pre-chapter 8

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

Remote Probable Reasonably possible

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

current

Taxes collected for taxing authorities are recognized as

current liabilities.

Which of the following are examples of fringe benefits provided by employers to their employees?

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

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.

Payroll withholdings are

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

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

FUTA SUTA

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

contingent

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

contingent

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

contingent

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

contingent

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

contingent gain

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.

An employer pays federal unemployment tax as a percentage of an employee's total pay for the year.

False

A contingent liability is recorded if which conditions are met?

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

Liabilities are classified as

current and long-term.

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) _________.

warranty

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

withholding taxes.

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.

Current ratio will increase Acid-test ratio will increase

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

Unemployment taxes Federal Insurance Contributions Act amounts

Which of the following is a guarantee that protects a customer from product defects for a specified period of time?

Warranty

Payroll withholdings ______.

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

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

fringe

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

increase in assets and an increase in liabilities

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

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.

liability

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.

liability

Deferred revenue should be classified as a(n) _________ on the balance sheet.

liability

________ refers to a company's cash position and overall ability to obtain cash in the normal course of business.

liquidity

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

liquidity.

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

uncertain

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

contingent

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.

A loss that is judged to be probable and for which the amount is reasonably estimable should be

recorded.

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

warranty

Notes payable is classified as a liability that has which of the following effects?

Creates interest expense on the income statement

What are the two classifications for liabilities?

Current Long-term

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

Your employer is allowed to keep the amounts withheld from your gross pay.

False

Which of the following are not required payroll withholdings?

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

Which of the following may be classified as contingent liabilities?

Future litigation losses Frequent flier program awards Product warranties

Which of these payroll taxes are paid by the employer and the employee?

Medicare Social security

Common current liabilities include:

Sales tax payable Deferred revenues 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?

The current ratio will remain the same.

Which of the following is an important criteria used to determine the reporting of a contingent liability?

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?

The likelihood of payment The ability to estimate the amount of payment

Deferred revenue is classified as

a liability

Which of the following tends to be the source of the most commonly reported contingent liability?

warranties

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

accounts

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.

The flipside of a contingent gain is a contingent

loss.

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

payroll withholdings.

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

probable