Chapter 8 SB Accounting
Obtaining a note payable for cash results in a(n)
increase in assets and an increase in liabilities
Deferred revenue should be classified as a(n) _______ on the balance sheet
liability
When a contingent event that may give rise to a future loss is likely to occur, it is said to be
probable
Notes payable is classified as a liability that has which of the following effects?
Creates interest expense on the income statement
Which of these payroll taxes are paid only by the employer?
FUTA SUTA
True or false: Your employer is allowed to keep the amounts withheld from your gross pay.
False
By law, an employer is required to pay which of the following amounts as payroll taxes?
Federal unemployment tax Social Security contributions Medicare contributions Federal Insurance Contributions Act amounts
Liability
a probable future sacrifice of economic benefits arising from present obligations to transfer assets or provide services as a result of past transactions or events.
Which of these payroll taxes are paid by the employer and the employee?
-Social security -Medicare
True or false: An employer pays federal unemployment tax as a percentage of an employee's total pay for the year.
False-Only a portion of the employee's pay is subject to FUTA, or federal unemployment tax.
The term referring to a company having a sufficient amount of cash to pay its current debts is
liquidity
A loss that is judged to be probable and for which the amount is reasonably estimable should be
recorded
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.
Payroll withholdings are
the items subtracted from an employee's gross pay to arrive at take-home pay.
A contingent liability is an existing ___________ situation that might result in a loss depending on the outcome of a future event.
uncertain
Which of the following tends to be the source of the most commonly reported contingent liability?
warranties
Sally Company manufactures large kitchen appliances. For the first year of purchase, the company will repair any manufacturing defect free of charge. Sally apparently sells its appliances with a
warranty
Which of the following is a guarantee that protects a customer from product defects for a specified period of time?
warranty
Common current liabilities include:
- Deferred Revenues - Sales Tax Payable - Current portion of long-term debt
Which of the following are not required to be deducted from an employee's paycheck?
- Federal unemployment tax (FUTA) -Charitable contributions -State unemployment tax (SUTA)
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.
- acid test ratio will increase -current ratio will increase
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 may be classified as contingent liabilities?
-Future litigation losses -Frequent flyer program awards -Product warranties
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
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 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
Fringe benefits
Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer
payroll withholdings
Amounts that are subtracted from an employee's gross pay are referred to as
Identify a primary reason why financial statement users assess a company's liquidity.
Lack of liquidity can lead to the bankruptcy of a company that otherwise may have been successful.
Which of the following terms are used to categorize the likelihood of the occurrence of a future loss?
Remote Reasonably possible Probable
Poppy Corporation has a current ratio of 2.0 and a quick ratio of 1.6. Poppy purchases additional inventory for cash. Which of the following occurs?
The current ratio will remain the same, because one current asset is exchanged for another current asset.
Which of the following is an important criteria used to determine the reporting of a contingent liability?
The likelihood of future payment or loss
The feature that distinguishes loss _________ from other liabilities is the uncertain outcome
contingencies
A _____liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.
contingent
Product warranties, effects of environmental problems, and lawsuits are examples of transactions or events that give rise to
contingent liabilities
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.
accounts payable
a short-term liability that occurs when a company purchases goods and does not immediately pay with cash.
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)
accounts payable.
Deferred revenues and sales tax payable typically are reported as __________ liabilities
current
What are the two classifications for liabilities?
current and long term
Taxes collected for taxing authorities are recognized as
current liabilities.
Taxes subtracted from employees' pay and remitted to the government on their behalf are called
withholding taxes
