxes is 6.2% and that Tom's pay year-to-date has not yet exceeded
the $7,000 cap. How much is the amount of state and federal unemployment tax that Tom's employer must record
as payroll tax expense and pay to the federal and state governments?
A) $61.20
B) $38.80
C) $99.20
D) $49.60
Answer: D
Explanation: D) Calculations: $800 6.2% = $49.60
Diff: 1
LO: 10-3
EOC: E10-18
state and federal unemployment compensation taxes is 6.2% and that Tom's pay year-to-date has previously
exceeded the $7,000 cap. How much is the amount of state and federal unemployment tax that Tom's employer
must record as payroll tax expense and pay to the federal and state governments?
A) $0
B) $38.80
C) $99.20
D) $49.60
Answer: A
Diff: 1
LO: 10-3
EOC: E10-18
31
state and federal unemployment compensation taxes is 6.2% and that Tom's pay year-to-date has not yet exceeded
the $7,000 cap. How much is the total amount of payroll taxes that Tom's employer must record as payroll tax
expenses?
A) $61.20
B) $38.80
C) $110.80
D) $49.60
Answer: C
Explanation: C) Calculations: ($800 7.65%) + ($800 6.2%) = $110.80
Diff: 2
LO: 10-3
EOC: E10-18
state and federal unemployment compensation taxes is 6.2% and that Tom's pay year-to-date has previously
exceeded the $7,000 cap. How much is the total amount of payroll taxes that Tom's employer must record as
payroll tax expenses?
A) $61.20
B) $38.80
C) $110.80
D) $49.60
Answer: A
Explanation: A) Calculations: ($800 7.65%) = $61.20
Diff: 2
LO: 10-3
EOC: E10-18
12) Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2012, Dan's gross pay
was $4,400 and Pat's gross pay was $5,200. All earnings are subject to FICA taxes of 7.65%. Which of the
following would be included in the entry to record the salary expense for January?
A) A debit to Salary payable to employees for $734.40
B) A debit to FICA tax payable for $734.40
C) A credit to FICA tax payable for $734.40
D) A credit to Salary expense for $734.40
Answer: C
Explanation: C) Calculation: ($4,400 + $5,200) 7.65% = $734.40
Diff: 2
LO: 10-4
EOC: E10-13
13) Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2012, Dan's gross pay
was $4,400 and Pat's gross pay was $5,200. All earnings are subject to FICA taxes of 8%. Which of the following
would be included in the entry to record the payroll tax expense to be paid out by Lone Star Company for January?
A) A debit to FICA tax payable for $734.40
B) A credit to FICA tax payable for $734.40
C) A credit to Salary expense for $734.40
D) A debit to Salary payable to employees $734.40
32
Answer: B
Explanation: B) Calculation: ($4,400 + $5,200) 7.65% = $734.40
Diff: 2
LO: 10-4
EOC: E10-13
33
14) The Statewide Sales Company has gross pay for March of $45,000. Which of the following is the first journal
entry in the payroll cycle to record salary expense?
A)
Salary expense
45,000
Salary payable
45,000
B)
Salary payable
45,000
Salary expense
45,000
C)
Salary expense
45,000
Cash
45,000
D)
Cash
45,000
Salary expense
45,000
Answer: A
Diff: 1
LO: 10-4
EOC: E10-13
15) The Statewide Sales Company has gross pay for March of $45,000. Which of the following would be included
in the first journal entry in the payroll cycle to record salary expense?
A) Credit Salary expense
B) Debit Cash
C) Debit Salary payable
D) Debit Salary expense
Answer: D
Diff: 1
LO: 10-4
EOC: E10-13
16) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is
under the OASDI limit of $106,800, and thus subject to FICA. He is also subject to federal income tax at a rate of
18%. The second entry in the payroll cycle to record the disbursement of his net pay should include which of the
following lines?
A) Debit to cash for $2,974
B) Credit to cash for $2,974
C) Debit to Employee income tax payable of $720
D) Debit to FICA tax payable of $306
Answer: A
Explanation: A) Calculations: $4,000 - ($4,000 18%) - ($4,000 7.65%) = $2,974
Diff: 3
LO: 10-4
EOC: E10-13
34
under the OASDI limit of $106,800, and thus subject to FICA. He is also subject to federal income tax at a rate of
18%. The second entry in the payroll cycle to record the disbursement of his net pay should include which of the
following lines?
A) Credit to Salary payable for $4,000
B) Debit to Cash for $2,974
C) Debit to Employee income tax payable of $720
D) Credit to FICA tax payable of $306
Answer: D
Explanation: D) Calculations: $4,000 7.65% = $306
Diff: 3
LO: 10-4
EOC: E10-13
under the OASDI limit of $106,800 and thus subject to FICA. He is also subject to federal income tax at a rate of
18%. Art has a deduction of $320 for health insurance and $80 for United Way. The second entry in the payroll
cycle to record the disbursement of his net pay should include which of the following line items?
A) Credit to Salary payable
B) Credit to Payable to the United Way
C) Debit FICA tax payable
D) Debit Cash
Answer: B
Diff: 3
LO: 10-4
EOC: E10-13
18%. Art has a deduction of $320 for health insurance and $80 for United Way. The second entry in the payroll
cycle to record the disbursement of his net pay should include which of the following line items?
B) Debit to Payable to the United Way
C) Debit FICA tax payable
D) Credit Cash
Answer: D
Diff: 3
LO: 10-4
