MGMT 20000 Chapter 8 Review

What are the two classifications for liabilities? A. Operating B. Current C. Recurring D. Investing E. Long-term

B. Current E. Long-term

_____ refers to a company's cash position and overall ability to obtain cash in the normal course of business. (Enter one word per blank)

Liquidity

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

current

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

probable

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

uncertain

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

contingency

A(n) _____ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.

contingent

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

contingent

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

warranties

Current assets minus current liabilities equals _____ _____.

working capital

Which of the following payroll-related taxes must the employer pay by law? A. Contributions toward retirement funds B. Union dues C. Federal Insurance Contributions Act amounts D. Unemployment taxes

C. Federal Insurance Contributions Act amounts D. Unemployment taxes

Liabilities are classified as A. revenues and expenses. B. operating and nonoperating. C. current and long-term. D. operating and investing.

C. current and long-term.

The _____ portion of long-term debt is the amount that will be paid within the next year. (Enter only one word.)

current

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

fringe

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. A. Current ratio will increase B. Acid-test ratio will increase C. Current ratio will decrease D. Current ratio will remain unchanged E. Acid-test ratio will decrease F. Acid-test ratio will remain unchanged

A. Current ratio will increase B. Acid-test ratio will increase

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

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

Which of the following terms are used to categorize the likelihood of the occurrence of a future loss? A. Uncertain B. Probable C. Reasonably possible D. Remote E. Certain

B. Probable C. Reasonably possible D. Remote

The term referring to a company having a sufficient amount of cash to pay its current debts is A. security. B. liquidity. C. consistency. D. solvency.

B. liquidity.

Deferred revenue is classified as A. an expense B. a revenue C. a liability D. an asset

C. a liability

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

contingency

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. Credit to Note Payable $100,000 B. Debit to Interest Expense $6,000 C. Credit to Note Payable $106,000 D. Debit to Cash $100,000

A. Credit to Note Payable $100,000 D. Debit to Cash $100,000

Identify a primary reason why financial statement users assess a company's liquidity. A. Lack of liquidity can lead to the bankruptcy of a company that otherwise may have been successful. B. Liquidity represents the most important indicator of profitability. C. Lack of liquidity leads to low asset turnover ratios.

A. Lack of liquidity can lead to the bankruptcy of a company that otherwise may have been successful.

Which of these payroll taxes are paid by the employer and the employee? (Check all that apply.) A. Medicare B. Social Security C. FUTA D. SUTA

A. Medicare B. Social Security

By law, an employer is required to pay which of the following amounts as payroll taxes? A. Social Security contributions B. Health insurance premiums C. Medicare contributions D. Federal unemployment tax E. Life insurance premiums

A. Social Security contributions C. Medicare contributions D. Federal unemployment tax

Which of the following are not required payroll withholdings? A. Social Security B. Federal unemployment tax (FUTA) C. Medicare taxes D. State unemployment tax (SUTA) E. Federal income tax F. Charitable contributions

B. Federal unemployment tax (FUTA) D. State unemployment tax (SUTA) F. Charitable contributions

Which of the following may be classified as contingent liabilities? A. Deferred revenues B. Frequent flier program awards C. Deposits from customers D. Product warranties E. Future litigation losses

B. Frequent flier program awards D. Product warranties E. Future litigation losses

Which of the following must employers by law withhold from their employees' pay? A. contributions toward retirement funds B. unemployment taxes C. Health insurance contributions D. Federal income taxes

D. Federal income taxes

Which of the following is a guarantee that protects a customer from product defects for a specified period of time? A. Promissory note B. Contingency C. Sales allowance D. Warranty

D. Warranty

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. debit notes receivable $5,000. B. debit notes payable $5,000. C. credit notes expense $5,000. D. credit notes payable $5,000.

D. credit notes payable $5,000.

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.)

account

An interest rate, unless otherwise specified, is typically a(n) _____ rate. (Enter one word per blank)

annual

A(n) _____ 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. (Enter one word per blank)

liability

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

liability

Which of these payroll taxes are paid only by the employer? (Check all that apply.) A. FUTA B. SUTA C. Medicare D. Social Security

A. FUTA B. SUTA

The flipside of a contingent gain is a contingent A. loss. B. reserve. C. asset.

A. loss.

A loss that is judged to be probable and for which the amount is reasonably estimable should be A. deferred until the related uncertainly is resolved. B. ignored. C. disclosed only in the notes. D. recorded.

