MGMT 200 - Chapter 8
What are the two classifications for liabilities? a. Long-term b. Operating c. Recurring d. Investing e. Current
a, e
Which of these payroll taxes are paid only by the employer? (Check all that apply.) a. Medicare b. FUTA c. Social Security d. SUTA
b, d
The mathematical formula for working capital is current assets ______ current liabilities.
minus
A contingent liability is an existing ________ situation that might result in a loss depending on the outcome of a future event.
uncertain
By law, an employer is required to pay which of the following amounts as payroll taxes? a. Social Security contributions b. Federal unemployment tax c. Health insurance premiums d. Medicare contributions e. Life insurance premiums
a, b, d
A transaction or event in which the outcome is uncertain is referred to as a(n) ________. (Enter one word per blank)
contingency
A(n) ________ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.
contingent
A(n) ________ ________ is an existing uncertainty that might result in a gain.
contingent gain
A loss that is judged to be probable and for which the amount is reasonably estimable should be a. ignored. b. disclosed only in the notes. c. deferred until the related uncertainly is resolved. d. recorded.
d
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
When a contingent event that may give rise to a future loss is likely to occur, it is said to be ________.
probable
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) a. liability. b. expense. c. loss. d. asset.
a
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) a. annual, 12 month rate. b. a 3 month rate. c. 6 month rate.
a
Abbott Corp.'s attorney estimates that the company will ultimately have to pay $400,000 related to current litigation. Abbot's journal entry should include a: a. debit to loss b. credit to contingent liability c. debit to asset d. credit to retained earning e. debit to contingent liability
a, b
Which of the following payroll-related taxes must the employer pay by law? a. Unemployment taxes b. Federal Insurance Contributions Act amounts c. Contributions toward retirement funds d. Union dues
a, b
Common current liabilities include: a. The current portion of long-term debt b. Deferred revenues c. Notes payable due in two years d. Prepaid insurance e. Sales tax payable
a, b, e
A contingent liability is recorded if which conditions are met? a. The amount of the loss can be reasonably estimated. b. There is a remote chance that a future loss will occur. c. It is probable that a future loss will occur.
a, c
Which of the following are employer payroll costs? a. Federal and state unemployment taxes b. Federal income tax withholding c. Employer portion of Medicare tax d. Employee contributions to retirement savings
a, c
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? a. Debit to Cash $100,000 b. Debit to Interest Expense $6,000 c. Credit to Note Payable $106,000 d. Credit to Note Payable $100,000
a, d
Withholding taxes for federal and state income tax are based upon which items? a. Number of exemptions claimed b. Number of employees at the company c. Size of the corporation in total assets d. Amounts earned by employees
a, d
Which of the following are examples of fringe benefits provided by employers to their employees? a. reduced or no-cost company-provided services b. payment for services provided by employee to employer c. FICA matching contributions d. contributions to retirement and other savings accounts e. payment of insurance premiums on employees behalf
a, d, e
Which of the following may be classified as contingent liabilities? a. Future litigation losses b. Deferred revenues c. Deposits from customers d. Frequent flier program awards e. Product warranties
a, d, e
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
An interest rate, unless otherwise specified, is typically a(n) ________ rate. (Enter one word per blank)
annual
Amounts that are subtracted from an employee's gross pay are referred to as a. net pay. b. payroll withholdings. c. employee costs. d. payroll taxes.
b
Lark Corporation believes it is probable the company will lose a lawsuit for $10,000. The journal entry to record the contingent loss will include a a. credit to lawsuit expense $10,000. b. credit to contingent liability for lawsuit $10,000. c. credit to retained earnings $10,000. d. debit to contingent liability for $10,000.
b
Liabilities are classified as a. operating and investing. b. current and long-term. c. operating and nonoperating. d. revenues and expenses.
b
Payroll withholdings are a. the payments submitted for both the employee and employer to the government for taxes. b. the items subtracted from an employee's gross pay to arrive at take-home pay. c. the employer's portion of taxes paid for social security and Medicare.
b
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 a. debit notes payable $5,000. b. credit notes payable $5,000. c. credit notes expense $5,000. d. debit notes receivable $5,000.
