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Exam 8: Current Liabilities

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Question 61

Multiple Choice

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Which of the following is not a liability?

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

E) B) and C)
F) All of the above

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Question 62

Multiple Choice

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Talks-A-Lot,Inc.sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program.The average repair cost is $75 per phone.For 2012,Talks-A-Lot has sold 750 cell phones and has repaired 30 of them as of December 31,2012.What amount of warranty liability should be reported at December 31,2012?

A) $2,250.
B) $3,375.
C) $5,625.
D) None,all expected returns from warranties have been received.

E) A) and D)
F) A) and C)

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Question 63

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On July 8,Compusoft receives $250,000 from a customer toward a cash sale of $1 million for customized computer equipment to be completed on August 1.The remaining $750,000 payment is received upon delivery of the product on August 1.The equipment had a total production cost of $700,000.What journal entries should Compusoft record on July 8 and August 1? Assume Compusoft uses the perpetual inventory system.

Union Apparel has sales including sales taxes for the month of $551,200.If the sales tax rate is 6%,what are Union Apparel's sales for the month?

We record a contingent liability when the likelihood of the loss occurring is reasonably possible and the amount can be reasonably estimated.

Assuming a current ratio of 1.0 and an acid-test ratio of 0.80,how will the borrowing of cash by issuing a six-month note payable affect each ratio?

Which of the following is not an employer payroll cost?

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

Mike Smith is a college football coach making a base salary of $960,000 a year ($80,000 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 FICA base amount is $106,800,compute how much will be withheld during the year for Coach Smith's Social Security and Medicare.Through what month will Social Security be withheld? What additional amount will the employer need to contribute?

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?

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

When a gain contingency is probable and the amount of gain can be reasonably estimated,the gain should be:

All states impose a general state sales tax,and many areas include an additional local sales tax.

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

Assuming a current ratio of 1.2 and an acid-test ratio of 0.80,how will the purchase of inventory with cash affect each ratio?

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 total payroll tax expense for the first week of January?

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

In December,2011,Quebecor Printing received magazine subscriptions for 2012 from a customer,who paid $500 in cash.What would be the appropriate journal entry for this event?

During January,Deluxe Printing pays employee salaries of $1 million.Withholdings in January are $76,500 for the employee portion of FICA,$210,000 for federal and state income tax,and $40,000 for the employee portion of health insurance (payable to Blue Cross/Blue Shield).The company incurs an additional $38,000 for federal and state unemployment tax and $30,000 for the employer portion of health insurance. 1.Record the employee salary expense,withholdings,and salaries payable. 2.Record the employer-provided fringe benefits. 3.Record the employer payroll taxes.

On November 1,2012,Dual Systems borrows $200,000 to expand operations.Dual Systems signs a six-month,9% promissory note.Interest is payable at maturity.Dual System's year-end is December 31. 1.Record the issuance of the note by Dual Systems. 2.Record the appropriate adjusting entry for the note by Dual Systems on December 31,2012. 3.Record the payment of the note by Dual Systems at maturity on April 30,2013.