current liabilities

TRUE or FALSE Current liability includes: Deferred revenues Sales tax payable The current portion of long-term debt

TRUE

What are the two classifications for liabilities?

current and long term

Liquidity

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

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

contingencies

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.

Acid-test ratio will increase Current ratio will increase

Withholding taxes for federal and state income tax are based upon

Amounts earned by employees and Number of exemptions claimed

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

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

withholding taxes

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

1. The ability to estimate the amount of payment 2. The likelihood of payment (No specific order)

Poppy Corporation has a current ratio of 2.0 and a quick ratio of 1.6. Poppy purchases additional inventory for cash. What will happen to current ratio?

The current ratio will remain the same.

liability

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.

accounts payable

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

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

liquidity

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

record

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

warranty

On November 1, Year 1, 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, Year 2. The journal entry on November 1, Year 1 would include which of the following?

Debit to Cash $100,000 Credit to Note Payable $100,000

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.

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

The likelihood of future payment or loss

sales tax =

Total Cash Paid - (Total Cash Paid / 1 + Sales Tax Rate)

contingent gain

an existing uncertain situation that might result in a gain

Contingent Liability

an existing uncertain situation that might result in a loss

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

payroll withholdings