Module 8: Current Liabilities

True; The entries a company makes when selling goods subject to the federal excise tax are similar to those made for sales taxes payable.

True/False The entries a company makes when selling goods subject to the federal excise tax are similar to those made for sales taxes payable.

$5,100 credit

In the accounts payable ledger, a merchandiser's account has a beginning balance of $3,900. A transaction is posted in the purchases journal during the month for this same merchandiser in the amount of $1,200. What is the balance of the merchandiser's account at the end of the month? $2,700 credit $5,100 debit $5,100 credit $2,700 debit

Long-term Liabilities

Liabilities owed for more than a year

Clearly Determinable Liabilities

Liabilities whose existence and amount are certain. Examples include accounts payable, notes payable, interest payable, unearned delivery fees, wages payable, sales tax payable, federal excise tax payable, current portions of long-term debt, and various payroll liabilities

$5,100

Maxwell Company records its sales taxes when the transaction occurs. The sales account has a balance of $265,000 at the end of the current period. The sales tax payable account has a balance of $10,800 and the sales tax rate is 6 percent. The amount of the adjustment to sales tax payable at the end of the current period is __________. $5,100 $15,900 $26,700 $10,800

Current Liabilities

Obligations that a company expects to pay within the next year or operating cycle, whichever is longer.

Contingent Liabilities

Obligations that are payable within one year or one operating cycle, whichever is longer or will be paid out of current assets or create other current liabilities.

the name of the payee

To compute interest on a promissory note, all of the following elements must be known except __________. the life of the note the face value of the note the name of the payee the stated interest rate

False; Accounts payable are amounts owed to suppliers for previous purchases made on credit.

True/False Accounts payable are amounts owed to customers for previous purchases made on credit.

False; The nature of a contingent liability is that it may or may not be realized and thus the existence of the liability itself is in question, not just the amount. The existence is uncertain as well.

True/False Contingent liabilities are when the liability exists but the amount is uncertain.

True; Current liabilities are classified into these three categories.

True/False Current liabilities are classified as clearly determinable, estimated, and contingent.

False; Liabilities result from a past transaction.

True/False Liabilities result from a future transaction.

False; To be classified as a current liability, the long-term debt must be maturing within the next year.

True/False Long-term debt is reclassed to a current liability if the company has the financial means to pay it in the near future.

Office Equipment

A company is redesigning their office space and has decided to purchase new office furniture from a local retailer. In the related journal entry, which account should be debited to record the purchase of office furniture on account? Office Equipment Office Supplies Expense Cash Accounts Payable

Borrower; lender

A note payable is an unconditional written promise by a _______ to pay a definite sum of money to the ________ on demand or on a specific date.

Probable; contingent

According to FASB Statement No. 5, if the liability is _______ and the amount can be reasonably estimated, companies should record ______ liabilities in the accounts.

Debit Estimated Product Warranty Payable, credit Wages Payable

After a warranty obligation is recorded when a product is repaired, which accounts are impacted when the service is performed? Debit Estimated Product Warranty Payable, credit Wages Payable Debit Estimated Product Warranty Payable, credit Product Warranty Expense Debit Product Warranty Expense, credit Estimated Product Warranty Payable Debit Credit Wages Payable, credit Estimated Product Warranty Payable

Debit Accounts Receivable $10,800, credit Sales Revenue $10,000, credit State Excise Tax Payable $800.

Company A fulfills a $10,000 order on account. The state has a state excise tax of 8% on cosmetics. What is the journal entry to record this transaction? Debit Accounts Receivable $10,000, credit Sales Revenue $10,000. Debit Accounts Receivable $10,000, credit Sales Revenue $9,200, credit Excise Tax Payable $800. Debit Accounts Receivable $10,800, credit Sale Revenue 10,800. Debit Accounts Receivable $10,800, credit Sales Revenue $10,000, credit State Excise Tax Payable $800.

Liabilities

Debts owed by the business

Estimated Liabilities

Existence of the liability is certain, but its amount only can be estimated.

False; To provide for a proper matching of revenues and expenses, the accountant estimates the warranty expense resulting from an accounting period's sales.

True/False To provide for a proper matching of revenues and liabilities, the accountant estimates the warranty expense resulting from an accounting period's sales.

False; Estimated product warranty payable is credited.

True/False When the warranty expense is recorded at the end of the period, it is credited for the estimated cost of the remaining amount of repairs.

Lawsuits

What is a common reason for contingent liabilities? Loans Lawsuits State tax Excise tax

With estimated liabilities, the liability is certain. With contingent liabilities, the existence of the liability is uncertain.

What is the difference between an estimated liability and a contingent liability? With estimated liabilities, the amount is certain. With contingent liabilities, the amount is estimated. With estimated liabilities, the amount is certain. With contingent liabilities, the existence is uncertain. With estimated liabilities, the existence of the liability is uncertain. With contingent liabilities, the existence is certain. With estimated liabilities, the liability is certain. With contingent liabilities, the existence of the liability is uncertain.

An increase in liabilities

When a company purchases office supplies on account, what should be recorded in the journal entry? A decrease in assets A decrease in liabilities An increase in liabilities A decrease in expenses

The debit is to Cash and the credit is to Sales Tax Payable.

When companies collect sales tax, which account is debited and which account is credited? The debit is to Cash and the credit is to Sales Tax Payable. The debit is to Sales Tax Payable and the credit is to Cash. The debit is to Sales Tax Payable and the credit is to Sales Tax Expense. The debit is to Sales Tax Expense and the credit is to Sales Tax Payable.

Notes to financial statements

Where do companies often disclose contingent liabilities? Income statement Press releases Notes to financial statements Statement of cash flows

18-month Note Payable

Which is not an example of a current liability? Accounts Payable 2-month Note Payable Unearned Delivery Fees 18-month Note Payable

A manufacturing company

Which type of company typically has the longest operating cycle? A merchandising company A manufacturing company A service company They are all equal.