ACC3202 - FINALS

Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense

False Amortization of a discount increases interest expense. Amortization of a premium decreases interest expense.

A bond may only be issued on an interest payment date

False Bonds also can be issued Between Interest Dates

The interest rate written in the terms of the bond indenture is called the effective yield or market rate

False The interest rate written in the terms of the bond indenture is known as the stated, coupon, or nominal rate. The issuer of the bonds sets this rate

In a troubled debt restructuring, the loss recognized by the creditor will equal the gain recognized by the debtor.

False

Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio

False

The cash paid for interest will always be greater than interest expense when using effective-interest amortization for a bond

False

The loss to be recognized by a creditor on an impaired loan is the difference between the investment in the loan and the expected undiscounted future cash flows from the loan.

False

The revenue from a service-type warranty that covers several years should all be recognized in the period the warranty is sold

False

The times interest earned is computed by dividing income before interest expense by interest expense.

False

Under an assurance-type warranty, companies charge warranty costs only to the period in which they comply with the warranty.

False

A mortgage bond is referred to as a debenture bond.

False A mortgage bond is secured by a claim on real estate. On the other hand, a debenture bond is unsecured

A company discloses gain contingencies in the notes only when a high probability exists for realizing them

True

A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis and demonstrates the ability to consummate the refinancing

True

An unrealized holding gain or loss is the net change in the fair value of the liability from one period to another, exclusive of interest expense recognized but not recorded

True

Bond issues that mature in installments are called serial bonds

True

Companies report bond discounts as a direct deduction from the face amount of the bond

True

Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until the company remits the taxes.

True

Companies should recognize the expense and related liability for compensated absences in the year earned by employees

True

Companies usually make bond interest payments semiannually, although the interest rate is generally expressed as an annual rate.

True

Current liabilities are usually recorded and reported in financial statements at their full maturity value

True

Discount on Notes Payable is a contra account to Notes Payable on the balance sheet.

True

Magazine subscriptions and airline ticket sales both result in unearned revenues when amounts are collected from the customers.

True

Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale

True

Off-balance-sheet financing is an attempt to borrow monies in such a way to minimize the reporting of debt on the balance sheet

True

Paying a current liability with cash will always reduce the current ratio

True

The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements

True

The debt to assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet.

True

The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability

True

The interest rate of variable-rate mortgages is tied to changes in the fluctuating market rate

True

The replacement of an existing bond issue with a new one is called refunding

True

Which of the following taxes does not represent a common employee payroll deduction? a. Federal income taxes. b. FICA taxes. c. State unemployment taxes. d. State income taxes.

c. State unemployment taxes.

What does the current ratio inform you about a company? a. The extent of slow-moving inventories. b. The efficient use of assets. c. The company's liquidity. d. The company's profitability.

c. The company's liquidity.

What is a discount as it relates to zero-interest-bearing notes payable? a. The discount represents the lender's costs to underwrite the note. b. The discount represents the credit quality of the borrower. c. The discount represents the cost of borrowing. d. The discount represents the allowance for uncollectible amounts.

c. The discount represents the cost of borrowing.

If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate

False

If the market rate is greater than the coupon rate, bonds will be sold at a premium.

False

Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is reasonably possible that a liability has been incurred.

False

Dividends in arrears on cumulative preferred stock should be recorded as a current liability.

False

If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current

False

A company must accrue a liability for sick pay that accumulates but does not vest.

False

A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized

False

Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment

False

All long-term debt maturing within the next year must be classified as a current liability on the balance sheet.

False

On September 1, Horton purchased $39,900 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges were $840. Payment for the purchase was made on September 18. Assuming Horton uses the perpetual inventory system and the net method of accounting for purchase discounts, what amount is recorded as the liability from this purchase? a. $39,501. b. $40,341. c. $40,740. d. $39,900.

a. $39,501. 1/15, net 30 means if the bill is paid within 15 days, there is a 1% discount. Otherwise, the total amount is due within 30 days. 39,900 x 1%= 399 39,900 - 399 = 39,501

Which of the following is true about accounts payable? 1. Accounts payable are also called trade accounts payable. 2. When accounts payable are recorded at the net amount, a Purchase Discounts account will be used. 3. When accounts payable are recorded at the gross amount, a Purchase Discounts Lost account will be used. a. 1 b. 2 c. 3 d. Both 2 and 3 are true.

a. 1. Accounts payable are also called trade accounts payable.

