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Exam 8: Current Liabilities

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Question 51

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A contingent liability is recorded only if a loss is at least reasonably possible and the amount can be reasonably estimated.

A) True
B) False

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Question 52

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Assume that on July 1, 2012, Togo's issues a $2 million, one-year note. Interest is payable at maturity. Determine the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assumptions: Interest Rate $\quad$ Fiscal Year-End 1. $8 \% \quad\quad\quad$ December 31 2. $9 \% \quad\quad\quad$ September 30 3. $6 \% \quad\quad\quad$ October 31 4. $7 \% \quad\quad\quad$ January 31

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Question 53

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United Supply has a $5 million liability at December 31, 2012, of which $1 million is payable in each of the next five years. United Supply reports the liability on the balance sheet as:

On November 1, 2012, Dual Systems borrows $200,000 to expand operations. Dual Systems signs a six-month, 9% promissory note. Interest is payable at maturity. Dual System's year-end is December 31. 1. Record the issuance of the note by Dual Systems. 2. Record the appropriate adjusting entry for the note by Dual Systems on December 31, 2012. 3. Record the payment of the note by Dual Systems at maturity on April 30, 2013.

Regarding a contingent liability, when no amount within a range of potential losses appears more likely than others, we record the maximum amount in the range.

Which of the following is a contingency that should be recorded?

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

All states impose a general state sales tax, and many areas include an additional local sales tax.

A contingent liability is an existing, uncertain situation that might result in a loss.

Two competing advertising agencies provide similar services, but record sales using different methods. 1. Diversified Advertising records sales and sales taxes in separate accounts. For the month of March, sales total $10,000 and sales taxes are $600. 2. Centralized Advertising records sales and sales taxes together. For the month of March, sales total $5,300, including a 6% sales tax. Record sales revenue and the related sales tax payable for (1) Diversified Advertising and (2) Centralized Advertising.

Which of the following are included in an employer's payroll tax expense?

Listed below are several terms and phrases associated with current liabilities. Pair each item in the first column (by number) with the item in the second column that is most appropriately associated with it.

Which of the following is true regarding the relationship between net income reported in the income statement and taxable income reported to the Internal Revenue Service (IRS) ?

Universal Travel, Inc. borrowed $500,000 on November 1, 2012, and signed a twelve-month note bearing interest at 6%. Principal and interest are payable in full at maturity on October 31, 2013. In connection with this note, Universal Travel, Inc. should report interest payable at December 31, 2012, in the amount of:

On November 1, 2012, The Bagel Factory signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2013. The Bagel Factory should report interest payable at December 31, 2012, in the amount of:

Skypt Co. is involved in a lawsuit and sued by Quart Co. for $500,000. Skypt feels it is probable that it will lose the lawsuit. What should Skypt Co. and Quart Co. record or disclose concerning the lawsuit?

Interest is stated in terms of a percentage rate to be applied to the face value of the loan.

On November 1, Vacation Desinations borrows $1.5 million and issues a six-month, 8% note payable. Interest is payable at maturity. Record the issuance of the note and the appropriate adjusting entry for interest expense at December 31, the end of the reporting period.

Which of the following is not a characteristic of a liability?

Mike Gundy is a college football coach making a 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 FICA maximum base amount is $106,800, how much will be withheld during the year for the coach's Social Security and Medicare.