Chapter 9 Financial Accounting

Miss Billings earns a monthly salary of $8,000. Miss Billings' withholding for income taxes is $900 per month. Her monthly voluntary withholdings include $380 for medical insurance and $30 per month for the Humane Society. Assume a Social Security tax rate of 6%, a Medicare tax rate of 1.5%, and an Unemployment tax rate of 6% on the first $7,000 of income. Based on this information, the amount of payroll tax that Miss Billings' employer would pay on January 31, Year 1 is

$1,020

Required information [The following information applies to the questions displayed below.] Riley Company borrowed $48,000 on April 1, 2016 from the Titan Bank. The note issued by Riley carried a one year term and a 6% annual interest rate. Riley earned cash revenue of $1,140 in 2016 and $1,500 in 2017. Assume no other transactions. The amount of cash flow from operating activities that would appear on the 2017 statement of cash flows would be:

$1,380 outflow.

The following is selected financial information for Wright Company: Cash$ 40,000Prepaid insurance 15,000Retained earnings 125,000Inventory 75,000Unearned revenue 20,000Salary expense 75,000Depreciation expense 25,000Property, plant, and equipment 450,000Accumulated depreciation 90,000Accounts payable 100,000Long-term notes payable (due in 5 years) 275,000Sales revenue 418,000Salaries payable 5,000Common stock 50,000Accounts receivable 85,000Cost of goods sold 220,000 What is the amount of Wright Company's total current liabilities?

$125,000

Pressure Company issued a $10,000 face value discount note on March 1, Year 1. The note had a one year term and a 9% discount rate of interest. Based on this information, the balance in the Discount on Notes Payable account shown on the December 31, Year 1 balance sheet would be

$150

Social Security taxes and Medicare taxes are the two components of FICA taxes. The textbook assumes a Social Security tax rate of 6% on the first $110,000 of income and a Medicare tax rate of 1.5% on all earnings. These rates apply to both employees and employers. What is the total FICA tax amount that the employer must remit to the federal government for an employee who earns $120,000?

$16,800

West Company borrowed $10,000 on September 1, 2016 from the Valley Bank. West agreed to pay interest annually at the rate of 6% per year. The note issued by West carried an 18-month term. Based on this information the amount of interest expense appearing on West's 2016 income statement would be

$200.

The following is selected financial information for Wright Company: Cash$ 40,000Prepaid insurance 15,000Retained earnings 125,000Inventory 75,000Unearned revenue 20,000Salary expense 75,000Depreciation expense 25,000Property, plant, and equipment 450,000Accumulated depreciation 90,000Accounts payable 100,000Long-term notes payable (due in 5 years) 275,000Sales revenue 418,000Salaries payable 5,000Common stock 50,000Accounts receivable 85,000Cost of goods sold 220,000 What is the amount of Wright Company's total current assets?

$215,000

Required information [The following information applies to the questions displayed below.] Madison Company issued an interest-bearing note payable with a face amount of $30,600 and a stated interest rate of 8% to the Metropolitan Bank on August 1, 2016. The note carried a one-year term. Based on this information alone, the amount of total liabilities appearing on Madison's 2016 balance sheet would be:

$31,620

Mr. Wallace earns a monthly salary of $6,000. Mr. Wallace's withholding for income taxes is $650 per month. His monthly voluntary withholdings include $250 for medical insurance and $20 per month for the Red Cross. Assume a Social Security tax rate of 6%, a Medicare tax rate of 1.5%, and an Unemployment tax rate of 6% on the first $7,000 of income. Based on this information, Mr. Wallace's net pay for January 31, Year 1 is

$4,630

Jack Company issued a $12,000 note payable on September 1, Year 1 for a one year term. Interest was set 5% per year. In Year 2, Jack would recognize interest expense amounting to

$400

Jack Company issued a $12,000 note payable a September 1, Year 1 for a one year term. Interest was set at 5% per year. In Year 2, Jack would recognize: (Select all that apply.)

$400 of interest expense. a cash outflow from operating activities of $600. a cash outflow from financing activities of $12,000.

Miss Billings earns a monthly salary of $8,000. Miss Billings's withholding for income taxes is $900 per month. Her monthly voluntary withholdings include $380 for medical insurance and $30 per month for the Humane Society. Assume a Social Security tax rate of 6%, a Medicare tax rate of 1.5%, and an Unemployment tax rate of 6% on the first $7,000 of income. Based on this information, Miss Billings's net pay for January 31, Year 1 is

$6,090

Jack Company issued a $12,000 note payable on September 1, Year 1 for a one year term. Interest was set at 5% per year. In Year 2, Jack would recognize cash outflow from operating activities of

$600

Rachel Green's gross earnings for November were $7,000. Her employer, Morris Company, withheld $1,050 for employee federal income taxes, $420 for Social Security taxes, and $105 for Medicare taxes. Morris Company's payroll tax expense for Rachel includes $420 for Social Security taxes, $105 for Medicare taxes, $56 for federal unemployment taxes, and $378 for state unemployment taxes. What is the amount that Morris Company will record to its Salary Expense account for Rachel Green for the month of November?

