SB8

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

liquidity.

Which of the following may be a proper balance sheet classification of contingent events?

long-term liability current liability

An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) ______ account.

revenue

The point in time when gift cards expire or when it becomes unlikely that customers will redeem them is known as:

gift card breakage

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

increase in assets and an increase in liabilities

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

$20,000 x 0.08 x 6/12 Reason: $20,000 x 0.08 x 6/12 The stated interest rate of 8% is an annual rate and the applicable interest is for 6 months.

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

$250,000.

Volker Company signs a 3-month, $10,000 note. Stated interest rate is 12% payable at the maturity date. Interest incurred on the note is:

$300 Reason: $10,000 x 0.12 x 3/12

Kevin sells $100 of goods to a customer for cash. The sales tax is 8%. The journal entry for this sale will include which of the following entries?

Debit cash $108 Credit revenues $100 Credit sales tax payable $8

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)

annual, 12 month rate.

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

Liquidity

Which of the following are included in FICA taxes?

A 1.45% Medicare tax A 6.2% social security tax

ABC Airlines collects $300 for a round-trip ticket from Chicago to Los Angeles and back. How does ABC Airlines record the $300 collected in advance?

A debit to Cash of $300 and a credit to Deferred Revenue of $300.

Identify characteristics of notes payable that are not common to accounts payable.

Based on promissory note Interest bearing

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

On September 1, 2018, Kale Corporation signed a 6-month, 12% interest-bearing promissory note for $100,000. The journal entry required at December 31, 2018 would include which of the following?

Debit interest expense $4,000 Reason: The annual rate of interest is 12% so the total interest of $12,000 is multiplied by the faction of the year or 4/12

Taylor Company's attorney informs its client that it is possible, but not probable, that the company will lose a currently litigated lawsuit. No reliable estimate of the potential loss is currently available. How should Taylor accrue and/or disclose this potential loss?

Disclose the contingency and state that an estimate cannot be made.

Which payroll tax is paid equally by the employee and the employer?

FICA

FICA is the acronym for the

Federal Insurance Contribution Act.

Withholding taxes for federal and state income tax are based upon which items?

Number of exemptions claimed Amounts earned by employees

Which type of contingent liability would most likely be found on a balance sheet prepared under U.S. GAAP?

Probable contingent liability that can be estimated.

Which of the following may be classified as contingent liabilities?

Product warranties Frequent flier program awards Future litigation losses

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

SUTA FUTA

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.

Under US GAAP, a contingent liability should ______.

be reported on the balance sheet if the loss will probably occur and can be reasonably estimated be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated not be reported if the loss is remote and unable to be estimated

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

debit to Interest expense of $1,000 Reason: Interest expense=$50,000 x 0.06 x (4/12)=$1,000. The interest rate, 6%, is an annual rate, not a 9-month rate. In the current year, 4/12 of 6% will be expensed and the remaining 5/12 (for a total of 9/12) will be expensed in the following year.

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:

debit to loss credit to contingent liability

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 take-home pay.

The employer's portion of FICA tax remitted to the taxing authority is:

the same as the employee's portion

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

uncertain

Deductions from employee pay for contributions toward retirement savings plans and contributions for charitable organizations are examples of:

voluntary employee deductions

Current assets minus current liabilities equals

working capital

During the year, a $1,000,000 lawsuit was filed against a US company for unsafe working conditions. Management and the attorneys feel that it is not likely that the company will lose the case. The plaintiff who filed the lawsuit has offered to settle for $600,000. Management estimates that lawsuits for unsafe working conditions are generally settled for $300,000. What amount of contingent liability would be recorded for this lawsuit on the current balance sheet?

$0 Reason: No liability should be recorded because the loss is "not likely" to occur (and, therefore, is not probable).

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

Warranty

Deferred revenue is classified as

a liability

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.

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

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

liability

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

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

The flipside of a contingent gain is a contingent

loss

The mathematical formula for working capital is current assets ______ current liabilities.

minus

The acid-test ratio is based on a more conservative measure than the current ratio of the company's ability to:

pay its current liabilities

Another name for the acid-test ratio is the

quick ratio

On September 1, 2018, Great Lakes Equipment receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December 2018?

$4,000 Reason: $24,000/24 months = $1,000 per month x 4 months = $4,000 revenue recognized.

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

$400,000.

On June 1, 2018, Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the income statement for 2018?

$7,000 Reason: $24,000/24 months = $1,000 per month x 7 months = $7,000 revenue.

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:

$800 Reason: $20,000 x 0.08 x 6/12

Which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for recording a liability but are at least reasonably possible?

A disclosure must describe the contingency. An estimate of the potential loss should be made (if possible) and disclosed.

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

Creates interest expense on the income statement

Balance Corporation sells $1,000 of goods to a customer for cash. The sales tax is 5%. The journal entry to record the sale will include which of the following?

Credit sales tax payable $50

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?

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

What are the two classifications for liabilities?

Current Long-term

Which of the following is the formula for the current ratio?

Current assets divided by current liabilities.

Choose the correct formula for calculating interest.

Face amount x annual interest rate x fraction of the year

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

False

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

False

Which of the following are employer payroll costs?

Federal and state unemployment taxes Employer portion of Medicare tax

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

Federal income taxes

Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay?

Federal income taxes Health insurance paid by the employee Employee contributions to retirement plans

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.

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

Medicare Social Security

Which of the following transactions will increase a company's working capital?

Receipt of cash on a long-term notes receivable

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

Remote Probable Reasonably possible Concept Resources Read

Common current liabilities include:

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

Which of the following are not required payroll withholdings?

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

A contingent liability is recorded if which conditions are met?

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

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

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

Unemployment taxes Federal Insurance Contributions Act amounts

The ratio that is a more conservative measure than the current ratio of a company's ability to pay its current liabilities is the:

acid-test ratio

An interest rate, unless otherwise specified, is typically a(n)

annual

FICA tax is paid by

both the employee and employer.

Gift card _____ refers to the point in time when gift cards expire or when the likelihood of redemption becomes remote.

break

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)

contingency

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

contingent

is an existing uncertainty that might result in a gain.

contingent gain

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

contingent liabilities

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

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

Which of the following voluntary contributions by employees may employers deduct from their employees' pay?

contributions toward retirement funds employee investments in retirement

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.

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

credit to contingent liability for lawsuit $10,000.

portion of long-term debt is the amount that will be paid within the next year.

current

Deferred revenues and sales tax payable typically are reported as

current liabilities

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

current liabilities

Taxes collected for taxing authorities are recognized as

current liabilities.

Liabilities are classified as

current or long-term

The portion of a long-term liability that will be paid within the next year is referred to and reported as the:

current portion of long-term debt

If a liability is classified as current, rather than noncurrent, the company's working capital will ______.

decrease

Payroll withholdings ______.

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

Which of the following payroll-related costs are incurred by employees?

federal and state income tax employee investments in retirement plans

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

fringe or employee benefits

Which of the following may be a proper income statement classification of contingent events?

non-operating expense operating expense

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

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

warranties

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

warranties

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.