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  1. A liability that requires the sacrifice of something other than cash.
  2. We report the portion of a long-term debt maturing within a year as a long-term liability on the balance sheet.

    True
    False
  3. When a company delivers a product or service for which a customer has previously paid, the company records the following:
    A debit to a revenue account and a credit to a liability account.
    A debit to a revenue account and a credit to an asset account.
    A debit to an asset account and a credit to a revenue account.
    → A debit to a liability account and a credit to a revenue account.
  4. if you earn, let's say, $206,800, you have what percent withheld for FICA on the first what of your annual salary and then only what percent withheld on the remaining what amount earned during the rest of the year.
  5. The company has a total payroll for the month of January of $100,000 for its 30 employees. Use the information provided to answer the following questions. (Assume that none of the employees earn more than $7,000 in January.)
    What is the amount of Payroll Tax Expense recorded for the month?

    $7,650
    $33,850
    $15,300
    $13,850
  6. Two competing travel agencies provide similar services, but they record sales using different methods

    1. Eastern Travel records sales and sales tax in separate accounts. For the month of January, sales total $22,500, and sales tax is $1,350.

    2. Western Travel records sales and sales tax together. For the month of January, sales total $19,610, including an 6% sales tax.

    Record cash sales and the related sales tax for Eastern Travel.
  7. Contingent liability
  8. Liquidity
  9. The University of Michigan football stadium, built in 1927, is the largest college stadium in America, with a seating capacity of 105,500 fans. Assume the stadium sells out all 10 home games before the season begins, and the athletic department collects $69.5 million in ticket sales.

    What is the average price per season ticket and average price per individual game ticket sold?
  10. Two competing travel agencies provide similar services, but they record sales using different methods

    1. Eastern Travel records sales and sales tax in separate accounts. For the month of January, sales total $22,500, and sales tax is $1,350.

    2. Western Travel records sales and sales tax together. For the month of January, sales total $19,610, including an 6% sales tax.

    Record cash sales and the related sales tax for Western Travel.
  11. Amount of note payable × annual interest rate × fraction of the year.
  12. if you earn less than $106,800, you have what percent withheld from your check all year?
  13. The Federal Unemployment Tax Act or FUTA requires a tax of what percent on the first what amount earned by each employee?
  14. What are the three essential characters of liabilities?
  15. Aspen Ski Resorts has 89 employees, each working 40 hours per week and earning $9.50 an hour. Although the company does not pay any health or retirement benefits, one of the perks of working at Aspen is that employees are allowed free skiing on their days off. Federal income taxes are withheld at 15.00% and state income taxes at 5.00%. FICA taxes are 7.65% of the first $106,800 earned per employee and 1.45% thereafter. Unemployment taxes are 6.20% of the first $7,000 earned per employee.

    How should Aspen Ski Resorts account for the free skiing given to employees on their days off?
  16. Meridian Company borrows $10 million from a bank on December 1, 2012, by signing a 6 percent, nine-month note, and pays the amount borrowed plus accrued interest on September 1, 2013. All of the following are effects of the entry recorded on September 1, 2013, except _____.

    recording the interest payable for 2012
    removal of the note payable
    recording the interest expense for 2013
    reduction of cash
  17. Long-term debt maturing within one year.
  18. Aspen Ski Resorts has 89 employees, each working 40 hours per week and earning $9.50 an hour. Although the company does not pay any health or retirement benefits, one of the perks of working at Aspen is that employees are allowed free skiing on their days off. Federal income taxes are withheld at 15.00% and state income taxes at 5.00%. FICA taxes are 7.65% of the first $106,800 earned per employee and 1.45% thereafter. Unemployment taxes are 6.20% of the first $7,000 earned per employee.

    Compute the total payroll tax expense Aspen Ski Resorts will pay for the first week of January in addition to the total salary expense and employee withholdings calculated in Part 1.
  19. Havier Corporation borrows $1 million from a bank on September 1, 2012, by signing a 6 percent, nine-month note for the amount borrowed plus accrued interest due nine months later on June 1, 2013. Which of the following is recorded on June 1, 2013?

    $25,000 debit to Interest Payable
    $1,045,000 credit to Cash
    $20,000 credit to Interest Expense
    $1,045,000 debit to Note Payable
  20. Quick assets
  21. Notes payable
  22. On August 1, 2012, Trico Technologies, an aeronautic electronics company, borrows $20 million cash to expand operations. The loan is made by FirstBanc Corp. under a short-term line of credit arrangement. Trico signs a six-month, 7% promissory note. Interest is payable at maturity. Trico's year-end is December 31.

