Worldatwork T7 Exam - Topic 1 Question 107 Discussion

Actual exam question for Worldatwork's T7 exam

Question #: 107
Topic #: 1

The profit-sharing plan of Company ABC requires the company pay a specified proportion of its profit for the year to employees who serve throughout the year. If no employees leave during the year, the total profit-sharing payments for the year will be 3% of profit. The company estimates that staff turnover will reduce the payments to 2.5% of profit. What does Company ABC recognize as a liability and an expense?

A0.5% of profit

B2.5% of profit

C3% of profit

D5.5% of profit

Show Suggested Answer

Suggested Answer: B

by Felice at Feb 07, 2025, 12:01 PM

Limited Time Offer

25%

Off

Get Premium T7 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Sherita

5 months ago

I think they should prepare for the worst, so 2.5% is smart.

upvoted 0 times

...

Malcolm

5 months ago

3% would be the full amount if no one left, right?

upvoted 0 times

...

Beckie

5 months ago

Wait, how can they estimate turnover like that? Seems off.

upvoted 0 times

...

Rex

6 months ago

Totally agree, 2.5% makes sense with turnover factored in.

upvoted 0 times

...

Verlene

6 months ago

Company ABC will recognize 2.5% of profit as liability and expense.

upvoted 0 times

...

Jovita

6 months ago

I thought it was 3% too, but if they expect turnover, maybe they only recognize the lower amount. Is it really just 2.5%?

upvoted 0 times

...

Eileen

6 months ago

This reminds me of a practice question where we had to calculate liabilities based on expected turnover. I feel like 2.5% makes sense here.

upvoted 0 times

...

Lynsey

6 months ago

I'm not entirely sure, but I remember something about recognizing the full amount if all employees stay. Could it be 3%?

upvoted 0 times

...

Daniela

7 months ago

I think the company recognizes 2.5% of profit since that's what they estimate after considering turnover.

upvoted 0 times

...

Bobbie

7 months ago

Wait, I'm a bit confused. If the company is required to pay 3% of profit when there's no staff turnover, but the turnover reduces it to 2.5%, then shouldn't the company recognize the difference of 0.5% as the liability and expense? I'm not entirely sure, but that's my initial thought.

upvoted 0 times

...

Paris

7 months ago

Alright, I've got this. The company is required to pay a specified proportion of its profit to employees, but staff turnover will reduce the payments. So the company will recognize the lower amount, which is 2.5% of profit, as both a liability and an expense. Easy peasy!

upvoted 0 times

...

Karan

7 months ago

Hmm, this seems a bit tricky. I'm not entirely sure what the right answer is, but I think I need to carefully analyze the information provided and consider the different options. I'll make sure to read the question thoroughly and think through the implications.

upvoted 0 times

...

Brittni

7 months ago

Okay, let me think this through. The question is asking what the company recognizes as a liability and an expense, and it's giving us some information about a profit-sharing plan. I need to focus on understanding the key details and then applying the accounting principles.

upvoted 0 times

...

Lavina

1 year ago

This is a tricky one, but I think the correct answer is B) 2.5% of profit. The question states the company 'recognizes' this as the liability and expense, not that it necessarily pays out that amount.

upvoted 0 times

Dean

1 year ago

So the company plans for 2.5% but may end up paying out less if employees leave during the year.

upvoted 0 times

...

Chanel

1 year ago

That makes sense, it's based on the estimated staff turnover affecting the profit-sharing payments.

upvoted 0 times

...

Launa

1 year ago

I agree, the company recognizes 2.5% of profit as a liability and expense.

upvoted 0 times

...

Leana

1 year ago

Ha! The answer is clearly D) 5.5% of profit. I mean, come on, it's a profit-sharing plan - the more the merrier, right? Who cares about staff turnover, just pay them all the money!

upvoted 0 times

...

Floyd

1 year ago

I'm not sure about this one. If the company pays 3% of profit when there's no staff turnover, and 2.5% when there is, wouldn't the correct answer be A) 0.5% of profit? That's the difference, right?

upvoted 0 times

Aleta

1 year ago

No, the liability and expense recognized would be the difference between 3% and 2.5%, which is 0.5%.

upvoted 0 times

...

Azalee

1 year ago

B) 2.5% of profit

upvoted 0 times

...

Rory

1 year ago

That makes sense, the difference between 3% and 2.5% is 0.5%.

upvoted 0 times

...

Lettie

1 year ago

A) 0.5% of profit

upvoted 0 times

...

Dottie

1 year ago

I agree with Linette, B) 2.5% of profit is the way to go. This is a straightforward profit-sharing plan calculation.

upvoted 0 times

Sunny

1 year ago

Yes, I agree. It's based on the estimated staff turnover reducing the total profit-sharing payments.

upvoted 0 times

...

Evette

1 year ago

I think B) 2.5% of profit is the correct answer.

upvoted 0 times

...

Ressie

1 year ago

I'm not sure, but it makes sense that the liability and expense would be based on the estimated profit-sharing payments of 2.5%.

upvoted 0 times

...

Joanna

1 year ago

I agree with Augustine. The company estimates that staff turnover will reduce the payments to 2.5% of profit.

upvoted 0 times

...

Linette

1 year ago

Hmm, I think the correct answer is B) 2.5% of profit. The question clearly states that staff turnover will reduce the payments to 2.5% of profit, so that's what the company should recognize as a liability and an expense.

upvoted 0 times