Deck 11: Current Liabilities and Fair Value Accounting

Question 1

The FUTA tax rate most often actually paid by employers is 0.8 percent.

Answer 1

True

Question 2

Commercial paper normally is issued by companies with poor credit ratings.

Answer 2

False

Question 3

Current liabilities are classified as either definitely determinable liabilities or contingent liabilities.

Answer 3

False

Question 4

A liability for dividends exists only when the board of stockholders requests them.

Question 5

Because accounting measures should be verifiable,liabilities should not be estimated.

Question 6

If any portion of a long-term debt is to be paid in the next year,that portion should be classified as a current liability.

Question 7

The classification of a liability as current or long-term is not important to the evaluation of a company's liquidity.

Question 8

There is no limit to the amount of income subject to the FUTA tax.

Question 9

The product warranty liability is an example of an estimated liability.

Question 10

Product warranties are an expense of the period in which the product is sold.

Question 11

If an accrued liability for salaries is not recorded,income for the following period will be overstated.

Question 12

Unearned revenue arises from the acceptance of payment in advance for a service to be performed.

Question 13

Accrued liabilities often arise as a result of the passage of time.

Question 14

At the time a company signs a contract to pay an employee a certain salary in the future,it records a liability.

Question 15

Lines of credit from the bank need not be disclosed in the financial statements or in the notes.

Question 16

When a business sells an item and collects a state sales tax on it,a current liability to the state arises.

Question 17

Liabilities generally arise from expected future transactions.

Question 18

A liability must never be classified as current if it is due in more than one year.

Question 19

Wages are compensation of employees at a yearly or monthly rate.

Question 20

Because failure to record a liability generally leads to failure to record an expense,it usually results in an overstatement of income.

Question 21

The entry that includes a debit to Payroll Taxes and Benefits Expense also includes credits to Federal Unemployment Tax Payable and State Unemployment Tax Payable.

Question 22

Only the unused portion of a line of credit is recognized as a liability.

Question 23

Property Taxes Expense is recorded only in the month it is paid.

Question 24

The entry that includes a debit to Payroll Taxes and Benefits Expense would also include credits to Social Security Tax Payable and Medicare Tax Payable.

Question 25

The amount recorded for Payroll Taxes and Benefits Expense is borne entirely by the employee.

Question 26

An estimated liability is not a definite obligation of the firm because the amount cannot be definitely determined.

Question 27

Both the employee and the employer must bear the tax burden for unemployment benefits.

Question 28

Social Security and Medicare taxes are borne entirely by the employee.

Question 29

Unearned revenue is an example of a definitely determinable liability.

Question 30

Product warranties are an expense of the period in which the related product is sold.

Question 31

Gross earnings minus deductions equal take-home pay.

Question 32

Expected obligations arising from programs,such as frequent flyer miles,are usually recorded as a reduction in sales (in a contra-sales account)with a related liability.

Question 33

Interest on a promissory note is recognized when the note is issued.

Question 34

The costs associated with coupons and rebates are usually reflected in contra-revenue accounts.

Question 35

The amount of property tax payable is usually an estimated liability for a portion of the year.

Question 36

If the amount of a liability cannot be exactly determined,it should not be recorded.

Question 37

Vacation pay is charged properly as an expense in the month in which the employee takes a vacation.

Question 38

Based on past experience,it should be possible to estimate the amount that a product warranty will cost the company in the future.

Question 39

If a state unemployment tax is imposed,then the federal unemployment tax is not imposed.

Question 40

The term salaries refers to the compensation of employees who are paid at an hourly rate.

Question 41

A contingent liability is a liability that may materialize in the future because of something that happened in the past.

Question 42

All factors in a future value table must be less than or equal to 1.000.

Question 43

All factors in a present value of a single sum table are less than 1.000.

Question 44

Decision makers rely on the future values,rather than on the present values of future cash flows.

Question 45

The current portion of long-term debt is classified as a current liability only if it is due within the next year and is to be paid from current assets.

Question 46

The declaration of dividends is solely the decision of the corporation's board of directors.

Question 47

Common examples of commitments are leases and purchase agreements.

Question 48

Potential vacation pay should be accounted for as a commitment.

Question 49

There is no limit to the amount of income subject to the Medicare tax.

Question 50

A contingent liability eventually becomes either a true liability or no liability at all.

Question 51

Lawsuits against a company in connection with an industrial accident would not be listed in the contingent liabilities section on the balance sheet.

Question 52

A contingent liability should be entered into the accounting records if it is both probable and reasonably estimable.

Question 53

A commitment is a legal obligation that meets the technical requirements for recognition as a liability.

Question 54

When a company discounts a note receivable at the bank,it has a contingent liability.

Question 55

Commercial paper consists of secured loans that are sold to the public.

Question 56

For notes payable whose interest is stated separately,the adjusting entry would consist of a debit to Interest Expense and a credit to Interest Payable.

Question 57

An ordinary annuity is a series of equal payments made at the end of equal intervals of time.

Question 58

Present value refers to an amount that must be invested today at a given rate of interest to produce a given future value.

Question 59

The lower the interest rate,the higher the present value factor.

Question 60

The lower the interest rate,the lower the future value factor.

Question 61

Assets purchased under a deferred payment plan should be recorded at the present value of the installment payments.

Question 62

In a deferred payment arrangement,interest is charged only if it is stated.

Question 63

The theoretical value of an asset is the future value of its expected benefits.

Question 64

Current liabilities are debts that are expected to be satisfied within

A)one year or the normal operating cycle,whichever is shorter.
B)one year or the normal operating cycle,whichever is longer.
C)one year.
D)the normal operating cycle.

Question 65

To calculate payables turnover,an increase in merchandise inventory must be added to cost of goods sold before dividing by average accounts payable.

Question 66

The annual interest earned on an amount deposited into a bank account will increase each year when simple interest is used.

Question 67

A liability is recognized when

A)the exact due date is known.
B)it is paid for.
C)an obligation has arisen.
D)the exact amount of the liability is known.

Question 68

Which of the following most likely would be classified as a current liability?

A)Mortgage payable
B)Dividends payable
C)Five-year notes payable
D)Bonds payable

Question 69

The payables turnover is the number of times,on average,that a company pays its accounts payable in an accounting period.

Question 70

When compound interest is used,interest accumulates less quickly than when simple interest is used.

Question 71

Failure to record a liability probably will

A)result in an overstated net income.
B)result in overstated total liabilities and stockholders' equity.
C)have no effect on net income.
D)result in overstated total assets.

Question 72

The proposed purchase price of an asset should be compared to the present value of the benefits it will generate over its useful life.

Question 73

To determine the payables turnover,one first calculates the days' payable.

Question 74

The annual interest earned on an amount deposited into a bank account will be the same each year when compound interest is used.

Question 75

The days' payable shows the maximum time a company takes to pay its accounts payable.

Question 76

An asset purchased according to a deferred payment plan should be recorded based on the total cash paid.

Question 77

Payables turnover is measured in number of days.

Question 78

Working capital equals current assets divided by current liabilities.

Question 79

If the present value of the net cash flows expected from a machine is less than its purchase price,the investment should not be made.

Question 80

On January 2,2014,Lionel Company issued $40,000 of notes payable,of which $10,000 is due on January 2 for each of the next four years.The proper balance sheet presentation on December 31,2014,is

A)Current Liabilities,$40,000.
B)Current Liabilities,$10,000; Long-Term Liabilities,$30,000.
C)Long-Term Liabilities,$40,000.
D)Current Liabilities,$30,000; Long-Term Liabilities,$10,000.