EOC: E10-13
35
20) Art Parrish is the sole employee of Parrish Sales. His company pays a portion of his health insurance premium,
and also contributes to a retirement plan in his name. The company share of the health insurance premium is $400
and the company contribution to the retirement plan is $550. The third journal entry in the payroll cycle to record
the employee benefits to be paid by the company should include which of the following line items?
A) Debit Employee benefits payable
B) Credit Health insurance expense
C) Credit Retirement plan expense
D) Credit Employee benefits payable
Answer: D
Diff: 2
LO: 10-4
EOC: E10-13
and the company contribution to the retirement plan is $550. The third journal entry in the payroll cycle to record
the employee benefits to be paid by the company should include which of the following line items?
A) Credit Cash
B) Debit Health insurance expense
C) Credit Retirement plan expense
D) Debit Employee benefits payable
Answer: B
Diff: 2
LO: 10-4
EOC: E10-13
under the OASDI limit of $106,800 and thus subject to FICA. His year-to-date pay has already exceeded the $7,000
cap for FUTA and SUTA. The fourth journal entry in the payroll cycle to record the employer's payroll taxes should
include which of the following line items?
A) Credit to Payroll tax expense
B) Debit to FICA tax payable
C) Credit to FICA tax payable
D) Credit to Cash
Answer: C
Diff: 2
LO: 10-4
EOC: E10-13
36
cap for FUTA and SUTA. The fourth journal entry in the payroll cycle to record the employer's payroll taxes should
include which of the following line items?
A) Debit to Payroll tax expense
B) Debit to FICA tax payable
C) Credit to Payroll tax expense
D) Credit to Cash
Answer: A
Diff: 2
LO: 10-4
EOC: E10-13
18%. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. The fifth journal entry in the
payroll cycle to record the payment by the company of payroll taxes to the government includes which of the
following items?
A) Credit to Cash
B) Credit to Employee income tax payable
C) Credit to FICA tax payable
D) Debit to Salary payable
Answer: A
Diff: 2
LO: 10-4
EOC: E10-13
payroll cycle to record the payment by the company of payroll taxes to the government includes which of the
following items?
B) Credit to Employee income tax payable
C) Debit to FICA tax payable
D) Debit to Salary payable
Answer: C
Diff: 2
LO: 10-4
EOC: E10-13
37
payroll cycle to record the payment by the company of the tax liability to the government includes a credit to cash
for $1,332.
Answer: TRUE
Explanation: Calculations:
$4,000 18% = $720
$4,000 7.65% 2 = $612
$612 + 7$20 = $1,332
Diff: 2
LO: 10-4
EOC: E10-13
27) Which of the following is an important aspect of control over payroll?
A) Controls to limit salaries and wages so that they are no higher than competitors
B) Controls for efficiency in payroll procedures
C) Controls to screen potential employees for criminal records
D) Controls to monitor employee behavior, such as security cameras
Answer: B
Diff: 1
LO: 10-4
EOC: E10-13
28) Which of the following is a reason that many companies maintain two payroll bank accounts?
A) To avoid writing a paycheck to a fictitious person.
B) To prove an employee's hours worked.
C) To separate the duties of human resources personnel and accounting personnel.
D) To make bank reconciliations simpler.
Answer: D
Diff: 1
LO: 10-4
EOC: E10-13
29) Which of the following is a reason that many companies require a photo ID when employees pick up their
paychecks?
A) To make sure an employee's work hours have been accurately reported
B) To avoid writing a paycheck to a fictitious person
C) To improve efficiency of the payroll disbursement process
D) To make sure all employees are legal adults
Answer: B
Diff: 1
LO: 10-4
EOC: E10-13
38
30) Good internal controls over payroll would include all of the following EXCEPT:
A) accounting for payroll should be separate from hiring and firing of employees.
B) disbursement of paychecks should be separate from the function of maintaining payroll records.
C) employees should clock in and out to insure accuracy of work hours.
D) cash receipts from customers should be separated from the accounting for accounts receivable.
Answer: D
Diff: 1
LO: 10-4
EOC: E10-13
31) Which of the following is a major control risk in the payroll area?
A) Theft of inventory by staff
B) Fictitious persons cashing paychecks
C) Expenses being recorded as assets in order to manipulate earnings
D) Contracts being awarded to relatives of employees
Answer: B
Diff: 1
LO: 10-4
EOC: E10-13
32) Which of the following is a control procedure to prevent fictitious persons cashing paychecks?
A) Having employees clock in and out of work
B) Keeping computerized records of payroll data
C) Serial numbering of paychecks
D) Requiring photo IDs for employees picking up their paychecks
Answer: D
Diff: 1
LO: 10-4
EOC: E10-13
33) 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: 1
LO: 10-4
EOC: E10-13
39
34) The Statewide Sales Company has gross pay for March of $45,000. Please provide the first journal entry in the
payroll cycle to record salary expense.
Answer:
Salary expense
Salary payable
45,000
45,000