$7,000

Pressure Company Issued a $10,000 face value discount note on March 1, Year 1. The note had a one year term and a 9% discount rate of interest. Based on this information, the company would recognize accrued interest expense on December 31, Year 1 in the amount of:

$750

Required information [The following information applies to the questions displayed below.] Riley Company borrowed $48,000 on April 1, 2016 from the Titan Bank. The note issued by Riley carried a one year term and a 6% annual interest rate. Riley earned cash revenue of $1,140 in 2016 and $1,500 in 2017. Assume no other transactions. The amount of net income on the 2017 income statement would be:

$780.

Rachel Green's gross earnings for November were $7,000. Her employer, Morris Company, withheld $1,050 for employee federal income taxes, $420 for Social Security tax, and $105 for Medicare taxes from Rachel's pay. Morris Company's payroll tax expense for Rachel Green includes $420 for Social Security tax, $105 for Medicare tax, $56 for federal unemployment tax, and $378 for state unemployment tax. Morris Company also provided employee fringe benefits that included $380 for medical insurance and $280 for a pension program for Rachel. What is the total cost that Morris Company incurred for Rachel Green during November?

$8,619

Mr. Wallace earns a monthly salary of $6,000. Mr. Wallace's withholding for income taxes is $650 per month. His monthly voluntary withholdings include $250 for medical insurance and $20 per month for the Red Cross. Assume a Social Security tax rate of 6%, a Medicare tax rate of 1.5%, and an Unemployment tax rate of 6% on the first $7,000 of income. Based on this information, the amount of payroll tax that Mr. Wallace's employer would pay on January 31, Year 1 is

$810

Pressure Company Issued a $10,000 face value discount note on March 1, Year 1. The note had a one year term and a 9% discount rate of interest. The amount of cash collected from the issue of this note is

$9,100

West Company borrowed $46,000 on September 1, 2016 from the Valley Bank. West agreed to pay interest annually at the rate of 6% per year. The note issued by West carried an 18-month term. Based on this information the amount of interest expense appearing on West's 2016 income statement would be:

$920.

Using the following financial statement information, determine Burke Company's current ratio. Current assets$150,000 Noncurrent assets 400,000 Total assets$550,000 Current liabilities$125,000 Long-term liabilities 156,000 Total liabilities$281,000 Common stock$100,000 Retained earnings 169,000 Total stockholders' equity$269,000 Total liabilities & stockholders' equity$550,000

1.20

If a company has current assets of $176,000, total assets of $1,065,000, current liabilities of $220,000, and total liabilities of $1,500,00,, what is its current ratio?

1.25 to 1

If a company has current assets of $145,000, total assets of $1,200,000, current liabilities of $100,000, and total liabilities of $660,000, what is its current ratio?

1.45 to 1

Perez Corporation borrowed $40,000 from the bank on March 1, 2016. The note carried a 9% annual interest rate and a 1-year term to maturity. The company paid the principal and the interest in cash on the maturity date. What amount of cash paid for interest expense will Perez Corporation show on its 2016 and 2017 statements of cash flows?

2016 $-0- 2017 $3,600

Perez Corporation borrowed $40,000 from the bank on March 1, 2016. The note carried a 9% annual interest rate and a 1-year term to maturity. The company paid the principal and the interest in cash on the maturity date. What amount of interest expense will Perez Corporation show on its 2016 and 2017 income statements?

2016 $3,000 2017 $600

Which of the following is a correct statement?

A low current ratio suggests that the company is having difficulty paying its short-term obligations.

Benitez Co. had sales of $660,000 in 2016. The company expects to incur warranty expenses amounting to 4% of sales. There were $18,000 of warranty obligations paid in cash during 2016. Based on this information:

All of these answer choices are correct.

Selling $130 of merchandise to a customer for $200 cash in a state where the sales tax rate is 4%:

All of these answer choices are correct.

How would issuing a note to borrow money affect a company's financial statements? (Select all that apply.)

Assets increase. Liabilities increase.

The Accrued Interest Payable account will appear on which of the following financial statements?

Balance sheet

The Warranties Payable account appears on which of the following financial statements?

Balance sheet

The recognition of accrued payroll tax expense will affect which of the following financial statements?