    Record the appropriate adjusting entry for the note by Trico on December 31, 2012.
  23. When a company collects sales tax from a customer, the event is recorded by:
    A debit to Sales Tax Expense and a credit to Sales Tax Payable.
    A debit to Cash and a credit to Sales Tax Payable.
    A debit to Sales Tax Payable and a credit to Sales Tax Expense.
    A debit to Sales Tax Payable and a credit to Cash.
  24. Given a choice, most companies would prefer to report a liability as current rather than long-term.

    True
    False
  25. Informal agreement that permits a company to borrow up to a prearranged limit.
  26. Acid-test ratio
  27. The company has a total payroll for the month of January of $100,000 for its 30 employees. Use the information provided to answer the following questions. (Assume that none of the employees earn more than $7,000 in January.)
    What is the amount due to the government from FICA taxes in the month of March?

    $15,300
    $7,650
    $13,850
    $27,650
  28. During January, Luxury Cruise Lines pays employee salaries of $2.20 million. Withholdings in January are $168,300 for the employee portion of FICA, $285,000 for federal income tax, $115,000 for state income tax, and $29,000 for the employee portion of health insurance (payable to Blue Cross/Blue Shield). The company incurs an additional $136,400 for federal and state unemployment tax and $64,000 for the employer portion of health insurance.

    Record the employee salary expense, withholdings, and salaries payable.
  29. In most cases, current liabilities are payable within one year, and long-term liabilities are payable more than one year from now.

    True
    False
  30. Commercial paper
  31. Select "C" for Current liability, "L" for Long-term liability, "D" for Disclosure note only and "N" for Not reported for each of the items listed below.

    1. Accounts payable.
    2. Current portion of long-term debt.
    3. Sales tax collected from customers.
    4. Notes payable due next year.
    5. Notes payable due in two years.
    6. Customer advances.
    7. Commercial paper.
    8. Unused line of credit.
    9. A contingent liability with a probable likelihood of occurring within the next year and can be estimated.
    10. A contingent liability with a reasonably possible likelihood of occurring within the next year and can be estimated.
  32. FICA taxes
  33. Line of credit
  34. Working capital
  35. Sales tax payable
  36. On August 1, 2012, Trico Technologies, an aeronautic electronics company, borrows $20 million cash to expand operations. The loan is made by FirstBanc Corp. under a short-term line of credit arrangement. Trico signs a six-month, 7% promissory note. Interest is payable at maturity. Trico's year-end is December 31.

    Record the issuance of the note by Trico Technologies.
  37. Fringe benefits
  38. 1. An IOU promising to repay the amount borrowed plus interest.
  39. The University of Michigan football stadium, built in 1927, is the largest college stadium in America, with a seating capacity of 105,500 fans. Assume the stadium sells out all 10 home games before the season begins, and the athletic department collects $69.5 million in ticket sales.

    Record the revenue earned after the first home game is completed.
  40. Banner Corporation receives $30,000 in May 2012 to manufacture and deliver its product in September 2012. After the product is delivered, Banner will _____.

    debit Unearned Revenue and credit Sales Revenue
    debit Cash and credit Sales Revenue
    debit Cash and credit Accounts Receivable
    debit Sales Revenue and credit Unearned Revenue
  41. Current liabilities
  42. On August 1, 2012, Trico Technologies, an aeronautic electronics company, borrows $20 million cash to expand operations. The loan is made by FirstBanc Corp. under a short-term line of credit arrangement. Trico signs a six-month, 7% promissory note. Interest is payable at maturity. Trico's year-end is December 31.

    . Record the payment of the note by Trico at maturity.
  43. Assets represent probable ...
  44. A company makes an adjusting entry on December 31, 2012 to record interest incurred on a note payable. The note payable plus interest accrued will be paid only on February 1, 2013, when the note becomes due. Because there is no outflow of cash on December 31, 2012, the adjusting entry will have no effect on the income statement for 2012.

