Ch.9

Which of the following are payroll deductions from an employee's gross earnings? (Check all that apply.)

Federal income tax FICA tax Medicare

US corporations pay federal taxes on ______.

payroll income

A short-term lease is recorded as ______.

rent expense in the period the leased asset is used

is a series of consecutive equal payments such as mortgage payments. (Enter one word per blank.)

annuity

Accounts payable are considered good sources of financing because they ______.

are non-interest bearing

Working capital equals ______.

current assets minus current liabilities

Starcents, Inc. purchased equipment and agreed to pay the supplier $10,000 each year for the next 3 years and an additional $100,000 at the end of the 3rd year. The supplier charges 6% interest per year. The entry to record this purchase includes a debit to Equipment of _______.

$110,690

If the going rate of interest is 10%, which has the greater present value?

$1 received today

What is the cost of a car if you make equal annual payments of $6,000 over 4 years compounded annually at 9%, rounded to the nearest $1?

$19,438

On January 1, Year 1, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, Year 3. The market rate of interest is 6% compounded annually. Assuming Notes Payable includes the accrued interest through year-end December 31, Year 2, the journal entry to record the payment of this note on January 1, Year 3 includes a ______. (Check all that apply.)

10,000 credit to Cash $10,000 debit to Notes Payable

The present value of paying $10,000 at the end of each year for 3 years and then $100,000 at the end of the 3rd year with a 12% interest per year equals $

Blank 1: 95,288 or $95,288

Which of the following are long-term liabilities? (Check all that apply.)

Bonds payable due in 20 years Notes payable due in 3 years

At year end, a company has long-term debt that matures within the year. The company has the intent and ability to refinance by issuing a long-term loan but has not yet begun negotiations to do so. Which standards require that the company classify the debt as current instead of allowing it to classify the debt as long-term?

Both IFRS and US GAAP

Which of the following cause working capital to increase? (Check all that apply.)

Cash sales of long-term assets Sales on account

Deferred tax liability is recorded when ______.

a company reports more depreciation (and less income tax) on its tax return than it reports on its income statement prepared under GAAP

FUTA and SUTA are ______. (Check all that apply.)

expenses paid by employers to cover potential unemployment benefits

Federal and state unemployment taxes are ______. (Check all that apply.)

expenses to companies paid by employers to cover potential unemployment benefits

A ______ accounts payable turnover ratio may result if management pays its suppliers more quickly and often.

higher

Accruing a liability always involves ______ expenses and ______ liabilities.

increasing; increasing

expense is accrued with the passage of time as a result of debt.

interest

When a contingent event that may give rise to a future loss is likely to occur, it is said to be

probable

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

During the year, a $1,000,000 lawsuit was filed against a U.S. company for unsafe working conditions. Management and the attorneys feel that it is not likely that the company will lose the case. The plaintiff who filed the lawsuit has offered to settle for $600,000. Management estimates that lawsuits for unsafe working conditions are generally settled for $300,000. What amount of contingent liability would be recorded for this lawsuit on the company's current balance sheet?

0

Barry Bees, Inc.'s Cost of Goods Sold equal $10,000. Its beginning inventory was $800, and its ending inventory was $1,200. Barry Bee's days to sell equals _____ days (assume 365 days per year.)

36.5

If Barry Bees, Inc.'s average number of days payables are outstanding equals 73 days based on a 365-day year, then its accounts payable turnover equals times.

5

excludes

A liability is first recorded at its cash equivalent amount, which ______ interest.

What are the key events that occur with any note payable? (Check all that apply.)

Accruing interest incurred but not paid3. Recording interest paid4. Recording principal paid

The advantages of bond exchanges (bond markets) include which of the following? (Check all that apply.)

Allows corporations to reduce the cost of long-term borrowing ovides liquidity to creditors Allows creditors to sell bonds prior to maturity

When is interest typically recorded as a liability?

As an adjusting entry with the passage of time

Which financial statements are needed in order to calculate the accounts payable turnover ratio? (Check all that apply.)

