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Exam 8: Current Liabilities

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Question 31

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United Supply has a $5 million liability at December 31,2015,of which $1 million is payable in each of the next five years.United Supply reports the liability on the balance sheet as:

A) A $5 million current liability.
B) A $5 million long-term liability.
C) A $1 million current liability and a $4 million long-term liability.
D) A $4 million current liability and a $1 million long-term liability.

E) C) and D)
F) B) and D)

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Question 32

Multiple Choice

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The Pita Pit borrowed $100,000 on November 1,2015,and signed a six-month note bearing interest at 12%.Principal and interest are payable in full at maturity on May 1,2016.In connection with this note,The Pita Pit should report interest expense in 2016 for the amount of:

A) $0.
B) $4,000.
C) $2,000.
D) $6,000.

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

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Question 33

Multiple Choice

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Which of the following measures of liquidity does not control for the relative size of the company?

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?

Define a contingent liability.Provide three common examples.Under what circumstances should a firm report a contingent liability?

On September 1,2015,Daylight Donuts signed a $100,000,9%,six-month note payable with the amount borrowed plus accrued interest due six months later on March 1,2016.Daylight Donuts should report interest payable at December 31,2015,in the amount of:

FICA taxes are paid only by the employee.

Which of the following is not a liability?

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.

On November 1,2015,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 1,2016.New Morning Bakery records the appropriate adjusting entry for the note on December 31,2015.What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1,2016?

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.

The balance in the Warranty Liability account is always equal to Warranty Expense.

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

Which of the following is true regarding FICA taxes?

We record gain contingencies when the gain is probable and can be reasonably estimated.

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

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?

Large,highly-rated firms sometimes sell commercial paper:

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

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