ACCT 251 - Chapter 8

A(n) ____ gain is an existing uncertainty that might result in a gain.

contingent or contingency

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

contingent, contingency, or contingencies

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

warranties, guarantees, or warranty

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

contingency, contingencies, or contingent

Deferred revenues and sales tax payable typically are reported as ____ liabilities.

current or short-term

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

fringe or employee

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

probable

Choose the correct formula for calculating interest. a. Face amount x rate per interest period b. Present value x rate per interest period c. Face amount x annual interest rate x fraction of the year

c. Face amount x annual interest rate x fraction of the year

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) a. notes receivable. b. notes payable. c. accounts payable. d. accounts receivable.

c. accounts payable.

Select all that apply Which of the following may be classified as contingent liabilities? a. Frequent flyer program awards b. Future litigation losses c. Deposits from customers d. Deferred revenues e. Product warranties

a. Frequent flyer program awards b. Future litigation losses e. Product warranties.

Select all that apply 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? a. Debit to Interest Expense $6,000 b. Credit to Note Payable $100,000 c. Credit to Note Payable $106,000 d. Debit to Cash $100,000

b. Credit to Note Payable $100,000 d. Debit to Cash $100,000

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

b. False

Which of the following transactions will increase a company's working capital? a. Purchase of inventory on account b. Receipt of cash on a short-term notes receivable c. Payment of an accounts payable d. Receipt of cash on a long-term notes receivable e. Collection of an accounts receivable balance

d. Receipt of cash on a long-term notes receivable

Deferred revenue should be classified as a(n) ____ on the balance sheet. (Enter one word per blank)

liability or liabilities

A contingent liability is an existing ____ situation that might result in a loss depending on the outcome of a future event.

uncertain or undecided

Obtaining a note payable for cash results in a(n) ______. a. decrease in assets and a decrease liabilities b. increase in assets and an increase in liabilities c. increase in liabilities and a decrease in stockholders' equity d. decrease in assets and an increase in liabilities

b. increase in assets and an increase in liabilities

Select all that apply Withholding taxes for federal and state income tax are based upon which items? a. Size of the corporation in total assets b. Number of exemptions claimed c. Amounts earned by employees d. Number of employees at the company

b. Number of exemptions claimed c. Amounts earned by employees

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 a. credit notes expense $5,000. b. debit notes payable $5,000. c. credit notes payable $5,000. d. debit notes receivable $5,000.

c. credit notes payable $5,000.

If a liability is classified as current, rather than noncurrent, the company's working capital will ______. a. stay the same b. increase c. decrease

c. decrease

Select all that apply Which of the following terms are used to categorize the likelihood of the occurrence of a future loss? a. Probable b. Reasonably possible c. Uncertain d. Certain e. Remote

a. Probable b. Reasonable possible e. Remote

Select all that apply 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. a. sales revenue of $1,000. b. sales revenue of $1,100. c. sales taxes payable of $100.

a. sales revenue of $1,000. c. sales taxes payable of $100.

Mathematically, the current ratio is expressed as current assets divided by ____ ____ .

current; liabilities or liability

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) ____ . (Enter one word per blank)

warranty, guarantee, or warranties

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 a. $20,000 x 0.08 x 6/12 b. $20,000 x 0.08 x 6 c. $20,000 x 0.08

a. $20,000 x 0.08 x 6/12

Notes payable is classified as a liability that has which of the following effects? a. Creates interest expense on the income statement b. Creates an asset on the balance sheet c. Creates deferred revenue on the income statement d. Creates revenue on the income statement

a. Creates interest expense on the income statement

Select all that apply Which of the following payroll-related taxes must the employer pay by law? a. Federal Insurance Contributions Act amounts b. Contributions toward retirement funds c. Union dues d. Unemployment taxes

a. Federal Insurance Contributions Act amounts d. Unemployment taxes

Which of the following must employers by law withhold from their employees' pay? a. Federal income taxes b. Health insurance contributions c. unemployment taxes d. contributions toward retirement funds

a. Federal income taxes

Select all that apply Which of the following are not required to be deducted from an employee's paycheck? a. Federal unemployment tax (FUTA) b. Charitable contributions c. State unemployment tax (SUTA) d. Medicare taxes e. Social Security f. Federal income tax

a. Federal unemployment tax (FUTA) b. Charitable contributions c. State unemployment tax (SUTA)

Select all that apply What are the two classifications for liabilities? a. Long-term b. Operating c. Investing d. Current e. Recurring

a. Long-term d. Current

Select all that apply Which of these payroll taxes are paid only by the employer? (Check all that apply.) a. SUTA b. FUTA c. Social Security d. Medicare

a. SUTA b. FUTA

Select all that apply Common current liabilities include: a. Sales tax payable b. The current portion of long-term debt c. Notes payable due in two years d. Deferred revenues e. Prepaid insurance

a. Sales tax payable b. The current portion of long-term debt d. Deferred revenues

Taxes collected for taxing authorities are recognized as a. current liabilities. b. revenue. c. prepaid expenses. d. operating expenses. e. long-term liabilities.

a. current liabilities.

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

accounts or account

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

b. False

Which of these payroll taxes are paid by the employer and the employee? (Check all that apply.) a. FUTA b. Medicare c. SUTA d. Social Security

b. Medicare d. Social Security

Select all that apply A contingent liability is recorded if which conditions are met? a. There is a remote chance that a future loss will occur. b. The amount of the loss can be reasonably estimated. c. It is probable that a future loss will occur.

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

Select all that apply What are the two criteria used to determine whether a contingent liability is reported in the financial statements? a. The payment date b. The likelihood of payment c. The percentage of the payment to total income d. The ability to estimate the amount of payment

b. The likelihood of payment d. The ability to estimate the amount of payment

Which of the following is a guarantee that protects a customer from product defects for a specified period of time? a. Contingency b. Warranty c. Sales allowance d. Promissory note

b. Warranty

Select all that apply Which of the following are examples of fringe benefits provided by employers to their employees? a. payment for services provided by employee to employer b. contributions to retirement and other savings accounts c. reduced or no-cost company-provided services d. payment of insurance premiums on employees behalf e. FICA matching contributions

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

Select all that apply Payroll withholdings ______. (Select all that apply.) a. increase the amount of cash an employee receives b. decrease the amount of cash an employee receives c. are amounts subtracted from employees' gross earnings to determine their net pay d. are amounts added to employees' gross earnings to determine their net pay e. are voluntary

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

The flipside of a contingent gain is a contingent a. reserve. b. loss. c. asset.

b. loss.

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 a. $375,000. b. $500,000. c. $250,000.

c. $250,000.

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 a. $350,000. b. $425,000. c. $400,000. d. $500,000.

c. $400,000.

The feature that distinguishes loss ____ from other liabilities is the uncertain outcome. (Enter one word per blank)

contingencies, contingency, or contingent

Which of the following is an important criteria used to determine the reporting of a contingent liability? a. The classification of the related expense or loss b. The potential effect on financial statement users c. The effect on key balance sheet ratios d. The likelihood of future payment or loss

d. The likelihood of future payment or loss

Deferred revenue is classified as a. an asset b. a revenue c. an expense d. a liability

d. a liability

The mathematical formula for working capital is current assets ______ current liabilities. a. divided by b. plus c. multiplied by d. minus

d. minus

A loss that is judged to be probable and for which the amount is reasonably estimable should be a. disclosed only in the notes. b. deferred until the related uncertainly is c. resolved. d. ignored. e. recorded.

d. recorded.

Current assets minus current liabilities equals ____ ____.

working; capital or capitol