ACT 210 Chapter 8: Current Liabilities
By law, an employer is required to pay which of the following amounts as payroll taxes?
Social Security contributions Federal unemployment tax Medicare contributions
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.
Identify characteristics of notes payable that are not common to accounts payable.
Interest bearing Based on promissory note
Which of the following payroll-related taxes must the employer pay by law?
Unemployment taxes Federal Insurance Contributions Act amounts
When a contingent event that may give rise to a future loss is likely to occur, it is said to be
probable
An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) ______ account.
revenue
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
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
Taxes subtracted from employees' pay and remitted to the government on their behalf are called
withholding taxes.
Which of the following terms are used to categorize the likelihood of the occurrence of a future loss?
Probable Reasonably possible Remote
Which of the following may be classified as contingent liabilities?
Product warranties Future litigation losses Frequent flier program awards
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(n) ___ payable results from an agreement with a supplier to pay within 30 to 60 days, whereas a(n) ___ payable is a signed contract that promises to pay a specific amount with interest at a specific maturity date.
accounts, notes
An interest rate, unless otherwise specified, is typically a(n) ___ rate.
annual
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.
If a liability is classified as current, rather than noncurrent, the company's working capital will ______.
decrease
Choose the correct formula for calculating interest.
Face amount x annual interest rate x fraction of the year
Which of the following transactions will increase a company's working capital?
Receipt of cash on a long-term notes receivable
Which of these payroll taxes are paid only by the employer?
SUTA FUTA
Which of these payroll taxes are paid by the employer and the employee? (Check all that apply.)
Social Security Medicare
True or false: Your employer is allowed to keep the amounts withheld from your gross pay.
True Your employer is required to send payroll deductions to the appropriate government agency or company.
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.
Acid-test ratio will increase Current ratio will increase
True or false: Current liabilities are always payable within one year.
False
WHich of the following are included in FICA taxes?
A 6.2% social security tax A 1.45% Medicare tax
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
Common current liabilities include:
Deferred revenues The current portion of long-term debt Sales tax payable
FICA is the acronym for the
Federal Insurance Contribution Act.
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
Which of the following payroll-related costs are incurred by employees?
employee investments in retirement plans federal and state income tax
Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called ___ benefits
fringe
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 * 0.08 * 6/12
Withholding taxes for federal and state income tax are based upon which items?
Amounts earned by employees Number of exemptions claimed
Which of the following are not required payroll withholdings?
Charitable contributions State unemployment tax (SUTA) Federal unemployment tax (FUTA)
Notes payable is classified as a liability that has which of the following effects?
Creates interest expense on the income statement
Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay?
Employee contributions to retirement plans Health insurance paid by the employee Federal income taxes
Issuing a note payable for cash results in a(n) ______.
increase in assets and an increase in liabilities
Amounts that are subtracted from an employee's gross pay are referred to as
payroll withholdings.
True or false: An employer pays federal unemployment tax as a percentage of an employee's total pay for the year.
False
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.
Payroll withholdings ___.
are amounts subtracted from employees' gross earnings to determine their net pay decrease the amount of cash an employee receives
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
