Ch. 8 Smartbook

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 Employee contributions to retirement plans Federal income taxes

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.

Taxes collected for taxing authorities are recognized as

current liability

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

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

the likelyhood of future payment

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

uncertain

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

withholding taxes

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

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

creates interest expense on the income statement

Liabilities are classified as

current and long term

liabilities are classified as

current and long term

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

---- refers to a company's cash position and overall ability to obtain cash in the normal course of business

liquidity

Which of the following may be a proper balance sheet classification of contingent events?

long-term liability

Which of the following may be a proper income statement classification of contingent events?

operating and non operating expenses

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

payroll withholdings

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

probable

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

product warranty

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

recorded

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.

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

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

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

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.

Deferred revenues and sales tax payable typically are reported as

current liabilities

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

deferred revenue should be classified as a ------- on the balance sheet

liability

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

social security and medicare

employer

state and federal unemployment tax

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

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

Common current liabilities include:

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

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

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

which of the following are employer payroll costs

Employer portion of Medicare tax Federal and state unemployment taxes

Choose the correct formula for calculating interest.

Face amount x annual interest rate x fraction of the year

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

Medicare Social Security

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

Number of exemptions claimed Amounts earned by employees

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

Probable Reasonably possible Remote

Which of the following may be classified as contingent liabilities?

Product warranties Future litigation losses Frequent flyer program awards

Which of these payroll taxes are paid only by the employer?

SUTA, FUTA

a short-term liability that occurs when a company purchases goods and does not immediately pay with cash

account payable

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

An interest rate, unless otherwise specified, is typically a(n)

annual rate

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

Payroll withholdings ...

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

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

false

Which of the following payroll-related costs are incurred by employees?

federal and state income tax, employee investments in retirement plans

Which of the following are employer payroll costs?

federal and state unemployment taxes, employer matching portion of social security and medicare, employer contributions for health, dental, disability, and life insurance, employer contributions to retirement or savings plans

obtaining a note payable for cash results is a

increase in assets and an increase in liabilities

employee

state and federal income tax

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?

Federal unemployment tax Social Security contributions Medicare contributions

Which of the following may be classified as contingent liabilities?

Frequent flyer program awards Product warranties Future litigation losses

Which of the following are not required payroll withholdings?

SUTA, FUTA, Charitable contributions

Common current liabilities include:

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

Which of the following are not required payroll withholdings?

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

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

The ability to estimate the amount of payment The likelihood of payment

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.

payroll withholdings

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

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

contingencies

Which of the following are examples of fringe benefits provided by employers to their employees?

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

Which of the following are examples of fringe benefits provided by employers to their employees?

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

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

warranty