mgmt chapter 8
A transaction or event in which the outcome is uncertain is referred to as a(n)
contingency
Which of the following are employer payroll costs?
Employer portion of Medicare tax Federal and state unemployment taxes
Which of these payroll taxes are paid only by the employer?
FUTA SUTA
True or false: Your employer is allowed to keep the amounts withheld from your gross pay.
False
Which of the following is an important criteria used to determine the reporting of a contingent liability?
The likelihood of future payment or loss
Liabilities are classified as
current and long-term.
A contingent liability is an existing ________ situation that might result in a loss depending on the outcome of a future event.
undecided
Which of the following tends to be the source of the most commonly reported contingent liability?
warranties
_________ refers to a company's cash position and overall ability to obtain cash in the normal course of business.
Liquidity
What are the two classifications for liabilities?
Long-term Current
By law, an employer is required to pay which of the following amounts as payroll taxes?
Social Security contributions Medicare contributions Federal unemployment tax
A contingent liability is recorded if which conditions are met?
The amount of the loss can be reasonably estimated. It is probable that a future loss will occur.
Deferred revenue is classified as
a liability
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.
The portion of a long-term liability that will be paid within the next year is referred to and reported as the
current portion of long-term debt
The mathematical formula for working capital is current assets ______ current liabilities.
minus
A loss that is judged to be probable and for which the amount is reasonably estimable should be
recorded.
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)
warranty
Taxes collected for taxing authorities are recognized as
current liabilities.
Obtaining a note payable for cash results in a(n) ______.
increase in assets and an increase in liabilities
Notes payable is classified as a liability that has which of the following effects?
Creates interest expense on the income statement
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:
debit to loss credit to contingent liability
Current assets minus current liabilities equals
working capital
The feature that distinguishes loss _____________from other liabilities is the uncertain outcome.
contingency
A(n) _________ gain is an existing uncertainty that might result in a gain.
contingent
A(n) __________ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event. Listen to the complete question
contingent
A(n)___________ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.
contingent
Product warranties, effects of environmental problems, and lawsuits are examples of transactions or events that give rise to ________ liabilities
contingent
The ________ portion of long-term debt is the amount that will be paid within the next year.
current
Deferred revenues and sales tax payable typically are reported as _____________ liabilities.
current or short-term
The portion of a long-term liability that will be paid within the next year is referred to and reported as the:
current portion of long-term debt
Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called ________ benefits.
fringe or employee
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.
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
credit to contingent liability for lawsuit $10,000.
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.
The term referring to a company having a sufficient amount of cash to pay its current debts is
liqudity
Deferred revenues and sales tax payable typically are reported as _____________liabilities.
current
Payroll withholdings are
the items subtracted from an employee's gross pay to arrive at take-home pay.
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.
Which of the following terms are used to categorize the likelihood of the occurrence of a future loss
Reasonably possible Remote Probable
Common current liabilities include:
Sales tax payable Deferred revenues The current portion of long-term debt
An interest rate, unless otherwise specified, is typically a(n) _____ rate.
annual
Deferred revenue should be classified as a(n) ________ on the balance sheet.
liability
a _________ 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
Amounts that are subtracted from an employee's gross pay are referred to as
payroll withholdings.
A(n)_______ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash.
accounts
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.
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)
annual, 12 month rate.
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
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
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.
Acid-test ratio will increase Current ratio will increase
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 $100,000 Debit to Cash $100,000
Which of the following must employers by law withhold from their employees' pay?
Federal income taxes
Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay?
Federal income taxes Employee contributions to retirement plans Health insurance paid by the employee
Which of the following are not required payroll withholdings?
Federal unemployment tax (FUTA) Charitable contributions State unemployment tax (SUTA)
Which of the following may be classified as contingent liabilities?
Frequent flyer program awards Product warranties Future litigation losses
Which of these payroll taxes are paid by the employer and the employee?
Medicare Social Security
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
A contingent liability is an existing __________ situation that might result in a loss depending on the outcome of a future event.
uncertain or undecided
For a manufacturer, the most commonly reported contingent liabilities relate to product
warranties
The flipside of a contingent gain is a contingent
loss.
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