BPA 241 CH 14 MC

B

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. none of these.

D

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 are included

C

Lopez Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2007. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Lopez recall all cans of this paint sold in the last six months. The management of Lopez 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

D

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

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

C

Which of the following is a current liability? a. Preferred dividends in arrears b. A dividend payable in the form of additional shares of stock c. A cash dividend payable to preferred stockholders d. All of these

A

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. All of these are true.

D

Which of the following is not a permissible method of calculating a bonus to an employee? a. The bonus is based on income before deductions for the bonus and income taxes. b. The bonus is based on income after deduction of the bonus but before deduction of income taxes. c. The bonus is based on income after deductions for the bonus and income taxes. d. All of these are permissible.

C

Which of the following is not 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

B

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. All of these are true.

D

Which of the following is the proper way to report a gain contingency? 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

A

Which of the following is true about accounts payable? 1. Accounts payable should not be reported at their present value. 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.

C

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. b. Bonds due in three years. c. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. d. Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.

B

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.

D

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.

D

Which of the following statements is false? 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 and demonstrates an ability to complete the refinancing. b. Cash dividends should be recorded as a liability when they are declared by the board of directors. c. Under the cash basis method, warranty costs are charged to expense as they are paid. 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.

C

A 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 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

D

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.

C

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.

D

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.

A

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

D

An account which would be classified as a current liability is a. dividends payable in the company's stock. 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.

D

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 voluntary deductions. d. portion of FICA taxes, and any voluntary deductions.

D

If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except a. a general description of the financing arrangement. b. the terms of the new obligation incurred or to be incurred. c. the terms of any equity security issued or to be issued. d. the number of financing institutions that refused to refinance the debt, if any.

A

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.

D

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

Marx 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 Marx 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.

B

Mayberry 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.

C

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. d. unearned revenues.

D

The ability to consummate the refinancing of a short-term obligation may be demonstrated by a. actually refinancing the obligation by issuing a long-term obligation after the date of the balance sheet but before it is issued. b. entering into a financing agreement that permits the enterprise to refinance the debt on a long-term basis. c. actually refinancing the obligation by issuing equity securities after the date of the balance sheet but before it is issued. d. all of these.

D

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

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

A

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.

D

Use of the accrual method in accounting for product warranty costs a. is required for federal income tax purposes. b. is frequently justified on the basis of expediency when warranty costs are immaterial. c. finds the expense account being charged 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

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

D

disclosed.Which of the following contingencies need not be disclosed in the financial statements or the notes thereto? a. Probable losses not reasonably estimable b. Environmental liabilities that cannot be reasonably estimated c. Guarantees of indebtedness of others d. All of these must be disclosed.

C

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

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

A

Mark Ward is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2007, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Ward had 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 Ward in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Ward appears inclined to accept the Railroad's offer. The Railroad's 2007 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.

D

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.