Acc 210 Ch. 8 Test 3

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest payable for the year ended December 31, 2021?

$1.5 million

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account?

$2,000

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest expense for the year ended December 31, 2022?

$4.5 million

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year?

$400

The interest charged on a $90,000 note payable, at the rate of 6%, on a 60-day note would be:

$900

What are deducted from an employee's salary

1. FICA taxes 2. Income taxes 3. Employee portion of insurance and retirement payments

Employer payroll costs:

1. federal and state unemployment tax 2. 1/2 of FICA taxes

Characteristics of liabilities

1. liabilities can be for services rather than cash. 2. liabilities are reported in the balance sheet for almost every business 3. liabilities represent probable future sacrifices

Characteristics of contingencies:

1. the matching principle requires a company to estimate warranty expense and record them in the year the product was sold rather than in the year the product is actually repaired under the warranty 2. contingent gains are not recorded in the accounting system when the loss is possible and reasonably estimable 3. contingent liabilities are recorded int he accounting system when the loss is probable reasonable estimable

NOT deducted from an employee's salary

Unemployment taxes

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will have to pay an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation?

as a liability for $75,000 with disclosure of the range

acid-test ratio

cash, current investments, and accounts receivable divided by current liabilities

Current liabilities may include...

contingent liabilities

NOT true about contingencies:

contingent liabilities are recorded in the accounting system when the loss is possible and reasonably estimable

A company receives $264, of which $24 is for sales tax. The journal entry to record the sale would include:

credit to Sales Taxes Payable for $24

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be:

disclosed but not reported as a liability

The city of Summerton has a sales tax rate of 8%. A local convenience store sells merchandise, and the customer pays a total of $38.34. What effect does this transaction have on total liabilities?

increase of $2.84

NOT true about liabilities

liabilities are result from future transactions

Smith co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation?

no asset or gain is reported

Assuming a current ratio of 1.00 and an acid-test ratio of 0.75, how will the purchase of inventory with cash affect each ratio?

no change to the current ratio and decrease the acid-test ratio

Unearned Rent Revenue is:

reported as a current liability

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as:

sales tax payable

What is current ratio used for?

to measure the short-term ability of a company to pay its obligations

we record interest expense on a note payable in the period in which...

we incur interest

A current liability is a debt that can reasonably be expected to be paid...

within one year, or the operating cycle, whichever is longer