Diff: 1
LO: 10-4
EOC: E10-13
18%. Please provide the second entry in the payroll cycle to record the disbursement of his net pay.
Answer:
Salary payable
Employee income tax payable
FICA tax payable
Cash
4,000
720
306
2,974
$4,000 18% = $720
$4,000 7.65% = $306
Diff: 3
LO: 10-4
EOC: E10-13
40
18%. Art has a deduction of $320 for health insurance and $80 for United Way. Please provide the second entry in
the payroll cycle to record the disbursement of his net pay.
Answer:
Salary payable
FICA tax payable
Payable to health insurance
Payable to United Way
Cash
4,000
720
306
320
80
2,574
$4,000 18% = $720
$4,000 7.65% = $306
$4,000 - $720 - $306 - $320 - $80 = $2,574
Diff: 3
LO: 10-4
EOC: E10-13
and the company contribution to the retirement plan is $550. Please provide the third journal entry in the payroll
cycle to record the employee benefits paid by the company.
Answer:
Health insurance expense
Retirement plan expense
Employee benefits payable
400
550
950

Diff: 2
LO: 10-4
EOC: E10-13
41
cap for FUTA and SUTA. Please provide the fourth journal entry in the payroll cycle to record the employer's
payroll taxes.
Answer:
Payroll tax expense
FICA tax payable
306
306
Explanation: Calculations: $4,000 7.65% = $306

Diff: 2
LO: 10-4
EOC: E10-13
18%. His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA. Please provide the fifth
journal entry in the payroll cycle to record the payment by the company of payroll taxes to the government.
Answer:
FICA tax payable
Cash
720
612
1,332
$4,000 18% = $720
$4,000 7.65% 2 = $612
Diff: 3
LO: 10-4
EOC: E10-13
42

Hhofma3e Ch10 Tif Testgen

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Current Liabilities and Payroll

AICPA Functional: Measurement, Reporting

AICPA Functional: Measurement, Reporting

AICPA Business: Strategic/Critical Thinking

Explanation: Calculations: $787,000 + ($787,000 7%) = $842,090

Explanation: Calculations: $6,000 $40 4/12 = $80,000

Explanation: This question is not available in MyAccountingLab.

Explanation: Calculations: ($200,000 9%) 3/12 = $4,500

Explanation: Calculations: ($100,000 9%) 3/12 = $2,250

Explanation: Calculations: $100,000 + ($100,000 9%) 6/12 = $104,500

Explanation: Calculations: $500,000 6% = $30,000

Explanation: This question is not available in MyAccountingLab.

Explanation: Calculations: $1,200 1/12 = $100

A) The period when cash is paid to repair or replace the product

Explanation: This question is not available in MyAccountingLab.

Explanation: This question is not available in MyAccountingLab.

Explanation: This question is not available in MyAccountingLab.

27) Which of the following is pay stated as a percentage of a sale amount?

Explanation: This question is not available in MyAccountingLab.

Explanation: This question is not available in MyAccountingLab.

Explanation: Calculations: $4,000 7.65% = $306

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