    True
    False
  45. Current portion of long-term debt
  46. Universal Travel, Inc. borrowed $500,000 on November 1, 2012, and signed a twelve-month note bearing interest at 6%. Principal and interest are payable in full at maturity on October 31, 2013. In connection with this note, Universal Travel, Inc. should record interest expense in 2013 in the amount of:
    $8,000.
    $30,000.
    $5,000.
    $25,000.
  47. Identify a liability that does not require a cash payment.

    Accounts payable
    Notes payable
    Salaries payable
    Unearned revenue
  48. for interest on loan 200000 that occurs over 2 years, lets say 3 months (october september december 2012) and 3 months (january february and march 2013) you need to...
  49. Windsor Corporation borrows $100,000 from a bank on November 1, 2012, by signing a 9 percent, six-month note for the amount borrowed plus accrued interest due six months later on May 1, 2013. What is the interest expense per month on this note?

    $750
    $1,000
    $1,200
    $3,000
  50. Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2012 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that a product recall is probable, estimated to cost the company $6.5 million. The fiscal year ends on December 31.

    Should this contingent liability be reported, disclosed in a note only, or neither?
  51. Unemployment taxes
  52. The company has a total payroll for the month of January of $100,000 for its 30 employees. Use the information provided to answer the following questions. (Assume that none of the employees earn more than $7,000 in January.)
    What is the amount of Salaries Payable for the month?

    $72,350
    $100,000
    $80,000
    $64,700
  53. The company has a total payroll for the month of January of $100,000 for its 30 employees. Use the information provided to answer the following questions. (Assume that none of the employees earn more than $7,000 in January.)
    What is the amount of fringe benefits for the month?

    $20,000
    $25,000
    $10,000
  54. Top Sound International designs and sells high-end stereo equipment for auto and home use. Engineers notified management in December 2012 of a circuit flaw in an amplifier that poses a potential fire hazard. Further investigation indicates that a product recall is probable, estimated to cost the company $6.5 million. The fiscal year ends on December 31.

    What loss, if any, should Top Sound report in its 2012 income statement?
  55. Notes receivable is an asset that creates...
  56. when calculating interest for a current note payable we must adjust for..
  57. When a company collects sales taxes, it debits Cash, and credits both Sales Revenue and Sales Tax Payable.

    True
    False
  58. The University of Michigan football stadium, built in 1927, is the largest college stadium in America, with a seating capacity of 105,500 fans. Assume the stadium sells out all 10 home games before the season begins, and the athletic department collects $69.5 million in ticket sales.

    Record the advance collection of $69.5 million in ticket sales.
  59. Payment amount is probable and can be reasonably estimated.
  60. FICA and FUTA.
  61. FUTA tax is reduced by up to a what percent credit for contributions to state unemployment programs, so the net federal rate often is 0.8 percent.
  62. Which of the following is true regarding FICA taxes?
    FICA taxes are paid only by the employee.
    FICA taxes are paid only by the employer.
    FICA taxes are paid in equal amounts by the employee and the employer.
    FICA taxes are paid in different amounts by the employee and the employer.
  63. A company receives cash in November 2011 for services to be performed in January 2012. The company increases both assets and service revenue while recording the receipt of cash.

    True
    False
  64. Liability
  65. Aspen Ski Resorts has 89 employees, each working 40 hours per week and earning $9.50 an hour. Although the company does not pay any health or retirement benefits, one of the perks of working at Aspen is that employees are allowed free skiing on their days off. Federal income taxes are withheld at 15.00% and state income taxes at 5.00%. FICA taxes are 7.65% of the first $106,800 earned per employee and 1.45% thereafter. Unemployment taxes are 6.20% of the first $7,000 earned per employee.

    Compute the total salary expense, the total withholdings from employee salaries, and the actual direct deposit of payroll for the first week of January.
  66. Thus, the government actually collects how much percent each from the employee as well as the employer, for a total of what percent on each employee's salary.
  67. All of the following are essential characteristics of liabilities, except _____.

    they represent probable future benefits
    they are probable future sacrifices of economic benefits
    they arise from present obligations to other entities
    they result from past transactions or events
  68. Contingent gain
  69. Long-term obligations such as notes, mortgages, and bonds usually are reclassified and reported as current liabilities when they become payable within...
  70. During January, Luxury Cruise Lines pays employee salaries of $2.20 million. Withholdings in January are $168,300 for the employee portion of FICA, $285,000 for federal income tax, $115,000 for state income tax, and $29,000 for the employee portion of health insurance (payable to Blue Cross/Blue Shield). The company incurs an additional $136,400 for federal and state unemployment tax and $64,000 for the employer portion of health insurance.

