CH 9 - Current Liabilities

Sheldon has a $15,000 liability for a machine that has an interest rate of 10%. The interest expense for one year is?

$1,500 Reason: $15,000 x .10 = $1,500

Damien Co. has $10,000 of unearned revenues on its balance sheet. Damien expects that it will earn $8,000 of these revenues in the upcoming twelve months. How much will be recorded in Long-Term Liabilities?

$2,000 Reason: $2,000. $8,000 is reported in the current liabilities section.

On November 1, Wright Co. borrowed $20,000 cash from Third Bank by signing a 90-day, 6% interest-bearing note. On December 31, Wright recorded an adjusting entry to interest expense of $200. On January 30, the due date of the note, Wright will record the payment with a debit to Interest Expense in the amount of $

100

On March 1, Young Co. borrowed $1,000 by extending their past-due account payable with a 120-day, 6% interest-bearing note. On June 29, the due date, Young pays the amount due in full. This entry would be recorded by Young with a credit to

Cash; $1,020 Reason: Interest is computed for 120 days. $1,000 x .06 x (120/360) = $20. Cash will be credited for $1,000 + 20.

On March 1, Young Co. borrowed $1,000 cash from Superior Bank by signing a 120-day, 6% interest-bearing note. On June 29, Young pays the amount due in full. This entry would be recorded by Young with a credit to______ in the amount of ______.

Cash; $1,020 Reason: Interest is computed for 120 days. $1,000 x .06 x (120/360) = $20. Cash will be credited for $1,000 + 20.

Lyon Co. collected $1,200 in sales tax from customers during the month of March. In April, Lyon sent the $1,200 sales tax to the state government. The entry to record payment to the state would include which of the following? (Check all that apply.)

Credit to Cash Debit to Sales Tax Payable

Patel Paving collected $1,000 cash in advance from a customer to provide paving services next month. The entry to record this cash receipt would include the following entries? (Check all that apply.)

Credit to Unearned Paving Fees Earned Debit to Cash

Simar Sales Co. sells and installs kitchen appliances. Simar guarantees parts and labor for one year after installation. Simar would record potential claims in a(n) ____ account

Estimated Warranty Liability

Federal government taxes implemented on employers in order to provide unemployment benefits to qualified workers are known as (use acronym)

FUTA

The federal government requires that employers are taxed on employee wages to provide unemployment benefits to qualified workers. These taxes are known as:

FUTA

Keys Co. is located in Florida. An evacuation has been ordered due to Hurricane Edward, which is headed in the direction of Keys. Keys should record a contingent liability prior to the evacuation.

False Reason: Contingent liabilities cannot be recorded for future events.

Which of the following situations is not a contingent liability?

Future natural disaster

______ is(are) the total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions such as taxes.

Gross pay

FICA tax includes both Social Security tax and

Medicare tax

Which of the following items is not a payroll deduction?

Net pay

Bushra Co. replaced a $1,000 account payable balance to Elin Co. with a 120-day, $1,000 note bearing 8% annual interest. Bushra's entry to record this transaction would include a credit to which account?

Notes Payable

Which of the following liabilities could be a multi-period known liability? (Check all that apply.)

Notes Payable Unearned Subscription Revenues

On January 1, Avers Co. borrowed $10,000 by extending their past-due account payable with a a 60-day, 8% interest-bearing note. On March 1, the due date, Avers pays the amount due in full. This entry would be recorded by Avers with a debit to (Accounts Payable/Notes Payable/Cash) in the amount of

Notes Payable; $10,000

Which of the following items are considered employee benefits? (Check all that apply.)

Pension plans Medical insurance

State unemployment taxes imposed on employers in order to provide unemployment benefits to qualified workers are known as (use acronym)

SUTA

State unemployment taxes imposed on employers in order to provide unemployment benefits to qualified workers are known as:

SUTA

Damen's Co. sells merchandise with a list price of $500 and collects sales tax of $50. The sales tax would be recorded with a credit to which account?

Sales Tax Payable

Zion Co. sells $100 of merchandise and collects $10 sales tax. The sales tax is recorded to which account?

Sales tax payable

Which of the following is a true statement concerning the employer FICA taxes:

The employer must pay FICA tax in an amount equal to that paid by the employee.

Which of the following contingent liabilities would require a company to record a note to the financial statements? (Check all that apply.)

The liability is probable and cannot be reasonably estimated. The liability is possible and cannot be reasonably estimated. The liability is possible and is estimated to be $35,000.

Which of the following situations would not be required to be recorded in the financial statements or reported as a note to the financial statements?

The liability is remote and estimated to be $30,000.

Amounts received in advance from customers for future products or services are typically recorded in a liability account called

Unearned Revenues

A company sells 12-month popular magazine subscriptions. During the month of May, the company sells $12,000 in magazines, which will start in June. The adjusting entry to record the $1,000 of subscriptions earned in June will include a debit to which account?

