Deck 8: Current Liabilities

Question 1

Airlines do not record revenue when a ticket is sold,but wait to record revenue until the actual flight occurs.

Answer 1

True

Question 2

FICA taxes are paid only by the employee.The employer is required to match the amount withheld for each employee,effectively doubling the amount paid into Social Security.

Answer 2

False

Question 3

The employer is required to match the amount of FICA taxes withheld for each employee,effectively doubling the amount paid into Social Security.

Answer 3

True

Question 4

When a company borrows cash from a bank promising to repay the amount borrowed plus interest,the borrower reports its liability as notes payable.

Question 5

Interest is stated in terms of an annual percentage rate to be applied to the face value of the loan.

Question 6

All states impose a state income tax.Alaska,Florida,Nevada,South Dakota,Texas,Washington,and Wyoming have no state income tax.

Question 7

Accounts payable are amounts the company owes to suppliers of merchandise or services that it has bought on credit.

Question 8

Commonly,current liabilities are payable within one year,and long-term liabilities are payable more than one year from now.

Question 9

We record interest expense in the period in which we pay it,rather than in the period we incur it.Interest expense is recorded in the period incurred,not in the period in which we pay it.

Question 10

All states impose a general state sales tax,and many areas include an additional local sales tax.Alaska,Delaware,Montana,New Hampshire,and Oregon do not have a general state sales tax.

Question 11

Additional employee benefits paid for by the employer are often referred to as fringe benefits.

Question 12

American,Delta,and United Airlines have all,at one time,filed for bankruptcy.

Question 13

A line of credit is an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and paperwork.

Question 14

If a company borrows from another company rather than from a bank,the note is referred to as commercial paper.

Question 15

Given a choice,most companies would prefer to report a liability as current rather than long-term,because doing so may cause the firm to appear less risky.Companies prefer to report a liability as long-term,because long-term debt makes a company appear less risky.

Question 16

In a classified balance sheet,we categorize all liabilities as current.Liabilities may be classified as either current or long-term.

Question 17

Deductions from employee salaries in determining the amount of payroll checks include withholdings for federal and state income taxes,FICA taxes,and the employee portion of insurance and retirement contributions.

Question 18

Companies are required by law to withhold federal and state income taxes from employees' paychecks and remit these taxes to the government.

Question 19

The employer records amounts deducted from employee payroll as liabilities until it pays them to the appropriate organizations.

Question 20

When a company receives cash in advance,it debits Cash and credits a revenue account called Deferred Revenue.When a company receives cash in advance,it debits Cash and credits a liability account called Deferred Revenue.

Question 21

Companies selling products subject to sales taxes are responsible for collecting the sales tax directly from customers and periodically remitting the sales taxes collected to the state and local governments.

Question 22

A lower current ratio or acid-test ratio generally indicates a greater ability to pay current liabilities on a timely basis.A higher current ratio or acid-test ratio generally indicates a greater ability to pay current liabilities on a timely basis.

Question 23

A company is said to be liquid if it has sufficient cash to pay currently maturing debts.

Question 24

The acid-test ratio,or quick ratio,is similar to the current ratio but is based on a more conservative measure of current assets available to pay current liabilities.

Question 25

If the likelihood of a loss is reasonably possible rather than probable,we record no entry,but make full disclosure in a footnote to the financial statements to describe the contingency.

Question 26

Given a choice,most managers would choose to record an obligation as long-term rather than current.

Question 27

The current ratio is calculated by dividing current liabilities by current assets.The current ratio is calculated by dividing current assets by current liabilities.

Question 28

A contingent liability is an existing,uncertain situation that might result in a loss.

Question 29

Quick assets include only cash,short-term investments,and accounts receivable.

Question 30

Long-term obligations such as notes,mortgages,and bonds are reported as long-term liabilities when they become payable within the upcoming year.These liabilities usually are reclassified and reported as current liabilities when they become payable within the upcoming year.

Question 31

If the likelihood of loss is remote,disclosure usually is not required.

Question 32

The balance in the Warranty Liability account is always equal to Warranty Expense.The Warranty Liability account is increased by warranty expense,but it is also reduced over time by actual warranty expenditures.