What condition(s) is/are necessary to recognize an asset retirement obligation? a. Company has an existing legal obligation and can reasonably estimate the amount of the liability. b. Company can reasonably estimate the amount of the liability. c. Company has an existing legal obligation. d. Obligation event has occurred.

a. Company has an existing legal obligation and can reasonably estimate the amount of the liability.

Which of the following is not a condition allowing a company to exclude a short-term obligation from current liabilities? a. Liability is contractually due to be settled more than a year after the balance sheet date. b. Obligation must be due within one year. c. A contractual right to defer settlement of the liability at least a year after the balance sheet date. d. Subsequently refinance the obligation on a long-term basis.

a. Liability is contractually due to be settled more than a year after the balance sheet date.

What is the relationship between current liabilities and a company's operating cycle? a. Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less). b. Current liabilities are the result of operating transactions. c. Current liabilities can't exceed the amount incurred in one operating cycle. d. There is no relationship between the two

a. Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less).

Which of the following does not allow a company to exclude a short-term obligation from current liabilities? a. Management indicated that they are going to refinance the obligation. b. Actually refinance the obligation. c. The liability is contractually due more than one year after the balance sheet date. d. Have a contractual right to defer settlement of the liability for at least one year after the balance sheet date.

a. Management indicated that they are going to refinance the obligation.

Which of the following is an example of a contingent liability? a. Obligations related to product warranties. b. Possible receipt from a litigation settlement. c. Pending court case with a probable favorable outcome. d. Tax loss carryforwards.

a. Obligations related to product warranties.

What is the relationship between present value and the concept of a liability? a. Present values are used to measure certain liabilities. b. Present values are not used to measure liabilities. c. Present values are used to measure all liabilities. d. Present values are only used to measure long-term liabilities.

a. Present values are used to measure certain liabilities.

Which of the following is not a correct statement about sales taxes? a. Sales taxes are an expense of the seller. b. Many companies record sales taxes in the sales account. c. If sales taxes are included in the sales account, the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate. d. Sales Taxes Payable is classified as a current liability.

a. Sales taxes are an expense of the seller.

Which of the following is an account used in accounting for an assurance-type warranty that is not a service-type warranty? a. Warranty liability. b. Warranty expense. c. Unearned warranty revenue. d. Warranty revenue.

a. Warranty liability.

Information available prior to the issuance of the financial statements indicates that it is probable that, at the date of the financial statements, a liability has been incurred for obligations related to product warranties. The amount of the loss involved can be reasonably estimated. Based on the above facts, an estimated loss contingency should be a. accrued. b. disclosed but not accrued. c. neither accrued nor disclosed. d. classified as an appropriation of retained earnings.

a. accrued.

Bonds for which the owners' names are not registered with the issuing corporation are called a. bearer bonds. b. term bonds. c. debenture bonds. d. secured bonds.

a. bearer bonds.

The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the a. bond indenture. b. bond debenture. c. registered bond. d. bond coupon.

a. bond indenture

Among the short-term obligations of Larsen Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Dennison National Bank. These are 90-day notes, renewable for another 90-day period. These notes should be classified on the balance sheet of Larsen Company as a. current liabilities. b. deferred charges. c. long-term liabilities. d. intermediate debt.

a. current liabilities.

The ratio of current assets to current liabilities is called the a. current ratio. b. acid-test ratio. c. current asset turnover ratio. d. current liability turnover ratio.

a. current ratio.

An example of an item which is not a liability is a. dividends payable in stock. b. advances from customers on contracts. c. accrued estimated warranty costs. d. the portion of long-term debt due within one year.

a. dividends payable in stock.

Jeff Brown is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2020, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Brown had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Brown in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Brown appears inclined to accept the Railroad's offer. The Railroad's 2020 financial statements should include the following related to the incident: a. recognition of a loss and creation of a liability for the value of the land. b. recognition of a loss only. c. creation of a liability only. d. disclosure in note form only.

a. recognition of a loss and creation of a liability for the value of the land.

