Balance Sheet and Current Liabilities

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Ch8
Student: ___________________________________________________________________________

1.

Delta, Northwest, and United Airlines have all, at one time, filed for bankruptcy. True

2.

In a classified balance sheet, we categorize all liabilities as current. True

3.

False

A line of credit is an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and paperwork. True

9.

False

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

8.

False

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

7.

False

When a company borrows cash from a bank promising to repay the amount borrowed plus interest, the borrower reports its liability as notes payable.
True

6.

False

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.
True

5.

False

Commonly, current liabilities are payable within one year, and long-term liabilities are payable more than one year from now.
True

4.

False

False

If a company borrows from another company rather than from a bank, the note is referred to as commercial paper.
True

False

10. Accounts payable are amounts the company owes to suppliers of merchandise or services that it has bought on credit.
True

False

11. Deductions from employee salaries in determining the amount of payroll checks include withholdings for federal and state income taxes, FICA taxes, and the employee portion of insurance and retirement contributions.

True

False

12. All states impose a state income tax.
True

False

13. Companies are required by law to withhold federal and state income taxes from employees' paychecks and remit these taxes to the government.
True

False

14. The employer records amounts deducted from employee payroll as liabilities until it pays them to the appropriate organizations.
True

False

15. FICA taxes are paid only by the employee.
True

False

16. The employer is required to match the amount of FICA taxes withheld for each employee, effectively doubling the amount paid into Social Security.
True

False

17. Additional employee benefits paid for by the employer are often referred to as fringe benefits. True

False

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

False

19. Airlines do not record revenue when a ticket is sold, but wait to record revenue until the actual flight occurs.
True

False

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

False

21. Companies selling products subject to sales taxes are responsible for collecting the sales tax directly from customers and periodically remitting the sales taxes collected to the state and local governments. True

False

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

False

23. Sales taxes collected from customers by the seller are not an expense, instead they represent current liabilities payable to the government.
True

False

24. Long-term obligations such as notes, mortgages, and bonds are reported as long-term liabilities when they become payable within the upcoming year.
True

False

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

False

26. Differences between financial accounting and tax accounting result in a company being permitted to defer paying some of its income tax expense, in which case it will report a deferred tax liability. True

False

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

False...
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