Question 33

Sales taxes collected from customers by the seller are not an expense,instead they represent current liabilities payable to the government.

Question 34

We record a contingent liability when the likelihood of the loss occurring is reasonably possible and the amount is reasonably estimable.We record a contingent liability when the likelihood of the loss occurring is probable and the amount is reasonably estimable.

Question 35

We record gain contingencies when the gain is probable and the amount is reasonably estimable.We do not record gain contingencies until the gain is certain.

Question 36

A contingent liability is recorded only if a loss is at least reasonably possible and the amount is reasonably estimable.A contingent liability is recorded only if a loss is probable and the amount is reasonably estimable.

Question 37

When a company collects sales taxes,the debit is to Cash and the credit is to Sales Tax Payable.

Question 38

The journal entry to record a contingent liability requires a debit to a loss (or expense)account and a credit to a liability.

Question 39

Regarding a contingent liability,when no amount within a range of potential losses appears more likely than others,we record the maximum amount in the range.When no amount within a range of potential losses appears more likely than others,we record the minimum amount in the range.

Question 40

A gain contingency is an existing uncertain situation that might result in a gain,which often is the flip side of loss contingencies.

Question 41

On September 1,2018,Daylight Donuts signed a $100,000,9%,six-month note payable with the amount borrowed plus accrued interest due six months later on March 1,2019.Daylight Donuts records the appropriate adjusting entry for the note on December 31,2018.In recording the payment of the note plus accrued interest at maturity on March 1,2019,Daylight Donuts would

A)Debit Interest Expense,$3,000.
B)Debit Interest Expense,$1,500.
C)Debit Interest Payable,$1,500.

Question 42

On September 1,2018,Daylight Donuts signed a $100,000,9%,six-month note payable with the amount borrowed plus accrued interest due six months later on March 1,2019.Daylight Donuts should report interest payable at December 31,2018,in the amount of:

A)$0.
B)$1,500.
C)$3,000.

Question 43

Given a choice,most companies would prefer to report a liability as long-term rather than current because:

A)It may cause the firm to appear less risky to investors and creditors.
B)It may reduce interest rates on borrowing.
C)It may cause the company to appear more stable,commanding a higher stock price for new stock listings.
D)All of these.

Question 44

On December 1,2018,Old World Deli signed a $300,000,5%,six-month note payable with the amount borrowed plus accrued interest due six months later on June 1,2019.Old World Deli should record which of the following adjusting entries at December 31,2018?

A)Debit Interest Expense and credit Interest Payable,$7,500.
B)Debit Interest Expense and credit Cash,$7,500.
C)Debit Interest Expense and credit Interest Payable,$1,250.

Question 45

On November 1,2018,The Bagel Factory signed a $100,000,6%,six-month note payable with the amount borrowed plus accrued interest due six months later on May 1,2019.The Bagel Factory should report interest payable at December 31,2018,in the amount of:

A)$0.
B)$1,000.
C)$2,000.

Question 46

On November 1,2018,New Morning Bakery signed a $200,000,6%,six-month note payable with the amount borrowed plus accrued interest due six months later on May 1,2019.New Morning Bakery records the appropriate adjusting entry for the note on December 31,2018.What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1,2019?

A)$200,000.
B)$202,000.
C)$204,000.
D)$206,000.

Question 47

Which of the following is not a liability?

A)Notes payable.
B)Current portion of long-term debt.
C)An unused line of credit.

Question 48

Brian Inc.borrowed $8,000 from First Bank and signed a promissory note.What entry should First Bank record?

A)Debit Cash,$8,000;Credit Notes Receivable,$8,000.
B)Debit Notes Receivable,$8,000;Credit Cash,$8,000.
C)Debit Cash,$8,000;Credit Notes Payable,$8,000.

Question 49

Which of the following is not a current liability?

A)Accounts payable.
B)A note payable due in 2 years.
C)Current portion of long-term debt.

Question 50

On November 1,2018,The Bagel Factory signed a $100,000,6%,six-month note payable with the amount borrowed plus accrued interest due six months later on May 1,2019.The Bagel Factory records the appropriate adjusting entry for the note on December 31,2018.In recording the payment of the note plus accrued interest at maturity on May 1,2019,The Bagel Factory would

A)Debit Interest Expense,$2,000.
B)Debit Interest Expense,$1,000.
C)Debit Interest Payable,$2,000.

