ACC 303; Ch 13
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.
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.
Elmer Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of common stock. If the stock is sold for $30 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? a. $1,500,000 b. $2,500,000 c. $1000,000 d. $0
a. $1,500,000
Vanco Company has 70 employees who work 8-hour days and are paid hourly. On January 1, 2020, the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2020 may first be taken on January 1, 2021. Information relative to these employees is as follows: Hourly Vacation Days Earned Vacation Days Used Year Wages by Each Employee by Each Employee 2020 $20.50 10 0 2021 22.50 10 8 2022 25.50 10 10 Vanco has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned. 111. What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2022? a. $168,000. b. $394,800. c. $142,800. d. $193,200.
a. $168,000.
Jump Corporation has $3,000,000 of short-term debt it expects to retire with proceeds from the sale of 85,000 shares of common stock. If the stock is sold for $25 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? a. $2,125,000 b. $3,000,000 c. $875,000 d. $0
a. $2,125,000
In 2020, Pollard Corporation began selling a new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows: First year of warranty 3% Second year of warranty 5% Sales and actual warranty expenditures for 2020 and 2021 are presented below: 2020 2021 Sales $750,000 $1,050,000 Actual warranty expenditures 45,000 75,000 What is the estimated warranty liability at the end of 2021?(assume the accrual method) a. $24,000. b. $96,000. c. $144,000. d. $30,000.
a. $24,000.
Ebbert Company's salaried employees are paid biweekly. Occasionally, advances made to employees are paid back by payroll deductions. Information relating to salaries for the calendar year 2021 is as follows: 12/31/20 12/31/21 Employee advances $24,000 $ 36,000 Accrued salaries payable 160,000 ? Salaries expense during the year 1,400,000 Salaries paid during the year (gross) 1,250,000 At December 31, 2021, what amount should Ebbert report for accrued salaries payable? a. $310,000. b. $182,000. c. $134,000. d. $170,000.
a. $310,000
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 inventory from this purchase? a. $39,501. b. $40,341. c. $40,740. d. $39,900.
a. $39,501.
Sawyer Company self-insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $2,000,000 per year. The company estimates that on average it will incur losses of $1,600,000 per year. During 2021, $700,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Sawyer Company for 2021? a. $700,000 in losses and no insurance expense b. $700,000 in losses and $675,000 in insurance expense c. $0 in losses and $1,600,000 in insurance expense d. $0 in losses and $2,000,000 in insurance expense
a. $700,000 in losses and no insurance expense
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
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.
Qualpoint provides its employees two weeks of paid vacation per year. As of December 31, 65 employees have earned two weeks of vacation time to be taken the following year. If the average weekly salary for these employees is $960, what is the required journal entry? a. Debit Salaries and Wages Expense for $124,800 and credit Salaries and Wages Payable for $124,800. b. No journal entry required. c. Debit Salaries and Wages Payable for $124,295 and credit Salaries and Wages Expense for $124,295. d. Debit Salaries and Wages Expense for $62,400 and credit Salaries and Wages Payable for $62,400.
a. Debit Salaries and Wages Expense for $124,800 and credit Salaries and Wages Payable for $124,800.
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 generally associated with payables classified as accounts payable? Periodic Payment Secured of Interest by Collateral a. No No b. No Yes c. Yes No d. Yes Yes
a. No No
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 a characteristic of an assurance-type warranty, but 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.
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.