Balance sheet Income statement

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? (Check all that apply.)

Debit to Cash $100,000Credit to Note Payable $100,000

Under US GAAP, contingent liabilities are recorded if the estimated loss is probable. Under IFRS, contingent liabilities are recorded if the estimated loss is "more likely than not." Which framework will report more contingent liabilities on the balance sheet?

IFRS

Which of the following is tax deductible?

Interest expense on bonds

True or false: US corporations with foreign operations will be exposed to exchange rate fluctuations if the foreign operations are financed using debt that must be repaid with US dollars.

True

If a US corporation operates in a foreign country it will be exposed to exchange rate fluctuations if the foreign operations are financed using debt that must be repaid with ______.

US dollars

Which of the following types of debt would require a company to pay a higher rate of interest?

Unsecured debt

If you purchase a bond that matures in 20 years, then you ______.

can sell it at any time on the bond market

On September 1, ABC Company borrowed $1,000, 12% annually by issuing 4-month note payable from XYZ National Bank with interest due on January 1. At year end, December 31, ABC adjusted for the four months of interest owed. The entry to record the payment of interest on January 1 would include a ______. (Select all that apply.)

credit to Cash of $40 debit to Interest Payable of $40

Under IFRS, if company has the intent and ability to refinance a currently maturing loan by issuing a long-term loan but as not actually refinanced, it should classify the debt as a ______

current liability

The entry that an employer records for the FICA and FUTA taxes that will be paid from its own funds includes a ______. (Check all that apply.)

debit to Compensation expense credit to FUTA payable credit to FICA payable

The initial entry to record a finance lease for equipment with a current cash equivalent of $100,000 is recorded with a $100,000 ______. (Check all that apply.)

debit to Lease asset credit to Lease liability

A company's capital structure is a mixture of and that a business uses to finance its operations. (Enter one word per blank.)

debt and equity

List the present values from smallest (top) to largest (bottom). Assume compounding annually.

https://gyazo.com/4d7bef953147113e3e16bfdc1433ab24

Issuing a note payable for cash results in a(n) ______.

increase in assets and and an increase in liabilities

A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n) ______.

lease

A is a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time. (Enter one word per blank)

lease

A bond's Correct Unavailable date is the date on which the bond principal will be repaid in full.

maturity

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

A good strategy is to purchase inventory ______.

on credit

A bond's maturity date is the date ______.

on which the bond principal will be repaid in full

An end-of-period adjusting entry that debits deferred (or unearned) revenue most likely will credit a(n) ______ account.

revenue

Which of the following would result in a deferred revenue? (Select all that apply.)

sales of subscriptions sales of gift cards

Temporary differences result in deferred taxes when ______.

the IRS depreciation differs from GAAP depreciation

Today's Fashions has a debt that has been properly reported as long-term debt before this year. Part of this debt is due this year. If Today's Fashions continues to report the current position of the debt as a long-term liability, then ______.

the current ratio will be overstated

True or false: Employers are required to withhold income taxes from employees' pay checks.

true

The feature that distinguishes loss contingencies from other liabilities is the

uncertainty, likelihood, probability, chance, potential, possibility, or assurance

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

Which of the following is a guarantee that protects a customer from product defects for a specified period of time?

warranty

Which of the following has the highest present value?

$1 annuity compounded annually over 3 years at 5%

When using a calculator or Excel to compute the present value of $500 monthly payments over 3 years at 12%, the rate (I/YR), the number of periods (N) and payment amount (PMT) to input are ______.

I/YR=0.01; N=36; PMT=--500

If a company has about a 60% chance of a contingent liability of occurring, which would more likely result in the company reporting the liability on its balance sheet?

