Chapter 9

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

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.

Which of the following contingent liabilities would require a company to record a note to the financial statements

+ liability is possible and cannot be reasonably estimated + liability is possible and is estimated to be 35,000 + liability is probable and cannot be reasonably estimated

Which of the following liabilities could be a multi-period known liability

- Unearned Subscription Revenue - Notes Payable

Kenesha Co. reported income before interest expense and income taxes of $30,000; interest expense of $3,000; and income taxes of $4,000. Calculate the times interest earned ratio.

10 30,000 / 3,000

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

1000

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

Employers FUTA taxes are reported on IRS Form

940

The form an employer files and submits to the IRS to report FICA tax information is Form

941

A ____ is when an employer provides employee with a percentage of the company's net income earned during the year

Bonus plan

On June 1, Sawyer Co. borrowed $5,000 by extending their past-due account payable with a 45 day, 12% interest-bearing note. On July 16, the due date, 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 Solution: 5000 * 0.12 * 45/360 = 75

Star Co. reported $10,000 of net income during the month of January. Star estimates that it owes income taxes of $2,000 for the month. The month-end adjusting entry to record this estimate would require which of the following entries? (Check all that apply.)

Debit to Income Tax Expense Credit to Income Taxes Payable

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

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

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

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

Interest

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

Liability

Byrne Co. sells merchandise and collects a 5% state sales tax. The tax is recorded on Byrne's general ledger as a ____ 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 transactions with an increase to an asset account and a ____ account

Liability

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

Liability

On January 1, Avers Co. borrowed $10,000 by extending their past-due account payable with a 60-day, 8% interest-bearing note. On March 2, the due date, Avers pays the amount due in full. This entry would be recorded by Avers with a debit to _____ in the amount of ____

Notes payable ; $10,000

Which of the following items are considered employee benefits

Pension plans Medical insurance

Most states require ____ payments and reports

Quarterly

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

Sales Tax Payable

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

A _____ is a sellers obligation to replace to replace or fix a product that fails to perform as expected within a specified period

Warranty

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

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

accounts payable

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

accounts payable

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 _____ liability.

contingent

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

current liability

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

employer

A _____ liability is a known obligation that is of an uncertain amount but that can be reasonably estimated

estimated

___ is the total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions such as taxes

gross pay

Each month, a corporation will accrue income taxes based on the month's earnings. To record the income tax for the month, the company will debit the Income Tax Expense account and credit the ________ account.

income taxes payable

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

known

Bina Consulting Co. collected $500 from a customer in advance to provide consulting fees for the next two months. The $500 would be recorded with a debit to Cash and a credit to the Unearned Revenues, which is a(n) (asset/liability/equity) account.

liability

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

multi-period

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

net

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

Employee income tax depends on:

number of employee withholding allowances employee's income

A potential legal claim is recorded

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

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

Amounts received in advance from customers for future products or services:

unearned revenues

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

unemployment

Paid absences offered to employees are called ____ benefits.

vacation

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

warranty

Form 941, which employers use to report FICA and income tax information to the IRS is due:

within one month after the end of each calendar quarter.

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 ________ account.

Vacation Benefits 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.)

debit Accounts Payable; credit Notes Payable

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

estimated

In order for a contingent liability to be recorded as a journal entry in the financial statements, it must be ____ and reasonably estimable

probable

The ratio of income before interest expense (and any income taxes) divided by interest expense reflects the risk of a company not being able to pay fixed expenses if sales decline is called the ____________ ratio.

times interest earned