Smartbook Chapter 9

Sheldon has a $15,000 liability for a machine that has an interest rate of 10%. The interest expense for one year is?

$1,500

Niwa Co. replaced a $3,000 account payable balance to Fiona Co. with a 60-day, $3,000 note bearing 5% annual interest. Niwa's entry to record this transaction would include which of the following entries?

-Credit to Notes Payable -Debit to Accounts Payable

Which of the following items are considered employee benefits?

-Medical insurance -Pension plans

Gorge Lopez worked 40 hours this week and earned $1,000 in total compensation. Federal and state taxes and other withholdings totaled $350. Jorge's gross pay totals $________.

1000

Jorge Lopez worked 40 hours this week and earned $1,000. Federal and state taxes, and other withholdings totaled $350. Jorge's net pay totals $_______.

650

________ are amounts owed to suppliers for products or services purchased on credit.

Accounts Payable

On March 1, Young Co. borrowed $1,000 by extending their past-due account payable with a 120-day, 6% interest-bearing note. On June 29, the due date, Young pays the amount due in full. This entry would be recorded by Young with a credit to _____ in the amount of ______.

Cash; $1,020

Simar Sales Co. sells and installs kitchen appliances. Simar guarantees parts and labor for one year after installation. Simar would record potential claims in a(n) _______ account.

Estimated Warranty Liability

Keys Co. is located in Florida. An evacuation has been ordered due to Hurricane Edward, which is headed in the direction of Keys. Keys should record a contingent liability prior to the evacuation.

False

Which of the following situations is not a contingent liability?

Future natural disaster

_______ is(are) the total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions such as taxes.

Gross pay

Which of the following items is not a payroll deduction?

Net pay

Bushra Co. replaced a $1,000 account payable balance to Elin Co. with a 120-day, $1,000 note bearing 8% annual interest. Bushra's entry to record this transaction would include a credit to which account?

Notes Payable

Which of the following situations would require a journal entry to record the contingent liability in the financial statements?

The liability is probable and estimated to be $10,000.

Employers must pay employee taxes in addition to those paid by the employees. Which of the following is paid only by the employer?

Unemployment

Abby Co. allows each employee two weeks of paid time off during each calendar year. Since employees are working for 50 weeks, rather than 52 weeks, Abby must accrue the paid time off during the 50 weeks that the employees work. The year-end adjusting entry is recorded as a credit to the ________ account.

Vacation Benefits Payable

A ___________ is when an employer provides employees with a percentage of the company's net income earned during the year.

bonus plan

Angela Bennett is an employee of Marks Co. This past year, Angela received 1% of Marks net income, in addition to her annual salary. This added benefit is called a:

bonus plan

When a company guarantees the payment of debt owed by a supplier, customer or another company, the guarantor usually discloses the guarantee as a ______ liability.

contingent

Amounts withheld from employee's earnings for employee income tax is considered a _____ by the employer until the government is paid.

current liability

On June 1, Sawyer Co. borrowed $5,000 by extending their past-due account payable with a 45-day, 12% interest-bearing note. On July 16, the due date, Sawyer pays the amount due in full. Sawyer would record this payment with a (debit/credit) _______ to Interest Expense in the amount of _______.

debit; $75

Unemployment taxes are examples of (employee/employer) _______ taxes.

employer

On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest note. On April 8, Lee Co. will pay National Bank a total of $101,500. The difference between the amount paid back to National Bank of $101,500 and the amount borrowed of $100,000 (or $1,500) represents ________ expense.

interest

______ is the difference between the amount borrowed and the amount repaid.

interest

A _________ is a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events.

liability

Bryne Co. sells merchandise and collects a 5% state sales tax. The tax is recorded on Bryne's general ledger as a(n) ______ account.

liability

When a company has a current obligation to make a future payment to their supplier due to a shipment of supplies that were received last week, the company would record this transaction with an increase to an asset account and a(n) ________ account.

liability

Unearned subscription revenues that extends over multiple periods is an example of a _______ known liability.

multi-period

Gross pay minus all deductions—including federal and state taxes, FICA and any voluntary deductions equals ______ pay.

net

A potential legal claim is recorded

only if payment for damages is probable and the amount can be reasonably estimated.

Amounts withheld from an employee's gross pay are called:

payroll deductions

A written promise to pay a specified amount on a stated future date within one year or the company's operating cycle, whichever is longer, is considered a __________.

short-term note payable

Cadie Construction Co. signed a note promising to pay a cement supplier $1,000 60-days from now. As a result of this transaction, Cadie would record a(n) ________ on her balance sheet.

short-term note payable

The ratio of income before interest expense (and any income taxes) divided by interest expense reflects the risk of a company not being able to pay fixed expenses if sales decline is called the ____________ ratio

times interest earned

Paid absences offered to employees are called ______ benefits.

vacation

A known liability is a measurable obligation arising from agreements, contracts, or laws. Known liabilities would include all of the following items, except:

warranties

A _______ Is a seller's obligation to replace or fix a product (or service) that fails to perform as expected within a specified period.

warranty

Winn Co. signs a 60 day note payable for a $15,000 copy machine with an interest rate of 8%. Winn will record total interest expense of _______.

$200

Patel Paving collected $1,000 cash in advance from a customer to provide paving services next month. The entry to record this cash receipt would include the following entries?

-Debit to Cash -Credit to Unearned Paving Fees Earned

Which of the following liabilities could be a multi-period known liability?

-Unearned Subscription Revenues -Notes Payable

Employee income tax depends on:

-employee's income -number of employee withholding allowances

Which of the following represent reasonably possible contingent liabilities?

-potential legal claims -debt guarantees

Kenesha Co. reported income before interest expense and income taxes of $30,000; interest expense of $3,000; and income taxes of $4,000. Calculate the times interest earned ratio.

10

Zion Co. sells $100 of merchandise and collects $10 sales tax. The sales tax is recorded to which account?

Sales tax payable

A liability created by buying goods or services on credit is typically recorded to

accounts payable

Employee ________ are perks that are provided in addition to salaries and wages, such as all or part of medical, dental, life and disability insurance.

benefits

A known obligation of an uncertain amount that can be reasonably estimated is called a(n) liability.

estimated

A(n) ______ liability is a known obligation that is of an uncertain amount but that can be reasonably estimated.

estimated

On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest note. On April 8, Lee Co. will pay National Bank a total of $101,500. The difference between the amount paid back to National Bank of $101,500 and the amount borrowed of $100,000 (or $1,500) represents expense.

interest

________ is the difference between the amount borrowed and the amount repaid.

interest

_________ is the difference between the amount borrowed and the amount repaid.

interest

A contingent liability can be ignored (not recorded in the financial statements or notes to the financial statements) if it is considered as (probable/reasonably possible/remote) _________ possibility

remote

Bina Consulting Co. collected $500 from a customer in advance to provide consulting fees for the next two months. The $500 would be recorded with a debit to Cash and a credit to the Unearned Revenues, which is a(n) (asset/liability/equity)______ account.

liability

A measurable obligation arising from agreements, contracts, or laws is called a _____ liability.

known