acctg-201 - chapter 8

Payroll withholdings ___. (Select all that apply.)

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

What are the two classifications for liabilities?

- long-term - current

Which of these payroll taxes are paid by the employer and the employee? (Check all that apply.)

- social security - medicare

Which of the following are not required to be deducted from an employee's paycheck?

- state unemployment tax (SUTA) - charitable contributions - federal unemployment tax (FUTA)

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.

___ 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

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

The likelihood of future payment or loss

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

Warranty

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.

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.)

accounts or account

Liabilities are classified as

current and long term.

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. (Enter one word per blank)

liability or liabilities

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

liquidity.

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

recorded.

Payroll withholdings are

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

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

uncertain, undecided, or unknown

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, guarantee, or warranties

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.

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

current or short-term

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

- Amounts earned by employees - Number of exemptions claimed

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

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

contingencies, contingency, or contingent

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

contingency, contingencies, or contingent

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

contingent or contingency

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

false

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

contingent, contingency, or contingencies

The flipside of a contingent gain is a contingent

loss

Common current liabilities include:

- Deferred Revenues - Sales Tax Payable - the current portion of long-term debt

Which of these payroll taxes are paid only by the employer? (Check all that apply.)

- FUTA - SUTA

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.

What are the two criteria used to determine whether a contingent liability is reported in the financial statements?

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

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.

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

payroll withholdings.