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Exam 11: Current Liabilities and Payroll Accounting

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Question 41

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The deferred income tax liability:

A) Is a contingent liability.
B) Can result in a deferred income tax asset.
C) Is recorded whether or not the difference between taxable income and financial accounting income is permanent or temporary.
D) Is never recorded.
E) Results from the income tax expense reported on the income statement differing from the amount of income taxes payable to the government.

F) A) and E)
G) B) and D)

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Question 42

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Debt guarantees are usually disclosed as a contingent liability.

A) True
B) False

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Question 43

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Unearned revenues are current liabilities.

A company cannot have a liability if the amount of the obligation is unknown.

During August, Boxer Company sells $356,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a credit balance of $12,800 before adjustment. Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs. The entry to record the estimated warranty expense for the month is:

A company sold $12,000 worth of bicycles with an extended warranty. The company's experience is that warranty expense averages 2% of sales. The current period's entry to record the warranty expense is:

Employers must keep individual earnings reports for each employee.

In order to be reported, liabilities must:

Even if the end of an accounting period occurs between the signing of a note payable and its maturity date, the matching principle requires that interest expense not be accrued on a note payable until the note is paid.

The times interest earned ratio is calculated by dividing interest expense by income before interest expense and income taxes.

All of the following are true of known liabilities except:

A company's had fixed interest expense of $5,000, its income before interest expense and income taxes is $17,000, and its net income is $9,400. The company's times interest earned ratio equals:

Uncertainties such as natural disasters are:

A company's income before interest expense and income taxes in 2014 and 2015 is $487,500 and $427,000, respectively. Its fixed interest expense was $125,000 for both years. Calculate the company's times interest earned ratio, and comment on its level of risk.

A table that shows the amount of federal income tax to be withheld from an employee's pay is the:

Obligations not expected to be paid within the longer of one year or the company's operating cycle are reported as:

Accounting for contingent liabilities covers three possibilities: (1)The future event is probable and the amount cannot be reasonably estimated; (2)The future event is remote or unlikely to recur; (3)The likelihood of the liability to occur is impossible.

All of the following statements regarding FICA taxes are true except:

A company has a selling price of $1,800 each for its printers. Each printer has a 2 year warranty that covers replacement of defective parts. It is estimated that 2% of all printers sold will be returned under the warranty at an average cost of $150 each. During November, the company sold 30,000 printers, and 400 printers were serviced under the warranty at a total cost of $55,000. The balance in the Estimated Warranty Liability account at November 1 was $29,000. What is the company's warranty expense for the month of November?

What are estimated liabilities? Cite at least two examples and explain why they are classified as estimated liabilities.