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Exam 8: Current Liabilities

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Question 61

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On September 1, 2012, Daylight Donuts signed a $100,000, 9%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2013. Daylight Donuts should report interest payable at December 31, 2012, in the amount of:

A) $0.
B) $1,500.
C) $3,000.
D) $4,500.

E) A) and B)
F) A) and C)

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Question 62

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Accurate Reports has 50 employees each working 40 hours per week and earning $25 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% of the first $106,800 earned per employee and 1.45% thereafter. Unemployment taxes are 3.8% of the first $7,000 earned per employee. 1. Compute the total salaries expense, the total withholdings from employee salaries, and the actual direct deposit of payroll for the first week of January. 2. Compute the total payroll tax expense Accurate Reports will pay for the first week of January.

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Question 63

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When a company receives cash in advance, it debits Cash and credits a revenue account called Unearned Revenue.

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

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:

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?

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

When a company collects sales taxes, the debit is to Cash and the credit is to Sales Tax Payable.

Selected financial data regarding current assets and current liabilities for two competing companies, Simon and Garfunkel, are provided as follows: $\begin{array} { l r r r } \text { (\$ in millions) } & \text { Simon } & \text { Garfunkel } \\\text { Current assets } \\\quad \text { Cash and cash equivalents } & \$ 648 & \$ 2,917 \\\text { Short-term investments } & 3,676 & \\\text { Net receivables } & 991 & 1,372 \\\text { Inventory } & 515 & 202 \\\text { Other current assets } & 334 & 476 \\\text { Total current assets } & \$ 6,164 & \$ 4,967 \\\text { Current liabilities } & & \\\text { Accounts payable } & \$ 7,081 & \$ 4,295 \\\text { Short-term debt } & 1,239 & 1,021 \\\text { Other current liabilities } & & 1,308 \\\text { Total current liabilities } & \$ 8,320 & \$ 6,624 \\\end{array}$ 1. Calculate the current ratio for Simon. Then calculate the current ratio for Garfunkel. Which of the two companies has the best current ratio? 2. Calculate the acid-test (quick) ratio for Simon. Then calculate the acid-test (quick) ratio for Garfunkel. Which of the two companies has the best acid-test ratio?

The current ratio is

At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent:

In December, 2011, Quebecor Printing received magazine subscriptions for 2012 from a customer, who paid $500 in cash. What would be the appropriate journal entry for this event?

Footnote disclosure is required for material potential losses when the loss is at least reasonably possible:

Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should First Bank record?

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

On December 1, 2012, Old World Deli signed a $300,000, 5%, six-month note payable with the amount borrowed plus accrued interest due six months later on June 1, 2013. Old World Deli should record which of the following adjusting entries at December 31, 2012?

T. Boone Pickens football stadium at Oklahoma State University has a seating capacity of about 60,000. Assume the stadium sells out all six home games before the season begins and the athletic department collects $30.6 million in ticket sales. 1. What was the average price per season ticket and average price per individual game ticket sold? 2. Record the advance collection of $30.6 million in ticket sales. 3. Record the revenue earned after the first home game was completed.

A lower current ratio or acid-test ratio generally indicates a greater ability to pay current liabilities on a timely basis.

The sale of gift cards by a company is a direct example of:

Given a choice, most companies would prefer to report a liability as current rather than long-term, because doing so may cause the firm to appear less risky.