Chapter 9 Smartbook
John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. What is John's net pay?
486.10
True or false: An annuity is a series of unequal payments made at the same time each period.
False
At year end, companies should report ______.
accrued liabilities for amounts owed even if the amount must be estimated
A(n) ___ is a series of consecutive equal payments such as mortgage payments.
annuity
Bonds ______.
are sold in established markets making them liquid allow companies to raise more debt capital than a note payable because the bonds are issued to many creditors
Working capital equals ______.
current assets minus current liabilities
A ______ accounts payable turnover ratio may result if management pays its suppliers more quickly and often.
higher
Assets are financed with ___ and stockholders' equity.
liabilities
The journal entry to record employer payroll taxes owed affects ______.
liabilities and stockholders' equity
Analysts say that a company has ___ if it has the ability to meet its current obligations.
liquidity
Which of the following would result in a deferred revenue?
sales of subscriptions sales of gift cards
New companies often experience rapid sales growth and increases in working capital. Working capital increases are caused by increases in sales-related asset accounts, such as ___ and accounts ___.
cash receivable
Many current liabilities on the balance sheet, such as Accounts payable, Accrued wages and Deferred revenue, have a direct relationship to ____ activities on the statements of cash flows.
operating
The feature that distinguishes loss contingencies from other liabilities is the ___ that a loss will occur.
probability
When a contingent event that may give rise to a future loss is likely to occur, it is said to be ___.
probable
When a company borrows money from a bank and signs a formal written contract that specifies the amount borrowed, the date it must be repaid and the interest rate, the company will debit Cash and credit _____ _______.
Note Payable
Which of the following are long-term liabilities? (2)
Notes payable due in 3 years Bonds payable due in 20 years
Which of the following are long-term liabilities?
Notes payable due in 3 years Bonds payable Private placement of debt due in 3 years
Which of the following are used to categorize the likelihood of the occurrence of a future loss?
Probable Reasonably possible Remote
Which of the following factors will result in a higher present value of $1?
A compounding of interest less frequently A lower interest rate
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 ____.
warranty
If the going rate of interest is 10%, which has the greater present value?
$1 received today
Which of the following have the same present value given a 10% interest rate compounded annually?
$1 today $1.10 one year from today
The entry to record the purchase of equipment that requires a $10,000 payment in 2 years includes a ______. The market rate of interest is 9% compounded annually.
$8,417 debit to Equipment $8,417 credit to Notes Payable
Ace Electronics signed a 10-year, $100,000, 4% note payable on January 1. When the note is signed, Ace should record a liability of ______.
100,000
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?
Credit to Note payable for $100,000 Debit to Cash for $100,000
Which of these payroll taxes are paid only by the employer?
FUTA SUTA
On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31, 2019. Assuming the November 1 transaction was properly recorded, how would the December 31, 2018, year-end adjusting entry affect the accounting equation?
Liabilities increase and stockholders' equity decreases.
What kind of account is deferred (or unearned) revenue?
Liability account
Which of the following are examples of annuities?
Mortgage payments Car payments
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. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, 2018 ABC's year end, would include a ______.
debit to Interest expense of $1,000 credit to Interest payable of $1,000
The current ratio and working capital are financial measures of ______.
liquidity
Assuming no inflation, $1 invested today is worth ______.
more than $1 received in the future because interest can be earned over time
A bond's maturity date is the date ______.
on which the bond principal will be repaid in full
Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal income tax $18,000 and State income tax $3,850. What is the net pay to employees?
70000
Which of the following may be classified as contingent liabilities?
Product warranties Future litigation losses Environmental problems
What are the key events that occur with any note payable?
Recording principal paid Accruing interest incurred, but not paid Recording interest paid
Which of the following are not required payroll deductions from an employees' gross earnings?
State unemployment tax (SUTA) Federal unemployment tax (FUTA) Charitable contributions
The journal entry to record the purchase of an asset in exchange for $100,000 due in 3 years at a market rate of interest of 12% compounded annually includes a debit to the asset in the amount of ______.
the present value of $100,000 discounted at 12% for 3 years
The accounts payable turnover ratio directly measures ______.
the times per year the average accounts payable is paid
Which of the following has the highest present value?
$1 annuity compounded annually over 3 years at 5%
True or false: Employers are required to withhold income taxes from employees' pay checks.
True
Which of the following is a guarantee that protects a customer from product defects for a specified period of time?
Warranty
Warren Teas, Inc. sold all its brewing equipment to customers with a 6-month warranty. At year end, Warren Teas estimates that future repair work on the warranty will cost $1,000 and thus should record ______.
a $1,000 credit to a current liability a $1,000 debit to an expense
Payroll deductions ______.
are amounts subtracted from employees' gross earnings to determine their net pay decrease the amount of cash an employee receives