SMARTBOOK CHAPTER 8

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

contingency

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

contingent

Liabilities that are payable within one year commonly are classified as _____ liabilities, while those payable more than one year from now commonly are classified as _____ liabilities.

current and long term

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

The flipside of a contingent gain is a contingent

loss

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.

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

state unemployment tax (suta) charitable contributions federal unemployment tax (futa)

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

uncertain

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.

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

contingent

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

contingent

Payroll withholdings are

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

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

Creates interest expense on the income statement

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

liquidity

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

liability

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

Deferred revenues and sales tax payable typically are reported as _________ liabilities

current

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

increase in assets and an increase in liabilities

Payroll withholdings ________

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

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

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

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

True or false: Current liabilities are always payable within one year.

False

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.

Common current liabilities include:

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

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

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

The likelihood of future payment or loss