Unearned Subscription Revenue

A company sells 12-month subscriptions to popular magazines. During the month of May, the company sells $10,000 in magazines, which will start in June. The journal entry to record the sales not yet earned will include a credit to which account?

Unearned Subscription Revenue

Employee ______ are perks that are provided in addition to salaries and wages, such as all or part of medical, dental, life and disability insurance.

benefits

A______ is when an employer provides employees with a percentage of the company's net income earned during the year.

bonus plan

Angela Bennett is an employee of Marks Co. This past year, Angela received 1% of Marks net income, in addition to her annual salary. This added benefit is called a:

bonus plan

When a company guarantees the payment of debt owed by a supplier, customer or another company, the guarantor usually discloses the guarantee as a (known/contingent) liability

contingent

A (long-term/current) liability is a liability due within one year or the company's operating cycle, whichever is longer.

current

Woods Co. has a note payable due in monthly installments over the next five years. This note will be reported under which of the following categories of the balance sheet? (Check all that apply.)

current liabilities long-term liabilities

Amounts withheld from employee's earnings for employee income tax is considered a Blank______ by the employer until the government is paid.

current liability

On December 1, Hansen Co. borrowed $100,000 cash from National Bank by signing a 90-day, 6% interest-bearing note. On December 31, Hansen recorded an adjusting entry to record interest expense of $500. On March 1, the due date of the note, Hansen will record interest expense as a (debit/credit)______ in the amount of ______.

debit; $1,000 Reason: 90 day note. 30 days of interest was recorded at December 31. 60 days of interest is recorded on 3/1. $100,000 x .06 x (60/360) = $1,000. Debit interest expense for $1,000.

On June 1, Sawyer Co. borrowed $5,000 cash from Crystal Bank by signing a 45-day, 12% interest-bearing note. On July 16, Sawyer pays the amount due in full. Sawyer would record this payment with a (debit/credit) to interest expense in the amount of

debit; $75 Reason: Interest expense is debited for $75 computed as $5,000x.12x(45/360). The credit is to Cash for $5,075.

Unemployment taxes are examples of (employee/employer)required taxes.

employer

A known obligation of an uncertain amount that can be reasonably estimated is called a(n) ____ liability

estimated

A(n) ______ liability is a known obligation that is of an uncertain amount but that can be reasonably estimated.

estimated

A measurable obligation arising from agreements, contracts, or laws is called a _____ liability.

known

A(n) (asset/liability/revenue) is a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events.

liability

Bryne Co. sells merchandise and collects a 5% state sales tax. The tax is recorded on Bryne's general ledger as a(n) ____ account

liability

When a company has a current obligation to make a future payment to their supplier due to a shipment of supplies that were received last week, the company would record this transaction with an increase to an asset account and a(n) _____ account

liability

Obligations due after one year or one operating cycle, whichever is longer, are considered to be:

long-term liabilities.

Ace Company borrowed $10,000 from Fair Rates Bank by signing a two-year note payable. Ace's operating cycle is 14 months. This note would be considered a ______ on the balance sheet.

long-term liability

Amounts withheld from an employee's gross pay are called:

payroll deductions

Cadie Construction Co. signed a note promising to pay a cement supplier $1,000 60-days from now. As a result of this transaction, Cadie would record a(n) _____ on her balance sheet

short-term note payable

A liability can be recorded, even if there is uncertainty of when to pay, how much to pay, or whom to pay.

true

Paid absences offered to employees are called (pension/vacation) benefits

vacation

Employers often withhold amounts from employees' earnings which arise from employee requests, contracts, unions, or other agreements. These withholdings are called employee______ and include items such as medical premiums.

voluntary deductions

A known liability is a measurable obligation arising from agreements, contracts, or laws. Known liabilities would include all of the following items, except:

warranties.

A (repair/warranty) is a seller's obligation to replace or fix a product (or service) that fails to perform as expected within a specified period.

warranty

Jorge Lopez worked 40 hours this week and earned $1,000 in total compensation. Federal and state taxes and other withholdings totaled $350. Jorge's gross pay totals $

1000

A liability created by buying goods or services on credit is typically recorded to

Blank 1: accounts Blank 2: payable

Gross pay minus all deductions—including federal and state taxes, FICA and any voluntary deductions equals ____ pay

net

A potential legal claim is recorded

only if payment for damages is probable and the amount can be reasonably estimated.

John Grey owns Grey's Snow Plowing. In October, he collects $12,000 cash for 6 commercial accounts for which he will provide snowplowing for the next three months. John recorded the cash collection as an unearned revenue. To record the adjusting entry in November, when $4,000 has been earned, Grey will enter which of the following entries? (Check all that apply.)

Debit to Unearned Plowing Revenue Credit to Plowing Revenue Earned

Leo Calvin is required to have ______ taxes withheld from his pay in order to cover the cost of future retirement, disability, survivorship and medical benefits.

FICA

The Federal Insurance Contributions Act provides retirement, disability, survivorship, and medical benefits to qualified workers. Laws require employers to withhold ______ taxes from employees' pay to cover costs of the system.

