Chapter 9 Smartbook

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. What is John's net pay?

486.10

True or false: An annuity is a series of unequal payments made at the same time each period.

False

At year end, companies should report ______.

accrued liabilities for amounts owed even if the amount must be estimated

A(n) ___ is a series of consecutive equal payments such as mortgage payments.

annuity

Bonds ______.

are sold in established markets making them liquid allow companies to raise more debt capital than a note payable because the bonds are issued to many creditors

Working capital equals ______.

current assets minus current liabilities

A ______ accounts payable turnover ratio may result if management pays its suppliers more quickly and often.

higher

Assets are financed with ___ and stockholders' equity.

liabilities

The journal entry to record employer payroll taxes owed affects ______.

liabilities and stockholders' equity

Analysts say that a company has ___ if it has the ability to meet its current obligations.

liquidity

Which of the following would result in a deferred revenue?

sales of subscriptions sales of gift cards

New companies often experience rapid sales growth and increases in working capital. Working capital increases are caused by increases in sales-related asset accounts, such as ___ and accounts ___.

cash receivable

Many current liabilities on the balance sheet, such as Accounts payable, Accrued wages and Deferred revenue, have a direct relationship to ____ activities on the statements of cash flows.

operating

The feature that distinguishes loss contingencies from other liabilities is the ___ that a loss will occur.

probability

When a contingent event that may give rise to a future loss is likely to occur, it is said to be ___.

probable

When a company borrows money from a bank and signs a formal written contract that specifies the amount borrowed, the date it must be repaid and the interest rate, the company will debit Cash and credit _____ _______.

Note Payable

Which of the following are long-term liabilities? (2)

Notes payable due in 3 years Bonds payable due in 20 years

Which of the following are long-term liabilities?

Notes payable due in 3 years Bonds payable Private placement of debt due in 3 years

Which of the following are used to categorize the likelihood of the occurrence of a future loss?

Probable Reasonably possible Remote

Which of the following factors will result in a higher present value of $1?

A compounding of interest less frequently A lower interest rate

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

If the going rate of interest is 10%, which has the greater present value?

$1 received today

Which of the following have the same present value given a 10% interest rate compounded annually?

$1 today $1.10 one year from today

The entry to record the purchase of equipment that requires a $10,000 payment in 2 years includes a ______. The market rate of interest is 9% compounded annually.

$8,417 debit to Equipment $8,417 credit to Notes Payable

Ace Electronics signed a 10-year, $100,000, 4% note payable on January 1. When the note is signed, Ace should record a liability of ______.

100,000

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 for $100,000 Debit to Cash for $100,000

Which of these payroll taxes are paid only by the employer?

FUTA SUTA

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31, 2019. Assuming the November 1 transaction was properly recorded, how would the December 31, 2018, year-end adjusting entry affect the accounting equation?

Liabilities increase and stockholders' equity decreases.

What kind of account is deferred (or unearned) revenue?

Liability account

Which of the following are examples of annuities?

Mortgage payments Car payments

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. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, 2018 ABC's year end, would include a ______.

debit to Interest expense of $1,000 credit to Interest payable of $1,000

The current ratio and working capital are financial measures of ______.

liquidity

Assuming no inflation, $1 invested today is worth ______.

more than $1 received in the future because interest can be earned over time

A bond's maturity date is the date ______.

on which the bond principal will be repaid in full

Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal income tax $18,000 and State income tax $3,850. What is the net pay to employees?

70000

Which of the following may be classified as contingent liabilities?

Product warranties Future litigation losses Environmental problems

What are the key events that occur with any note payable?

Recording principal paid Accruing interest incurred, but not paid Recording interest paid

Which of the following are not required payroll deductions from an employees' gross earnings?

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

The journal entry to record the purchase of an asset in exchange for $100,000 due in 3 years at a market rate of interest of 12% compounded annually includes a debit to the asset in the amount of ______.

the present value of $100,000 discounted at 12% for 3 years

The accounts payable turnover ratio directly measures ______.

the times per year the average accounts payable is paid

Which of the following has the highest present value?

$1 annuity compounded annually over 3 years at 5%

True or false: Employers are required to withhold income taxes from employees' pay checks.

True

Which of the following is a guarantee that protects a customer from product defects for a specified period of time?

Warranty

Warren Teas, Inc. sold all its brewing equipment to customers with a 6-month warranty. At year end, Warren Teas estimates that future repair work on the warranty will cost $1,000 and thus should record ______.

a $1,000 credit to a current liability a $1,000 debit to an expense

Payroll deductions ______.

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