Chapter 11

Liabilities must

• sometimes be estimated.

• be for specific, known amounts.

• involve an outflow of cash.

• be obligations that are certain to be owed.

On July 1, 20X8, your company borrowed $20,000 on a four-year, 6% note payable. At December 31, 20X8, a journal entry should be made to record

• a note payable of $20,000.

• interest payable of $1,200.

• interest payable of $600.

• cash payment of $1,200.

The employee is responsible for which of the following payroll taxes?

• Federal and state income tax

• State unemployment taxes

• Federal unemployment taxes

• All of the above

Cloud Company has a lawsuit pending from a customer claiming damages of $128,000. Cloud’s attorney advises that the likelihood the customer will win is reasonably possible. How is this contingent liability reported?

• It should be described in the footnotes.

• It should be recorded as an asset and a liability based on estimated amounts.

• It should be recorded as an expense and a liability based on estimated amounts.

• It should not be disclosed.

At December 31, your company owes employees for four days of the five-day workweek. The total payroll for the week is $51,000. What journal entry should you make at December 31?

• Nothing because you will pay the employees on Friday.

• Salaries and Wages Expense (dr) 51,000

  Salaries and Wages Payable (cr) 51,000

• Salaries and Wages Payable (dr) 40,800

  Salaries and Wages Expense (cr) 40,800

• Salaries and Wages Expense (dr) 40,800

  Salaries and Wages Payable (cr) 40,800

During 20X8, Crystal Glassware reported net income of $123,000, income tax expense of $25,000, and interest expense of $11,000. What is Crystal Glassware’s times-interest-earned ratio for 20X8? (Round to one decimal place.)

• 7.9

• 11.2

• 13.5

• 14.5

As of January 1, 20X9, Darnell’s Deliveries owes $60,000 on a truck purchased for use by the business. The company makes principal payments of $1,000 each month plus interest at 8%. At the end of 20X9, after the first 12 months’ payments of principal and interest, which of the following would be included on the balance sheet for December 31, 20X9?

• Long-term Liabilities $48,000 and Interest Payable for four years’ interest.

• Long-term Liabilities $36,000; Current Liabilities $12,000; and Interest Payable for four years’ interest.

• Long-term Liabilities $36,000; Current Liabilities $12,000; and no Interest Payable

• Long-term Liabilities $48,000 and no Interest Payable

Rudy’s Fitness Gym has Unearned Revenue of $15,000, Salaries Payable of $28,000, and Allowance for Uncollectible Accounts of $4,200. What amount would Rudy’s Gym report as total current liabilities?

• $47,200

• $43,000

• $32,200

• $28,000

Cooper Company owed Estimated Warranty Payable of $2,200 at the end of 20X4. During 20X5, Cooper Company made sales of $280,000 and expects product warranties to cost the company 3% of the sales. During 20X5, Cooper Company paid $5,000 for warranties. What is Cooper Company’s estimated warranty payable at the end of 20X5?

• $10,600

• $ 5,600

• $ 5,000

• $ 3,600

Alpine Company sells $50,000 of goods, and you collect sales tax of 7%. What is the journal entry to record the transaction?

• DR Cash $50,000, DR Sales tax expense $3,500, CR Sales revenue $53,500

• DR Cash $50,000, DR Sales tax expense $3,500, CR Sales revenue $50,000, CR Sales tax payable $3,500

• DR Cash $50,000, DR Sales tax payable $3,500, CR Sales revenue $53,500

• DR Cash $53,500, DR Sales tax payable $3,500, CR Sales revenue $53,500