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
A company offers a cash rebate of $2 on each $6 package of batteries sold during 2021. Historically, 10% of customers mail in the rebate form. During 2021, 5,000,000 packages of batteries are sold, and 175,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2021 financial statements dated December 31? a. $1,000,000; $1,000,000 b. $1,000,000; $650,000 c. $650,000; $650,000 d. $350,000; $650,000
b. $1,000,000; $650,000
Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2021, the company sold 1,350,000 boxes of Frosted Flakes and customers redeemed 660,000 boxtops receiving 220,000 bowls. If the bowls cost Palmer Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2021? a. $540,000 b. $100,000 c. $150,000 d. $276,000
b. $100,000
On January 1, 2021, Bacon Co. leased a building to Horner Corp. for a ten-year term at an annual rental of $175,000. At inception of the lease, Bacon received $700,000 covering the first two years' rent of $350,000 and a security deposit of $350,000. This deposit will not be returned to Horner upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $700,000 should be shown as a current and long-term liability, respectively, in Bacon's December 31, 2021 balance sheet? Current Liability Long-term Liability a. $0 $700,000 b. $175,000 $350,000 c. $350,000 $350,000 d. $350,000 $175,000
b. $175,000 $350,000
. On February 10, 2021, after issuance of its financial statements for 2020, Higgins Company entered into a financing agreement with Cleveland Bank, allowing Higgins Company to borrow up to $8,000,000 at any time through 2023. Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan. Higgins Company presently has $3,000,000 of notes payable with Star National Bank maturing March 15, 2021. The company intends to borrow $5,000,000 under the agreement with Cleveland and liquidate the notes payable to Star National Bank. The agreement with Cleveland also requires Higgins to maintain a working capital level of $12,000,000 and prohibits the payment of dividends on common stock without prior approval by Cleveland Bank. From the above information only, the total short-term debt of Higgins Company as of the December 31, 2020 balance sheet date is a. $0. b. $3,000,000. c. $4,000,000. d. $8,000,000.
b. $3,000,000.
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.
A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2021. Historically, 10% of customers mail in the rebate form. During 2021, 3,750,000 packages of light bulbs are sold, and 200,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2021 financial statements dated December 31? a. $375,000; $375,000 b. $375,000; $175,000 c. $175,000; $175,000 d. $200,000; $175,000
b. $375,000; $175,000
Posner Co. is a retail store operating in a state with a 7% retail sales tax. The retailer may keep 2% of the sales tax collected. Posner Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was $754,350. . The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is a. $37,719. b. $48,363. c. $62,286. d.$51,750
b. $48,363.
Posner Co. is a retail store operating in a state with a 7% retail sales tax. The retailer may keep 2% of the sales tax collected. Posner Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was $754,350. The amount of sales taxes (to the nearest dollar) for May is a. $62,286. b. $49,350. c. $67,893. d. $52,806.
b. $49,350.
Crispy Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from Crispy Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2021, the company sold 800,000 boxes of Frosted Flakes and customers redeemed 352,000 boxtops receiving 88,000 bowls. If the bowls cost Crispy Company $2 each, how much liability for outstanding premiums should be recorded at the end of 2021? a. $240,000 b. $64,000 c. $96,000 d. $134,400
b. $64,000
Yurman Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $960,000 at December 31, 2019 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $240,000 at December 31, 2019. Outstanding service contracts at December 31, 2019 expire as follows: During 2020 During 2021 During 2022 $200,000 $320,000 $140,000 What amount should be reported as unearned service contract revenues in Yurman's December 31, 2019 balance sheet? a. $720,000. b. $660,000. c. $480,000. d. $440,000.
b. $660,000
Flavor Food Company distributes to consumers coupons which may be presented (on or before a stated expiration date) to grocers for discounts on certain products of Flavor. The grocers are reimbursed when they send the coupons to Flavor. In Flavor's experience, 50% of such coupons are redeemed, and generally one month elapses between the date a grocer receives a coupon from a consumer and the date Flavor receives it. During 2021 Flavor issued two separate series of coupons as follows: Consumer Amount Disbursed Issued On Total Value Expiration Date as of 12/31/21 1/1/21 $500,000 6/30/21 $236,000 7/1/21 840,000 12/31/21 350,000 The only journal entry recorded to date is: debit to coupon expense and credit to cash of $815,000. The December 31, 2021 balance sheet should include a liability for unredeemed coupons of: a. $0. b. $70,000. c. $184,000. d. $420,000.
b. $70,000.
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.
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.
Sandy Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $800,000. What is the required journal entry as a result of this litigation? a. Debit Litigation Expense for $800,000 and credit Litigation liability for $800,000. b. No journal entry is required. c. Debit Litigation Expense for $320,000 and credit Litigation Liability for $320,000. d. Debit Litigation Expense for $480,000 and credit Litigation Liability for $480,000.
b. No journal entry is required.
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.
b. Obligation must be due within one year.
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 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.
Wooten Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Wooten's lawyer states that it is probable that Wooten will lose the suit and be found liable for a judgment costing Wooten anywhere from $1,800,000 to $9,000,000. However, the lawyer states that the most probable cost is $5,400,000. As a result of the above facts, Wooten should accrue a. a loss contingency of $1,800,000 and disclose an additional contingency of up to $7,200,000. b. a loss contingency of $5,400,000 and disclose an additional contingency of up to $3,600,000. c. a loss contingency of $5,400,000 but not disclose any additional contingency. d. no loss contingency but disclose a contingency of $1,800,000 to $9,000,000.
b. a loss contingency of $5,400,000 and disclose an additional contingency of up to $3,600,000.
