Deck 8: Current and Contingent Liabilities

Question 1

Sales taxes collected from customers should be recorded in a liability account until the cash is passed along to the taxing authority.

Answer 1

True

Question 2

An example of a current liability is the current maturity of a long-term debt.

Answer 2

True

Question 3

When accrual basis accounting matches an expense to a period before it is actually paid, an adjusting entry is necessary to record the accrued expense and corresponding liability.

Answer 3

True

Question 4

Federal excise taxes payable is not a current liability.

Question 5

A liability must be recognized when a business is required to transfer assets or provide services to another entity at some point in the future for activities that have already occurred.

Question 6

A company provides a one-year warranty for its products. The estimated cost of parts and labor required to satisfy warranty claims should be recorded as a current liability in the period the products are sold.

Question 7

For any given contingent liability, a company must choose between recording it on the accounting records or disclosing it in the footnotes to the financial statements

Question 8

An example of a current liability is a note payable that is due in 8 months.

Question 9

Employers withhold taxes from their employees' gross pay and later pay these amounts withheld to the taxing authority.

Question 10

When a company uses past experience to estimate the amount of likely warranty claims in the future, a current liability account must be created.

Question 11

The proceeds from advance ticket sales for a concert to be held next month should be recorded as a current liability.

Question 12

A company expects to receive a substantial cash settlement from a lawsuit. Therefore, the company must record this on its accounting records if a reasonable estimate can be made of the amount to be received.

Question 13

When a company sells goods or provides services for a customer but the customer intends to pay later, the company must record a current liability.

Question 14

Federal income taxes payable is not a current liability.

Question 15

A company's management expects to incur future expenses related to the repair or replacement of defective products sold. Those expenses must be matched to revenues in the period of the repair or replacement.

Question 16

Warranty expenses result when a company sells products then estimates the units and cost per unit for repairs and replacements that may occur during the warranty period.

Question 17

A probable loss from a lawsuit that can be reasonably estimated should not be reported on the balance sheet as a current liability.

Question 18

An example of a current liability is a note payable that is due in 2 years.

Question 19

Current liabilities should include any amounts that have been accrued as expenses but not yet paid.

Question 20

A contingent liability must be recorded if it is reasonably possible and the amount can be reasonably estimated.

Question 21

The cash ratio is calculated by dividing cash flows from operating activities by current liabilities.

Question 22

Accounts payable represent amounts owed to outside suppliers of goods and services; whereas ____________________ reflect amounts owed in which a formal agreement or contract has been signed.

Question 23

If no reasonable estimate of the loss can be made, then a contingent liability should be recognized in the ____________________.

Question 24

Acceptable current ratios vary from industry to industry, but a general rule of thumb is that a current ratio greater than ____________________ is appropriate.

Question 25

The cash ratio is calculated as follows: (Cash + Marketable Securities)/ Current Liabilities.

Question 26

An obligation that involves an existing condition for which the outcome is not known with certainty and depends upon some event that will occur in the future is called a(n)____________________.

Question 27

____________________ are commitments that represent probable future sacrifices of economic benefits.

Question 28

Interest on a note payable can be calculated by multiplying the amount owed by the interest rate by the fraction of year that represents the time elapsed since borrowing.

Question 29

Liquidity relates to a company's ability to sell its assets for amounts that exceed the assets' book values.

Question 30

The operating cash flow ratio is calculated by dividing current assets by cash flows from operating activities.

Question 31

Contingent liabilities must be recorded in the accounting records if they are probable and the amount can be reasonably estimated.

Question 32

____________________ is the liability created when customers pay for goods or services in advance.

Question 33

The quick ratio is calculated as follows: (Cash + Marketable Securities + Accounts Receivable)/ Current Liabilities.

Question 34

The operating cash flow ratio is computed by dividing cash flows from operating activities by ____________.

Question 35

A company has a note payable that is due on December 31, 2013. In its December 31, 2012, balance sheet, this note payable should be classified as a(n)____________________.