Balance sheet Income statement Statement of changes in stockholders' equity

Issuing a discount note will impact which of the following? (Select all that apply.)

Balance sheet Statement of cash flows

Issuing a note to borrow money will affect which of the following financial statements? (Check all that apply.)

Balance sheet Statement of cash flows

Paying a warranty claim will affect which of the following financial statements? (Select all that apply.)

Balance sheet Statement of cash flows

Paying off a sales tax liability would affect which of the following financial statements? (Select all that apply.)

Balance sheet Statement of cash flows

A company experienced an event that caused assets, liabilities and cash flow from financing activities to increase, but had no affect on net income. Which of the following events could have caused these effects?

Borrowing money with a two year term to maturity

Jacobs Company was notified of environmental violations related to its hazardous waste disposal. The likelihood of incurring cleanup costs is probable but Jacobs Company is uncertain of the liability amount. What is Jacobs Company's correct accounting treatment of this contingent liability?

Disclose the liability in the footnotes to the financial statements

Which of the following is responsible for paying unemployment tax?

Employer only

Which of the following statements is true?

Employers are required by law to withhold income taxes from employee earnings.

Which of the following is not an item deducted from salary expense to arrive at net pay?

Federal unemployment tax.

Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, 2016. The note carried a one-year term and a 12% rate of interest. The adjusting entry on Franklin's books to record accrued interest expense on December 31, 2016 will

Increase liabilities and decrease equity by $2,000.

Houston Co. borrowed $20,000 from Dallas Co. on March 1, 2016. Houston is to repay the principal and interest on March 1, 2017. The interest rate is 8%. If the year-end adjustment is properly recorded, what will be the effects of the accrual on Houston's 2016 financial statements?

Increase liabilities and increase expenses

Which of the following is a fringe benefit?

Insurance coverage Sick leave Vacation pay

Which of the following statements is true?

Investment risk cannot be determined only by looking at the debt assets ratio.

The current ratio is a measure of:

Liquidity.

Which of the following statements is true? (Select all that apply.)

Most business provide information about their bill-paying ability by classifying their assets and liabilities accounting to liquidity. The more quickly an asset is converted to cash or consumed, the more liquid it is considered.

How would issuing a note to borrow money affect a company's financial statements? (Select all that apply.)

Net income is not affected. Cash flow from financing activities increases.

When a company borrows money by issuing a note, the balance of the

Notes payable account increases and the balance Cash account increases

Which of the following items is not classified as a current asset?

Office equipment.

Required information [The following information applies to the questions displayed below.] Riley Company borrowed $48,000 on April 1, 2016 from the Titan Bank. The note issued by Riley carried a one year term and a 6% annual interest rate. Riley earned cash revenue of $1,140 in 2016 and $1,500 in 2017. Assume no other transactions. The amount of total liabilities that would appear on Riley's December 31 balance sheets for 2016 and 2017 would be 20162017A.$48,000$0B.$50,160$0C.$50,160$50,940D.$2,160$780

Option B

West Company experienced an accounting event that caused liabilities, assets, and cash flow from operating activities to decrease. Which of the following events could have caused these effects? (Select all that apply.)

Paying a warranty claim Paying off accrued interest payable

A company experienced an event that caused total assets and liabilities to decrease and caused a cash outflow to appear on the statements of cash flows. Which of the following events could have caused these effects?

Paying off an accrued interest payable Paying off the principal balance of a loan

Which of the following would be classified as a general uncertainty?

Potential decline in earnings due to competition Potential storm damage

Monthly remittance of sales tax:

Reduces liabilities.

Which of the followings taxes provides funding for pensions?

Social Security taxes

Issuing a discount note affects which of the financial statements?

Statement of cash flows Balance sheet

Bill Seymour earns a monthly salary of $10,000. Bill's total withholdings amount to $2,000. Based on this information, the recognition of the payment of salary expense will affect which of the financial statements? (Select all that apply.)

Statement of cash flows Balance sheet Income statement

Recognizing a warranty expense will affect which of the following financial statements? (Select all that apply.)

Statement of changes in Stockholders' Equity Balance sheet Income statement

Which of the following explains how paying a warranty claim will affect a company's accounting records? (Select all that apply.)

The balance of the Warranty Payable Account and the Cash account decrease.

From the professional judgment of an accountant, all of the following are contingent liabilities except:

The possibility of business losses from hurricane damage

Fringe benefits are reported as expenses on the employer's financial statements.

True

Without holding voluntary deductions from an employee's gross earnings represents a service on the employer's part.

True

Which of the following forms is used to document the number of withholding allowances claimed by an employee?