Venible Newspapers sold 6,000 of annual subscriptions at $150 each on June 1. How much unearned revenue will exist as of December 31? a. $0. b. $375,000. c. $450,000. d. $900,000.

b. $375,000. 6000 x 150 = 900,000 900,000 x 5/12 = 375,000

94. Craig borrowed $700,000 on October 1, 2020 and is required to pay $720,000 on March 1, 2021. What amount is the note payable recorded at on October 1, 2020 and how much interest is recognized from October 1 to December 31, 2020? a. $700,000 and $0. b. $700,000 and $12,000. c. $720,000 and $0. d. $700,000 and $20,000.

b. $700,000 and $12,000. 720,000-700,00 = 20,000 20,000 x 3/5 = 12,000

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? a. Amount of loss is reasonably estimable and event occurs infrequently. b. Amount of loss is reasonably estimable and occurrence of event is probable. c. Event is unusual in nature and occurrence of event is probable. d. Event is unusual in nature and event occurs infrequently.

b. Amount of loss is reasonably estimable and occurrence of event is probable.

A company has not declared a dividend on its cumulative preferred stock for the past three years. What is the required accounting treatment or disclosure in this situation? a. Record a liability for cumulative amount of preferred stock dividends not declared. b. Disclose the amount of the dividends in arrears. c. Record a liability for the current year's dividends only. d. No disclosure or recognition is required.

b. Disclose the amount of the dividends in arrears.

Under what conditions is an employer required to accrue a liability for sick pay? a. Sick pay benefits can be reasonably estimated. b. Sick pay benefits vest. c. Sick pay benefits equal 100% of the pay. d. Sick pay benefits accumulate

b. Sick pay benefits vest.

Which of the following is not true about the discount on short-term notes payable? a. The Discount on Notes Payable account has a debit balance. b. The Discount on Notes Payable account should be reported as an asset on the balance sheet. c. When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate. d. Discount on Notes Payable is a contra account to Notes Payable.

b. The Discount on Notes Payable account should be reported as an asset on the balance sheet.

An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year. The store normally recognized a gross profit margin of 40% of the selling price on video games. How would the store account for a purchase by a customer using the discount coupon? a. The reduction in sales price attributed to the coupon is recognized as premium expense. b. The difference between the cost of the video game and the cash received is recognized as premium expense. c. Premium expense is not recognized. d. The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense.

b. The difference between the cost of the video game and the cash received is recognized as premium expense.

Which of the following is not a factor that is considered when evaluating whether or not to record a liability for pending litigation? a. Time period in which the underlying cause of action occurred. b. The type of litigation involved. c. The probability of an unfavorable outcome. d. The ability to make a reasonable estimate of the amount of the loss.

b. The type of litigation involved.

Why is the liability section of the balance sheet of primary importance to bankers? a. To evaluate the entity's credit quality. b. To assist in understanding the entity's liquidity. c. To better understand sources of repayment. d. To evaluate operating efficiency.

b. To assist in understanding the entity's liquidity.

When is a contingent liability recorded? a. When the amount can be reasonably estimated. b. When the future events are probable to occur and the amount can be reasonably estimated. c. When the future events are probable to occur. d. When the future events will possibly occur and the amount can be reasonably estimated.

b. When the future events are probable to occur and the amount can be reasonably estimated.

The term used for bonds that are unsecured as to principal is a. mortgage bonds. b. debenture bonds. c. indenture bonds. d. callable bonds.

b. debenture bonds.

Greeson Corp. signed a three-month, zero-interest-bearing note on November 1, 2020 for the purchase of $500,000 of inventory. The face value of the note was $507,800. Greeson used a "Discount of Note Payable" account to initially record the note. Assuming that the discount will be amortized equally over the 3-month period and that there was no adjusting entry made for November, the adjusting entry made at December 31, 2020 will include a a. debit to Discount on Note Payable for $2,600. b. debit to Interest Expense for $5,200. c. credit to Discount on Note Payable for $2,600. d. credit to Interest Expense for $5,200.

b. debit to Interest Expense for $5,200. 507,800 - 500,000 = 7,800 7,800 x 2/3 = 5,200

To record an asset retirement obligation (ARO), the cost associated with the ARO is a. expensed. b. included in the carrying amount of the related long-lived asset. c. included in a separate account. d. capitalized over the asset's useful life.

b. included in the carrying amount of the related long-lived asset.