b
The flipside of a contingent gain is a contingent a. asset. b. loss. c. reserve.
b
The term referring to a company having a sufficient amount of cash to pay its current debts is a. consistency. b. liquidity. c. security. d. solvency.
b
Which of the following is an important criteria used to determine the reporting of a contingent liability? a. The classification of the related expense or loss b. The likelihood of future payment or loss c. The potential effect on financial statement users d. The effect on key balance sheet ratios
b
Which of the following tends to be the source of the most commonly reported contingent liability? a. lawsuits b. warranties c. natural disasters
b
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. a. sales revenue of $1,100. b. sales taxes payable of $100. c. sales revenue of $1,000.
b, c
What are the two criteria used to determine whether a contingent liability is reported in the financial statements? a. The percentage of the payment to total income b. The likelihood of payment c. The ability to estimate the amount of payment d. The payment date
b, c
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. a. Acid-test ratio will remain unchanged b. Acid-test ratio will increase c. Current ratio will increase d. Current ratio will decrease e. Current ratio will remain unchanged f. Acid-test ratio will decrease
b, c
Payroll withholdings ______. (Select all that apply.) a. increase the amount of cash an employee receives b. are amounts subtracted from employees' gross earnings to determine their net pay c. are voluntary d. decrease the amount of cash an employee receives e. are amounts added to employees' gross earnings to determine their net pay
b, d
Which of these payroll taxes are paid by the employer and the employee? (Check all that apply.) a. FUTA b. Social Security c. SUTA d. Medicare
b, d
Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay? a. Employer contribution for social security taxes b. Federal income taxes c. Federal and state unemployment taxes d. Employee contributions to retirement plans e. Health insurance paid by the employee
b, d, e
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) a. notes receivable. b. accounts receivable. c. accounts payable. d. notes payable.
c
Issuing a note payable for cash results in a(n) ______. a. increase in liabilities and a decrease in stockholders' equity b. decrease in assets and an increase in liabilities c. increase in assets and an increase in liabilities d. decrease in assets and a decrease liabilities
c
Which of the following is a guarantee that protects a customer from product defects for a specified period of time? a. Contingency b. Sales allowance c. Warranty d. Promissory note
c
Which of the following terms are used to categorize the likelihood of the occurrence of a future loss? a. Uncertain b. Certain c. Reasonably possible d. Remote e. Probable
c, d, e
Which of the following are not required payroll withholdings? a. Federal income tax b. Social Security c. State unemployment tax (SUTA) d. Medicare taxes e. Charitable contributions f. Federal unemployment tax (FUTA)
c, e, f
The feature that distinguishes loss ________ from other liabilities is the uncertain outcome. (Enter one word per blank)
contingencies
Product warranties, effects of environmental problems, and lawsuits are examples of transactions or events that give rise to ________ liabilities.
contingent
Deferred revenues and sales tax payable typically are reported as ________ liabilities.
current
The ________ portion of long-term debt is the amount that will be paid within the next year. (Enter only one word.)
current
Deferred revenue is classified as a. a revenue b. an expense c. an asset d. a liability
d
Notes payable is classified as a liability that has which of the following effects? a. Creates revenue on the income statement b. Creates an asset on the balance sheet c. Creates deferred revenue on the income statement d. Creates interest expense on the income statement
d
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? a. Working capital decreases. b. The current ratio will decrease. c. The quick ratio will increase. d. The current ratio will remain the same.
d
Taxes collected for taxing authorities are recognized as a. long-term liabilities. b. operating expenses. c. revenue. d. current liabilities. e. prepaid expenses.
d
The portion of a long-term liability that will be paid within the next year is referred to and reported as the: a. current debt b. total current liability c. long-term debt d. current portion of long-term debt
d
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
Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called ________ benefits.
fringe
Deferred revenue should be classified as a(n) ________ on the balance sheet. (Enter one word per blank)
liability
________ refers to a company's cash position and overall ability to obtain cash in the normal course of business. (Enter one word per blank)
liquidity
The flipside of a contingent gain is a contingent ________.
loss
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
Current assets minus current liabilities equals ________ ________.
working capital