Question 36

The operating cash flow ratio is calculated by dividing the cash flows from operating activities by current liabilities.

Question 37

The cash ratio is calculated by dividing current liabilities by the total of cash and marketable securities.

Question 38

A contingent liability must be recognized in the accounting records if it ____________________ and a reasonable estimate of the loss can be made.

Question 39

The current ratio is computed by dividing current assets by ____________________.

Question 40

The current ratio is calculated as follows: Current Assets / Current Liabilities.

Question 41

A(n)____________________ usually guarantees the repair or replacement of defective goods during a period ranging from a few days to several years following the sale.

Question 42

A fast food restaurant sells gift cards which may be redeemed at any time; however, they expire in one year. At the time these gift cards are sold, the account to be credited is called ____________________.

Question 43

Match each of the following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
An accrued liability that represents the cost of borrowing.

Question 44

When a retail company sells products to customers on credit for the amount of the sales price plus the applicable sales tax, the related journal entry includes a debit to accounts receivable, a credit to sales revenue, and a credit to ____________________.

Question 45

For each of the types of payroll taxes and other payroll-related items listed, indicate whether it is paid by the employee through a paycheck withholding, by the employer, or both. (Choices may be used more than once.)
a.Employee
b.Employer
c.Both
Medicare taxes

Question 46

Current liabilities require a transfer of assets or performance of services within the longer of ____________________ or one operating cycle.

Question 47

Match each of the following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
Social security and medicare taxes owed.

Question 48

When a company records the gross wages paid to its employees, the accounts to be credited include various taxes payable and ____________________.

Question 49

____________________ refers to the ability of a company to meet its short-term obligations.

Question 50

A(n)____________________ arises when a business purchases goods or services on credit.

Question 51

Match each of the following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
An accrued liability for amounts owed to employees for work performed.

Question 52

Match each of the following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
Amounts funded by companies to provide benefits to fired workers.

Question 53

Match each of the following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
A contractual agreement to borrow and repay money.

Question 54

An adjusting entry to record accrued interest on a note payable includes a debit to Interest Expense and a credit to ____________________.

Question 55

Match each of the following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
Amounts expected to be paid to repair or replace defective products.

Question 56

Match each of the following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
Amounts collected from customers in advance.

Question 57

Match each of the following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
Amounts owed for purchases on credit.

Question 58

A flour mill orders grain sacks from a local farmer. When the company places an order for grain on account, the corresponding journal entry includes a debit to Supplies and a credit to ____________________.

Question 59

Match each of the following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
Amounts collected from customers that must be passed along to the state.

Question 60

When a company estimates the amount of expected warranty expenses to be incurred in the future pertaining to past product sales, the account to be credited is called the ____________________.

Question 61

For each of the types of payroll taxes and other payroll-related items listed, indicate whether it is paid by the employee through a paycheck withholding, by the employer, or both. (Choices may be used more than once.)
a.Employee
b.Employer
c.Both
Federal income taxes

Question 62

Match each of the ratios named with the proper formula for computation.
a.Current Ratio
b.Quick Ratio
c.Cash Ratio
d.Operating Cash Flow Ratio
(Cash + Marketable Securities)/ Current Liabilities

Question 63

For each of the types of payroll taxes and other payroll-related items listed, indicate whether it is paid by the employee through a paycheck withholding, by the employer, or both. (Choices may be used more than once.)
a.Employee
b.Employer
c.Both
Federal unemployment taxes

Question 64

For each of the types of payroll taxes and other payroll-related items listed, indicate whether it is paid by the employee through a paycheck withholding, by the employer, or both. (Choices may be used more than once.)
a.Employee
b.Employer
c.Both
Social security taxes

Question 65

Match the following terms with the appropriate definition.
a.Accrued liabilities
f.Payroll taxes
b.Contingent liabilities
g.Sales taxes
c.Current liabilities
h.Warranty
d.Interest rate
i.Withholdings
e.Liabilities
Probable future sacrifices of economic benefits