IFRS

On January 1, 2018, Vango, Inc. purchased a van and promised to pay $11,223.34 on December 31 for the next 3 years. The market rate of interest is 6% compounded annually. The entry to record the purchase includes a ______. (Check all that apply.) Note: Present value of an annuity at 6% and 3 years = 2.6730; Present value of $1 at 6% and 3 years = 0.8396

$30,000 debit to Equipment $30,000 credit to Notes Payable

The current ratio and working capital are financial measures of ______.

liquidity

For the year ended December 31, Net income equals $100,000 on the income statement but only $80,000 on the company's tax return. Given a 34% tax rate, the entry to record income tax expense for the year ended includes a ______. (Check all that apply.)

$34,000 debit to Income tax expense $6,800 credit to Deferred taxes $27,200 credit to Income taxes payable

For the year ended December 31, because of temporary differences the income tax expense was $24,000 on the income statement but only $20,000 on the tax return. As a result, the company will report a ______.

$4,000 Deferred tax liability

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?

$70,000

debt, such as issuing bonds, and equity, such as issuing stock

Businesses finance their operations using a mixture of ______.

Which of the following may be classified as contingent liabilities?

Environmental problems Future litigation losses Product warranties

Which of these payroll taxes are paid only by the employer? (Check all that apply.)

FUTA SUTA

What kind of account is deferred (or unearned) revenue?

Liability account

Which of the following are current liabilities? (Check all that apply.)

Note payable due in 3 months Wages payable Accounts payable

On January 1, 2018, Vango Inc. purchased a $30,000 van and promised to pay $11,223.34 on December 31 for the next three years. The market rate of interest is 6% compounded annually. The entry to record the second payment on December 31, 2019 will include a ___ than in the 1st payment.

smaller debit to Interest Expense larger debit to Notes Payable

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

Burrows, Inc. issued 2 notes payable for $10,000 each on November 30. One is a 3-month, 6%, note and the other is a 6-month, 6% notes. The amount of interest owed at December 31 will be ______.

the same amount for both notes

Acme Enterprises began the new year owing its suppliers $3,000 for merchandise purchased last year. Acme then sold half of this merchandise for $5,000 on account. Two weeks later, Acme paid its suppliers $1,000 and bought another $4,000 of merchandise on account. Acme now has an Accounts payable balance of ______.

$6,000

The present value of a 12% annuity requiring quarterly payments of $1,000 over 2 years, rounded to the nearest $1, equals ______.

$7,020

Which financial statements are needed in order to calculate the accounts payable turnover ratio? (Check all that apply.)

Federal unemployment tax (FUTA) State unemployment tax(SUTA) Charitable contributions

Which is a riskier form of financing for a business?

Issuing bonds

Many current liabilities have a direct relationship to the operating activities of a business. Match the operating activity on the statement of cash flows with the related current liability on the balance sheet.

Purchase of inventory matches ChoiceAccounts payable Accounts payable Cash paid for employee compensation matches ChoiceAccrued salaries Accrued salaries Cash received in advance from customers matches ChoiceDeferred revenues Deferred revenues Cash paid for income taxes matches ChoiceAccrued taxes payable Accrued taxes payable

A finance lease is recorded as ______.

a noncurrent liability equal to the current cash equivalent of the future rent payments

The feature that distinguishes loss contingencies from other liabilities is the that a loss will occur. (Enter one word per blank)

chance

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 ______. (Check all that apply.)

credit to Interest Payable of $1,000 debit to Interest Expense of $1,000

On September 1, ABC Company borrowed $50,000 with a 6% annual rate by issuing a 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, the adjusting entry at December 31 would include a ______.

debit to Interest expense of $1,000

The initial entry to record an operating lease for equipment is recorded with a ______. (Check all that apply.)

debit to Lease asset credit to Lease liability

An advantage to financing with debt is that ______.

interest is tax deductible

Blank 1Blank 1 operating, Correct Unavailable activities section of the statement of cash flows indicates how well a company is able to generate cash through its normal business activities and management of working capital. (Enter one word per blank.)

operating

Many current liabilities on the balance sheet, such as Accounts payable, Accrued wages and Deferred revenue, have a direct relationship to activities on the statement of cash flows. (Enter one word per blank.)