Martinez Co. has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be a. zero. b. the minimum of the range. c. the mean of the range. d. the maximum of the range.

b. the minimum of the range

In accounting for compensated absences, the difference between vested rights and accumulated rights is that: a. vested rights are normally for a longer period of employment than are accumulated rights. b. vested rights are not contingent upon an employee's future service. c. vested rights are a legal and binding obligation on the company, whereas accumulated rights expire at the end of the accounting period in which they arose. d. vested rights carry a stipulated dollar amount that is owed to the employee; accumulated rights do not represent monetary compensation.

b. vested rights are not contingent upon an employee's future service.

Parton owes $3 million that is due on February 28. The company borrows $2,400,000 on February 25 (5-year note) and uses the proceeds to pay down the $3 million note and uses other cash to pay the balance. How much of the $3 million note is classified as long-term in the December 31 financial statements? a. $3,000,000. b. $0. c. $2,400,000. d. $600,000.

c. $2,400,000.

Which of the following is a current liability? a. Preferred dividends in arrears (it is not a liability) b. A dividend payable in the form of additional shares of stock (does not require use of current assets) c. A cash dividend payable to preferred stockholders d. All of these answers are correct.

c. A cash dividend payable to preferred stockholders

Which of the following items is a current liability? a. Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. (Does not required use of current assets) b. Bonds due in three years. (Not current) c. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. (Due within one year) d. Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.

c. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. (Due within one year)

Which of the following best describes the accounting for assurance-type warranty costs? a. Expensed when paid. b. Expensed when warranty claims are certain. c. Expensed based on estimate in year of sale. d. Expensed when incurred.

c. Expensed based on estimate in year of sale.

Which of the following is a characteristic of a current liability but not a long-term liability? a. Unavoidable obligation. b. Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. c. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities. d. Transaction or other event creating the liability has already occurred.

c. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

Which of the following is not an acceptable treatment for the presentation of current liabilities? a. Listing current liabilities in order of maturity b. Listing current liabilities according to amount c. Offsetting current liabilities against assets that are to be applied to their liquidation d. Showing current liabilities immediately below current assets to obtain a presentation of working capital

c. Offsetting current liabilities against assets that are to be applied to their liquidation

Overton Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2020. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Overton recall all cans of this paint sold in the last six months. The management of Overton estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation? a. No recognition b. Note disclosure only c. Operating expense of $800,000 and liability of $800,000 d. Appropriation of retained earnings of $800,000

c. Operating expense of $800,000 and liability of $800,000

Which of the following situations may give rise to unearned revenue? a. Providing trade credit to customers. b. Selling inventory. c. Selling magazine subscriptions. d. Providing manufacturer warranties.

c. Selling magazine subscriptions.

A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should a. be accrued during the period when the compensated time is expected to be used by employees. b. be accrued during the period following vesting. c. be accrued during the period when earned. d. not be accrued unless a written contractual obligation exists.

c. be accrued during the period when earned.

Of the following items, the only one which should not be classified as a current liability is a. current maturities of long-term debt. b. sales taxes payable. c. short-term obligations expected to be refinanced on a long-term basis. d. unearned revenues.

c. short-term obligations expected to be refinanced on a long-term basis.

Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty a. should be reported as long-term. b. should be reported as current. c. should be reported as part current and part long-term. d. need not be disclosed.

c. should be reported as part current and part long-term.

A loss contingency can be accrued when a. it is certain that funds are available to settle the disputed amount. b. an asset may have been impaired. c. the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability has been incurred. d. it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated

c. the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability has been incurred.

A company is legally obligated for the costs associated with the retirement of a long-lived asset a. only when it hires another party to perform the retirement activities. b. only if it performs the activities with its own workforce and equipment. c. whether it hires another party to perform the retirement activities or performs the activities itself. d. when it is probable the asset will be retired.

c. whether it hires another party to perform the retirement activities or performs the activities itself.

