Chapter 8 Accounting Smart book
Notes payable is classified as a liability that has which of the following effects?
Creates interest expense on the income statement
Which of the following are employer payroll costs?
Federal and state unemployment taxes Employer portion of Medicare tax
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
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.
Product warranties, effects of environmental problems, and lawsuits are examples of transactions or events that give rise to _____ liabilities.
contingent
Mathematically, the current ratio is expressed as current assets divided by _____ _____
current liabilities
Taxes collected for taxing authorities are recognized as
current liabilities
Which of the following are examples of fringe benefits provided by employers to their employees?
reduced or no-cost company-provided services contributions to retirement and other savings accounts payment of insurance premiums on employees behalf
An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) ______ account.
revenue
Which of the following is a guarantee that protects a customer from product defects for a specified period of time?
warranty
Taxes subtracted from employees' pay and remitted to the government on their behalf are called
wittholding taxes
Current assets minus current liabilities equals _____ _____
working capital
Which of the following are included in FICA taxes?
A 6.2% social security tax A 1.45% Medicare tax
Which of the following tends to be the source of the most commonly reported contingent liability?
warranties
Payroll withholdings ______.
decrease the amount of cash an employee receives are amounts subtracted from employees' gross earnings to determine their net pay
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
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.
Withholding taxes for federal and state income tax are based upon which items?
Amounts earned by employees Number of exemptions claimed
Identify characteristics of notes payable that are not common to accounts payable.
Based on promissory note Interest bearing
Which of these payroll taxes are paid only by the employer?
FUTA SUTA
Choose the correct formula for calculating interest.
Face amount x annual interest rate x fraction of the year
Which of the following may be classified as contingent liabilities?
Product warranties Frequent flier program awards Future litigation losses
Which of the following terms are used to categorize the likelihood of the occurrence of a future loss?
Reasonably possible Remote Probable
Which of the following transactions will increase a company's working capital?
Receipt of cash on a long-term notes receivable
A(n) _______________ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash.
account
A(n) ______________ payable results from an agreement with a supplier to pay within 30 to 60 days, whereas a(n) ______________ payable is a signed contract that promises to pay a specific amount with interest at a specific maturity date.
accounts note
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
Liabilities are classified as
current or long-term
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
Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called ____________ benefits.
employee
True or false: An employer pays federal unemployment tax as a percentage of an employee's total pay for the year.
false
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(n)________ on the balance sheet
liability
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
An interest rate, unless otherwise specified, is typically a(n) _________ rate.
annual
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
employee
State and federal income tax
A _________ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.
contingency
A(n) ______ ______ is an existing uncertainty that might result in a gain.
contingent gain
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.
The mathematical formula for working capital is current assets ______ current liabilities.
minus
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
Issuing a note payable for cash results in a(n) ______.
increase in assets and an increase in liabilities
A loss that is judged to be probable and for which the amount is reasonably estimable should be
recorded
Common current liabilities include:
Sales tax payable The current portion of long-term debt Deferred revenues
Which of these payroll taxes are paid by the employer and the employee?
Social Security Medicare
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
contingency
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.
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 are not required payroll withholdings?
Charitable contributions Federal unemployment tax (FUTA) State unemployment tax (SUTA)
Which of the following is the formula for the current ratio?
Current assets divided by current liabilities.
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
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
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.
employer
State and federal unemployment tax
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 is an important criteria used to determine the reporting of a contingent liability?
The likelihood of future payment or loss
Which of the following payroll-related taxes must the employer pay by law?
Unemployment taxes Federal Insurance Contributions Act amounts
Deferred revenues and sales tax payable typically are reported as _____ liabilities.
current
If a liability is classified as current, rather than noncurrent, the company's working capital will ______.
decrease
Which of the following payroll-related costs are incurred by employees?
employee investments in retirement plans federal and state income tax
Which of the following must employers by law withhold from their employees' pay?
federal income taxes
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 term referring to a company having a sufficient amount of cash to pay its current debts is
liquidity
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 current liability
The flipside of a contingent gain is a contingent
loss
Which of the following may be a proper income statement classification of contingent events?
operating expense non operating expense
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.
A contingent liability is an existing ______ situation that might result in a loss depending on the outcome of a future event.
uncertain
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(n) ______.
warranty