Question 51

Which of the following is not a reason why a company might prefer to report a liability as long-term rather than current?

A)It may cause the firm to appear less risky to investors and creditors.
B)It may increase interest rates on borrowing.
C)It may cause the company to appear more stable commanding a higher stock price for new stock listings.

Question 52

Bear Essentials borrowed $50,000 from Stacks Bank and signed a promissory note.What entry should Bear Essentials record?

A)Debit Cash,$50,000;Credit Notes Receivable,$50,000.
B)Debit Notes Receivable,$50,000;Credit Cash,$50,000.
C)Debit Cash,$50,000;Credit Notes Payable,$50,000.

Question 53

On November 1,2018,New Morning Bakery signed a $200,000,6%,six-month note payable with the amount borrowed plus accrued interest due six months later on May 1,2019.New Morning Bakery should record which of the following adjusting entries at December 31,2018?

A)Debit Interest Expense and credit Interest Payable,$2,000.
B)Debit Interest Expense and credit Cash,$2,000.
C)Debit Interest Expense and credit Interest Payable,$6,000.

Question 54

In most cases,current liabilities are payable within ____ year(s),and long-term liabilities are payable more than ____ year(s)from now.

A)one;two
B)one;one
C)two;two

Question 55

On December 1,2018,Old World Deli signed a $300,000,5%,six-month note payable with the amount borrowed plus accrued interest due six months later on June 1,2019.Old World Deli records the appropriate adjusting entry for the note on December 31,2018.What amount of cash will be needed to pay back the note payable plus any accrued interest on June 1,2019?

A)$300,000.
B)$301,250.
C)$306,250.
D)$307,500.

Question 56

Liabilities are defined as:

A)Resources owed by an entity as a result of past transactions.
B)Resources owned by an entity as a result of past transactions.
C)Selling products and services to customers in the current period.

Question 57

Bear Essentials borrowed $50,000 from Stacks Bank and signed a promissory note.What entry should Stacks Bank record?

A)Debit Cash,$50,000;Credit Notes Receivable,$50,000.
B)Debit Notes Receivable,$50,000;Credit Cash,$50,000.
C)Debit Cash,$50,000;Credit Notes Payable,$50,000.

Question 58

Brian Inc.borrowed $8,000 from First Bank and signed a promissory note.What entry should Brian Inc.record?

A)Debit Cash,$8,000;Credit Notes Receivable,$8,000.
B)Debit Notes Receivable,$8,000;Credit Cash,$8,000.
C)Debit Cash,$8,000;Credit Notes Payable,$8,000.

Question 59

The Pita Pit borrowed $100,000 on November 1,2018,and signed a six-month note bearing interest at 12%.Principal and interest are payable in full at maturity on May 1,2019.In connection with this note,The Pita Pit should report interest expense at December 31,2018,in the amount of:

A)$0.
B)$1,000.
C)$2,000.

Question 60

Which of the following is not a characteristic of a liability?

A)It represents a probable,future sacrifice of economic benefits.
B)It must be payable in cash.
C)It arises from present obligations to other entities.

Question 61

Mike Gundy is a college football coach making a base salary of $2,400,000 a year ($200,000 per month).Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum.Assuming the Social Security maximum base amount is $118,500,how much will be withheld during the year for the coach's Social Security and Medicare.

A)$34,800.
B)$42,147.
C)$148,800.

Question 62

Universal Travel,Inc.borrowed $500,000 on November 1,2018,and signed a twelve-month note bearing interest at 6%.Principal and interest are payable in full at maturity on October 31,2019.In connection with this note,Universal Travel,Inc.should report interest payable at December 31,2018,in the amount of:

A)$8,000.
B)$30,000.
C)$5,000.

Question 63

Universal Travel,Inc.borrowed $500,000 on November 1,2018,and signed a twelve-month note bearing interest at 6%.Principal and interest are payable in full at maturity on October 31,2019.In connection with this note,Universal Travel,Inc.should record interest expense in 2019 in the amount of:

A)$8,000.
B)$30,000.
C)$5,000.
D)$25,000.

