Question 1

Differences between financial accounting and tax accounting result in a company being permitted to defer paying some of its income tax expense,in which case it will report a deferred tax liability.

Accepted Answer

A) True 
 B)False

Question 2

Carpenter Inc.estimates warranty expense at 2% of sales.Sales during the year were $4 million and warranty expenditures were $44,000.What was the balance in the Warranty Liability account at the end of the year?

Accepted Answer

A)  $44,000.
B)  $80,000.
C)  $36,000.
D)  $480,000.E) A) and B)
F) A) and D)

Question 3

Companies selling products subject to sales taxes are responsible for collecting the sales tax directly from customers and periodically remitting the sales taxes collected to the state and local governments.

Accepted Answer

A) True 
 B)False

Question 4

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?

Accepted Answer

A)  As a liability for $100,000 with disclosure of the range.
B)  As a liability for $150,000 with disclosure of the range.
C)  As a liability for $200,000 with disclosure of the range.
D)  As a disclosure only.No liability is reported.E) A) and D)
F) B) and D)

Question 5

Name as many items as you can that are withheld from employee payroll checks.Which employee deductions are required by law and which are voluntary? Name as many items as you can that are employer payroll costs in addition to the employee's salary.Which employer costs are required by law and which are voluntary?

Accepted Answer

Items commonly withheld from employee payroll checks include federal and state income taxes,Social Security and Medicare,health,dental,disability,and life insurance premiums,and employee investments to retirement or savings plans.Federal and state income taxes,Social Security and Medicare are required by law.The rest are voluntary. Common employer payroll costs,in additional to the employee's salary,include federal and state unemployment taxes,the employer portion of Social Security and Medicare,employer contributions for health,dental,disability,and life insurance,and employer contributions to retirement or savings plans.Federal and state unemployment taxes and the employer portion of Social Security and Medicare are required by law.The rest are voluntary benefits paid by a company on behalf of its employees.

Question 6

A contingent liability should be disclosed in a note to the financial statements rather than being recorded if:

Accepted Answer

A)  The likelihood of a loss is remote.
B)  The incurrence of a loss is reasonably possible.
C)  The incurrence of a loss is probable.
D)  The likelihood of a loss is eighty percent.E) A) and B)
F) All of the above

Question 7

A contingent liability should be accrued on a company's financial statements only if the likelihood of a loss occurring is:

Accepted Answer

A)  At least remotely possible and the amount of the loss is known.
B)  At least reasonably possible and the amount of the loss is known.
C)  At least reasonably possible and the amount of the loss can be reasonably estimated.
D)  Probable and the amount of the loss can be reasonably estimated.E) None of the above
F) A) and B)

Question 8

Commonly,current liabilities are payable within one year,and long-term liabilities are payable more than one year from now.

Accepted Answer

A) True 
 B)False  True

Question 9

The Pita Pit borrowed $100,000 on November 1,2012,and signed a six-month note bearing interest at 12%.Principal and interest are payable in full at maturity on May 1,2013.In connection with this note,The Pita Pit should report interest expense in 2013 for the amount of:

Accepted Answer

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

Question 10

Gain contingencies usually are recognized in a company's income statement when:

Accepted Answer

A)  The gain is certain.
B)  The amount can be reasonably estimated.
C)  The gain is reasonably possible and the amount can be reasonable estimated.
D)  The gain is probable and the amount can be reasonably estimated.E) All of the above
F) B) and D)

Question 11

We record interest expense in the period in which we pay it,rather than in the period we incur it.

Accepted Answer

A) True 
 B)False

Question 12

Net income in the income statement is the same amount as taxable income reported to the Internal Revenue Service (IRS).

Accepted Answer

A) True 
 B)False  False

Question 13

If the likelihood of loss is remote,disclosure usually is not required.

Accepted Answer

A) True 
 B)False

Question 14

If management can estimate the amount of loss that will occur due to litigation against the company,and the likelihood of the loss is probable,a contingent liability should be

Accepted Answer

A)  Disclosed,but not reported as a liability.
B)  Disclosed and reported as a liability.
C)  Neither disclosed nor reported as a liability.
D)  Reported as a liability,but not disclosed.E) B) and C)
F) A) and B)

Question 15

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

Accepted Answer

A)  Disclosed,but not reported as a liability.
B)  Disclosed and reported as a liability.
C)  Neither disclosed nor reported as a liability.
D)  Reported as a liability,but not disclosed.E) A) and C)
F) C) and D)

Question 16

Which of the following is true regarding the relationship between the current ratio and the acid-test ratio?

Accepted Answer

A)  The current ratio will always be equal to or larger than the acid-test ratio for a specific company.
B)  The acid-test ratio will always be equal to or larger than the current ratio for a specific company.
C)  Either the current ratio or the acid-test ratio could be larger for a specific company.
D)  One ratio will always exceed 1.0,while the other will always be less than 1.0.E) A) and D)
F) A) and C)

Question 17

Midwest Shipping pays employees at the end of each month.Payroll information is listed below for January,the first month of the fiscal year.Assume that none of the employees exceeds the Federal unemployment tax maximum salary of $7,000 in January.
$$\begin{array} { l r } 
\text { Salaries } & \$ 800,000 \
\text { Federal and state income taxes withheld } & 160,000 \
\text { Federal unemployment tax rate } & 0.80 \% \
\text { State unemployment tax rate (after FUTA deduction) } & 3.00 \% \
\text { Social Security (FICA) tax rate } & 7.65 \%
\end{array}$$
Record salaries expense and payroll tax expense for the January pay period.

