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Exam 8: Current Liabilities

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Question 31

True/False

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Companies are required by law to withhold federal and state income taxes from employees' paychecks and remit these taxes to the government.

A) True
B) False

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Question 32

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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 report interest payable at December 31,2018,in the amount of:

A) $8,000.
B) $30,000.
C) $5,000.

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

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Question 33

Multiple Choice

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Working capital is

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

Sales taxes collected from customers by the seller are not an expense,instead they represent current liabilities payable to the government.

The acid-test ratio,or quick ratio,is similar to the current ratio but is based on a more conservative measure of current assets available to pay current liabilities.

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

The current ratio is calculated by dividing current liabilities by current assets.The current ratio is calculated by dividing current assets by current liabilities.

The account "Warranty Liability":

Away Travel filed suit against West Coast Travel seeking damages for copyright violations.West Coast Travel's legal counsel believes it is reasonably possible that West Coast Travel 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 West Coast Travel report this litigation?

Suppose you buy lunch for $8.39 that includes a 5% sales tax.How much did the restaurant charge you for the lunch (excluding any tax) and how much do they owe for sales tax?

Union Apparel has sales including sales taxes for the month of $551,200.If the sales tax rate is 6%,what are Union Apparel's sales for the month?

The current portion of long-term debt is:

Suppose you buy dinner for $23.75 that includes an 8% sales tax.How much did the restaurant charge you for the dinner (excluding any tax) and how much do they owe for sales tax?

Which of the following is not a reason why a company might prefer to report a liability as long-term rather than current?

Bears Inc.sells football helmets to local schools and warrants all of its products for one year.While no helmets sold in 2018 have been returned yet,based upon previous years,Bears Inc.estimates that 3% of its products will need repairs or be replaced within the next year.What effect would this warranty have on assets,liabilities,and stockholders' equity in 2018?

On November 1,2018,New Morning Bakery signed a $200,000,6%,six-month note payable with the amount borrowed plus accrued interest due six months later on May 1,2019.New Morning Bakery records the appropriate adjusting entry for the note on December 31,2018.What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1,2019?

A company's liquidity refers to its:

Mike Gundy is a college football coach making a base salary of $2,400,000 a year ($200,000 per month) .Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum.Assuming the Social Security maximum base amount is $118,500,through what month will Social Security be withheld?

FICA taxes are paid only by the employee.The employer is required to match the amount withheld for each employee,effectively doubling the amount paid into Social Security.