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Exam 8: Current Liabilities

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Question 41

True/False

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

A) True
B) False

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Question 42

Multiple Choice

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A contingent liability should be disclosed in a note to the financial statements rather than being recorded if:

A) The likelihood of a loss is remote.
B) The incurrence of a loss is reasonably possible.
C) The incurrence of a loss is probable.
D) The likelihood of a loss is eighty percent.

E) A) and D)
F) A) and B)

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Question 43

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On November 1,2015,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 1,2016.The Bagel Factory should report interest payable at December 31,2015,in the amount of:

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

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

Discount Travel has the following current assets: cash,$102 million;receivables,$94 million;inventory,$182 million;and other current assets,$18 million.Discount Travel also has the following liabilities: accounts payable,$98 million;current portion of long-term debt,$35 million;and long-term debt,$23 million.Based on these amounts,what is the current ratio?

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

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

Away Travel filed suit against West Coast Travel seeking damages for copyright violations.Away Travel's legal counsel believes it is probable (but not certain) that Away Travel will win the lawsuit for an estimated amount in the range of $100,000 to $200,000,with all amounts in the range considered equally likely.How should Away Travel report this litigation?

Assume that on July 1,2015,Togo's Sandwiches issues a $2 million,one-year note.Interest is payable at maturity.Determine the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assumptions:

When a company collects sales tax from a customer,the event is recorded by:

Which of the following is a contingency that should be recorded?

The acid-test ratio is

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

If management can estimate the amount of loss that will occur due to litigation against the company,and the likelihood of the loss is reasonably possible,a contingent liability should be

Explain why we record interest in the period in which we incur it rather than in the period we pay it.

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

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

Region Jet has a $50 million liability at December 31,2015,of which $10 million is payable in 2016.In its December 31,2015 balance sheet,the company reports the $50 million debt as

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