Ch. 8 - Financial Accounting

Which of the following may be classified as contingent liabilities?

Future litigation losses Product warranties Frequent flyer program awards

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

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

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

The likelihood of future payment or loss

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

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

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)

liabilities

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)

liability

The flipside of a contingent gain is a contingent Multiple choice question. asset.

loss

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

warranties

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.)

Account

Withholding taxes for federal and state income tax are based upon which items?

Amounts earned by employees Number of exemptions claimed

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

Federal unemployment tax Medicare contributions Social Security contributions

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

FUTA SUTA

a _____ gain is an existing uncertainty that might result in a gain.

Contingent

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

Creates interest expense on the income statement

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

______refers to a company's cash position and overall ability to obtain cash in the normal course of business. (Enter one word per blank)

Liquidity

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

Social Security Medicare

Payroll withholdings ______. (Select all that apply.) a. are amounts added to employees' gross earnings to determine their net pay b. decrease the amount of cash an employee receives c. are amounts subtracted from employees' gross earnings to determine their net pay d. are voluntary e. increase the amount of cash an employee receives

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

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

contingencies

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

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

False Only a portion of the employee's pay is subject to FUTA, or federal unemployment tax.

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.

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

Federal Insurance Contributions Act amounts Unemployment taxes

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.

Common current liabilities include:

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

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

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

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

Warranty

Deferred revenue is classified as

a liability

The feature that distinguishes loss _____ from other liabilities is the uncertain outcome. (Enter one word per blank)

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.

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

liability

Payroll withholdings are

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

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

uncertain

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

warranties