Chapter 8 - ACCT 2331
Which of the following must employers by law withhold from their employees' pay? - Federal Taxes - contributions toward retirement funds - unemployment taxes - FICA contributions
- Federal Taxes - FICA contributions
On January 1, 2011, you borrowed $14,000 on a five-year, 9% note payable. At December 31, 2012, you should record: - Note receivable of $14,000 - Cash payment of $14,000 - Interest payable of $1,260 - Nothing (the note is already on the books).
Interest payable of $1260
Which of the following is correct regarding gain contingencies? - they are accrued if it is possible that a gain will be realized - they are accrued if it is possible that a gain will be realized. - they are not accrued
they are not accrued
Taxes collected for taxing authorities are recognized as? - current liabilities - prepaid insurance - long-term liabilities - revenue - operating expenses
current liabilities
The journal entry for accrued interest on a note payable includes: - debiting Interest expense and crediting Cash. - debiting Interest expense and crediting accrued Interest payable. - debiting accrued Interest expense and crediting Cash. - crediting accrued Interest expense.
debiting Interest expense and crediting accrued Interest payable.
Archie's had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be credited to Sales revenue? - $6,758.00 - $7,231.06 - $473.06 - $458.00
$6,758
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? - a 6-month period - an entire year - a 3 month period - semi-monthly
an entire year
An interest rate, unless otherwise specified, is typically a(n) _____________ rate. - annual - percentage - Interest - semi-monthly
annual
A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of interest expense recorded in the year 2016? - $800 - $133 - $200 - $267
$133
Cornett 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 &*0.08 - $20,000 &*0.08 *6/12 - $20,000 &* 0.08
$20,000 &*0.08 * 6/12
Sales revenue for a sporting goods store amounted to $215,000 for the current period. All sales are on account and are subject to a sales tax of 7%. Which of the following would be included in the journal entry to record these sales? - A debit to Sales revenue for $215,000 - A credit to Accounts receivable for $215,000 - A debit to Sales tax payable for $15,050 - A debit to Accounts receivable for $230,050
A debit to Accounts receivable for $230,050
Both Employer and Employee pay Unemployment Taxes? - True - False
False
Which of the following is TRUE of a contingent liability? - It is a potential liability that depends on a future event. - It is an actual liability that is difficult to estimate. - It is an actual liability that depends on a past event. - It is a liability resulting from a lawsuit settled in court.
It is a potential liability that depends on a future event.
Which of the following principles requires that warranty expense be recorded in the period that revenue is recorded? - Consistency principle - Matching principle - Revenue principle - Materiality concept
Matching principle
what are the characteristics of liabilities?
The definition of liabilities touches on the present, the future, and the past. A liability is a present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past.
Of the following items, the only one which should not be classified as a current liability is - current maturities of long-term debt. - sales taxes payable. - bonds payable. - unearned revenues
bonds payable
Of the following items, the only one which should not be classified as a current liability is - current maturities of long-term debt. - sales taxes payable. - bonds payable. - unearned revenues.
bonds payable
Issuing a note payable for cash results in a(n) ____________. - decrease in assets and an increase in liabilities - increase in assets and an increase in liabilities - decrease in assets and a decrease in liabilities - increase in liabilities and a decrease in stockholders' equity
increase in assets and an increase in liabilities
Deferred revenue should be classified as a(n) ______________ on the balance sheet.
liability
Cornett company signs an agreement under which Gladys may borrow up to $100,000 at a 6% annual interest rate whenever the company needs cash. This agreement is commonly referred to as a - term loan - line of credit - commercial paper
line of credit
Estimating warranties and recognizing warranty expense and its related liability is an application of the ___________ principle. - consistency - objectivity - matching - relevance
matching
Face value of a note payable plus total interest is called: - maturity value. - face value. - proceeds. - principal.
maturity value
The face amount of a promissory note is called the: - discount of the note. - time of the note. - interest rate of the note. - principal of the note.
principal of the note
When a contingent event that may give rise to a future loss is likely to occur, it is said to be? - liability - maybe - probable - long-term
probable
another name for the acid-test ratio is the _____________ ratio? - current - long-term - slow - quick
quick
Which of the following is NOT a current liability? - FICA Taxes Payable - Accounts Payable - FUTA/SUTA Taxes Payable - Bonds Payable
Bonds payable
Which of the following are paid by the employer only? - FICA taxes - FUTA taxes - SUTA taxes - None of the Above - Both B & C
Both B & C
What all does quick assets include? - Cash - Current Investments - Accounts Receivable - Prepaid Insurance
Cash, Current Investments, Accounts Receivable
Which of the following transactions will increase a company's working capital? - Receipt of cash on a long-term notes receivable - collection of an accounts receivable balance - receipt of cash on a short-term notes receivable - payment of an accounts payable - purchase of inventory on account
receipt of cash on a long-term notes receivable
Liquidity
refers to having sufficient cash (or other current assets convertible to cash in a relatively short time) to pay currently maturing debts.
