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ch11_posted_probs_M-1 - CHAPTER 11 CURRENT LIABILITIES...

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CHAPTER 11 CURRENT LIABILITIES
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Chapter 11—Current Liabilities Chapter 11—Current Liabilities TRUE/FALSE 1. Receiving payment prior to delivering goods or services causes a current liability to be incurred. ANS: T DIF: 1 OBJ: 01 2. For a current liability to exist, the following two tests must be met. The liability must be due usually within a year and must be paid out of current assets. ANS: T DIF: 1 OBJ: 01 3. All long-term liabilities eventually become current liabilities. ANS: T DIF: 1 OBJ: 02 4. The borrower is the one who issues a note payable to a creditor. ANS: T DIF: 2 OBJ: 02 5. The payee of a note records it as a notes payable on its books. ANS: F DIF: 1 OBJ: 02 6. Interest expense is reported in the operating expense section of the income statement. ANS: F DIF: 2 OBJ: 02 7. A loan in which the lender deducts interest from the amount borrowed before the money is advanced to the borrower is called an interest bearing note. ANS: F DIF: 1 OBJ: 02 8. For an interest bearing note payable, the amount borrowed is equal to the face value of the note. ANS: T DIF: 1 OBJ: 02 9. The amount of money a borrower receives from the lender is called maturity value. ANS: F DIF: 1 OBJ: 02 7
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Chapter 11—Current Liabilities 10. The proceeds of a discounted note are equal to the face value of the note. ANS: F DIF: 1 OBJ: 02 11. The discount on a note payable is charged to an account that has a normal credit balance. ANS: F DIF: 1 OBJ: 02 12. The proceeds from discounting a $20,000, 60-day, note payable at 6% is $20,200. ANS: F DIF: 2 OBJ: 02 13. During the first year of operations, a company granted warranties on its products. The estimated cost of the product warranty liability at the end of the year is $8,500. The product warranty expense of $8,500 should be recorded in the years the expenditures to repair the products covered by the warranty will be paid. ANS: F DIF: 2 OBJ: 03 14. Obligations that depend on past events and that are based on future transactions are contingent liabilities. ANS: F DIF: 2 OBJ: 03 15. In order to be a recorded contingent liability, the liability must be possible and easily estimated. ANS: F DIF: 2 OBJ: 03 16. The journal entry to record the cost of warranty repairs that were incurred during the current period, but related to sales made in prior years, includes a debit to Warranty Expense. ANS: F DIF: 2 OBJ: 03 17. A person who performs services for a business but is not subject to the control and direction of the business is called an independent contractor. ANS: T DIF: 1 OBJ: 04 18. Form W-4 is a form used by employers to determine the amount of federal taxes to withhold from their employees. ANS: F DIF: 1 OBJ: 04 19. Form W-2 is called the Wage and Tax Statement. ANS: T DIF: 1 OBJ: 04 8
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Chapter 11—Current Liabilities 20. If, prior to the last weekly payroll period of the calendar year, the cumulative earnings for an employee are $98,800, earnings subject to social security tax are $100,000, and the tax rate is 6.0%, the employer's social security tax on the $2000 gross earnings paid on the last day of the year is $120.
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