Ch. 8 Smartbooks

How do you calculate Current Ratio?

CR = Current Assets / Current Liabilities

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 Notes Payable ($100,000)

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

FUTA and SUTA

Which of the following payroll-related taxes must the employer pay by law?

Federal Insurance Contributions Act amounts Unemployment taxes

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

Medicare contributions Social Security contributions Federal unemployment tax

Witholding taxes for federal and state income tax are based upon which terms?

Number of exemptions claimed Amounts earned by employees

Which of the following may be classified as contingent liabilities?

Product warranties Frequent flyer program awards Future litigation losses

Acid test ratio (quick ratio)

QR = Current assets - Inventory / Current liabilities

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

Remote Probable Reasonably possible

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

Payroll withholdings are (select all that apply.)

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

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

contingent

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

contingent liabilities

Liabilities are classified as

current and long-term

If a liability is classified as current, rather than non-current, the company's working capital will Blank______.

decrease

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

decrease

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 transactions will increase a company's working capital?

receipt of cash on long-term notes receivable

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

recorded.

Payroll withholdings are

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

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

warranties

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 and Current ratio will increase