. ABC borrows $100,000 on October 31, 2015 at 12% interest due on October 31, 2016. ABC closes its books on December 31. What is Interest Expense on this note for 2015? - $12,000 - $9,000 - $3,000 - $2,000
$2000
Ace Appliances sells dishwashers with a 3-year warranty. In 2012, there are $90,000 of sales revenues for dishwashers. The company estimates warranty expense at 3% of revenues. What is the 2012 warranty expense? - $2,700 - $800 - $0 - $3,000
$2700
Ace Appliances sells dishwashers with a 3-year warranty. In 2013, there are $90,000 of sales revenues for dishwashers. The company estimates warranty expense at 3% of revenues. What is the total estimated warranty payable for Ace regarding the sales in 2013? - $2,700 - $600 - $1,400 - $3,000
$2700
Salaries for the month are $480,000; FUTA taxes are $12,100; Employer Medical premiums are $14,200. Vacation Pay is $21,000. What is Salaries & Wages Expense for Fringe Benefits? - $480,000 - $36,300 - $26,300 - $35,200
$35,200
Salaries for the month are $480,000; FICA taxes are $36,720; FUTA taxes are $12,100; Federal Withholding is $67,000; Employee Medical premiums are $14,000. What is Net Pay? - $480,000 - $362,280 - $376,280 - $350,180 - $364,180
$362,280
Sales are $500,000, Warranty costs are estimated to be 2% of sales, and the firm spent $6,000 in warranty repairs. What is the Liability for warranties at the end of the year? - $10,000 - $6,000 - $4,000 - Cannot be determined.
$4000
Salaries for the month are $480,000; FICA taxes are $36,720; FUTA taxes are $12,100; Federal Withholding is $67,000; Employee Medical premiums are $14,000. What is Payroll Tax Expense? - $48,820 - $12,120 - $36,720 - $62,820
$48,820
ABC Company signed a 5-year note payable for $80,000 at 9% annual interest. What is the interest expense for December 31, 2013 if the note was signed on May 1, 2013? - $7,200 - $4,800 - $2,400 - $36,000
$4800
Tom's gross pay for the week is $800. Tom's deduction for federal income tax is based on a rate of 18%. Tom has no voluntary deductions. Tom's yearly pay is under the maximum limit for FICA, which is 7.65%. What is the amount of Tom's net pay? - $594.80 - $738.80 - $656.00 - $533.60
$594.80
By law, an employer is required to pay which of the following amounts as payroll taxes? - medicare contributions - health insurance premiums - life insurance premiums - federal unemployment tax - social security contributions
- medicare contributions - federal unemployment tax - social security contributions
what are the two criteria used to determine whether a contingent liability is reported in the financial statements? - the ability to estimate the amount of the loss - the percentage of the loss of total income - the payment date of the loss - the likelihood of the loss
- the ability to estimate the amount of the loss - the likelihood of the loss
Which of the following is a characteristic of a current liability? - A current liability is a liability that is due within 30 days. - A current liability is a liability that is due within one year or one operating cycle, whichever is longer. - A current liability is a liability that is due within 10 days. - A current liability is a liability that is due in longer than a one-year period, or one operating cycle.