Question 66

Match the following terms with the appropriate definition.
a.Accrued liabilities
f.Payroll taxes
b.Contingent liabilities
g.Sales taxes
c.Current liabilities
h.Warranty
d.Interest rate
i.Withholdings
e.Liabilities
Guarantees the repair or replacement of defective goods during a specified period following the sale

Question 67

Match each of the ratios named with the proper formula for computation.
a.Current Ratio
b.Quick Ratio
c.Cash Ratio
d.Operating Cash Flow Ratio
Cash Flows from Operating Activities / Current Liabilities

Question 68

Match the following terms with the appropriate definition.
a.Accrued liabilities
f.Payroll taxes
b.Contingent liabilities
g.Sales taxes
c.Current liabilities
h.Warranty
d.Interest rate
i.Withholdings
e.Liabilities
Taxes and other amounts deducted from gross pay

Question 69

Match the following terms with the appropriate definition.
a.Accrued liabilities
f.Payroll taxes
b.Contingent liabilities
g.Sales taxes
c.Current liabilities
h.Warranty
d.Interest rate
i.Withholdings
e.Liabilities
Obligations whose amounts, timing, or recipient depend on future events

Question 70

For each of the types of payroll taxes and other payroll-related items listed, indicate whether it is paid by the employee through a paycheck withholding, by the employer, or both. (Choices may be used more than once.)
a.Employee
b.Employer
c.Both
Unemployment taxes

Question 71

For each of the types of payroll taxes and other payroll-related items listed, indicate whether it is paid by the employee through a paycheck withholding, by the employer, or both. (Choices may be used more than once.)
a.Employee
b.Employer
c.Both
Gross pay

Question 72

Match the following terms with the appropriate definition.
a.Accrued liabilities
f.Payroll taxes
b.Contingent liabilities
g.Sales taxes
c.Current liabilities
h.Warranty
d.Interest rate
i.Withholdings
e.Liabilities
Obligations that require the firm to pay cash or another current asset within one year

Question 73

Match the following terms with the appropriate definition.
a.Accrued liabilities
f.Payroll taxes
b.Contingent liabilities
g.Sales taxes
c.Current liabilities
h.Warranty
d.Interest rate
i.Withholdings
e.Liabilities
Taxes levied by state and local governments

Question 74

Match each of the ratios named with the proper formula for computation.
a.Current Ratio
b.Quick Ratio
c.Cash Ratio
d.Operating Cash Flow Ratio
Current Assets / Current Liabilities

Question 75

For each of the types of payroll taxes and other payroll-related items listed, indicate whether it is paid by the employee through a paycheck withholding, by the employer, or both. (Choices may be used more than once.)
a.Employee
b.Employer
c.Both
Fringe benefits

Question 76

For each of the types of payroll taxes and other payroll-related items listed, indicate whether it is paid by the employee through a paycheck withholding, by the employer, or both. (Choices may be used more than once.)
a.Employee
b.Employer
c.Both
State income taxes

Question 77

Match the following terms with the appropriate definition.
a.Accrued liabilities
f.Payroll taxes
b.Contingent liabilities
g.Sales taxes
c.Current liabilities
h.Warranty
d.Interest rate
i.Withholdings
e.Liabilities
Taxes paid to the government by both employees and employers

Question 78

Match each of the ratios named with the proper formula for computation.
a.Current Ratio
b.Quick Ratio
c.Cash Ratio
d.Operating Cash Flow Ratio
(Cash + Marketable Securities + Accounts Receivable)/ Current Liabilities

Question 79

For each of the types of payroll taxes and other payroll-related items listed, indicate whether it is paid by the employee through a paycheck withholding, by the employer, or both. (Choices may be used more than once.)
a.Employee
b.Employer
c.Both
State unemployment taxes

Question 80

Match the following terms with the appropriate definition.
a.Accrued liabilities
f.Payroll taxes
b.Contingent liabilities
g.Sales taxes
c.Current liabilities
h.Warranty
d.Interest rate
i.Withholdings
e.Liabilities
Liabilities created by adjusting entries