chapter 8 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) chapter 8

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.

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

The feature that distinguishes loss ____________ from other liabilities is the uncertain outcome

contingencies

Which of the following are not required payroll withholdings?

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

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 may be classified as contingent liabilities?

Future litigation losses' Frequent flier program awards Product warranties x

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

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

uncertain

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

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) _____________ . (Enter one word per blank)

warranty

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.

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.

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

increase in assets and an increase in liabilities

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

liability

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 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 _________ .

warranty

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

Reasonably possible Probable Remote

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

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

liquidity

Taxes collected for taxing authorities are recognized as

current liabilities

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.

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

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

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

fringe

Payroll withholdings are

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

What are the two classifications for liabilities?

Current Long-term

Common current liabilities include:

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

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 payroll-related taxes must the employer pay by law?

Unemployment taxes Federal Insurance Contributions Act amounts

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

Warranty

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

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

When a contingent event that may give rise to a future loss is likely to occur, it is said to be

probable

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

Only paid by employer

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.

By law, an employer is required to pay which of the following amounts as payroll taxes?

Medicare contributions Social Security contributions Federal unemployment tax

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

Number of exemptions claimed \Amounts earned by employees

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

Social Security Medicare

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

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

contingent

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.

Liabilities are classified as

current and long-term.

The flipside of a contingent gain is a contingent

loss

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

payroll withholdings.

Deferred revenues and sales tax payable typically are reported as ____________ liabilities

short term