D. recorded.

Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay? A. Employee contributions to retirement plans B. Health insurance paid by the employee C. Federal income taxes D. Employer contribution for social security taxes E. Federal and state unemployment taxes

A. Employee contributions to retirement plans B. Health insurance paid by the employee C. Federal income taxes

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

A. The likelihood of future payment or loss

What are the two criteria used to determine whether a contingent liability is reported in the financial statements? A. The likelihood of payment B. The payment date C. The ability to estimate the amount of payment D. The percentage of the payment to total income

A. The likelihood of payment C. The ability to estimate the amount of payment

Payroll withholdings are A. the payments submitted for both the employee and employer to the government for taxes. B. the employer's portion of taxes paid for social security and Medicare. C. the items subtracted from an employee's gross pay to arrive at take-home pay.

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

Lark Corporation believes it is probable the company will lose a lawsuit for $10,000. The journal entry to record the contingent loss will include a A. credit to lawsuit expense $10,000. B. debit to contingent liability for $10,000. C. credit to retained earnings $10,000. D. credit to contingent liability for lawsuit $10,000.

D. credit to contingent liability for lawsuit $10,000.

Issuing a note payable for cash results in a(n) _____. A. decrease in assets and an increase in liabilities B. increase in liabilities and a decrease in stockholders' equity C. decrease in assets and a decrease liabilities D. increase in assets and an increase in liabilities

D. increase in assets and an increase in liabilities

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

contingent gain

Payroll withholdings _____. (Select all that apply.) A. decrease the amount of cash an employee receives B. are voluntary C. increase the amount of cash an employee receives D. are amounts added to employees' gross earnings to determine their net pay E. are amounts subtracted from employees' gross earnings to determine their net pay

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

Which of the following are examples of fringe benefits provided by employers to their employees? A. reduced or no-cost company-provided services B. contributions to retirement and other savings accounts C. payment for services provided by employee to employer D. FICA matching contributions E. payment of insurance premiums on employees behalf

A. reduced or no-cost company-provided services B. contributions to retirement and other savings accounts E. payment of insurance premiums on employees behalf

Which of the following are employer payroll costs? A. Employee contributions to retirement savings B. Federal and state unemployment taxes C. Employer portion of Medicare tax D. Federal income tax withholding

B. Federal and state unemployment taxes C. Employer portion of Medicare tax

Common current liabilities include: A. Notes payable due in two years B. Sales tax payable C. Deferred revenues D. The current portion of long-term debt E. Prepaid insurance

B. Sales tax payable C. Deferred revenues D. The current portion of long-term debt

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? A. The quick ratio will increase. B. The current ratio will remain the same. C. Working capital decreases. D. The current ratio will decrease.

B. The current ratio will remain the same.

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. accounts receivable. B. accounts payable. C. notes receivable. D. notes payable.

B. accounts payable.

Taxes collected for taxing authorities are recognized as A. prepaid expenses. B. current liabilities. C. revenue. D. operating expenses. E. long-term liabilities.

B. current liabilities.

The mathematical formula for working capital is current assets _____ current liabilities. A. divided by B. minus C. plus D. multiplied by

B. minus

Which of the following tends to be the source of the most commonly reported contingent liability? A. natural disasters B. warranties C. lawsuits

B. warranties

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

C. Creates interest expense on the income statement

The portion of a long-term liability that will be paid within the next year is referred to and reported as the: A. total current liability B. long-term debt C. current portion of long-term debt D. current debt

C. current portion of long-term debt

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) A. asset. B. loss. C. liability. D. expense.

C. liability.

Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The 6% interest rate is a(n) A. annual, 12 month rate. B. 6 month rate. C. a 3 month rate.

A. annual, 12 month rate.

Abbott Corp.'s attorney estimates that the company will ultimately have to pay $400,000 related to current litigation. Abbot's journal entry should include a: A. debit to loss B. debit to contingent liability C. credit to contingent liability D. debit to asset E. credit to retained earning

A. debit to loss C. credit to contingent liability

Amounts that are subtracted from an employee's gross pay are referred to as A. payroll withholdings. B. payroll taxes. C. net pay. D. employee costs.

A. payroll withholdings.

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 $1,100. B. sales taxes payable of $100. C. sales revenue of $1,000.

B. sales taxes payable of $100. C. sales revenue of $1,000.

Taxes subtracted from employees' pay and remitted to the government on their behalf are called A. remittance payment taxes. B. withholding taxes. C. retirement contribution taxes. D. employer payroll taxes.

B. withholding taxes.

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