Slack Inc. borrowed $400,000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31? a. $0. b. $48,000. c. $32,000. d. $36,000.

d. $36,000. 400,000 x 12% x 9/12 = 36,000

The effective interest on a 12-month, zero-interest-bearing note payable of $400,000, discounted at the bank at 7% is a. 6.54%. b. 7%. c. 14.29%. d. 7.53%.

d. 7.53% 400,000 x 7% = 28,000 28,000 / (400,000-28,000) = 7.53%

Which of the following gives rise to the requirement to accrue a liability for the cost of compensated absences? a. Payment is probable. b. Employee rights vest or accumulate. c. Amount can be reasonably estimated. d. All of these answers are correct.

d. All of these answers are correct.

Which of the following may be a current liability? a. Withheld Income Taxes b. Deposits Received from Customers c. Deferred Revenue d. All of these answers are correct.

d. All of these answers are correct.

Which of the following should not be included in the current liabilities section of the balance sheet? a. Trade notes payable b. Short-term zero-interest-bearing notes payable c. The discount on short-term notes payable d. All of these answers are included.

d. All of these answers are included.

Which of the following is a condition for accruing a liability for the cost of compensation for future absences? a. The obligation relates to the rights that vest or accumulate. b. Payment of the compensation is probable. c. The obligation is attributable to employee services already performed. d. All of these are conditions for the accrual.

d. All of these are conditions for the accrual.

Which of the following contingencies need not be disclosed in the financial statements or the related notes? a. Probable losses not reasonably estimable b. Environmental liabilities that cannot be reasonably estimated c. Risk of damage of enterprise property by explosion d. All of these must be disclosed.

d. All of these must be disclosed.

What is a contingency? a. An existing situation where certainty exists as to a gain or loss that will be resolved when one or more future events occur or fail to occur. b. An existing situation where uncertainty exists as to possible loss that will be resolved when one or more future events occur. c. An existing situation where uncertainty exists as to possible gain or loss that will not be resolved in the foreseeable future. d. An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

d. An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

Which of the following is the proper way to report some gain contingencies? a. As an accrued amount. b. As deferred revenue. c. As an account receivable with additional disclosure explaining the nature of the contingency. d. As a disclosure only.

d. As a disclosure only.

Where is debt callable by the creditor reported on the debtor's financial statements? a. Long-term liability. b. Current liability if the creditor intends to call the debt within the year, otherwise a long-term liability. c. Current liability if it is probable that creditor will call the debt within the year, otherwise a long-term liability. d. Current liability.

d. Current liability.

The amount of the liability for compensated absences should be based on 1. the current rates of pay in effect when employees earn the right to compensated absences. 2. the future rates of pay expected to be paid when employees use compensated time. 3. the present value of the amount expected to be paid in future periods. a. 1. b. 2. c. 3. d. Either 1 or 2 is acceptable.

d. Either 1 or 2 is acceptable.

Which of the following statements is false? a. A company may exclude a short-term obligation from current liabilities if the company has a contractual right to defer settlement of the liability for at least one year after the balance sheet date. b. Cash dividends should be recorded as a liability when they are declared by the board of directors. c. A zero-interest-bearing note does not explicitly state an interest rate on the face of the note. d. FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.

d. FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.

Which of these is not included in an employer's payroll tax expense? a. F.I.C.A. (social security) taxes b. Federal unemployment taxes c. State unemployment taxes d. Federal income taxes

d. Federal income taxes

Which of the following is a part of the definition of a liability? a. Unavoidable obligation. b. Transaction or other event creating the liability has already occurred. c. Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. d. Liquidation is reasonably expected to require use of existing resources classified as current assets or the creation of other current liabilities.

d. Liquidation is reasonably expected to require use of existing resources classified as current assets or the creation of other current liabilities.

22. Which of the following is a current liability? a. A long-term debt maturing currently, which is to be paid with cash in a sinking fund b. A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue c. A long-term debt maturing currently, which is to be converted into common stock d. None of these answers are correct.

d. None of these answers are correct.

Which of the following statements is correct? a. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis. b. A company may exclude a short-term obligation from current liabilities if the firm can demonstrate an ability to consummate a refinancing. c. A company may exclude a short-term obligation from current liabilities if it is paid off after the balance sheet date and subsequently replaced by long-term debt before the balance sheet is issued. d. None of these answers are correct.

d. None of these answers are correct.