Accepted Answer

The answer of Midwest Shipping pays employees at the end...

Question 18

Retailers like McDonalds,American Eagle,and Apple Computer sell a large number of gift cards.Explain how these companies account for the sale of gift cards.

Accepted Answer

When a company receives cash in advance ...

Question 19

Which of the following is not withheld from an employee's salary?

Accepted Answer

A)  FICA taxes.
B)  Federal and state unemployment taxes.
C)  Federal and state income taxes.
D)  Employee portion of health insurance.E) B) and D)
F) A) and B)

Question 20

Quick assets include only cash,short-term investments,and accounts receivable.

Accepted Answer

A) True 
 B)False

Exam 8: Current Liabilities

Differences between financial accounting and tax accounting result in a company being permitted to defer paying some of its income tax expense,in which case it will report a deferred tax liability.

Correct Answer
verified

Carpenter Inc.estimates warranty expense at 2% of sales.Sales during the year were $4 million and warranty expenditures were $44,000.What was the balance in the Warranty Liability account at the end of the year?

Correct Answer
verified

Companies selling products subject to sales taxes are responsible for collecting the sales tax directly from customers and periodically remitting the sales taxes collected to the state and local governments.

Correct Answer
verified

Correct Answer
verified

A contingent liability should be disclosed in a note to the financial statements rather than being recorded if:

Correct Answer
verified

A contingent liability should be accrued on a company's financial statements only if the likelihood of a loss occurring is:

Correct Answer
verified

Commonly,current liabilities are payable within one year,and long-term liabilities are payable more than one year from now.

Correct Answer
verified
True

The Pita Pit borrowed $100,000 on November 1,2012,and signed a six-month note bearing interest at 12%.Principal and interest are payable in full at maturity on May 1,2013.In connection with this note,The Pita Pit should report interest expense in 2013 for the amount of:

Correct Answer
verified

Gain contingencies usually are recognized in a company's income statement when:

Correct Answer
verified

We record interest expense in the period in which we pay it,rather than in the period we incur it.

Correct Answer
verified

Net income in the income statement is the same amount as taxable income reported to the Internal Revenue Service (IRS).

Correct Answer
verified
False

If the likelihood of loss is remote,disclosure usually is not required.

Correct Answer
verified

If management can estimate the amount of loss that will occur due to litigation against the company,and the likelihood of the loss is probable,a contingent liability should be

Correct Answer
verified

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

Correct Answer
verified

Which of the following is true regarding the relationship between the current ratio and the acid-test ratio?

Correct Answer
verified

Correct Answer
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Retailers like McDonalds,American Eagle,and Apple Computer sell a large number of gift cards.Explain how these companies account for the sale of gift cards.

Correct Answer
verified
When a company receives cash in advance ...
View Answer

Which of the following is not withheld from an employee's salary?

Correct Answer
verified

Quick assets include only cash,short-term investments,and accounts receivable.

Correct Answer
verified

Exam 8: Current Liabilities

Differences between financial accounting and tax accounting result in a company being permitted to defer paying some of its income tax expense,in which case it will report a deferred tax liability.

Correct AnswerverifiedShow Answer

Carpenter Inc.estimates warranty expense at 2% of sales.Sales during the year were $4 million and warranty expenditures were $44,000.What was the balance in the Warranty Liability account at the end of the year?

Correct AnswerverifiedShow Answer

Companies selling products subject to sales taxes are responsible for collecting the sales tax directly from customers and periodically remitting the sales taxes collected to the state and local governments.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A contingent liability should be disclosed in a note to the financial statements rather than being recorded if:

Correct AnswerverifiedShow Answer

A contingent liability should be accrued on a company's financial statements only if the likelihood of a loss occurring is:

Correct AnswerverifiedShow Answer

Commonly,current liabilities are payable within one year,and long-term liabilities are payable more than one year from now.

Correct AnswerverifiedTrue

The Pita Pit borrowed $100,000 on November 1,2012,and signed a six-month note bearing interest at 12%.Principal and interest are payable in full at maturity on May 1,2013.In connection with this note,The Pita Pit should report interest expense in 2013 for the amount of:

Correct AnswerverifiedShow Answer

Gain contingencies usually are recognized in a company's income statement when:

Correct AnswerverifiedShow Answer

We record interest expense in the period in which we pay it,rather than in the period we incur it.

Correct AnswerverifiedShow Answer

Net income in the income statement is the same amount as taxable income reported to the Internal Revenue Service (IRS).

Correct AnswerverifiedFalse

If the likelihood of loss is remote,disclosure usually is not required.

Correct AnswerverifiedShow Answer

If management can estimate the amount of loss that will occur due to litigation against the company,and the likelihood of the loss is probable,a contingent liability should be

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is true regarding the relationship between the current ratio and the acid-test ratio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Retailers like McDonalds,American Eagle,and Apple Computer sell a large number of gift cards.Explain how these companies account for the sale of gift cards.

Correct AnswerverifiedWhen a company receives cash in advance ...View AnswerShow Answer

Which of the following is not withheld from an employee's salary?

Correct AnswerverifiedShow Answer

Quick assets include only cash,short-term investments,and accounts receivable.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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True

Correct Answer
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Correct Answer
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False

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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When a company receives cash in advance ...
View Answer

Correct Answer
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Correct Answer
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