operating

Analysts say that a company has if it has the ability to meet its current obligations. (Enter one word per blank.)

liquidity

On January 1, 2017, Burrows, Inc. received $16,834 and agreed to pay off the note and interest owed on January 1, 2019. The market rate of interest is 9% compounded annually. The payment made on January 1, 2019 equals a ______ credit to Cash. (round to the nearest $1)

$20,000

On January 1, 2018, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, 2020. The market rate of interest is 6% compounded annually. For the year ended December 31, 2018, Interest Expense on this note payable equals ______. (Round to the nearest whole dollar.)

$534

On January 1, 2018, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, 2020. The market rate of interest is 6% compounded annually. For the 2nd year of this note (i.e., ended December 31, 2019), Interest Expense on this note payable equals ______. (Round to the nearest $1.)

$566

On January 1, 2018, Vango, Inc. purchased a $30,000 van and promised to pay $11,223.34 on December 31 for the next 3 years. The market rate of interest is 6% compounded annually. The entry to record the 1st payment on December 31, 2018 includes ______. (Check all that apply.)

$9,423.34 debit to Notes Payable $11,223.34 credit to Cash $1,800 debit to Interest Expense

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. (Check all that apply.)

- $8,417 debit to Equipment- $8,417 credit to Notes Payable

The adjusting entry to record the amount of vacation earned, but not yet taken, includes a ______. (Check all that apply.)

- credit to Accrued vacation liability- debit to Compensation expense

ABC Airlines collects $300 for a round-trip ticket from Chicago to Los Angeles. The flights will not occur until the next accounting period. ABC Airlines records the $300 collected in advance with a debit to ______.

Cash and credit to Deferred (or Unearned) revenue

Which of the following are reasons a company would want to issue bonds instead of stock? (Check all that apply.)

Current stockholders maintain control. Interest expense is tax-deductible.

True or false: A classified balance sheet separates liabilities into current and non-current categories.

True

10-year Leases Notes payable due in 2 years 10-year bonds

Which of the following obligations are long-term? (Check all that apply.)

Bonds ______. (Check all that apply.)

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

Interest expense on bonds is tax

deductible

How return on equity be different if a company were to issue $100,000 of 10% bonds instead of $100,000 in stock? Assume income before interest and taxes is estimated to be $100,000, income taxes are 21% and stockholders' equity is initially $200,000. Return on equity would be ______.

higher with bonds

Match the proper periods and interest rate per period to use in calculating the following present values.

https://gyazo.com/838be5495dd79bceec6a7e02aa343180

The journal entry to record employer payroll taxes owed affects ______.

liabilities and stockholders' equity

Assets are financed with Blank 1Blank 1 stock, Incorrect Unavailable and stockholders' equity. (Enter only one word per blank.)

liabilities, debt, credit, or creditors' debt

If the lease results in a long-term lease liability then the lease is a(n) ______ lease.

operating or finance

The accounts payable turnover ratio directly measures ______.

the times per year the average accounts payable is paid

Gross earnings for the pay period are $100,000. Social Security is 6.2%; Medicare is 1.45%; Income taxes withheld are $21,850; and FUTA is $1,000. The journal entry to record the taxes incurred and paid by the employer includes a ______.

- $8,650 debit to Compensation expense- $1000 credit to FUTA payable- $7,650 credit to FICA payable

What are the two criteria used to determine whether a contingent liability is reported in the financial statements?

-likelihood of the loss-ability to estimate the amount of loss

During 2019, Barry Bees, Inc.'s Sales equal $30,000 and Cost of goods sold equals $10,000. Its December 31, 2018 Accounts payable was $800 and its December 31, 2019 Accounts payable is $1,200. Barry Bee's accounts payable turnover equals ______ times for the year ended December 31, 2019.

10

Which of these would explain an increase in a company's accounts payable turnover ratio? (Check all that apply.)

