SB CH 9

Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal income tax $18,000 and State income tax $3,850. What is the net pay to employees?

$70,000 Net pay = $100,000 - 6,700 - 1,450 - 18,000 - 3,850.

Which of the following are payroll deductions from an employee's gross earnings? (Check all that apply.) FICA tax Medicare Federal income tax State unemployment tax (SUTA) Federal unemployment tax (FUTA)

FICA tax Medicare Federal income tax

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

FUTA SUTA

If a company forgets to record the journal entry to accrue interest expense, then its net income is too ______ and its liabilities are too ______.

high; low

US corporations pay federal taxes on ______. (Check all that apply.) income payroll revenue expenses

income payroll Taxes are paid on income, which is revenue minus expenses.

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

increase in assets and an increase in liabilities

On January 1, 2018, Vango, Inc. purchased a $30,000 van and promised to pay $11,223.34 on December 31 for the next 3 years. The market rate of interest is 6% compounded annually. The entry to record the 2nd payment on December 31, 2019 will include a ______ than in the 1st payment. (Check all that apply.)

larger debit to Notes Payable smaller debit to Interest Expense

The journal entry to record employer payroll taxes owed affects ______.

liabilities and stockholders' equity

Accrued Taxes Payable is a(n) ______ and reports the amount ______.

liability; owed for federal income taxes

Which of the following would result in a deferred revenue? (Select all that apply.) sales on account sales of gift cards sales of subscriptions sales collected within the discount period

sales of gift cards sales of subscriptions

Acme Enterprises began the new year owing its suppliers $3,000 for merchandise purchased last year. Acme then sold half of this merchandise for $5,000 on account. Two weeks later, Acme paid its suppliers $1,000 and bought another $4,000 of merchandise on account. Acme now has an Accounts payable balance of ______.

$6,000 Reason: Accounts payable balance = $3,000 - 1,000 + 4,000 = $6,000.

True or false: A classified balance sheet separates liabilities into current and non-current categories.

True

True or false: Employers are required to withhold income taxes from employees' pay checks.

True

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? (Check all that apply.)

Credit to Note payable for $100,000 Debit to Cash for $100,000

Analysts say that a company has ___________if it has the ability to meet its current obligations.

liquidity

The current ratio and working capital are financial measures of ______.

liquidity

Assuming no inflation, $1 invested today is worth ______.

more than $1 received in the future because interest can be earned over time

A good strategy is to purchase inventory ______.

on credit Purchasing on credit (debit Inventory and credit Accounts payable) is a good source of financing a business operations. Issuing notes payable is not as good because notes are interest bearing.

A bond's maturity date is the date ______.

on which the bond principal will be repaid in full

Many current liabilities on the balance sheet, such as Accounts payable, Accrued wages and Deferred revenue, have a direct relationship to ________________activities on the statement of cash flows.

operating

A(n) ___________is a series of consecutive equal payments such as mortgage payments. (Enter one word per blank.)

annuity

Cellem, Inc.'s Beginning Accounts Payable is $4,000 and its Ending Accounts Payable is $2,000. The accounts payable turnover is 6. Cost of Goods Sold must equal ______.

$18,000 The accounts payable turnover of 6 equals Cost of Goods Sold divided by Average Accounts Payable of $3,000. Cost of Goods Sold equals 6 times $3,000 = $18,000.

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. What is John's net pay?

$486.10 Net pay = $600 - 37.20 - 8.70 - 58 - 10 = $486.10.

On January 1, 2018, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, 2020. The market rate of interest is 6% compounded annually. For the year ended December 31, 2018, Interest Expense on this note payable equals ______. (Round to the nearest whole dollar.)

$534 In 2018, Interest Expense is $534 = $8,900 x 6%. In 2019, Interest Expense is $566 rounded = (($8,900 + 534) x 6%). By January 1, 2020, the Note Payable balance will grow to equal $10,000.

During 2019, Barry Bees, Inc.'s Sales equal $30,000 and Cost of goods sold equals $10,000. Its December 31, 2018 Accounts payable was $800 and its December 31, 2019 Accounts payable is $1,200. Barry Bee's accounts payable turnover equals ______ times for the year ended December 31, 2019.

10 Accounts payable turnover = Cost of Goods Sold/Average Accounts Payable or $10,000/(($800 + $1,200)/2)

Which of the following obligations are long-term? (Check all that apply.)

10-year bonds Notes payable due in 2 years 10-year Leases

Bonds ______. (Check all that apply.)

allow companies to raise more debt capital than a note payable because the bonds are issued to many creditors are sold in established markets making them liquid

Payroll deductions ______. (Check all that apply.)

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

Accounts payable are considered good sources of financing because they ______.

are non-interest bearing

FUTA and SUTA are ______.

expenses paid by employers to cover potential unemployment benefits

Today's Fashions has a debt that has been properly reported as long-term debt before this year. Part of this debt is due this year. If Today's Fashions continues to report the current position of the debt as a long-term liability, then ______.

the current ratio, which equals current assets divided by current liabilities, will be overstated

The present value of a 12% annuity requiring quarterly payments of $1,000 over 2 years, rounded to the nearest $1, equals ______.

$7,020 The present value is $7,020=$1,000 x 7.0197; payments are quarterly thus, the number of periods is 8 and the interest 3%.

On January 1, Year 1, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, Year 3. The market rate of interest is 6% compounded annually. Assuming Notes Payable includes the accrued interest through year-end December 31, Year 2, the journal entry to record the payment of this note on January 1, Year 3 includes a ______. (Check all that apply.)

