Multiple-Choice Questions
1. Payroll taxes typically include all of the following except:
a. Social Security tax
b. Federal excise tax
c. Medicare tax
d. Federal income tax
2. When a credit is made to the state income tax payable account, the corresponding debit is made to:
a. Tax Expense
b. Cash
c. Wages Expense
d. Tax Payable
3. When should a contingent liability be recognized?
a. When the contingent liability is probable
b. When a reasonable estimation can be made
c. A and B
d. neither A nor B
4. Which of the following is true?
a. A contingent liability should always be recorded in the footnotes to the financial statements.
b. A contingent liability should always be recorded within the financial statements.
c. A company can choose to record a contingent liability either within its financial statements or in the footnotes to the financial statements.
d. No journal entries or footnotes are necessary if the possibility of a contingent liability is remote.
5. Warranty expense is:
a. Recorded in the period of sale.
b. Recorded as it is incurred.
c. Capitalized as a warranty asset.
d. None of the above.
6. To record warranties, the adjusting journal entry would be:
a. A debit to Warranty Expense and a credit to Estimated Warranty Liability.
b. A debit to Warranty Expense and a debit to Cash.
c. A debit to Estimated Warranty Liability and a credit to Warranty Expense.
d. A debit to Estimated Warranty Liability and a credit to Cash.
7. How is the current ratio calculated?
a. Current Assets/Current Liabilities
b. (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities
c. (Cash + Marketable Securities)/Current Liabilities
d. Cash flows from Operating Activities/Current Liabilities
8. How is the cash ratio calculated?
a. Current Assets/Current Liabilities
b. (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities
c. (Cash + Marketable Securities)/Current Liabilities
d. Cash Flows from Operating Activities/Current Liabilities

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July 23, 2012

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