FICA

On November 1, Lance Co. borrows $90,000 cash from First Bank by signing a 90-day, 5% interest-bearing note. On December 31, Lance will record an adjusting entry by crediting ____ in the amount of ____

Interest Payable; $750 Reason: The computation of interest is $750 from November 1 to December 31 which is 60 days. $90,000 x .05 x (60/360)=$750.

On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest note. On April 8, Lee Co. will pay National Bank a total of $101,500. Principal on the note totals $

100000

On July 1, Scene Co. borrowed $15,000 cash from First Bank by signing a 30-day, 5% interest-bearing note. Scene will record this entry with a credit to Notes Payable in the amount of $

15000

______ are amounts owed to suppliers for products or services purchased on credit.

Accounts payable

Unearned subscription revenues that extends over multiple periods is an example of a _____ known liability

multi-period

KRS Co. sells merchandise for $120 and collects sales tax of $12. KRS would record the $12 sales tax with a credit to the Sales Tax _____ account

payable

Examples of employee voluntary deductions may include all of the following except:

unemployment taxes.

Winn Co. signs a 60 day note payable for a $15,000 copy machine with an interest rate of 8%. Winn will record total interest expense of

$200 Reason: $15,000 x .08 x (60/360) = $200.

Boyd's Bicycle Sales and Repairs Co. offers a 6-month warranty on all new bicycle purchases. Based on history, Boyd determines that warranty repairs are equal to approximately 2% of sales. During the month, Boyd sales total $20,000. Boyd will record Warranty Expense in the amount of

$400

On December 1, Campbell Co. borrowed $10,000 cash from Second Bank by signing a 90-day, 6% interest-bearing note. On December 31, Campbell accrued interest expense of $50. Campbell does not use reversing entries. On March 1, the due date of the note, Campbell will record the payment with debit entries to which of the following accounts? (Check all that apply.)

Notes Payable for $10,000 Interest Expense for $100 Interest Payable for $50

On June 1, Button Co. borrowed $1,000 cash from National Bank by signing a 120-day, 6% interest-bearing note. Button will record this transaction with a credit to ____ in the amount of

Notes Payable; $1,000

Employers must pay employee taxes in addition to those paid by the employees. Which of the following is paid only by the employer?

Unemployment

Abby Co. allows each employee two weeks of paid time off during each calendar year. Since employees are working for 50 weeks, rather than 52 weeks, Abby must accrue the paid time off during the 50 weeks that the employees work. The year-end adjusting entry is recorded as a credit to the

Vacation Benefits Payable

Which of the following items would be considered a current liability? (Check all that apply.)

Wages payable Notes payable, due in 3 months Accounts payable, terms n/30

Tire Co. collected $2,000 in sales tax during the month of October. The entry that shows the remittance of this sales tax to the state government in November would include a credit to the ____ account.

cash

Employee income tax depends on: (Check all that apply.)

employee's income number of employee withholding allowances

When recording a liability, a company may not know: (Check all that apply.)

how much to pay. when to pay. whom to pay.

On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest note. On April 8, Lee Co. will pay National Bank a total of $101,500. The difference between the amount paid back to National Bank of $101,500 and the amount borrowed of $100,000 (or $1,500) represents _____ expense

interest

is the difference between the amount borrowed and the amount repaid.

interest

On December 1, Hansen Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest-bearing note. On December 31, Hansen will record an adjusting entry by debiting interest expense in the amount of

500 Reason: $100,000x.06x(30/360)=$500.

Trighton's Trailer Co. sells trailers and provides a one-year warranty on all new trailer sales. Based on history, Trighton anticipates that 2% of trailers will be returned and will have a warranty cost of $100 per trailer. During the month, Victor sold 300 trailers for a total of $255,000. At the end of the month, Trighton will record $____ in warranty expense

600

Jorge Lopez worked 40 hours this week and earned $1,000. Federal and state taxes, and other withholdings totaled $350. Jorge's net pay totals $

650

Spot Co. purchases office supplies from Sally Supplies, Inc.. Spot does not pay cash for the purchase, and now owes the amount to Sally. This transaction would typically be recorded in which account in Spot's books?

Accounts Payable

Niwa Co. replaced a $3,000 account payable balance to Fiona Co. with a 60-day, $3,000 note bearing 5% annual interest. Niwa's entry to record this transaction would include which of the following entries? (Check all that apply.)

Credit to Notes Payable Debit to Accounts Payable

John Grey owns Grey's Snow Plowing. In October, Grey's collects $12,000 cash for 6 commercial accounts for which he will provide snowplowing for the entire season. To record this transaction, Grey will enter which of the following entries? (Check all that apply.)

Credit to Unearned Plowing Revenue Debit to Cash

The (principal/maturity) of a note is the amount that the signer of a note agrees to pay back when it matures, not including interest.

principal

A written promise to pay a specified amount on a stated future date within one year or the company's operating cycle, whichever is longer, is considered a

short-term note payable