$10,000 debit to Notes Payable;$10,000 credit to Cash At the end of year 1: $534 (=$8,900 x 6%) is debited to Interest Expense and credited to Notes Payable, resulting in a $9,434 Notes Payable balance. At the end of year 2: $566 (=$9,434 x 6%) is debited to Interest Expense and credited to Notes Payable, resulting in a Notes Payable balance of $10,000 (=$9,434 + 566). On the next day, January 1, Year 3, $10,000 is debited to Notes Payable and credited to Cash.

Working capital equals ______.

current assets minus current liabilities

On September 1, ABC Company borrowed $50,000 with a 6% annual rate by issuing a 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, the adjusting entry at December 31 would include a ______.

debit to Interest expense of $1,000 $50,000 x 6% per year x 4/12 of the year). Remember that the 6% is an annual rate and only 4 months of the year or 4/12 of the year are owed.

Accruing a liability always involves ______ expenses and ______ liabilities.

increasing; increasing Accrued Liabilities represent the amount of unpaid expenses, not assets. Accrued liabilities include unpaid wages, interest, etc. and are recorded with a debit to an expense and a credit to Accrued Liabilities.

Assets are financed with ___ and stockholders' equity.

debt

On January 1, 2018, Moonbucks, Inc., received $79,380 and agreed to pay $100,000 in 3 years on December 31, 2020. The market rate of interest is 8% compounded annually. For the 2nd year ended December 31, 2019, Interest Expense on this note payable equals _____________.

$6,858

Which of the following would result in an accrued liability? (Select all that apply.) Vacation owed Income taxes incurred, but not yet paid Health insurance coverage in retirement Revenues earned, but not yet collected

Vacation owed Income taxes incurred, but not yet paid Health insurance coverage in retirement

Which of the following has the highest present value?

$1 annuity compounded annually over 3 years at 5% The present value factor given 3 years is highest for the $1 annuity at 5% with a present value factor of 2.7232, then the $1 annuity at 7% of 2.6243, then the $1 at 5% of 0.8638 and lastly the $1 at 7% of 0.8163.

Which of the following have the same present value given a 10% interest rate compounded annually? (Check all that apply.)

$1.10 one year from today $1 today

On January 1, 2018, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, 2020. The market rate of interest is 6% compounded annually. For the 2nd year of this note (i.e., ended December 31, 2019), Interest Expense on this note payable equals ______. (Round to the nearest $1.)

$566 For the year ended December 31, 2018, the company incurred Interest Expense of $534 (=$8,900 x 6%). The company's Notes Payable has increased to $9,434 (=$8,900 + $534) at December 31, 2018. For the year ended December 31, 2019, the company's Interest Expense equals $566 (=$9,434 x 6%).

The entry to record the purchase of equipment that requires a $10,000 payment in 2 years includes a ______. The market rate of interest is 9% compounded annually. (Check all that apply.)

$8,417 credit to Notes Payable $8,417 debit to Equipment The present value (or current cost) of the notes payable is $8,417=$10,000 x 0.8417.

Assuming a 365-day year, Barry Bees, Inc.'s Cost of Goods Sold equals $10,000. Its Beginning Accounts Payable was $800, and its Ending Accounts Payable was $1,200. Barry Bee's average number of days payables are outstanding equals _____________days (rounded to the nearest full day).

36.5

If Barry Bees, Inc.'s average number of days payables are outstanding equals 73 days based on a 365-day year, then its accounts payable turnover equals _____times.

5 365/73=5

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31, 2019. Assuming the November 1 transaction was properly recorded, how would the December 31, 2018, year-end adjusting entry affect the accounting equation?

Liabilities increase and stockholders' equity decreases. The year-end adjusting entry to accrue the interest owed requires a debit to Interest Expense (+E, -SE) and a credit to Interest Payable (+L).

What kind of account is deferred (or unearned) revenue?

Liability account

XYZ borrowed $50,000 this year. Half of the loan will be repaid next year and the remainder will be paid the following year. How will the $50,000 be reported on its balance sheet at the end of this year?

Long-term debt of $25,000 Current portion of long-term debt of $25,000

Which of the following are noncurrent liabilities? (Check all that apply.) Note payable due in 3 years Note payable due in 3 months Common stock 20-year mortgage payable Wages payable

Note payable due in 3 years 20-year mortgage payable

Which of the following are long-term liabilities?

Private placement of debt due in 3 years Notes payable due in 3 years Bonds payable

Many current liabilities have a direct relationship to the operating activities of a business. Match the operating activity on the statement of cash flows with the related current liability on the balance sheet.

Purchase of inventory = Accounts payable Cash paid for employee compensation= Accrued salaries Cash received in advance from customers = Deferred revenues Cash paid for income taxes matches = Accrued taxes payable Accrued taxes payable

The adjusting entry to record the amount of vacation earned, but not yet taken, includes a ______. (Check all that apply.)

credit to Accrued vacation liability debit to Compensation expense

On November 1, 2020, 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, 2021. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, 2020, ABC's year end, would include a ______. (Check all that apply.)

credit to Interest Payable of $1,000 debit to Interest Expense of $1,000 Only 2 months of Interest Expense will be recorded: $100,000 x 0.06 x (2/12)=$1,000.

Federal and state unemployment taxes are ______. (Check all that apply.)

expenses to companies paid by employers to cover potential unemployment benefits