Ch. 8 Smartbook
Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay?
Health insurance paid by the employee Employee contributions to retirement plans Federal income taxes
Identify a primary reason why financial statement users assess a company's liquidity.
Lack of liquidity can lead to the bankruptcy of a company that otherwise may have been successful.
Taxes collected for taxing authorities are recognized as
current liability
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
Which of the following is an important criteria used to determine the reporting of a contingent liability?
the likelyhood of future payment
A contingent liability is an existing ----- situation that might result in a loss depending on the outcome of a future event.
uncertain
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 x 0.08 x 6/12
Notes payable is classified as a liability that has which of the following effects?
creates interest expense on the income statement
Liabilities are classified as
current and long term
liabilities are classified as
current and long term
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
liability
---- refers to a company's cash position and overall ability to obtain cash in the normal course of business
liquidity
Which of the following may be a proper balance sheet classification of contingent events?
long-term liability
Which of the following may be a proper income statement classification of contingent events?
operating and non operating expenses
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
For a manufacturer, the most commonly reported contingent liabilities relate to
product warranty
A loss that is judged to be probable and for which the amount is reasonably estimable should be
recorded
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.
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
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
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:
credit to contingent liability debit to loss
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.
Deferred revenues and sales tax payable typically are reported as
current liabilities
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
deferred revenue should be classified as a ------- on the balance sheet
liability
Which of these payroll taxes are paid by the employer and the employee?
social security and medicare
employer
state and federal unemployment tax
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.
Current ratio will increase Acid-test 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?
Debit to Cash $100,000 Credit to Note Payable $100,000
Common current liabilities include:
Deferred revenues Sales tax payable The current portion of long-term debt
Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay?
Employee contributions to retirement plans Federal income taxes Health insurance paid by the employee
which of the following are employer payroll costs
Employer portion of Medicare tax Federal and state unemployment taxes
Choose the correct formula for calculating interest.
Face amount x annual interest rate x fraction of the year
Which of these payroll taxes are paid by the employer and the employee?
Medicare Social Security
Withholding taxes for federal and state income tax are based upon which items?
Number of exemptions claimed Amounts earned by employees
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 may be classified as contingent liabilities?
Product warranties Future litigation losses Frequent flyer program awards
Which of these payroll taxes are paid only by the employer?
SUTA, FUTA
a short-term liability that occurs when a company purchases goods and does not immediately pay with cash
account payable
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
An interest rate, unless otherwise specified, is typically a(n)
annual rate
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
Payroll withholdings ...
decrease the amount of cash an employee receives are amounts subtracted from employees' gross earnings to determine their net pay
True or false: An employer pays federal unemployment tax as a percentage of an employee's total pay for the year.
false
Which of the following payroll-related costs are incurred by employees?
federal and state income tax, employee investments in retirement plans
Which of the following are employer payroll costs?
federal and state unemployment taxes, employer matching portion of social security and medicare, employer contributions for health, dental, disability, and life insurance, employer contributions to retirement or savings plans
obtaining a note payable for cash results is a
increase in assets and an increase in liabilities
employee
state and federal income tax
Which of the following payroll-related taxes must the employer pay by law?
Federal Insurance Contributions Act amounts Unemployment taxes
By law, an employer is required to pay which of the following amounts as payroll taxes?
Federal unemployment tax Social Security contributions Medicare contributions
Which of the following may be classified as contingent liabilities?
Frequent flyer program awards Product warranties Future litigation losses
Which of the following are not required payroll withholdings?
SUTA, FUTA, Charitable contributions
Common current liabilities include:
Sales tax payable The current portion of long-term debt Deferred revenues
Which of the following are not required payroll withholdings?
State unemployment tax (SUTA) Federal unemployment tax (FUTA) Charitable contributions
What are the two criteria used to determine whether a contingent liability is reported in the financial statements?
The ability to estimate the amount of payment The likelihood of payment
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.
payroll withholdings
are amounts subtracted from employees' gross earnings to determine their net pay decrease the amount of cash an employee receives
The feature that distinguishes loss ----- from other liabilities is the uncertain outcome
contingencies
Which of the following are examples of fringe benefits provided by employers to their employees?
contributions to retirement and other savings accounts payment of insurance premiums on employees behalf reduced or no-cost company-provided services
Which of the following are examples of fringe benefits provided by employers to their employees?
contributions to retirement and other savings accounts reduced or no-cost company-provided services payment of insurance premiums on employees behalf
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