An increase in the amount of purchase discounts taken A decrease in the average age of payables

On January 1, 2018, Moonbucks, Inc., received $79,380 and agreed to pay $100,000 in 3 years on December 31, 2020. The market rate of interest is 8% compounded annually. For the year ended December 31, 2018, Interest Expense on this note payable equals $

Blank 1: 6,350 or $6,350

On January 1, 2018, Moonbucks, Inc., received $79,380 and agreed to pay $100,000 in 3 years on December 31, 2020. The market rate of interest is 8% compounded annually. For the 2nd year ended December 31, 2019, Interest Expense on this note payable equals $

Blank 1: 6,858 or $6,858

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

Blank 1: inventory or cash Blank 2: receivable

XYZ borrowed $50,000 this year. Half of the loan will be repaid next year and the remainder will be paid the following year. How will the $50,000 be reported on its balance sheet at the end of this year? (Check all that apply.)

Current portion of long-term debt of $25,000 Long-term debt of $25,000

When using a calculator or Excel to compute the present value of $10,000 annual payments over 10 years at 6%, the rate (I/YR), the number of periods (N) and payment amount (PMT) to input are as follows ______.

I/YR=0.06; N=10; PMT=-10000

Which of the following would result in an accrued liability? (Select all that apply.)

Income taxes incurred, but not yet paid Vacation owed Health insurance coverage in retirement

The entry to record the cash payment to a bank for interest owed that has already been expensed requires a debit to ______ and credit to ______.

Interest payable; Cash

Which of the following are used to categorize the likelihood of the occurrence of a future loss?

Probable, Remote, Reasonably Possible.

What is the difference between secured and unsecured debt?

Secured debt reduces creditors' risk because specific assets become theirs in the event of default.

Match each lease with its appropriate accounting treatment.

Short-term Lease matches Choiceexpensed as the leased asset is used expensed as the leased asset is used Longer-term Finance Lease matches Choicereported as a liability and meets one of the 5 criteria which is ownership is transferred at the end of the lease reported as a liability and meets one of the 5 criteria which is ownership is transferred at the end of the lease Operating Lease matches Choicereported as a liability and does not meet any of the 5 criteria reported as a liability and does not meet any of the 5 criteria

Which of the following are not required payroll deductions from an employees' gross earnings? (Check all that apply.)

State unemployment tax (SUTA) Federal unemployment tax (FUTA) Charitable contributions

______ tax differences occur when the company reports different net income under financial reporting and tax reporting.

Temporary

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 ______. (Check all that apply.)

a $1,000 debit to an expense a $1,000 credit to a current liability

At year end, companies should report ______.

accrued liabilities for amounts owed even if the amount must be estimated

In the operating activities section of the statement of cash flows, subtracting an increase in current assets or a decrease in current liabilities from net income adjusts for transactions that ______.

decreased cash, but did not affect net income

Accruing a liability always involves recording both a(n)______ and a liability.

expense

Which of the following are the correct number of periods (n) and interest rate (i) per period to use to calculate the present value of a 12% loan that requires quarterly payments of $1,000 over 5 years? (Check all that apply.)

i=3% n=20

Deferred Income Tax is a(n) ______ account if the difference is due to an accelerated tax depreciation used for its tax returns and straight-line for financial reporting.

liability

Accrued Taxes Payable is a(n) ______ and reports the amount ______.

liability; owed for federal income taxes

Analysts say that a company has Blank 1Blank 1 liquidity, Correct Unavailable if it has the ability to meet its current obligations. (Enter one word per blank.)

liquidity

Bonds are normally classified as ______ liabilities when they are first issued.

long-term

Assuming no inflation, $1 invested today is worth ______.

more than $1 received in the future because interest can be earned over time

On January 1, 2018, Vango, Inc. purchased a van and promised to pay $11,223.34 on December 31 for the next 3 years. The market rate of interest is 6% compounded annually. The amount of the purchase is calculated by ______.

multiplying $11,223.34 by the present value of an annuity with n=3 and i=6%.