Exam 8: Current and Contingent Liabilities

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

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

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.

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

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

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 entry to record wages and the related liabilities?

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.

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 -A percentage of the loan amount that compensates the lender for the use of his/her money

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.

Grayson Flowers borrowed $400,000 from the bank on a six-month, 7% interest-bearing note on October 1, 2013. The company's year-end is December 31st. The note and all related interest was repaid to the bank on April 1, 2014.

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

Refer to General Lighting. Sales taxes are required to be paid to the state taxing authority at the end of the quarter. Which of the following records the sale of the batteries?

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

During January, a travel company sold forty cruise vacation packages for $147,960. Customers are required to pay in advance, but the package price is refundable until the date the cruise departs. The cruises begin in February.

If a business has current assets of $62,000, total assets of $350,000, current liabilities of $31,000, and total liabilities of $125,000, then its current ratio will be

Federal income taxes payable is not a current liability.

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

"You Decide" Essay You are the owner and operator of a growing small business. You would like to expand your product offerings but need $25,000 in short-term financing in order to do so. You have an appointment to see your banker tomorrow. The banker has asked you to bring certain financial information with you to the meeting. That information is provided below: Use your financial information to make a case for the loan.

Great Dane Trailers has the following data available for its March 31, 2013, payroll: Federal unemployment tax and state unemployment tax are also applicable at rates of 0.8% and 3.5%, respectively. All wages are subject to these taxes. Prepare the journal entries to record the wages earned and payroll taxes.

During 2013, Going, Going, Gone sold 100 hot air balloons for $4,000 each. The balloons carry a 5-year warranty for defects. Estimates indicate that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $42,000. $11,000 in claims was actually incurred during the year to honor their warranty. What was the balance in the estimated warranty liability at the end of the year?