Ch 8

Withholding taxes for federal and state income tax are based upon which items

Number of exemptions claimed Amounts earned by employees

terms are used to categorize the likelihood of the occurrence of a future loss

Reasonably possible Remote Probable

Which of the following transactions will increase a company's working capital? Multiple choice question.

Receipt of cash on a long-term notes receivable

payroll taxes are paid only by the employer?

SUTA FUTA

Common current liabilities include:

Sales tax payable The current portion of long-term debt Deferred revenues

A contingent liability is recorded if which conditions are met?

The amount of the loss can be reasonably estimated. It is probable that a future loss will occur.

Lark Corporation believes it is probable the company will lose a lawsuit for $10,000. The journal entry to record the contingent loss will include a

credit to contingent liability for lawsuit $10,000.

Taxes collected for taxing authorities are recognized as

current liabilities

The mathematical formula for working capital is current assets ______ current liabilities.

minus

Which of the following may be a proper income statement classification of contingent events?

operating expense non-operating expense

Which of the following are examples of fringe benefits provided by employers to their employees?

reduced or no-cost company-provided services contributions to retirement and other savings accounts payment of insurance premiums on employees behalf

Liquidity

refers to a company's cash position and overall ability to obtain cash in the normal course of business.

Lester Corp. sells merchandise to a customer for $1,000. The company also collects state and local sales taxes of 6% and 4%, respectively. At the time of sale, Lester should record the following credit amounts.

sales taxes payable of $100. sales revenue of $1,000.

Notes payable is classified as a liability that has which of the following effects?

Creates interest expense on the income statement

Working Capital

Current assets minus current liabilities equals

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 6% interest rate is a(n)

annual, 12 month rate.

Rhodes borrowed $5,000 by signing a 5-year note with an interest rate of 8%. On the date the note is signed, Rhodes should

credit notes payable $5,000.

correct formula for calculating interest.

Face amount x annual interest rate x fraction of the year

By law, an employer is required to pay which of the following amounts as payroll taxes?

Federal unemployment tax Social Security contributions Medicare contributions

Which of the following may be classified as contingent liabilities?

Frequent flyer program awards Product warranties Future litigation losses

What are the two classifications for liabilities?

Long-term Current

Which of the following may be a proper balance sheet classification of contingent events?

long & current liability

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

withholding taxes

Jingle Company signs a 6-month, $20,000 note. Stated interest rate is 8% payable at the maturity date. Interest incurred on the note is calculated as

$20,000 x 0.08 x 6/12

Deferred Revenue

A liability created when a business collects cash from customers in advance of completing a service or delivering a product.

What are the two criteria used to determine whether a contingent liability is reported in the financial statements?

The likelihood of payment The ability to estimate the amount of payment

Abbott Corp.'s attorney estimates that the company will ultimately have to pay $400,000 related to current litigation. Abbot's journal entry should include a:

debit to loss credit to contingent liability

A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a(n) Multiple choice question.

liability

Payroll withholdings are

the items subtracted from an employee's gross pay to arrive at take-home pay.

What will be the effect of paying off an accounts payable balance on the current and the acid-test ratios? Assume that both ratios are greater than 1.

Current ratio will increase Acid-test ratio will increase

Choose the correct formula for calculating interest.

Face amount x annual interest rate x fraction of the year

Which of the following payroll-related taxes must the employer pay by law?

Federal Insurance Contributions Act amounts Unemployment taxes

Which of the following are employer payroll costs?

Federal and state unemployment taxes Employer portion of Medicare tax

Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay?

Health insurance paid by the employee Federal income taxes Employee contributions to retirement plans

Which of these payroll taxes are paid by the employer and the employee?

Social Security Medicare

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

accounts payable.

An interest rate, unless otherwise specified, is typically a(n) rate. (Enter one word per blank)

annual

Payroll withholdings ______.

decrease the amount of cash an employee receives are amounts subtracted from employees' gross earnings to determine their net pay

Which of the following payroll-related costs are incurred by employees?

employee investments in retirement plans federal and state income tax

True or false: An employer pays federal unemployment tax as a percentage of an employee's total pay for the year.

false

Which of the following must employers by law withhold from their employees' pay?

federal income taxes

Obtaining a note payable for cash results in a(n) ______.

increase in assets and an increase in liabilities

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 which of the following?

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

Which of the following are not required to be deducted from an employee's paycheck?

State unemployment tax (SUTA) Charitable contributions Federal unemployment tax (FUTA)