    Record the employer-provided fringe benefits.
  71. Notes payable is a liability that creates...
  72. Payment amount is reasonably possible and can be reasonably estimated.
  73. Contingencies
  74. Current ratio
  75. Sales taxes collected from customers by the seller are recorded as _____.

    current liabilities
    expenses
    contra-assets
    sales revenues
  76. Havier Corporation borrows $1 million from a bank on September 1, 2012, by signing a 6 percent, nine-month note for the amount borrowed plus accrued interest due nine months later on June 1, 2013. Which of the following is recorded on December 31, 2012?

    $20,000 credit to Cash
    $25,000 debit to Interest Expense
    $20,000 credit to Interest Payable
    $20,000 credit to Note Payable
  77. Debt covenant
  78. Unearned revenue
  79. Mixture of liabilities and equity a business uses.
  80. how would one record a employee salary expense, withholdings, and salaries payable
  81. During January, Luxury Cruise Lines pays employee salaries of $2.20 million. Withholdings in January are $168,300 for the employee portion of FICA, $285,000 for federal income tax, $115,000 for state income tax, and $29,000 for the employee portion of health insurance (payable to Blue Cross/Blue Shield). The company incurs an additional $136,400 for federal and state unemployment tax and $64,000 for the employer portion of health insurance.

    Record the employer payroll taxes.
  82. Classifying liabilities as either current or long-term helps investors and creditors assess this.
  1. a Future Benefits
  2. b 7.65, 15.3
  3. c Current assets divided by current liabilities. Measures the availability of current assets to pay current liabilities
  4. d the upcoming year.
  5. e debits Salaries Expense , credit Income Tax Payable, credit FICA taxes payable, (7.65) credit Salaries Payable (amount paid to employees), debit to Salaries Expense for fringe benefits, debit to Payroll Tax Expense , FICA Tax Payable by the employer is credited, Unemployment Tax Payable is credited.
  6. f An informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork
  7. g The riskness of a business's obligations
  8. h 5.4
  9. i An agreement between a borrower and a lender that requires that certain minimum financial measures be met or the lender can recall the debt
  10. j
    $13,850

    Payroll Tax Expense is the sum of FICA Tax Payable (0.0765 x $100,000 = 7,650) and Unemployment Tax Payable (0.062 x $100,000 = 6,200).
  11. k No accounting entry required
  12. l Disclosure of a contingent liability
  13. m 7.65
  14. n Capital structure
  15. o A liability account used to record cash received in advance of the sale or service
  16. p Includes only cash, current investments, and accounts receivable
  17. q Season ticket $ 659
    Individual game ticket $ 66
  18. r Interest on debt
  19. s Sales tax collected from customers by the seller, representing current liabilities payable to the government
  20. t Debts that, in most cases, are due within one year. However, when a company has an operating cycle of longer than a year, its current liabilities are defined by the length of the operating cycle, rather than by the length of one year
  21. u Jan. 31
    Cash 19,610
    Sales revenue 18500
    Sales taxes payable 1110
  22. v debit Unearned Revenue and credit Sales Revenue

    Note that a liability account is debited and a revenue account is credited.
  23. w Written promises to repay amounts borrowed plus interest
  24. x Aug 1
    debit Cash 20 mil
    credit notes payable 20 mil
  25. y (1) probable future sacrifices of economic benefits, (2) arising from present obligations to other entities, and (3) resulting from past transactions or events. The definition of liabilities touches on the present, the future, and the past
  26. z Cash, current investments, and accounts receivable divided by current liabilities. Measures the availability of liquid current assets to pay current liabilities
  27. aa
    15,300

