accounting chapter 8

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

Notes payable is classified as a liability that has which of the following effects?

Creates interest expense on the income statement

Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay?

Federal income taxes Health insurance paid by the employee Employee contributions to retirement plans

An interest rate, unless otherwise specified, is typically a(n)

annual

Product warranties, effects of environmental problems, and lawsuits are examples of transactions or events that give rise to

contingency

Which of the following are examples of fringe benefits provided by employers to their employees?

contributions to retirement and other savings accounts reduced or no-cost company-provided services payment of insurance premiums on employees behalf

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.

Abbott Corp.'s attorney estimates that the company will ultimately have to pay $400,000 related to current litigation. Abbot's journal entry should include a:

credit to contingent liability debit to loss

the __________ portion of long-term debt is the amount that will be paid within the next year.

current

Which of the following may be a proper balance sheet classification of contingent events?

current liability long-term liability

The flipside of a contingent gain is a contingent

loss

Which of these payroll taxes are paid by the employer and the employee?

medicare social security

The mathematical formula for working capital is current assets ______ current liabilities.

minus

Mathematically, the current ratio is expressed as current assets divided by

current liabilities

Abbott Corp.'s attorney estimates that the company will ultimately have to pay between $350,000 and $500,000 relating to current litigation, and that the most likely amount of the loss will be equal to $400,000. Abbott Corporation should record a contingent liability and loss of

$400,000

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

liquidity.

ABC Airlines collects $300 for a round-trip ticket from Chicago to Los Angeles and back. How does ABC Airlines record the $300 collected in advance?

A debit to Cash of $300 and a credit to Deferred Revenue of $300.

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?

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

Choose the correct formula for calculating interest.

Face amount x annual interest rate x fraction of the year

FICA is the acronym for the

Federal Insurance Contribution Act.

Which of the following are employer payroll costs?

Federal and state unemployment taxes Employer portion of Medicare tax

Which of the following transactions will increase a company's working capital?

Receipt of cash on a long-term notes receivable

Common current liabilities include:

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

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.

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

If a liability is classified as current, rather than noncurrent, the company's working capital will ______.

decrease

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 payroll-related costs are incurred by employees?

employee investments in retirement plans federal and state income tax

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

false

Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called

fringe benefits

Issuing a note payable for cash results in a(n) ______.

increase in assets and an increase in liabilities

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.

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

warranties

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

warranty

By law, an employer is required to pay which of the following amounts as payroll taxes?

Federal unemployment tax Social Security contributions medicare contributions

Deferred revenue is classified as

a liability

a(n) ____________ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash.

accounts

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

contingencies

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

contingency

Deferred revenues and sales tax payable typically are reported as

current

Liabilities are classified as

current and long term

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 revenue of $1,000. sales taxes payable of $100.