Exam 8: Current and Contingent Liabilities

GTX Corp. has $100,000 in cash, $40,000 in inventory, $25,000 in accounts payable and $15,000 in accrued liabilities (salaries, interest, taxes, etc.). If the company has $280,000 in cash flows from operating activities, what is its operating cash flow ratio?

A partial balance sheet for the company is provided below. Assume that all of the account balances on the balance sheet are normal balances. -Refer to the partial balance sheet presented above for Gibraltar, Inc. Compute the total current liabilities for December 31, 2020, and December 31, 2019.

Match each of the following current liabilities with its meaning. -An accrued liability that represents the cost of borrowing.

During the current year, Gardner Home Center sold 800 power washers for $350 each. The power washers carry a 2-year warranty for repairs. Estimates indicate that repair costs will average 2% of sales. How much warranty expense should be accrued at the end of the current year as a result of the sales of this product?

What type of entry is made to create a credit balance in the Estimated Warranty Liability account on the balance sheet? What account would be debited in this entry?

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

A partial balance sheet for the company is provided below. Assume that all of the account balances on the balance sheet are normal balances. -Refer to the partial balance sheet presented above for Gibraltar, Inc. Compute the following liquidity ratios for 2020 and 2019: Current Ratio Quick Ratio Cash Ratio ​ Comment on the direction and significance of the change in the ratios from 2019 to 2020.

Why are unearned revenues considered current liabilities?

Assume that a company has an operating cash flow ratio of 0.75. Payment of accrued wages payable would cause the operating cash flow ratio to

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.

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 ____________________.

What is the impact on the accounting equation of recording the accrual of interest expense?

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

Geiss Motorsports sold 50 motorbikes for $1,000 each. The bikes carry a 2-year warranty for repairs. Estimates indicate that repair costs will average 2% of the total selling price. What is the amount that would be recorded in the estimated warranty liability account as a result of selling the bikes?

Gainesville Truck Center This company has a weekly payroll of $10,000 for its employees who work Monday through Friday. Federal and state income taxes are withheld in the amounts of $1,700 and $400, respectively, and FICA taxes are withheld at a mandatory rate of 7.65% (6.2% for Social Security and 1.45% for Medicare). In addition, the federal and state unemployment taxes are applied at rates of 2% and 5%, respectively. The company's year-end is December 31. -Refer to Gainesville Truck Center. Which of the following statements is true regarding the unemployment taxes to be recorded?

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

A company borrowed $50,000 on November 1, 2019, at 9% interest. The interest and principal are due on October 31, 2020. ​ Prepare the company's journal entries on November 1, 2019, December 31, 2020, and October 31, 2020.

A company's employees earn $5,000 per day, work 5 days per week (Monday through Friday), and get paid each Friday. If the previous payday was January 26 and the accounting period ends on January 31, what is the ending balance in the wages payable account?

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 ____________________.

Gainesville Truck Center This company has a weekly payroll of $10,000 for its employees who work Monday through Friday. Federal and state income taxes are withheld in the amounts of $1,700 and $400, respectively, and FICA taxes are withheld at a mandatory rate of 7.65% (6.2% for Social Security and 1.45% for Medicare). In addition, the federal and state unemployment taxes are applied at rates of 2% and 5%, respectively. The company's year-end is December 31. -Refer to Gainesville Truck Center. Which of the following expense accounts will be recorded as a result of this payroll transaction? 1)Wages Expense 2)Federal Unemployment Tax Expense 3)State Unemployment Tax Expense 4)Social Security Tax Expense 5)Medicare Tax Expense