ACCT Ch 8 LS
Which of these payroll taxes are paid by the employer and the employee?
Social Security Medicare
Payroll withholdings are
the items subtracted from an employee's gross pay to arrive at take-home pay.
The employer's portion of FICA tax remitted to the taxing authority is:
the same as the employee's portion
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.
The formula for the acid-test or quick ratio is quick assets divided by _____ _____.
current liabilities
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
For a manufacturer, the most commonly reported contingent liabilities relate to product _____.
warranty
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
Issuing a note payable for cash results in a(n) ______.
increase in assets and an increase in liabilities
Current assets minus current liabilities equals _____ _____.
working capital
Which of the following are not required payroll withholdings?
Charitable contributions Federal unemployment tax (FUTA) State unemployment tax (SUTA)
Which of the following is the formula for the current ratio?
Current assets divided by current liabilities.
Payroll withholdings ______.
are amounts subtracted from employees' gross earnings to determine their net pay decrease the amount of cash an employee receives
Product warranties, effects of environmental problems, and lawsuits are examples of transactions or events that give rise to _____ liabilities.
contingent
A(n) _____ _____ is an existing uncertainty that might result in a gain.
contingent gain
FICA is the acronym for the
Federal Insurance Contribution Act.
A(n) _____ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.
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.
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.
current
Which of the following are included in FICA taxes?
A 6.2% social security tax A 1.45% Medicare tax
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
Which of these payroll taxes are paid only by the 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.
Which of the following is an important criteria used to determine the reporting of a contingent liability?
The likelihood of future payment or loss
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
Deferred revenue is classified as
a liability
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
The feature that distinguishes loss _____ from other liabilities is the uncertain outcome.
contingencies
Deferred revenue should be classified as a(n) _____ on the balance sheet.
liability
By law, an employer is required to pay which of the following amounts as payroll taxes?
medicare contributions social security contributions federal unemployment tax
On September 1, 2018, Great Lakes Equipment receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December 2018?
$4,000 Rationale: $24,000/24 months = $1,000 per month x 4 months = $4,000 revenue recognized.
Abbott Corp.'s attorney estimates that the company will ultimately have to pay between $350,000 and $500,000 relating to current litigation, and that the most likely amount of the loss will be equal to $400,000. Abbott Corporation should record a contingent liability and loss of
$400,000
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
An interest rate, unless otherwise specified, is typically a(n) _____ rate.
annual
What are the two classifications for liabilities?
current and long term
Liabilities are classified as
current and long-term
Taxes collected for taxing authorities are recognized as
current liabilities
Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called _____ benefits.
fringe
Which of the following is a guarantee that protects a customer from product defects for a specified period of time?
warranty
Taxes subtracted from employees' pay and remitted to the government on their behalf are called
withholding taxes.
Jingle Company signs a 6-month, $20,000 note. Stated interest rate is 8% payable at the maturity date. Interest incurred on the note is calculated as
$20,000 * 0.08 * 6/12 Rationale: $20,000 * 0.08 * 6/12 The stated interest rate of 8% is an annual rate and the applicable interest is for 6 months.
Spencer Corp.'s attorney estimates that the company will ultimately have to pay between $250,000 and $500,000 relating to current litigation. Spencer should record a contingent liability and loss of
$250,000 Rationale: When no amount within the range appears more likely than others, we record the minimum amount.
On June 1, 2018, Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the income statement for 2018?
$7,000 Rationale: $24,000/24 months = $1,000 per month x 7 months = $7,000 revenue.
Which of the following are items included in the numerator of the quick ratio?
Cash, Current investments, Accounts receivable
Notes payable is classified as a liability that has which of the following effects?
Creates interest expense on the income statement
Taylor Company's attorney informs its client that it is possible, but not probable, that the company will lose a currently litigated lawsuit. No reliable estimate of the potential loss is currently available. How should Taylor accrue and/or disclose this potential loss?
Disclose the contingency and state that an estimate cannot be made.
Choose the correct formula for calculating interest.
Face amount x annual interest rate x fraction of the year
Which of the following may be classified as contingent liabilities?
Future litigation losses Product warranties Frequent flier program awards
Which of the following terms are used to categorize the likelihood of the occurrence of a future loss?
Probable Reasonably possible Remote
Which of the following transactions will increase a company's working capital?
Receipt of cash on a long-term notes receivable
Common current liabilities include:
Sales tax payable The current portion of long-term debt Deferred revenues
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 taxes payable of 100 Sales revenue of $1,000
Which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for recording a liability but are at least reasonably possible?
an estimate of the potential loss should be made(if possible) and disclosed. a disclosure must describe the contingency
A transaction or event in which the outcome is uncertain is referred to as a(n) _____.
contingency
If a liability is classified as current, rather than noncurrent, the company's working capital will ______.
decrease
Payroll withholdings ______.
decrease the amount of cash an employee receives are amounts subtracted from employees' gross earnings to determine their net pay
The flipside of a contingent gain is a contingent
loss
Which of the following are examples of fringe benefits provided by employers to their employees?
payment of insurance premiums on employees behalf contributions to retirement and other savings accounts reduced or no-cost company-provided services
Amounts that are subtracted from an employee's gross pay are referred to as
payroll withholdings.
When a contingent event that may give rise to a future loss is likely to occur, it is said to be _____.
probable
A loss that is judged to be probable and for which the amount is reasonably estimable should be
recorded