Ch 11 Interactive Quiz

A company has a $4,000, 270-day, 6%, note payable recorded on its books which was dated July 2, 2013. The interest expense is paid when the note matures. How much interest expense must be accrued on December 31, 2013, which is the end of the accounting period? Assume a 360-day year, use the exact number of days in your calculations, and round your answer to the closest penny.

$121.33. The exact number of days from July 2 through December 31, 2013 is 182 days. The accrued interest is $121.33 (or $4,000 x 6% x 182/360).

A company offers its employees a bonus equal to 3% of the company's annual net income. The company expects 2013 net income to be $175,000. The amount that should be credited to Employee Bonus Payable is:

$5,097.09. The bonus amount is $5,097.09. The calculation for the bonus is the bonus percentage times net income minus the bonus or B = .03(175,000 ? B).

A tanning salon sells 100, $50 gift certificates during month one and records these sales with a debit to Cash and a credit to Unearned Revenue. By the end of month two, 70 of the certificates have been used. Which of the following is true at the end of month two?

An entry should be made that includes a debit to Unearned Revenue for $3,500. The tanning salon needs to debit Unearned Revenue for $3,500 (or 70 redeemed certificates x $50) and credit Tanning Revenue for the same amount at the end of the second month.

The maturity value of a note payable is calculated as:

Both A and B are correct. A)The principal of the note plus the accrued interest expense on the note. B)The face amount of the note plus the accrued interest expense on the note. Both A and B are correct since the principal of the note and the face amount of the note mean the same thing.

Unearned Revenues are also known by which three terms:

Collections in Advance, Deferred Revenues, and Prepayments. Unearned Revenues are also called Collections in Advance, Deferred Revenues, and Prepayments.

Twenty-thousand dollars in cash is borrowed on a 60-day note payable. If the interest cost to borrow is $400, and we assume that each month has thirty days, what is the actual interest rate on this note as expressed on an annual basis?

12.00%. The true interest rate is determined by dividing the cost of borrowing by the amount of money available to use and annualizing the final answer. $400/$20,000 = 2.00% for 60 days, which when multiplied by 360/60, equals 12.00%.

The social security tax is paid on an employee's wages, subject to a ceiling. The ceiling in 2012 was $110,100. What rate did an individual pay on that yearly earnings ceiling?

6.20%. The tax rate for social security is 6.20% of the first $110,100 of earnings for the year 2012

Which of the following is not created by the adjusting entry to recognize interest expense incurred but not yet paid?

A Note Payable. The related note(s) payable would already be recorded. The adjusting entry involves a debit to Interest Expense and a credit to Interest Payable.

What annual report must an employer provide by law to each employee that summarizes the employee's calendar year gross earnings?

Form W-2. The form used by the employer to report the employee's gross earnings is Form W-2.

Which of the following is not a current liability?

The non-current portion of a Mortgage Payable. Because mortgages extend over many years, the account Mortgage Payable is a long-term liability.

The recording of product warranty expense in the year the merchandise under warranty is sold is supported by which principle or concept?

Matching principle. The matching principle (discussed in chapter 3) aims to record expenses, such as product warranty expense, in the same accounting period as the revenues that are earned (that is, when the merchandise under warranty is sold) as a result of these expenses.

Which of the following employer or employee taxes are not subject to a ceiling limit amount (taxes are paid on earnings up to a certain amount; no taxes are paid on amounts above the ceiling limit)?

Medicare taxes. Medicare taxes are paid by the employee and the employer on all earnings, not just a limited amount of earnings.

The length of time covered by Form 941, the IRS form on which an employer reports its liability for federal income taxes withheld and for social security and medicare taxes is:

One calendar quarter. The time period covered by Form 941 is one calendar quarter.

Which of the following is not an estimated liability?

Pending lawsuit for patent infringement. A pending lawsuit for patent infringement is a contingent liability, not an estimated liability.

Although liabilities can be classified as either current liabilities or long-term liabilities which is a formal classification scheme, they can also be classified informally as (1) certain in amount and certain as to ultimate payment, (2) estimated in amount but uncertain as to ultimate payment, and (3) uncertain as to the amount and uncertain as to ultimate payment. Which of the following items falls into category 3?

The company is sued for manufacturing faulty products. The case will go to court and the company stands to be fined a material amount, but they also have a strong chance of winning the case. The third category of liabilities listed above is referred to as a contingent liability. This designation means that the liability may occur or it may not occur, and, even if it does occur, the amount of the liability is very uncertain. The court case satisfies these two criteria.