W-4

When do the effects of product warranties appear on the statement of cash flows?

When there is a settlement of a warranty claim made by a customer.

What distinguishes contingent liabilities from general uncertainties?

Whether the event stems from a past event

Pressure Company Issued a $10,000 face value discount note on March 1, Year 1. The note had a one year term and a 9% discount rate of interest. Based on this information, the financial statements for: (Select all that apply.)

Year 1 would show $750 of the accrued interest expense and zero cash outflow from operating activities. Year 2 would show $150 of the accrued interest expense and $900 cash outflow from operating activities.

Simms Accountants charged a client $2,000 cash plus tax for services provided in a state where the services sales tax rate is 6%. As a result of this event, Simms would recognize: (Select all that apply.)

a $120 liability on the Balance sheet. a $2,120 increases in total assets. $2,000 of Service Revenue.

Janie Jones earns a monthly salary of $6,000. Janie's total withholdings amount to $1,200. Based on this information, the journal entry to record the payment of salary expense for Janie would include: (Select all that apply.)

a debit to Salary Expense for $6,000 a credit to various liabilities for $1,200 a credit to Cash for $4,800

Recognizing a cash revenue event that is subject to state sales tax would: (Select all that apply.)

affect the Statement of changes in stockholders' equity. affect the income statement.

Warranties normally:

are based on estimates. guarantee repair or replacement. cover a specific time period.

Issuing a note payable is a(n)

asset source transaction.

Paying a warranty obligation is a(n)

asset use transaction.

Recognizing accrued interest expense is a(n)

claims exchange transaction.

The journal entry to record paying an employee with a $2,00 monthly salary and a $300 federal income tax deductions would include a

credit to a liability account.

Janie Jones earns a monthly salary of $6,000. Assume a Social Security tax rate of 6%, Medicare tax rate of 1.5%, and an Unemployment tax rate of 6% on the first $7,000 of earned income. The journal entry on January 31, Year 1 to record accrued payroll tax expense would include a

credit to various limitations for $810

The primary purpose of classified balance sheets is to distinguish between: (Select all that apply.)

current and long-term assets. current and noncurrent liabilities.

Bill Seymour earns a monthly salary of $10,000. Assume a Social Security tax rate of 6%, Medicare tax rate of 1.5%, and an Unemployment tax rate of 6% on the first $7,000 of earned income. The journal entry on January 31, Year 1 to record accrued payroll tax expense would include a

debit to Payroll Tax Expense for $1,170, and a credit to various liability accounts for a total of $1,170.

The journal entry to recognize accrued vacation pay includes a:

debit to an expense account. credit to a liability account.

The journal entry to recognize a cash sales event that included sales tax would require a:

debit to the cash account. credit to the sales revenue account. credit to the sales tax payable account

A warranty is an obligation that: (Select all that apply.)

has to be reported as a liability in the balance sheet. is reasonably likely to occur. has an estimable amount. does not have to be disclosed in the notes to the statements.

When a company borrows money by issuing a discount note, the company will receive an amount of cash that is

less that the face value of the note.

Janie Jones earns a monthly salary of $6,000. Janie's total withholdings amount to $1,200. Based on this information, the recognition of the payment of salary expense will cause the amount of: (Select all that apply.)

net income shown on the income statement to decrease. cash outflows from operating activities shown on the statement of cash flows to increase.

If the likelihood of a future obligation arising is remote,

no liability is shown in the financial statements or related notes.

The average time it takes a business to convert cash to inventory, inventory to accounts receivable, and accounts receivable back to cash is commonly called the __________ cycle.

operating

A warranty is:

reported in financial statements. a contingent liability.

The recognition of accrued payroll tax expense will cause:

retained earnings to decrease. liabilities to increase.

When a company recognizes a warranty expense,: (Select all that apply.)

stockholders' equality decreases. the statement of cash flows is not affected.

Payroll tax expense is incurred by

the employer only.

If the likelihood of a future obligation arising is reasonably possible, but not likely; or if it is probable, but cannot be reasonably estimated,

the estimated amount must be disclosed in the notes to the financial statements.

Madison Company issued an interest-bearing note payable with a face amount of $24,000 and a stated interest rate of 8% to the Metropolitan Bank on August 1, 2016. The note carried a one-year term.The amount of cash flow from operating activities on the 2016 statement of cash flows would be:

zero.

Required information [The following information applies to the questions displayed below.] Madison Company issued an interest-bearing note payable with a face amount of $30,600 and a stated interest rate of 8% to the Metropolitan Bank on August 1, 2016. The note carried a one-year term. The amount of cash flow from operating activities on the 2016 statement of cash flows would be:

zero.