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Exam 8: Current Liabilities

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Question 51

True/False

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All states impose a state income tax.Alaska,Florida,Nevada,South Dakota,Texas,Washington,and Wyoming have no state income tax.

A) True
B) False

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Question 52

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Which of the following would not result in an increase in both the current ratio and the acid-test ratio?

A) Increase in cash
B) Increase in inventory
C) Increase in accounts receivable

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

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Question 53

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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 employer's total payroll tax expense for the first week of January?

At times,businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided.These customer advances represent:

We record a contingent liability when the likelihood of the loss occurring is reasonably possible and the amount is reasonably estimable.We record a contingent liability when the likelihood of the loss occurring is probable and the amount is reasonably estimable.

The acid-test ratio is

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?

All states impose a general state sales tax,and many areas include an additional local sales tax.Alaska,Delaware,Montana,New Hampshire,and Oregon do not have a general state sales tax.

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

American,Delta,and United Airlines have all,at one time,filed for bankruptcy.

Rock Adventures has 15 employees each working 40 hours per week and earning $30 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 employer's total payroll tax expense for the first week of January?

A lower current ratio or acid-test ratio generally indicates a greater ability to pay current liabilities on a timely basis.A higher current ratio or acid-test ratio generally indicates a greater ability to pay current liabilities on a timely basis.

Reeves Co.filed suit against Higgins,Inc. ,seeking damages for copyright violations.Higgins' legal counsel believes it is probable that Higgins will settle 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 Higgins report this litigation?

On December 1,2018,Old World Deli signed a $300,000,5%,six-month note payable with the amount borrowed plus accrued interest due six months later on June 1,2019.Old World Deli should record which of the following adjusting entries at December 31,2018?

An informal agreement that allows a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork is known as:

Universal Travel,Inc.borrowed $500,000 on November 1,2018,and signed a twelve-month note bearing interest at 6%.Principal and interest are payable in full at maturity on October 31,2019.In connection with this note,Universal Travel,Inc.should record interest expense in 2019 in the amount of:

Bear Essentials borrowed $50,000 from Stacks Bank and signed a promissory note.What entry should Bear Essentials record?

The journal entry to record a contingent liability requires a debit to a loss (or expense)account and a credit to a liability.

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

On November 1,2018,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 1,2019.The Bagel Factory records the appropriate adjusting entry for the note on December 31,2018.In recording the payment of the note plus accrued interest at maturity on May 1,2019,The Bagel Factory would