Chapter 8 Smartbook

current liabilities.

Taxes collected for taxing authorities are recognized as

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

Payroll withholdings are

Current assets divided by current liabilities.

Which of the following is the formula for the current ratio?

-Future litigation losses -Product warranties -Frequent flier program awards

Which of the following may be classified as contingent liabilities?

working capital

Current assets minus current liabilities equals

Employer

State and federal unemployment tax

probable

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

Warranty

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

liability

deferred revenue is classified as a:

revenue

An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) ______ account.

Liabilities are classified as

current and long-term.

Receipt of cash on a long-term notes receivable

Which of the following transactions will increase a company's working capital?

false

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

Payroll withholdings ______. (Select all that apply.)

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

recorded

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

liability

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)

Choose the correct formula for calculating interest.

Face amount x annual interest rate x fraction of the year

liability

Deferred revenue should be classified as a(n) ________ on the balance sheet.

current

Deferred revenues and sales tax payable typically are reported as_____________liabilities.

warranties

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

accounts 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)

- It is probable that a future loss will occur. - The amount of the loss can be reasonably estimated.

A contingent liability is recorded if which conditions are met?

An interest rate, unless otherwise specified, is typically a ____ rate

annual

increase in assets and an increase in liabilities

Issuing a note payable for cash results is a(n) ______.

Contingent

A ______ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event

Contingent gain

A _______ ______ is an existing uncertainty that might result in a gain

contingencies

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

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

Common current liabilities include:

Employee

State and federal income tax

loss

The flipside of a contingent gain is a contingent _______.

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

accounts

Federal Insurance Contribution Act.

current portion of long-term debt FICA is the acronym for the

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

payroll withholdings.

Federal unemployment tax Medicare contributions Social Security contributions

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

fringe

Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called______________benefits.

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

Creates interest expense on the income statement

- operating expense - non-operating expense

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

Lack of liquidity can lead to the bankruptcy of a company that otherwise may have been successful.

Identify a primary reason why financial statement users assess a company's liquidity.

- Based on promissory note - Interest bearing

Identify characteristics of notes payable that are not common to accounts payable.

decrease

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

current liabilities

Mathematically, the current ratio is expressed as current assets divided by:

Probable Reasonably possible Remote

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

contingent

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

warranty

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 ____________

the same as the employee's portion

The employer's portion of FICA tax remitted to the taxing authority is:

contingencies

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

current

The ________ portion of long-term debt is the amount that will be paid within the next year.

minus

The mathematical formula for working capital is current assets ______ current liabilities.

current portion of long-term debt

The portion of a long-term liability that will be paid within the next year is referred to and reported as the:

false

True or false: Your employer is allowed to keep the amounts withheld from your gross pay.

current and long term

What are the two classifications for liabilities?

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

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

Acid-test ratio will increase Current ratio will increase

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.

- Employer portion of Medicare tax - Federal and state unemployment taxes

Which of the following are employer payroll costs?

- Federal and state unemployment taxes - Employer portion of Medicare tax

Which of the following are employer payroll costs?

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

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

A 6.2% social security tax A 1.45% Medicare tax

Which of the following are included in FICA taxes?

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

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

the likelihood of future payment or loss

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

current liability; long-term liability

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

Federal income taxes

Which of the following must employers by law withhold from their employees' pay?

employee investments in retirement plans federal and state income tax

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

Medicare; Social Security

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

FUTA; SUTA

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

Liquidity

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

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