ACCT Chapter 8

A ____________ of ____________ is an informal agreement that permits a company to borrow up to a prearranged amount without having to follow formal loan procedures.

Line, Credit

What voluntary contributions by employees may employers deduct from their employee's pay?

Union dues Contributions toward retirement funds

Tax collected on sales is classified on the ______________________ _______________________ as a(n) ___________________________________.

balance, sheet, liability

Current maturities of long-term debt should be classified as ___________________________ liabilities.

current

The portion of a long-term liability that will be paid within the next year is referred to and reported as the

current portion of long-term debt

We record interest expense in the period in which we

incur it

On December 1, Milka Inc. borrows $500,000 from the bank. Interest of 6% is due in six months. On December 31, Milken recognizes interest. As a result of this journal entry, Milka's balance sheet reports:

interest payable for one month

formula for calculating interest

interest = face amount x annual interest rate x fraction of the year

statement that best reflects the nature of interest

interests the "rent" paid by the borrower for using the lender's money

issuing a note payable for cash results in a(n)

increase in assets and an increase in liabilities

a company purchases inventory or supplies and promises to pay within 30 to 45 days. No formal agreement is signed. The transaction is recorded as a(n)

accounts payable

Notes payable is classified as a liability that has which effect?

creates interest expense on the income statement

What are the payroll-related taxes that an employer must pay by law

federal insurance contribution act amounts & unemployment taxes

Taxes subtracted from employees' pay and remitted to the government on their behalf are called

withholding taxes

Anastasia Company recognizes payroll for the month of May. Gross employee income is $200,000, federal taxes withheld are $40,000, state taxes withheld are $6,000, and social security and medicare taxes are $15,000. Employees contribute $10,000 to a 401(k) retirement plan. Anastasia should recognize salaries and wages expense of (ignoring employer taxes)

$200,000

When a company pays for items that were previously purchased on account, the journal entry includes:

Credit to cash Debit to accounts payable

Liabilities that are payable within one year commonly are classified as __________ liabilities, while those payable more than one year from now commonly are classified as _____________ liabilities

Current, Long-Term

Assets represent probable future economic ____________, whereas liabilities represent probable future economic _______________.

Benefits, Sacrifices

True or False: If a state has an unemployment tax program, no FUTA tax must be paid.

FALSE

the financial statement where the deferred revenue account is found is the

balance sheet

On September 1, 2018, Great Lakes Equipment receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December 2018?

$4000

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2019. The journal entry on November 1, 2018 would include what?

Debit to Cash $100,000 Credit to Note Payable $100,000

If a company receives a payment from a customer in advance for work to be done the following year, this should be classified as a(n)

Deferred revenue

Which payroll tax is paid equally by the employee and the employer?

FICA

True of False: The Federal Unemployment Tax Act (FUTA) requires employers to pay a tax of 6.2% of the first $7,000 earned by each employee reduced by a maximum 5.4% credit for contributions to a state unemployment program.

TRUE

What are common characteristics of commercial papers?

The loan is between two companies The loan period is between 30 and 270 days

ABC Airlines collects $300 fro a round-trip tickets from Chicago to LA and back. How does ABC Airlines record the $400 collected in advance?

a debit to Cash of $300 and a credit to Deferred Revenue of $300

When an employer withholds items such as charitable contributions from an employee's pay, the employer must record the item as

a liability until the amount is paid to the organization

Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The interest rate stated in the loan agreement most likely applies to:

an entire year

Deferred revenue should be classified as a(n) ______________ on the balance sheet.

liability

When management classifies debt as current liabilities or long-term liabilities, management most likely prefers to disclose the obligation as

long-term liabilities; because they are less risky than current liabilities

What are common examples of long-term liabilities that require reporting of a current portion of the liability?

mortgage requiring monthly payments of principle and interest Long-term notes payable with quarterly payments of principle interest

Amounts that are subtracted from an employee's gross pay are referred to as

payroll withholdings

A liability is a(n) __________ responsibility to sacrifice __________ in the future due to a transaction or other event that has happened in the _____________.

present, assets, past.

Munster Company negotiates a line of credit with its bank, under which the Company may borrow up to $500,000 at a 5% annual interest rate. Munster should debit notes payable when Munster

receives cash under the line of credit

An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) _________________ account.

revenue

What are included in FICA taxes?

1.45% Medicare tax 6.25% Social security tax