C9: Reporting and Analyzing Current Liabilities

Uncertainty of liabilities

- Who to pay - When to pay - How much to pay

warranties.

A known liability is a measurable obligation arising from agreements, contracts, or laws. Known liabilities would include all of the following items, except:

Known liability

A measurable obligation arising from agreements, contracts, or laws

Vacation Benefits Payable

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 Blank______ account.

bonus plan

Angela Bennett is an employee of Marks Co. This past year, Angela received 1% of Marks net income, in addition to her annual salary. This added benefit is called a:

liability account

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

Employee Benefit Expense Account

Employee benefits that are paid by the employer are recorded in the

Credit to Sales Tax Payable

Fortiz Co. receives $85 for the sale of merchandise with a sales price of $80 and sales tax of $5. The entry to record the $5 sales tax would require which of the following?

Estimated Warranty Liability

Handy Holly Co. provides a variety of household repairs and warranties her work for a six-month period. Holly provided $13,000 of service fees during the month and anticipates that warranty repairs for these sales will total $400. The entry that Holly will make to record the estimated warranty expense will include a credit which account?

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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.

long-term liabilities

Obligations due after one year or one operating cycle, whichever is longer, are considered to be:

Interest Payable for $50 Notes Payable for $10,000 Interest Expense for $100

On December 1, Campbell Co. borrowed $10,000 cash from Second Bank by signing a 90-day, 6% interest-bearing note. On December 31, Campbell accrued interest expense of $50. Campbell does not use reversing entries. On March 1, the due date of the note, Campbell will record the payment with debit entries to which of the following accounts?

debit; $1,000

On December 1, Hansen Co. borrowed $100,000 cash from National Bank by signing a 90-day, 6% interest-bearing note. On December 31, Hansen recorded an adjusting entry to record interest expense of $500. On March 1, the due date of the note, Hansen will record interest expense as a

Bonus Payable; $100,000

On December 31, Lazo Co. offers a bonus to its employees of $100,000 to be paid in January of the following year. The December 31 journal entry will require a credit to the Blank______ account in the amount of Blank______.

Parts Inventory

Perez Co. sells lawn mowers and warranties them for one year. Perez made an adjusting entry at the end of last year to record the warranty expense. In February of the current year, a customer needed a $50 repair to a lawn mover. The entry to record the repair includes a credit to ______.

Estimated Warranty Liability

Perez Co. sells lawn mowers and warranties them for one year. Perez made an adjusting entry at the end of last year to record the warranty expense. In February of the current year, a customer needed a $50 repair to a lawn mover. The entry to record the repair includes a debit to ______.

Sales Tax Payable

Sales tax collected from customers by the seller, representing current liabilities payable to the government

Why are long term liabilities better than short term liabilities?

The company has more time to pay

times interest earned

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

Employee Benefits Expense

Theo Co. has two full-time employees who are provided health insurance at Theo's expense. At the end of the period, the cost of the insurance totals $1,400. The entry that Theo will make to accrue these costs include a debit to the Blank______ account. Multiple choice question.

How does a company get loaned money?

They issue stock or bonds

cash account

Tire Co. collected $2,000 in sales tax during the month of October. The entry that shows the remittance of this sales tax to the state government in November would include a credit to the

Debit to Vacation Benefits Expense. Credit to Vacation Benefits Payable.

Vance Co. allows employees to take a two week vacation each year. To account for the two weeks off each year, Dante will record an adjusting entry to which of the following accounts?

$90: 100 x .03 x $30 = $90

Victor's Vacuum Sales Co. sells high quality vacuums and provides a one-year warranty on all new sales. Based on history, Victor anticipates that 3% of vacuums will be returned at a cost of $30 per vacuum. During the month, Victor sold 100 vacuums for a total of $35,000. At the end of the month, Victor will record______ in Warranty Expense.

Income before interest expense and income tax/interest expense

Which of the following formulas is used to compute the times interest earned?

Medical insurance Pension plans

Which of the following items are considered employee benefits?

debt guarantees potential legal claim

Which of the following represent reasonably possible contingent liabilities?

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

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

estimated liability

a known obligation that is of an uncertain amount but that can be reasonably estimated

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.

Accounts payable

amounts owed to suppliers for products or services purchased on credit.

Future natural disaster

not a contingent liability

A potential legal claim is recorded

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

bonus plan

when an employer provides employees with a percentage of the company's net income earned during the year.