Question 64

Greger Peterson is a senior manager at a public accounting firm making a base salary of $180,000 a year ($15,000 per month).Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum.Assuming the Social Security maximum base amount is $118,500,how much will be withheld during the year for Greger's Social Security and Medicare.

A)$2,610.
B)$9,957.
C)$13,770.

Question 65

Which of the following is not an employer payroll cost?

A)FICA taxes.
B)Federal and state unemployment taxes.
C)Federal and state income taxes.

Question 66

Which of the following are withheld from an employee's salary? I.FICA taxes.II.Federal and state unemployment taxes.III.Federal and state income taxes.IV.Employee portion of health insurance.

A)I,II,and IV
B)I,III,and IV
C)I and IV

Question 67

Which of the following is not withheld from an employee's salary?

A)FICA taxes.
B)Federal and state unemployment taxes.
C)Federal and state income taxes.

Question 68

The Pita Pit borrowed $100,000 on November 1,2018,and signed a six-month note bearing interest at 12%.Principal and interest are payable in full at maturity on May 1,2019.In connection with this note,The Pita Pit should report interest expense in 2019 for the amount of:

A)$0.
B)$4,000.
C)$2,000.

Question 69

Greger Peterson is a senior manager at a public accounting firm making a base salary of $180,000 a year ($15,000 per month).Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum.Assuming the Social Security maximum base amount is $118,500,through what month will Social Security be withheld?

A)Social Security will be withheld through the month of August.
B)Social Security will be withheld through the entire year.
C)Social Security will be withheld through the month of January.

Question 70

Action Travel has 10 employees each working 40 hours per week and earning $20 an hour.Federal income taxes are withheld at 15% and state income taxes at 6%.FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee.What is the employer's total payroll tax expense for the first week of January?

A)$612.
B)$1,224.
C)$916.

Question 71

Which of the following is true regarding FICA taxes?

A)FICA taxes are paid only by the employee.
B)FICA taxes are paid only by the employer.
C)FICA taxes are paid in equal amounts by the employee and the employer.

Question 72

Mike Gundy is a college football coach making a base salary of $2,400,000 a year ($200,000 per month).Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum.Assuming the Social Security maximum base amount is $118,500,through what month will Social Security be withheld?

A)Social Security will be withheld only in January.
B)Social Security will be withheld through the entire year.
C)Social Security will be withheld through the month of March.

Question 73

Which of the following are included in an employer's payroll tax expense?

A)Employer portion of FICA taxes.
B)Federal unemployment taxes.
C)State unemployment taxes.
D)All of these.

Question 74

Which of the following are not included in an employer's payroll tax expense?

A)Employer portion of FICA taxes.
B)Federal unemployment taxes.
C)State unemployment taxes.
D)State income taxes.

Question 75

Large,highly-rated firms sometimes sell commercial paper:

A)To borrow funds at a lower rate than through a bank.
B)To borrow funds when they cannot obtain a loan from a bank.
C)Because they can't borrow anywhere else.

Question 76

An informal agreement that allows a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork is known as:

A)A line of credit
B)Commercial Paper
C)A debt covenant

Question 77

Rock Adventures has 15 employees each working 40 hours per week and earning $30 an hour.Federal income taxes are withheld at 15% and state income taxes at 6%.FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee.What is the employer's total payroll tax expense for the first week of January?

A)$1,377.
B)$3,141.
C)$2,061.

Question 78

Action Travel has 10 employees each working 40 hours per week and earning $20 an hour.Federal income taxes are withheld at 15% and state income taxes at 6%.FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee.What is the actual direct deposit of payroll for the first week of January?

A)$5,404.
B)$5,708.
C)$4,792.

Question 79

Which of the following are employer payroll costs? I.FICA taxes.II.Federal and state unemployment taxes.III.Federal and state income taxes.IV.Employer contributions to a retirement plan.

A)I and IV
B)I,III,and IV
C)I,II,and IV

Question 80

Rock Adventures has 15 employees each working 40 hours per week and earning $30 an hour.Federal income taxes are withheld at 15% and state income taxes at 6%.FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee.What is the actual direct deposit of payroll for the first week of January?

A)$13,923.
B)$12,843.
C)$5,157.