MENU
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?
Suggested Answer: B
Get Premium T7 Questions
as Interactive Web-Based Practice Test or PDF
Real Exam Format
Detailed Explanations
Instant Access
Get Your Practice Test
36 comments · newest first
SH
Sherita
11 months ago
I think they should prepare for the worst, so 2.5% is smart.
MA
Malcolm
11 months ago
3% would be the full amount if no one left, right?
BE
Beckie
11 months ago
Wait, how can they estimate turnover like that? Seems off.
RE
Rex
11 months ago
Totally agree, 2.5% makes sense with turnover factored in.
VE
Verlene
12 months ago
Company ABC will recognize 2.5% of profit as liability and expense.
JO
Jovita
12 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%?
EI
Eileen
12 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.
LY
Lynsey
1 year ago
I'm not entirely sure, but I remember something about recognizing the full amount if all employees stay. Could it be 3%?
DA
Daniela
1 year ago
I think the company recognizes 2.5% of profit since that's what they estimate after considering turnover.
BO
Bobbie
1 year 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.
PA
Paris
1 year 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!
KA
Karan
1 year 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.
BR
Brittni
1 year 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.
LA
Lavina
2 years 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.
DE
Dean
2 years ago
So the company plans for 2.5% but may end up paying out less if employees leave during the year.
CH
Chanel
2 years ago
That makes sense, it's based on the estimated staff turnover affecting the profit-sharing payments.
LA
Launa
2 years ago
I agree, the company recognizes 2.5% of profit as a liability and expense.
LE
Leana
2 years 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!
FL
Floyd
2 years 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?
AL
Aleta
2 years ago
No, the liability and expense recognized would be the difference between 3% and 2.5%, which is 0.5%.
AZ
Azalee
2 years ago
B) 2.5% of profit
RO
Rory
2 years ago
That makes sense, the difference between 3% and 2.5% is 0.5%.
LE
Lettie
2 years ago
A) 0.5% of profit
DO
Dottie
2 years ago
I agree with Linette, B) 2.5% of profit is the way to go. This is a straightforward profit-sharing plan calculation.
SU
Sunny
2 years ago
Yes, I agree. It's based on the estimated staff turnover reducing the total profit-sharing payments.
EV
Evette
2 years ago
I think B) 2.5% of profit is the correct answer.
RE
Ressie
2 years 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%.
JO
Joanna
2 years ago
I agree with Augustine. The company estimates that staff turnover will reduce the payments to 2.5% of profit.
LI
Linette
2 years 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.
MA
Maryln
2 years ago
Exactly, it's important for the company to account for the impact of staff turnover on the profit-sharing plan.
GL
Glory
2 years ago
So, the liability and expense recognized by Company ABC would be 2.5% of profit.
DE
Devon
2 years ago
That makes sense, the company estimates the reduced payments due to staff turnover.
LE
Leontine
2 years ago
I agree, the answer is B) 2.5% of profit.
AM
Amber
2 years ago
That makes sense, the company should recognize 2.5% of profit as a liability and an expense.
RA
Rachael
2 years ago
I agree, the answer is B) 2.5% of profit.
AU
Augustine
2 years ago
I think the answer is B) 2.5% of profit.