acct II c11+c12 exam 1

Kenesha Co. reported income before interest expense and income taxes of $30,000; interest expense of $3,000; and income taxes of $4,000. Calculate the times interest earned ratio.

(30,000/3000)=10

long-term liabilities

-obligations due after one year (or the company's operating cycle if longer). examples: long-term notes payable, warranty liabilities, lease liabilities, and bonds payable.

Contingent Liabilities and When to Record

1. record liability if the future event is probable (likely) and the amount owed can be reasonably estimated. ex: warranty, vacation pay, and income taxes 2. disclose in notes if the future event is reasonably possible (could occur) 3. no disclosure if the future event is remote (unlikely)

The form an employer files and submits to the IRS to report FICA tax information is Form

941

known liability

A measurable obligation arising from agreements, contracts, or laws ex: accounts payable, notes payable, payroll obligations, sales taxes, unearned revenues

Capital deficiency

Debit balance in partner's capital account and shows partnership has claim against partner for amount of deficiency

Patel Paving collected $1,000 cash in advance from a customer to provide paving services next month. The entry to record this cash receipt would include the following entries?

Debit to Cash Credit to Unearned Paving Fees

Star Co. reported $10,000 of net income during the month of January. Star estimates that it owes income taxes of $2,000 for the month. The month-end adjusting entry to record this estimate would require which of the following entries?

Debit to Income Tax Expense Credit to Income Taxes Payable

To record accrued interest

Dr. Interest Expense (cash amount x % annual interest x days out of 360) Cr. Interest Payable

Simar Sales Co. sells and installs kitchen appliances. Simar guarantees parts and labor for one year after installation. Simar would record potential claims in a(n) _______ account.

Estimated Warranty Liability

Each month, a corporation will accrue income taxes based on the month's earnings. To record the income tax for the month, the company will debit the Income Tax Expense account and credit the ________ account.

Income Taxes Payable

Mutual Agency

Legal relationship among partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the scope of the partnership's business. -A partner may be able to legally bind the partnership to actions even if the other partners are unaware of his actions.

contingent liabilities

Liabilities that may arise from past transactions if certain events occur in the future.

Return on Equity

Net Income / Average Stockholders' Equity

Which of the following liabilities could be a multi-period known liability?

Notes Payable Unearned Subscription Revenues

Which of the following items are considered employee benefits?

Pension plans Medical insurance

Which of the following situations would require a journal entry to record the contingent liability in the financial statements?

The liability is probable and estimated to be $10,000.

liability

a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events. -payable/ unearned -must have 3 characteristics: 1. due to a past transaction or event 2. company has a present obligation 3. for future payment of assets or services

Spot Co. purchases office supplies from Sally Supplies, Inc.. Spot does not pay cash for the purchase, and now owes the amount to Sally. This transaction would typically be recorded in which account in Spot's books?

accounts payable

A ___________ is when an employer provides employees with a percentage of the net income earned during the year.

bonus plan

When a company guarantees the payment of debt owed by a supplier, customer or another company, the guarantor usually discloses the guarantee as a

contingent liability

Amounts withheld from employee's earnings for employee income tax is considered a _____ by the employer until the government is paid.

current liability

to pay a note with interest

debit interest expense, interest payable, notes payable and credit cash

Which of the following represent reasonably possible contingent liabilities? Remember they can't be recorded for future events so an upcoming hurricane is not a reason to record the liability prior to an evacuation

debt guarantees potential legal claims

times interest earned ratio

earnings before interest expense and taxes (EBIT) / interest expense

Employee income tax depends on:

employee's income number of employee withholding allowances

Unemployment taxes are examples of (employee/employer) taxes.

employer Unemployment taxes are examples of (employee/employer)

A(n) ______ liability is a known obligation that is of an uncertain amount but that can be reasonably estimated.

estimated

When a company has a current obligation to make a future payment to their supplier due to a shipment of supplies that were received last week, the company would record this transaction with an increase to an asset account and a(n) ________ account.

liability

Unearned subscription revenues that extends over multiple periods is an example of a _______ known liability.

multi-period

A potential legal claim is recorded

only if payment for damages is probable and the amount can be reasonably estimated.

A contingent liability can be ignored (not recorded in the financial statements or notes to the financial statements) if it is considered as (probable/reasonably possible/remote) possibility.

remote

Zion Co. sells $100 of merchandise and collects $10 sales tax. The sales tax is recorded to which account?

sales tax payable

calculate FICA

separate entries for Social Security (payroll x .062) and Medicare (payroll x .0145)

A written promise to pay a specified amount on a stated future date within one year or the company's operating cycle, whichever is longer, is considered a __________.

short-term note payable

Cadie Construction Co. signed a note promising to pay a cement supplier $1,000 60-days from now. As a result of this transaction, Cadie would record a(n) ________ on her balance sheet.

short-term note payable

current liabilities

short-term, due within one year (or the company's operating cycle if longer). Most are paid using current assets or by creating others of this. examples: accounts payable, short-term notes payable, wages payable, warranty liabilities, and taxes payable. Some liabilities do not have a fixed due date but instead are payable on the creditor's demand. These are reported as current liabilities because of the possibility of payment in the near term.

The ratio of income before interest expense (and any income taxes) divided by interest expense reflects the risk of a company not being able to pay fixed expenses if sales decline is called the ____________ ratio.

times interest earned

Employers must pay employee taxes in addition to those paid by the employees. What is paid only by the employer?

unemployment

Paid absences offered to employees are called ___ benefits.

vacation

A known liability is a measurable obligation arising from agreements, contracts, or laws. Known liabilities would include all of the following items, except: notes payable. accounts payable. payroll obligations. unearned revenues. warranties.

warranties

Form 941, which employers use to report FICA and income tax information to the IRS is due:

within one month after the end of each calendar quarter.

Bina Consulting Co. collected $500 from a customer in advance to provide consulting fees for the next two months. The $500 would be recorded with a debit to Cash and a credit to the Unearned Revenues, which is a(n) ______?______ account

liability

Bryne Co. sells merchandise and collects a 5% state sales tax. The tax is recorded on Bryne's general ledger as a(n) ______ account.

liability

Abby Co. allows each employee two weeks of paid time off during each calendar year. Since employees are working for 50 weeks, rather than 52 weeks, Abby must accrue the paid time off during the 50 weeks that the employees work. The year-end adjusting entry is recorded as a credit to the ________ account.

vacation benefits payable

A ____ is a seller's obligation to replace or fix a product (or service) that fails to perform as expected within a specified period.

warranty