ACCOUNTING EXAM 3 UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
Question:
1. Brian Inc. borrowed $8,000 from First Bank and signed a
promissory note. What entry should First Bank record?
Answer:
Debit Notes Receivable $8,000; Credit Cash $8,000.
Question:
2. On December 1, 2018, Old World Dell signed a $300,000,
5%, six-month note payable with the amount borrowed
plus accrued interest due six months later on June 1, 2019.
Old World Deli should record which of the following
adjusting entries on December 31, 2018?
Answer:
Debit Interest Expense $1,250; Credit Interest Payable $1,250.
Question:
3. Which is NOT an employer payroll cost?
Answer:
Federal and state income taxes.
Question:
4. Action Travel has 10 employees, each working 40 hours
per week and earning $20 an hour. Federal income taxes
are withheld at 15% and state income taxes at 6%. FICA
taxes are 7.65% and unemployment taxes are 3.8% of the
first $7,000 earned per employee. What is the employer's
total payroll tax expense for the first week of January?
Answer:
$916 (FICA $612 + FUTA/SUTA $304).
Question:
5. ln December 2017, Quebecor Printing received magazine
subscriptions for 2018 from a customer, who paid $500 in
cash. What would be the appropriate journal entry for this
event?
Answer:
Debit Cash $500; Credit Deferred Revenue $500.
, Question:
6. Sales taxes collected by a company are recorded as
what?
Answer:
Credit to a liability account.
Question:
7. The Route 66 Gift Shop, which records sales and sales tax
separately, had sales on account of $1,500 and cash sales
of $1,000. The state sales tax is 8%. The journal entry to
record the sales would include a:
Answer:
DR A/R $1,620; DR Cash $1,080.
Question:
8. United Supply has a $5 million liability on December 31,
2018, of which $1 million is payable in each of the next five
years. United Supply reports the liability on the balance
sheet as a
Answer:
$1m current liability; $4m long-term liability.
Question:
9. Reeves Co. filed suit against Higgins, Inc., seeking
damages for copyright violations. Higgins' legal counsel
believes it is probable that Higgins will settle the lawsuit
for an estimated amount in the range of $100,000 to
$200,000, with all amounts in the range considered
equally likely. How should Higgins report this litigation?
Answer:
Liability for $100,000 with disclosure of range.
Question:
10. Strikers, Inc. sells soccer goals to customers over the
Internet. History has shown that 2% of Strikers' goals will
need repair under the warranty program. For the year,
Strikers has sold 4,000 goals and 45 have been repaired.
If the estimated cost to repair a goal is $200, what would
be the warranty liability at the end of the year?
Answer:
$7,000.
QUESTIONS AND CORRECT ANSWERS
Question:
1. Brian Inc. borrowed $8,000 from First Bank and signed a
promissory note. What entry should First Bank record?
Answer:
Debit Notes Receivable $8,000; Credit Cash $8,000.
Question:
2. On December 1, 2018, Old World Dell signed a $300,000,
5%, six-month note payable with the amount borrowed
plus accrued interest due six months later on June 1, 2019.
Old World Deli should record which of the following
adjusting entries on December 31, 2018?
Answer:
Debit Interest Expense $1,250; Credit Interest Payable $1,250.
Question:
3. Which is NOT an employer payroll cost?
Answer:
Federal and state income taxes.
Question:
4. Action Travel has 10 employees, each working 40 hours
per week and earning $20 an hour. Federal income taxes
are withheld at 15% and state income taxes at 6%. FICA
taxes are 7.65% and unemployment taxes are 3.8% of the
first $7,000 earned per employee. What is the employer's
total payroll tax expense for the first week of January?
Answer:
$916 (FICA $612 + FUTA/SUTA $304).
Question:
5. ln December 2017, Quebecor Printing received magazine
subscriptions for 2018 from a customer, who paid $500 in
cash. What would be the appropriate journal entry for this
event?
Answer:
Debit Cash $500; Credit Deferred Revenue $500.
, Question:
6. Sales taxes collected by a company are recorded as
what?
Answer:
Credit to a liability account.
Question:
7. The Route 66 Gift Shop, which records sales and sales tax
separately, had sales on account of $1,500 and cash sales
of $1,000. The state sales tax is 8%. The journal entry to
record the sales would include a:
Answer:
DR A/R $1,620; DR Cash $1,080.
Question:
8. United Supply has a $5 million liability on December 31,
2018, of which $1 million is payable in each of the next five
years. United Supply reports the liability on the balance
sheet as a
Answer:
$1m current liability; $4m long-term liability.
Question:
9. Reeves Co. filed suit against Higgins, Inc., seeking
damages for copyright violations. Higgins' legal counsel
believes it is probable that Higgins will settle the lawsuit
for an estimated amount in the range of $100,000 to
$200,000, with all amounts in the range considered
equally likely. How should Higgins report this litigation?
Answer:
Liability for $100,000 with disclosure of range.
Question:
10. Strikers, Inc. sells soccer goals to customers over the
Internet. History has shown that 2% of Strikers' goals will
need repair under the warranty program. For the year,
Strikers has sold 4,000 goals and 45 have been repaired.
If the estimated cost to repair a goal is $200, what would
be the warranty liability at the end of the year?
Answer:
$7,000.