A current liability is a liability that is due within one year or one operating cycle, whichever is longer
Booker Company reported sales revenue for 2013 of $800,000. The products were sold with a six-month warranty. Members of Booker's management estimate the cost of the warranty will be equal to 3% of sales revenue. Which of the following is included in the entry to record the actual amounts paid out as a result of warranty claims? - A debit to Estimated warranty payable for the actual amount of payments - A credit to Estimated warranty payable for $24,000 - A debit to Estimated warranty payable for $24,000 - A debit to Warranty expense for the actual amount of payments
A debit to Estimated warranty payable for the actual amount of payments
Which of the following is included in the entry to record warranty expense? - A debit to Warranty expense - A credit to Inventory - A credit to Warranty expense - A debit to Estimated warranty payable
A debit to Warranty expense
Which of the following is a liability created when a company receives cash for services to be provided in the future? - Unearned revenue - Accrued liability - Service revenue - Estimated warranty payable
Accrued liability
ABC signed a 5-year, 9% note payable for $80,000 on May 1, 2012. Which account will be credited when the note paid at maturity? - Note payable - Interest expense - Interest payable - Cash
Cash
What is the Acid-test ratio Formula? - Current Assets/Current Liabilities - Cash + Current Investments + Accounts Receivable/ Current Liabilities - Liabilities + All Assets
Cash + Current Investments + Accounts Receivable/ Current Liabilities
Which of the following are NOT required to be deducted from employees' paychecks? - Federal income tax - FICA - State income tax - Charitable contributions
Charitable contributions
What is working capital formula? - Current Assets - Expenses - Current Assets - Quick Assets - Current Assets - Current Liabilities - Current Liabilities - current assets
Current Assets - Current Liabilities
What is the Current Ratio Formula? - Current Asset/net sales - Cash + Accounts Receivable - Current Assets/Current Liabilities - Cash + Current Investments + Accounts Receivable/Current Liabilities
Current Assets/Current Liabilities
Which of the following are items included in the numerator of the quick ratio? - inventory - Current Investments - Cash - Accounts Receivable
Current Investments, Cash, Accounts Receivable
Where does Unearned subscription revenue appear on the balance sheet? - Long-term investments - Current liabilities or long-term liabilities - Current assets or long-term investments - Long-term assets
Current liabilities or long-term liabilities
Which of the following is paid by the employee only? - FICA - FUTA - Employee income tax - State unemployment tax
Employee income tax
Which of the following is NOT an expense of the employer? - State unemployment taxes - FICA taxes—employer's portion - Employee income taxes - Federal unemployment taxes
Employee income taxes
Which of the following is paid by both the employee and the employer? - FICA - FUTA - Employee income tax - State unemployment tax
FICA
What do employers pay?
FICA Taxes (7.65%), FUTA/SUTA (Federal unemployment taxes, State unemployment Taxes)
Which of the following deductions must be matched by the employer, resulting in both a deduction from gross pay and an expense to the employer? - Federal income taxes - Federal unemployment taxes - FICA taxes - Charitable deductions
FICA taxes
What is the formula to calculate Interest Rate? - Face amount * Maturity Value * Time Period - Portion of the year - Maturity Value - Face amount - Portion of the year - Face amount * Maturity Value * Time Period - Time Period - Portion of the year
Face amount * Maturity Value * Time Period - Portion of the year
What is the Maturity Value (MV) - all interest - face amount - face amount * all interest - face amount + all interest - time period * face amount
Face amount + all interest
What do employees pay?
Federal withhold taxes, FICA Taxes (7.65%)
Which of the following occurs when a company records accrued interest expense on a note payable? - Interest expense is credited. - Note payable is credited. - Cash is debited. - Interest payable is credited.
Interest payable is credited.
On January 1, 2011, you borrowed $14,000 on a five-year, 9% note payable. At December 31, 2012, you should record: - Note receivable of $14,000 - Cash payment of $14,000 - Interest payable of $1,260 - Nothing (the note is already on the books).
Interest payable of $1,260
Common current liabilities include: - Sales tax payable - notes payable due in two years - prepaid insurance - the current portion of long-term debt - deferred revenues
Sales tax payable, the current portion of long-term debt, deferred revenues
The acid-test ratio is based on a more conservative measure than the current ratio
The quick ratio
. A company has been sued for product failures allegedly resulting in injuries to the individuals bringing the lawsuit. The company's lawyers believe it is more than remote, but less than probable, that the lawsuit will result in an actual liability. Which of the following actions should be taken by the company's management? - The liability should be estimated and recorded as an expense. - The situation should be described in a note to the financial statements. - The possible liability should be ignored. - Management should consider resigning.
The situation should be described in a note to the financial statements.
The feature what distinguishes loss contingencies from other liabilities is the________ that a loss will occur.
Uncertainty
What are warranties?
Warranties are perhaps the most common example of contingent liabilities. At the end of the accounting period.
A contingent liability that judged to be probable and for which the amount is reasonably estimable should be
accrued
Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called _________ benefits. - insurance - fringe - fragile - conservative
fringe
Disclosure related to a contingent event usually is not required if the likelihood of payment is ___________. - remote - contingent - long-term - accrued
remote
Payroll with holdings are
your employer will "withhold" amounts for (1) federal and state income taxes; (2) Social Security and Medicare; (3) health, dental, disability, and life insurance premiums; and (4) employee investments to retirement or savings plans.
