Accounting Chap 8

A _____ is 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

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)

liability

Which of the following tends to be the source of the most commonly reported contingent liability?

warranties

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

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

Deferred revenues and sales tax payable typically are reported as _____ liabilities.

current

Deferred revenues and sales tax payable typically are reported as ______ liabilities.

current

What are the two classifications for liabilities?

current and long-term

Liabilities are classified as

current and long-terms

True or false: Your employer is allowed to keep the amounts withheld from your gross pay.

false

For a manufacturer, the most commonly reported contingent liabilities relate to product ___

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(n)_____ .

warranty

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

warranty

A(n)____ gain is an existing uncertainty that might result in a gain.

contingency

The feature that distinguishes loss ______ from other liabilities is the uncertain outcome.

contingency

The term referring to a company having a sufficient amount of cash to pay its current debts is

liquidity

The flipside of a contingent gain is a contingent

loss

A(n) _____ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.

contingent

A contingent liability is an existing ______ situation that might result in a loss depending on the outcome of a future event.

uncertain

A transaction or event in which the outcome is uncertain is referred to as a(n) ____

contingency

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, Year 1, 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, Year 2. The journal entry on November 1, Year 1 would include which of the following?

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

Common current liabilities include:

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

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

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

A contingent liability is recorded if which conditions are met?

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

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 these payroll taxes are paid by the employer and the employee? (Check all that apply.)

Medicare and social security

Which of these payroll taxes are paid by the employer and the employee? (Check all that apply.)

Meicare Social Security

A(n) _____ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash. (Enter only one word.)

accounts

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

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

amounts earned by employees, and number of exemptions claimed

Payroll withholdings Blank______. (Select all that apply.)

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

A loss that is judged to be probable and for which the amount is reasonably estimable should be

recorded

Which of the following is an important criteria used to determine the reporting of a contingent liability?

the likelihood of future payment or loss

Amounts that are subtracted from an employee's gross pay are referred to as

payroll witholdings

Amounts that are subtracted from an employee's gross pay are referred to as

payroll withholdings

Payroll withholdings are

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

Which of these payroll taxes are paid only by the employer? (Check all that apply.)

SUTA and FUTA

Which of the following is an important criteria used to determine the reporting of a contingent liability?

The likelihood of future payment or loss

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