Chapter 9

On September 1, Year 1, West Company borrowed $10,000 from Valley Bank. West agreed to pay interest annually at the rate of 6% per year. The note issued by West carried an 18-month term. West Company has a calendar year-end. What is the amount of interest expense that will be reported on West's income statement for Year 1?

$200

[The following information applies to the questions displayed below.]Madison Company issued an interest-bearing note payable with a face value of $24,000 and a stated interest rate of 8% to Metropolitan Bank on August 1, Year 1. The note carried a one-year term.Based on this information alone, what is the amount of total liabilities appearing on Madison's balance sheet as of December 31, Year 1?

$24,800

Greer Company pays Jamal Perry a salary of $3,000 per week. How much FICA tax must Greer pay with regards to this employee (including both the employee and employer portions)? (Assume a Social Security rate of 6 percent on the first $110,000 of income and a Medicare rate of 1.5 percent on all earnings.)

$450

A company's classified balance sheet shows current assets of $8,650 and correct liabilities of $6,000. What is the company's current ratio?

1.44 to 1

During Year 1, its first year of operations, Benitez Co. reported sales of $800,000. At the end of Year 1, the company estimated its warranty obligation at 3% of sales. During Year 1, the company paid $13,000 cash to settle warranty claims. Which of the following statements is true?

All of these answer choices are correct

Which of the following happens as a result of selling $130 of merchandise to a customer for $200 cash in a state where the sales tax rate is 4%?

All of these answer choices are correct

On a classified balance sheet, the financial statement user will be able to distinguish between:

Current and concurrent assets

Which of the following describes the effect of remitting the sales tax to the tax authority?

Decreases liabilities

Burger Barn has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's burgers. Burger Barn's attorneys have advised them that the likelihood of a future obligation from the suit is remote. What should Burger Barn do as a result of the information that is available?

Ignore

Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. How will the adjustment, dated December 31, Year 1, to record accrued interest expense impact the elements of the financial statements?

Increase liabilities and decrease equity by $2,000

Houston Co. borrowed $20,000 from Dallas Co. on March 1, Year 1. Houston issued a note payable that had a one-year term and the annual interest rate is 8%. How will the necessary adjustment, dated December 31, Year 1, affect the elements of the Year 1 financial statements?

Increase liabilities and increase expenses

What is the current ratio used to evaluate?

Liquidity

[The following information applies to the questions displayed below.]In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer.Which of the following summarizes the effect of the payment of cash to settle the warranty claim in Year 2 on the elements of the financial statements? Assets=Liab.+EquityRevenue−Expense=Net Inc.Cash Flow A.(430)=(550)+(120)NA−120=(120)(430) OA B.(550)=(550)+NANA−NA=NA(430) OA C.(550)=(550)+NANA−550=(550)(430) FA D.(550)=NA+(550)NA−550=(550)(430) OA

Option B

[The following information applies to the questions displayed below.]In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer.Which of the following summarizes the effect of the recognition of the warranty obligation to the customer who purchased this merchandise on the elements of the Year 1 financial statements? Assets=Liab.+EquityRevenue−Expense=Net Inc.Cash Flow A.NA=(700)+700700−NA=700NA B.(700)=NA+(700)NA−700=(700)(700) OA C.(700)=(700)+NANA−NA=NA(700) OA D.NA=700+(700)NA−700=(700)NA

Option D

Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?

The outcome is probable and can be reasonably estimated

When do the effects of warranty obligations affect the statement of cash flows?

When there is a settlement of warranty claim made by a customer.

What factor distinguishes an employee from and independent contractor?

Whether or not the company supervises and controls the work