What are compensated absences? a. Unpaid time off. b. A form of healthcare. c. Payroll deductions. d. Paid time off.

d. Paid time off.

Which of the following terms is associated with recording a contingent liability? a. Possible. b. Likely. c. Remote. d. Probable.

d. Probable.

How do you determine the acid-test ratio? a. The sum of cash and short-term investments divided by short-term debt. b. Current assets divided by current liabilities. c. Current assets divided by short-term debt. d. The sum of cash, short-term investments and net receivables divided by current liabilities.

d. The sum of cash, short-term investments and net receivables divided by current liabilities.

Excluding a short-term obligation from current liabilities can be done when a. the liability is contractually due to be settled more than one year after the balance sheet date. b. the company enters into a financing agreement that permits the company to refinance the debt on a long-term basis. c. the company has a contractual right to defer settlement of the liability for at least one year after the balance sheet date. d. all of these answers are correct.

d. all of these answers are correct.

Accrued liabilities are disclosed in financial statements by a. a footnote to the statements. b. showing the amount among the liabilities but not extending it to the liability total. c. an appropriation of retained earnings. d. appropriately classifying them as regular liabilities in the balance sheet.

d. appropriately classifying them as regular liabilities in the balance sheet.

Stock dividends distributable should be classified on the a. income statement as an expense. b. balance sheet as an asset. c. balance sheet as a liability. d. balance sheet as an item of stockholders' equity.

d. balance sheet as an item of stockholders' equity.

The numerator of the acid-test ratio consists of a. total current assets. b. cash, inventory, and marketable securities. c. cash, inventory, and net receivables. d. cash, marketable securities, and net receivables.

d. cash, marketable securities, and net receivables.

Each of the following are included in both the current ratio and the acid-test ratio except a. cash. b. short-term investments. c. net receivables. d. inventory.

d. inventory.

A contingent liability a. definitely exists as a liability but its amount and due date are indeterminable. b. is accrued even though not reasonably estimated. c. is not disclosed in the financial statements. d. is the result of a loss contingency.

d. is the result of a loss contingency.

An account which would be classified as a current liability is a. dividends payable in the form of a company's stock. (Do not require outlay of asset or service) b. accounts payable—debit balances. c. losses expected to be incurred within the next twelve months in excess of the company's insurance coverage. d. none of these answers are correct.

d. none of these answers are correct.

Liabilities are: a. any accounts having credit balances after closing entries are made. b. deferred credits that are recognized and measured in conformity with generally accepted accounting principles. c. obligations to transfer ownership shares to other entities in the future. d. obligations arising from past transactions and payable in assets or services in the future.

d. obligations arising from past transactions and payable in assets or services in the future.

An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's a. portion of FICA taxes and unemployment taxes. b. and employer's portion of FICA taxes, and unemployment taxes. c. portion of FICA taxes, unemployment taxes, and any union dues. d. portion of FICA taxes and any union dues.

d. portion of FICA taxes and any union dues.

In a service-type warranty, warranty revenue is a. recognized in the year of sale. b. not recognized. c. recognized only in the last year of the warranty period. d. recognized equally over the warranty period.

d. recognized equally over the warranty period.

Accounting for product warranty costs under an assurance-type warranty a. is required for federal income tax purposes. b. is frequently justified on the basis of expediency when warranty costs are immaterial. c. charges an expense account when the seller performs in compliance with the warranty. d. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.

d. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.

Darren Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated, an unfavorable outcome is highly probable, and a. the Darren Company admits guilt. b. the court will decide the case within one year. c. the damages appear to be material. d. the cause for action occurred during the accounting period covered by the financial statements.

d. the cause for action occurred during the accounting period covered by the financial statements.

The currently maturing portion of long-term debt should be classified as a current liability if a. the debt is to be converted into common stock. b. the debt is to be refinanced on a long-term basis. c. funds used to liquidate it are currently classified as a long-term asset. d. the portion so classified will be liquidated within one year using current assets.

d. the portion so classified will be liquidated within one year using current assets.