# Project #26428 - Financial accounting

Homework –- Current and Contingent Liabilities

Formulas and rates you might need are given below.

Current ratio = current assets/current liabilities

Quick ratio = (cash + marketable securities + accounts receivable)/current liabilities

Operating cash flows = cash flows from operating activities/current liabilities

OASDI rate = 6.2% on an \$113,700 base

Medicare rate = 1.45% on an unlimited base

SUTA tax = 5.4% on a \$7,000 base

FUTA tax = .8% on a \$7,000 base

1.         Mary Smith began work at the Timber Inn Steak House on Monday April 4,           20X1.  She is paid \$10 per hour, and works 30 hours in the week April 4 – April           8.  She is paid one week in arrears (i.e. will not get paid until Friday, April 15).            Determine Mary Smith’s take-home pay [net pay]. (round to the nearest dollar)

A.        \$261                B.        \$280                C.        \$257                D.        \$300

2.         Mary Smith began work at the Timber Inn Steak House on Monday April 4,           20X1.  She is paid \$10 per hour, and works 30 hours in the week April 4 – April           8.  She is paid one week in arrears (i.e. will not get paid until Friday, April 15).

Determine the amount of “Payroll Tax Expense” that the Timber Inn Steak House             will record as part of its “entry (i.e. the employer entry) related to Mary Smith’s           paycheck? (round to the nearest dollar)

A.        \$0        B.        \$38      C.        \$42                  D.        \$223

3.         During the months of November and December 20X1, Wild Flowers sells 200 gift            certificates that must be redeemed by Thanksgiving Day, 20X2, for a total of          \$8,000 of merchandise.

At December 31, 20X1, Wild Flowers annual balance sheet date, \$3,000 of these gift certificates remained unredeemed (are outstanding).  Which one of the     following statements is correct (true) with respect to the recording and reporting          of the gift certificates?

A.        Unearned Revenue of \$5,000 should be reported on the December 31,                                20X1 balance sheet

B.        Unearned Revenue should be reported as a non-current liability on the                                December 31, 20X1 balance sheet.

C.        \$8,000 should be reported as “cash provided by operating activities” on                              the 20X1 statement of cash flows.

D.        \$3,000 should be reported as “Sales” on the 20X1 Income Statement.

4.         Fathertime is a retailer of clocks located in Flysby, Mississippi.  A customer            bought a grandfather clock for \$2,000 cash and also had to pay a 6% sales tax.

Which one of the following is included in the journal entry needed to record the    sale of this clock?

A.        a credit to sales for \$2,000

B.        a debit to cash for \$2,000

C.        a debit to sales tax expense for \$120

D.        a credit to sales for \$2,120

5.         Which one of the following statements is correct (true)?

A.        selling goods for \$5,000 (with a recorded cost of \$2,000) to                                                customers under terms 2/10, n/30 would cause the current ratio to improve

B.        a current ratio of less than one would be preferable to a current ratio of                               greater than one

C.        if the current ratio is greater than one, paying off \$50,000 of accounts                                 payable would cause the current ratio to decrease

D.        selling goods for \$5,000 (with a recorded cost of \$2,000) to customers                               under terms 2/10, n/30 would cause the operating cash flow ratio to                                improve

6.         Winter Company (which has a December 31 year-end) borrowed \$30,000 from its             bank and a 5-year Note was signed on January 1, 20X1.

The principal of the note is to be paid off in equal annual payments over 5 years     with the first payment due on January 1, 20X2.

The annual payment required each January 1 must also include an additional          amount for interest at a 5% annual rate on the total unpaid balance that exists at       December 31.

Determine the amount which will be reported as “Interest Payable” on the December 31, 20X2 balance sheet of Winter Company.

A.        \$1,200             B.        \$100                C.        \$1,500             D.        \$3,000

7.         Refer to the information given above for question #6.

Determine the amount which will be reported as the “current portion of long-term debt” on the December 31, 20X2 balance sheet of Winter Company.