    Recall that the government actually collects FICA taxes from both the employee as well as the employer. The government collects $15,300 (15.3% = 7.65% employee + 7.65% employer) as FICA taxes.
  28. ab Date General Journal Debit Credit
    Jan. 31
    Salaries expense 2,200,000
    Income tax payable 400000
    FICA taxes payable 168300
    Accounts payable 29000
    Salaries payable 1602700
  29. ac Jan. 31
    Payroll tax expense 304,700
    FICA taxes payable 168300
    Unemployment taxes payable 136400
  30. ad 6.2, $7,000
  31. ae they represent probable future benefits
  32. af Borrowing from another company rather than from a bank
  33. ag A present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past
  34. ah Having sufficient cash (or other assets convertible to cash in a relatively short time) to pay currently maturing debts
  35. ai A debit to Cash and a credit to Sales Tax Payable.
  36. aj A debit to a revenue account and a credit to an asset account.
  37. ak Based on the Federal Insurance Contribution Act; tax withheld from employee's paychecks and matched by employers for Social Security and Medicare. 6.2 percent Social Security tax, 1.45 medicare. Total 7.65 percent
  38. al Interest Expense
  39. am False, Think of the "current" portion of the long-term debt.
  40. an Unearned revenues
  41. ao Cash 69,500,000
    Unearned revenue 69,500,000
  42. ap True
  43. aq
    $72,350

    Salaries Payable is calculated as $100,000 minus income taxes, and FICA tax payable by the employee.
  44. ar Total payroll tax expense $ 4,684
  45. as 25000

    [($500,000 x 6%) x 10/12] = $25,000.
  46. at False, The company debits Cash (asset) and credits Unearned Revenue (liability).
  47. au True, Assets, liabilities, and revenues increase as a result of this transaction.
  48. av An existing uncertain situation that might result in a gain
  49. aw $1,045,000 credit to Cash

    Note Payable will be debited for $1 million, Interest Expense will be debited for $25,000 (for 5 months interest incurred), and Interest Payable will be debited for $20,000. Cash will be credited for $1,045,000.
  50. ax 7.65, $106,800, 1.45, $100,000
  51. ay January 31
    Debit Notes payable 20 mil, interest expense 116667, interest payable 583333
    credit cash 20700000
  52. az 750

    100000*.09 is 9000 total interest for year
    9000*6/12 is 4500 6 months interest
    4500*2/6 is 1500 for two months interest
    1500/2 is 750 for 1 month interest

    Because the stated interest rate is an annual rate, when calculating interest for a current note payable we must adjust for the fraction of the annual period the loan spans.
  53. ba Note payable
  54. bb False, We need to report interest incurred, but not paid.
  55. bc Payroll taxes
  56. bd Total salary expense $ 33,820
    Total withholdings 9,351
    Actual direct deposit $ 24,469
  57. be Current portion of long-term debt
  58. bf
    25000

    Note that fringe benefits include insurance premiums and contributions to retirement or savings plans, among others.
    Fringe benefits in this case include $10,000 health insurance premium and the $15,000 contribution to retirement plan.
  59. bg FICA taxes are paid in equal amounts by the employee and the employer.
  60. bh Uncertain situations that can result in a gain or a loss for a company
  61. bi Unearned revenue 6,950,000
    Sales revenue 6,950,000
  62. bj The difference between current assets and current liabilities
  63. bk 6500000
  64. bl recording the interest payable for 2012

    Think about the effect of the adjusting entry recorded on December 31, 2012.
  65. bm Additional employee benefits paid for by the employer
  66. bn C
    C
    C
    C
    L
    C
    C
    D
    C
    D
  67. bo False, Think of the risk perception involved in classifying liabilities as long-term.
  68. bp A tax to cover federal and state unemployment costs paid by the employer on behalf of its employees
  69. bq Interest Revenue
  70. br Reported
  71. bs December 31
    Debit interest expense 583333
    Credit interest payable 583333
  72. bt Jan. 31
    Cash 23,850
    Sales revenue 22500
    Sales taxes payable 1350
  73. bu Recording of a contingent liability
  74. bv Line of credit
  75. bw Current Liabilities

    Sales taxes collected from customers by the seller are not an expense. Instead, they represent current liabilities payable to the government.
  76. bx Unearned Revenue
  77. by the fraction of the annual period the loan spans.
  78. bz $20,000 credit to Interest Payable

    Think of the fraction of the year for which interest is incurred.
  79. ca Debt that will be paid within the next year
  80. cb first debit interest expense (half interest 3/6 months), credit interest payable (half interest 3/6 months)

    Then when you pay for it the next year...

    second debit notes payable for face value (200000) , debit interest expense for half of total interest (3/6 months), Debit interest payable (for 3/6 months)- removes the interest payable recorded in the December 31, 2012 entry. Credit cash records outflow of total interest plus loan amount cash.
  81. cc An existing uncertain situation that might result in a loss
  82. cd Jan. 31
    Salaries expense 64,000
    Accounts payable 64,000