Chapter 8

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

- Probable - Reasonably possibly - Remote

What may be classified as contingent liabilities?

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

What payroll taxes are paid by the employer and the employee?

- Social security - Medicare

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

contingencies

A transaction or event in which the outcome is uncertain is referred to as a(n)

contingent

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

contingent gain

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)

Liability

Poppy Corporation has a current ratio of 2.0 and a quick ratio of 1.6. Poppy purchases additional inventory for cash. Which of the following occurs?

The current ratio will remain the same.

The flipside of a contingent gain is a contingent

loss

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

warranty

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)

Accounts payable

Deffered revenue is classified as _____

a liability

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

Payroll withholdings

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

contingent liabilities

Long-term liability

Normally payable more than one year from now

Current liability

Normally payable within one year

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

- Medicare contributions - Social Security contributions - Federal unemployment tax

What are some examples of fringe benefits provided by employers to their employees?

- Payment of insurance premiums on employees behalf - Reduced or no-cost company-provided services - Contributions to retirement and other savings accounts

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

Accounts

What are the important criteria used to determine the reporting of a contingent liability?

The likelihood of future payment or loss

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

increase in assets and an increase in liabilities

Notes payable is classified as a liability that has what effect?

- Creates interest expense on the income statement

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?

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

Common current liabilities include:

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

Which of these payroll taxes are paid only by the employer?

- FUTA - SUTA

Which of the following payroll-related taxes must the employer pay by law?

- Federal Insurance Contributions Act amounts - Unemployment taxes

What are some examples that are not required payroll withholdings?

- Federal unemployment tax (FUTA) - State unemployment tax (SUTA) - Charitable contributions

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.

- sales revenue of $1,000. - sales taxes payable of $100.

Deferred revenues and sales tax payable typically are reported as

Current liabilities

Taxes collected for taxing authorities are recognized as

Current liabilities

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

Employee benefits

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

Federal income taxes

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.

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

Liquidity

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

Withholding taxes

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

probable

Payroll withholdings are

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

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

Payroll withholdings ______.

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

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

Credit notes payable $5,000