A.        \$30,000           B.        \$24,000           C.        \$6,000             D.   \$25,200

Following below are the balance sheet and lines from the statement of cash flows taken from Microsoft’s 2013 Annual Report.  Use this information to answer questions 8 & 9 which follow.

 MICROSOFT CORPORATION BALANCE SHEETS (in millions) Assets June 30, 2013 June 30, 2012 Current assets: Cash and cash equivalents \$           3,804 \$      6,938 Short-term investments (including securities     loaned of  \$579 and \$785) 73,218 56,102 Total cash, cash equivalents, and short-term       investments 77,022 63,040 Accounts receivable, net of allowance for doubtful     accounts of \$336 and \$389 17,486 15,780 Inventories 1,938 1,137 Deferred income taxes 1,632 2,035 Other 3,388 3,092 Total current assets 101,466 85,084 Property and equipment, net of accumulated   depreciation of \$12,513 and \$10,962 9,991 8,269 Equity and other investments 10,844 9,776 Goodwill 14,655 13,452 Intangible assets, net 3,083 3,170 Other long-term assets 2,392 1,520 Total assets \$       142,431 \$  121,271 Liabilities and stockholders' equity Current liabilities: Accounts payable \$           4,828 \$      4,175 Current portion of long-term debt 2,999 1,231 Accrued compensation 4,117 3,875 Income taxes 592 789 Short-term unearned revenue 20,639 18,653 Securities lending payable 645 814 Other 3,597 3,151 Total current liabilities 37,417 32,688 Long-term debt 12,601 10,713 Long-term unearned revenue 1,760 1,406 Deferred income taxes 1,709 1,893 Other long-term liabilities 10,000 8,208 Total liabilities 63,487 54,908 Stockholders' equity: Common stock and paid-in capital - shares      authorized 24,000; outstanding 8,328 and 8,381 67,306 65,797 Retained earnings (deficit) 9,895 (856) Accumulated other comprehensive income 1,743 1,422 Total stockholders' equity 78,944 66,363 Total liabilities and stockholders' equity \$       142,431 \$  121,271

 MICROSOFT CORPORATION CASH FLOW STATEMENTS (in millions) Twelve Months Ended June 30, 2013 2012 Operations Net cash from operations 28,833 31,626 Financing Net cash used in financing (8,148) (9,408) Investing Net cash used in investing (23,811) (24,786) Effect of exchange rates on cash     and cash equivalents (8) (104) Net change in cash and cash     equivalents (3,134) (2,672) Cash and cash equivalents,     beginning of period 6,938 9,610 Cash and cash equivalents, end of     period \$      3,804 \$  6,938

8.         Which one of the following statements is correct (true)?

A.        Microsoft’s current ratio would be considered adequate at June 30, 2013                            but inadequate at June 30, 2012.

B.        Microsoft’s quick ratio was better at June 30, 2013 then at June 30, 2012.

C.        Microsoft’s operating cash flow ratio was better at June 30, 2013 then at                            June 30, 2012.

D.        Collection of Accounts Receivable on July 1, 2013 would cause the June                            30, 2013 quick ratio to improve but would leave the June 30, 2013 current                             ratio unchanged.

9.         You would expect to find all but which one of the following in the footnote          disclosure related to Microsoft’s long-term debt?

A.        The amount of principal which would be paid off in each of the next 5                               years.

B.        The lenders (e.g. banks) who are holding the debt.

C.        The interest rates associated with the issued debt.

D.        The amount and type of any assets pledged as collateral on the debt.

10.       During 2013, Great Adventures sold 150 dune buggies for \$4,000 each. The dune             buggies carry a 5-year warranty for defects. Estimates suggest that repair costs           will average 4% of the total selling price. The estimated warranty liability at the      beginning of the year was \$14,000, and \$20,000 in claims was actually incurred           during 2013 to honor the warranty. What was the warranty expense for 2013?

A.        \$10,000           B.        \$18,000           C.        \$20,000           D.   \$24,000

 Subject Business Due By (Pacific Time) 04/03/2014 12:00 am
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