ACT 210 Ch. 8

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

Contingencies

A _____________ gain is an existing uncertainty that might result in a gain.

contingent

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

contingent

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

current liabilities

Taxes collected for taxing authorities are recognized as :

current liabilities

The formula for the acid-test or quick ratio is quick assets divided by

current liabilities

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?

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

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

1. Probable 2. Remote 3. Reasonably Possible

What are the two criteria used to determine whether a contingent liability is reported in the financial statements?

1. The ability to estimate the amount of payment 2. The likelihood of payment

What are examples of fringe benefits provided by employers to their employees?

1. contributions to retirement and other savings accounts 2. payment of insurance premiums on employees behalf 3. reduced or no-cost company-provided services

Which of the following voluntary contributions by employees may employers deduct from their employees' pay?

1. contributions toward retirement funds 2. employee investments in retirement

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:

1. debit to loss 2. credit to contingent liability

On October 1, 2018, Logan Corporation signed a 6-month, 8% interest-bearing promissory note for $10,000. The journal entry required at December 31, 2018 would include which of the following?

Debit interest expense $200 ; $10,000 x 8% (annual rate) x 3/12

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 ;

Current assets minus current liabilities equals:

working capital

Which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for recording a liability but are at least reasonably possible?

1. A disclosure must describe the contingency. 2. An estimate of the potential loss should be made (if possible) and disclosed.

What are some current liabilities?

1. Accounts Payable 2. Sale/Taxes payable 3. Deferred Revenue 3. The current portion of long-term debt

What items are included in the numerator of the quick ratio?

1. Accounts receivable 2. Current Investments 3. Cash

Which are not required payroll withholdings?

1. Charitable contributions 2. State unemployment tax (SUTA) 3. Federal unemployment tax (FUTA)

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?

1. Debit to cash 2. Credit to note payable $100,000

Which may be classified as contingent liabilities?

1. Future litigation losses 2. Frequent flyer program awards 3. Product warranties

Identify characteristics of notes payable that are not common to accounts payable

1. Interest bearing 2. Based on promissory note

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

1. Interest bearing 2. Based on promissory note

A contingent liability is recorded if which conditions are met?

1. It is probable that a future loss will occur. 2. The amount of the loss can be reasonably estimated.

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

1. Social Security 2. Medicare

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

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.

Taylor Company's attorney informs its client that it is possible, but not probable, that the company will lose a currently litigated lawsuit. No reliable estimate of the potential loss is currently available. How should Taylor accrue and/or disclose this potential loss?

Disclose the contingency and state that an estimate cannot be made

FICA is the acronym for the:

Federal Insurance Contribution Act

What transaction will increase a company's working capital?

Receipt of cash on a long-term notes receivable

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

The likelihood of future payment or loss

True or False: Note payable due in 3 years is not a current liability

True

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

accounts

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.

On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, ABC's adjusting entry at December 31 would include a ______.

debit to Interest expense of $1,000 ; Interest expense=$50,000 x 0.06 x (4/12)=$1,000. The interest rate, 6%, is an annual rate, not a 9-month rate. In the current year, 4/12 of 6% will be expensed and the remaining 5/12 (for a total of 9/12) will be expensed in the following year.

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

decrease

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

employee

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

liquidity

Payroll withholdings are:

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

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

the same as the employee's portion

On September 1, 2018, Kale Corporation signed a 6-month, 12% interest-bearing promissory note for $100,000. The journal entry required at December 31, 2018 would include which of the following?

Debit interest expense $4,000 ; The annual rate of interest is 12% so the total interest of $12,000 is multiplied by the faction of the year or 4/12

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.

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

contingent

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.

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

probable

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

uncertain

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

warranties

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 ; When no amount within the range appears more likely than others, we record the minimum amount.

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

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.

1. sales revenue of $1,000. 2. sales taxes payable of $100.

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

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

recorded

Payroll withholdings:

1. decrease the amount of cash an employee receives 2. are amounts subtracted from employees' gross earnings to determine their net pay