ACCT 201A Exam 2 Hoffman- Questions
& Answers
Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What
entry should First State Bank record?
Debit Cash, $5,000; Credit Notes Receivable, $5,000.
Debit Notes Receivable, $5,000; Credit Cash, $5,000.
Debit Cash, $5,000; Credit Notes Payable, $5,000.
Debit Notes Payable, $5,000; Credit Cash, $5,000. Correct Ans-Debit Notes Receivable,
$5,000; Credit Cash, $5,000.
Which of the following is paid by both the employee and the employer?
FICA taxes.
Federal unemployment taxes.
State unemployment taxes.
Personal income taxes. Correct Ans-FICA taxes.
Which of the following increases an employer's payroll costs?
FICA withholding from the employee.
State income tax.
Federal income tax.
Employer's FICA contribution. Correct Ans-Employer's FICA contribution.
,Federal and state income taxes withheld by employers from their employees' payroll are initially
recorded with a credit to a(n):
Liability.
Expense.
Asset.
Revenue. Correct Ans-Liability.
When a customer pays in advance for a product or service, the advance payment received by the
company is recorded as:
A debit to an asset and a credit to a liability account.
A debit to a revenue and a credit to an asset account.
A debit to an asset and a credit to a revenue account.
A debit to a liability and a credit to a revenue account. Correct Ans-A debit to an asset and a
credit to a liability account.
Which of the following is reported as a current liability?
Notes payable due in two years.
Notes payable due in 15 months.
Current portion of long-term debt.
Unused line of credit. Correct Ans-Current portion of long-term debt.
Assuming a current ratio of 1.00 and an acid-test ratio of 0.75, how will the purchase of
inventory with cash affect each ratio?
,Increase the current ratio and increase the acid-test ratio.
No change to the current ratio and decrease the acid-test ratio.
Decrease the current ratio and decrease the acid-test ratio.
Increase the current ratio and decrease the acid-test ratio. Correct Ans-No change to the
current ratio and decrease the acid-test ratio.
The acid-test ratio is
Current assets divided by current liabilities.
Cash and current investments divided by current liabilities.
Cash, current investments, and accounts receivable divided by current liabilities.
Cash, current investments, accounts receivable, and inventory divided by current liabilities.
Correct Ans-Cash, current investments, and accounts receivable divided by current liabilities.
Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year,
100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average
of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year
for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end
of the current year?
$400.
$320.
$720.
$0. Correct Ans-$400.
, Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal
counsel believes it is probable that Western will have to pay $125,000, although no final
settlement has yet been reached. How should Smith report this litigation?
As an asset for $125,000.
As a gain for $125,000.
As both an asset and a gain for $125,000.
No asset or gain is reported. Correct Ans-No asset or gain is reported.
Management can estimate the amount of loss that will occur due to litigation against the
company. If the likelihood of loss is reasonably possible, a contingent liability should be
Disclosed but not reported as a liability.
Disclosed and reported as a liability.
Neither disclosed nor reported as a liability.
Reported as a liability but not disclosed. Correct Ans-Disclosed but not reported as a liability.
The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as
Sales tax expense.
Sales tax revenue.
Sales tax receivable.
Sales tax payable. Correct Ans-Sales tax payable.
A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers
have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue
account?
& Answers
Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What
entry should First State Bank record?
Debit Cash, $5,000; Credit Notes Receivable, $5,000.
Debit Notes Receivable, $5,000; Credit Cash, $5,000.
Debit Cash, $5,000; Credit Notes Payable, $5,000.
Debit Notes Payable, $5,000; Credit Cash, $5,000. Correct Ans-Debit Notes Receivable,
$5,000; Credit Cash, $5,000.
Which of the following is paid by both the employee and the employer?
FICA taxes.
Federal unemployment taxes.
State unemployment taxes.
Personal income taxes. Correct Ans-FICA taxes.
Which of the following increases an employer's payroll costs?
FICA withholding from the employee.
State income tax.
Federal income tax.
Employer's FICA contribution. Correct Ans-Employer's FICA contribution.
,Federal and state income taxes withheld by employers from their employees' payroll are initially
recorded with a credit to a(n):
Liability.
Expense.
Asset.
Revenue. Correct Ans-Liability.
When a customer pays in advance for a product or service, the advance payment received by the
company is recorded as:
A debit to an asset and a credit to a liability account.
A debit to a revenue and a credit to an asset account.
A debit to an asset and a credit to a revenue account.
A debit to a liability and a credit to a revenue account. Correct Ans-A debit to an asset and a
credit to a liability account.
Which of the following is reported as a current liability?
Notes payable due in two years.
Notes payable due in 15 months.
Current portion of long-term debt.
Unused line of credit. Correct Ans-Current portion of long-term debt.
Assuming a current ratio of 1.00 and an acid-test ratio of 0.75, how will the purchase of
inventory with cash affect each ratio?
,Increase the current ratio and increase the acid-test ratio.
No change to the current ratio and decrease the acid-test ratio.
Decrease the current ratio and decrease the acid-test ratio.
Increase the current ratio and decrease the acid-test ratio. Correct Ans-No change to the
current ratio and decrease the acid-test ratio.
The acid-test ratio is
Current assets divided by current liabilities.
Cash and current investments divided by current liabilities.
Cash, current investments, and accounts receivable divided by current liabilities.
Cash, current investments, accounts receivable, and inventory divided by current liabilities.
Correct Ans-Cash, current investments, and accounts receivable divided by current liabilities.
Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year,
100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average
of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year
for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end
of the current year?
$400.
$320.
$720.
$0. Correct Ans-$400.
, Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal
counsel believes it is probable that Western will have to pay $125,000, although no final
settlement has yet been reached. How should Smith report this litigation?
As an asset for $125,000.
As a gain for $125,000.
As both an asset and a gain for $125,000.
No asset or gain is reported. Correct Ans-No asset or gain is reported.
Management can estimate the amount of loss that will occur due to litigation against the
company. If the likelihood of loss is reasonably possible, a contingent liability should be
Disclosed but not reported as a liability.
Disclosed and reported as a liability.
Neither disclosed nor reported as a liability.
Reported as a liability but not disclosed. Correct Ans-Disclosed but not reported as a liability.
The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as
Sales tax expense.
Sales tax revenue.
Sales tax receivable.
Sales tax payable. Correct Ans-Sales tax payable.
A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers
have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue
account?
