Question

A company has a payroll of $100,000. Social security is 7.65%.

                              a. The employees will have $7,650 withheld from their paycheck.

                              b. The company will record an expense of $7,650.

                              c. Both “a and b”.

                              d. Only the employees will have an expense.

If a company withholds $25,000 of Federal Income tax from salaries:

                                a. The employer will have an expense until the funds are remitted.

                                b. The employer will have a liability until the funds are remitted

                                c. Both “a” and “b”.

                                d. Only the employees will have an expense.

The general ledger shows Accounts Receivable $100,000 and the Allowance for Doubtful Accounts $ 5,000. Sales were $1,000,000 which included credit sales of $800,000. The following three questions are independent of each other:

   If the company wrote off an account as uncollectible for $500, the accounts receivable net realizable value after the write-off would be:

                                           a. $94,500.

                                           b. $95,000.

                                           c. $99,500.

                                           d. Some other amount.

If the determination of bad debts was based on 1% of credit sales, the bad debt expense for the year would be:

                                            a. $10,000.

                                            b. $ 8,000.

                                            c. $ 1,000.

                                  d. Some other amount.

If the determination of bad debts was based on 10% of accounts receivable, the bad debt expense for the year would be:

                                  a. $10,500.

                                            b. $10,000.

                                            c.   $ 5,000.

                                  d. Some other amount.

A company records a charge to warranty expense in the year it makes the sale. This is in accordance with:

                       a. The cost principle.

                       b. The matching principle.

                                   c. The disclosure principle.

                             d. All of the above.

Answer 1

1. Option ,c. Both “a and b”. [ Social security tax is deducted from the gross pay of the employee and is a salary expense for the company]

2. Option , b,The employer will have a liability until the funds are remitted

3. Option , b, $95000 [ (100,000 -500) - (5000- 500)]

4. Option , b ,$8000 [ 800,000 *1%]

5. Option ,b, $10,000 [ 100,000 *10%]

6. Option , b. The matching principle. [ record warranty expense in the year sale is made is according to the matching principle ]