ACG chap 8

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.

Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The 6% interest rate is a(n)

annual, 12 month rate.

Select all that apply What are the two classifications for liabilities?

-Current -Long-term

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

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

Select all that apply Common current liabilities include:

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

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

Blank 1: probable

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)-- . (Enter one word per blank)

Blank 1: warranty, guarantee, or warranties

Current assets minus current liabilities equals----

Blank 1: working Blank 2: capital or capitol

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

Creates interest expense on the income statement

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

Liabilities are classified as

current and long-term

True or false: An employer pays federal unemployment tax as a percentage of an employee's total pay for the year.

false Reason: 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.

The flipside of a contingent gain is a contingent

loss

Payroll withholdings are

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

Select all that apply Which of the following are employer payroll costs?

-Federal and state unemployment taxes -Employer portion of Medicare tax

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

-Medicare contributions -Federal unemployment tax -Social Security contributions

Select all that apply Which of the following may be classified as contingent liabilities?

-Product warranties -Frequent flyer program awards -Future litigation losses

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.

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

payroll withholdings.

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

recorded.

An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) ______ account.

revenue Reason: The credit is to revenue and represents the amount of Deferred revenue (a liability) that has been earned and no longer owed.

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

warranties

Taxes collected for taxing authorities are recognized as

current liabilities.

The portion of a long-term liability that will be paid within the next year is referred to and reported as the:

current portion of long-term debt

Select all that apply Which of the following payroll-related costs are incurred by employees?

-federal and state income tax -employee investments in retirement plans

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

Blank 1: current Blank 2: liabilities or liability

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.

Taxes subtracted from employees' pay and remitted to the government on their behalf are called

withholding taxes.

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?

debit cash and credit deferred revenue

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

decrease

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

minus

Spencer Corp.'s attorney estimates that the company will ultimately have to pay between $250,000 and $500,000 relating to current litigation. Spencer should record a contingent liability and loss of

$250,000. Reason: When no amount within the range appears more likely than others, we record the minimum amount.

Select all that apply Payroll withholdings ______. (Select all that apply.)

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

Select all that apply 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

Select all that apply Which of the following may be a proper balance sheet classification of contingent events?

-current liability -long-term liability

Select all that apply Which of the following may be a proper income statement classification of contingent events?

-non-operating expense -operating expense

Select all that apply 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

An existing uncertain situation that might result in a loss depending on the outcome of a future event is a-- liability. (Enter one word per blank)

Blank 1: contingent

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

Blank 1: contingent, contingency, or contingencies

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 transactions will increase a company's working capital?

Receipt of cash on a long-term notes receivable

A(n)-- payable results from an agreement with a supplier to pay within 30 to 60 days, whereas a(n)-- payable is a signed contract that promises to pay a specific amount with interest at a specific maturity date.

Blank 1: account or accounts Blank 2: note or notes

Select all that apply 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

Deferred revenue is classified as

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

The likelihood of future payment or loss

Lark Corporation believes it is probable the company will lose a lawsuit for $10,000. The journal entry to record the contingent loss will include a

credit to contingent liability for lawsuit $10,000.

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

Blank 1: contingent or contingency

On September 1, 2018, Great Lakes Equipment receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December 2018?

$4,000 Reason: $24,000/24 months = $1,000 per month x 4 months = $4,000 revenue recognized.

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

Blank 1: contingent, contingency, or contingencies

The-- portion of long-term debt is the amount that will be paid within the next year. (Enter only one word.)

Blank 1: current

A(n)-- 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. (Enter one word per blank)

Blank 1: liability or liabilities

Correctly match the salary-related costs with the payee.

Employee> State and federal income tax Employer> State and federal unemployment tax

Jingle Company signs a 6-month, $20,000 note. Stated interest rate is 8% payable at the maturity date. Interest incurred on the note is calculated as

$20,000 x 0.08 x 6/12

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

False Reason: Your employer is required to send payroll deductions to the appropriate government agency or company.

Select all that apply 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.

-Current ratio will increase -Acid-test ratio will increase

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

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

Select all that apply Identify characteristics of notes payable that are not common to accounts payable.

-Interest bearing -Based on promissory note

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

Blank 1: current or short-term

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 Reason: The current ratio will remain the same because one current asset is exchanged for another current asset.

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

Warranty

The employer's portion of FICA tax remitted to the taxing authority is:

the same as the employee's portion

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.

On June 1, 2018, Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the income statement for 2018?

$7,000 Reason: $24,000/24 months = $1,000 per month x 7 months = $7,000 revenue.

Select all that apply Which of the following terms are used to categorize the likelihood of the occurrence of a future loss?

-Remote -Reasonably possible -Probable

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

-SUTA -FUTA

Select all that apply Which of the following are examples of fringe benefits provided by employers to their employees?

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

Select all that apply 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.

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.)

Blank 1: accounts or account

An interest rate, unless otherwise specified, is typically a(n)-- rate. (Enter one word per blank)

Blank 1: annual or yearly

A transaction or event in which the outcome is uncertain is referred to as a(n)-- . (Enter one word per blank)

Blank 1: contingency, contingencies, or contingent

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

Blank 1: fringe or employee

Deferred revenue should be classified as a(n)-- on the balance sheet. (Enter one word per blank)

Blank 1: liability or liabilities

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

increase in assets and an increase in liabilities

Select all that apply A contingent liability is recorded if which conditions are met?

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

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

-Social Security -Medicare

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

Blank 1: uncertain or undecided

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

Blank 1: warranties, guarantees, or warranty

Which of the following is the formula for the current ratio?

Current assets divided by current liabilities.