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Exam 9: Accounting for Current Liabilities

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Question 61

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In the accounting records of a defendant, lawsuits:

A) Are estimated liabilities,
B) Should always be recorded,
C) Should always be disclosed,
D) Should be recorded if payment for damages is probable and the amount can be reasonably estimated,
E) Should never be recorded,

F) None of the above
G) A) and B)

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Question 62

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Current liabilities are obligations not due within one year or the company's operating cycle, whichever is longer.

A) True
B) False

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Question 63

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A short-term note payable is a written promise to pay a specified amount on a definite future date within one year or the operating cycle, whichever is longer.

A _____________________ is a seller's obligation to replace or correct a product or service that fails to perform as expected within a specified period.

Vacation benefits are a form of estimated liabilities for an employer.

If a company uses a special payroll bank account:

An employee earned $4,300 working for an employer. The current rate for FICA social security is 6.2% and the FICA Medicare rate is 1.45%. The employer's total FICA payroll tax for this employee is:

Tree Frog Company is organized as a LLC and does not pay income taxes. The company has fixed interest expense of $5,750, sales of $253,000, and variable expenses of $189,750. What is the company's times interest earned ratio?

A payroll register usually shows the pay period dates, hours worked, gross pay, deductions, and net pay of each employee for every pay period.

An estimated liability is a known obligation of an uncertain amount that can at least be reasonably estimated.

Coca-Cola had income before interest expense and income taxes of $5,698 million and interest expense of $199 million. Calculate Coca-Cola's times interest earned ratio.

The times interest earned computation is:

Social security payments are made up of Social Security taxes and Medicare taxes.

A special bank account used solely for the purpose of paying employees is created by depositing the amount of each employees' net pay into the account every pay period. This account is referred to as a(n) :

Classify each of the following items as a current liability, long-term liability, or not a liability:

Contingent liabilities are recorded if the future event is _______________ and the amount owed can be _______________.

Obligations not expected to be paid within one year (or the company's operating cycle if longer than one year) are reported as:

When the times interest earned ratio declines, the likelihood of default on liabilities increases.

A company's income before interest expense and income taxes was $225,000 in 2013 and $200,000 in 2014. Its interest expense was $45,000 for both years. Calculate the company's times interest earned ratio and comment on its level of risk.

An employee earned $3,450 wages for the current period. Calculate the total and individual amounts to be withheld for Social Security (6.2%), Medicare (1.45%) and federal income tax (15%) assuming the entire employee's pay is subject to FICA taxes.