Question

TRUE OR FALSE Interest is stated in terms of an annual percentage rate to be applied to the face value of the loan.

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

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

A lower current ratio or acid-test ratio generally indicates a greater ability to pay current liabilities on a timely basis.

Answer 1

1. Answer: True

The interest rate stated on a loan is the annual rate of interest and the same is applied on the face value of the loan. Thus, the statement is true.

2. Answer: True

Employers are liable to contribute an amount equal to each employees’ contribution to FICA Social security taxes. Hence, the amount paid into the social security is both the employer and employee contributions thereby doubling the amount paid into social security. Hence the statement is true.

3. Answer: False

A contingent liability is recorded if the loss is probable and the amount of loss is reasonably estimable.

If the loss is reasonably possible, the contingent liability is disclosed by way of a note to the financial statements but is not recorded.

Hence, the given statement is false.

4. Answer: False

The current/quick ratio is computed by dividing the current/quick assets by the current liabilities and denotes the ability to meet short-term debts using the available current/quick assets. A lower ratio indicates that the current liabilities are more than the current/quick assets thereby indicating a lower ability to discharge the current liabilities on a timely basis. Hence the given statement is false.