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.
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.
A company gives each of its 75 employees (assume they were all employed continuously through 2020 and 2021) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2020, they made $21 per hour and in 2021 they made $24 per hour. During 2021, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2020 and 2021 balance sheets, respectively? a. $151,200; $210,600 b. $172,800; $216,000 c. $151,200; $216,000 d. $172,800; $210,600
c. $151,200; $216,000
Excom manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $300 per unit sold and reported a liability for estimated warranty costs $10.4 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $324 million and paid warranty claims of $12,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? a. $3,733,333. b. $6,000,000. c. $16,400,000. d.$18,000,000.
c. $16,400,000.
A company gives each of its 75 employees (assume they were all employed continuously through 2020 and 2021) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2020, they made $24.50 per hour and in 2021 they made $28 per hour. During 2021, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2020 and 2021 balance sheets, respectively? a. $176,400; $245,700 b. $201,600; $252,000 c. $176,400; $252,000 d. $201,600; $245,700
c. $176,400; $252,000
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.
Valley, Inc., is a retail store operating in a state with a 5% retail sales tax. The state law provides that the retail sales tax collected during the month must be remitted to the state during the following month. If the amount collected is remitted to the state on or before the twentieth of the following month, the retailer may keep 3% of the sales tax collected. On April 10, 2020 Valley remitted $203,700 tax to the state tax division for March 2020 retail sales. What was Valley's March 2020 retail sales subject to sales tax? a. $4,074,000. b. $3,990,000. c. $4,200,000. d.$4,112,500
c. $4,200,000.
Core Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Core's past experience indicates that only 75% of the stamps sold to licensees will be redeemed. Core's liability for stamp redemptions was $7,500,000 at December 31, 2020. Additional information for 2021 is as follows: Stamp service revenue from stamps sold to licensees $6,000,000 Cost of redemptions 4,980,000 If all the stamps sold in 2021 were presented for redemption in 2022, the redemption cost would be $4,500,000. What amount should Core report as a liability for stamp redemptions at December 31, 2021? a. $12,480,000. b. $8,520,000. c. $5,895,000. d. $7,020,000.
c. $5,895,000.
On September 1, 2020, Halley Co. issued a note payable to Fidelity Bank in the amount of $2,700,000, bearing interest at 10%, and payable in three equal annual principal payments of $900,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2021. At December 31, 2021, Halley should record accrued interest payable of a. $99,000. b. $90,000. c. $60,000. d. $198,000.
c. $60,000.
The total payroll of Trolley Company for the month of October, 2020 was $960,000, of which $180,000 represented amounts paid in excess of $128,400 to certain employees. $600,000 represented amounts paid to employees in excess of the $7,000 maximum subject to unemployment taxes. $180,000 of federal income taxes and $18,000 of union dues were withheld. The state unemployment tax is 1%, the federal unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on an employee's wages to $128,400 and 1.45% in excess of $128,400. What amount should Trolley record as payroll tax expense? a. $87,360. b. $79,560. c. $68,760. d. $73,440.
c. $68,760.
Presented below is information available for Marley Company. Current Assets Cash $ 4,000 Short-term investments 55,000 Accounts receivable 61,000 Inventory 110,000 Prepaid expenses 30,000 Total current assets $260,000 Total current liabilities are $100,000. The acid-test ratio for Marley is: a. 2.60 to 1 b. 2.30 to 1 c. 1.20 to 1 d. 0.59 to 1
c. 1.20 to 1
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 answers are correct.
c. A cash dividend payable to preferred stockholders
In March 2021, an explosion occurred at Kirk Co.'s plant, causing damage to area properties. By May 2021, no claims had yet been asserted against Kirk. However, Kirk's management and legal counsel concluded that it was reasonably possible that Kirk would be held responsible for negligence, and that $5,000,000 would be a reasonable estimate of the damages. Kirk's $6,000,000 comprehensive public liability policy contains a $500,000 deductible clause. In Kirk's December 31, 2020 financial statements, for which the auditor's fieldwork was completed in April 2021, how should this casualty be reported? a. As a note disclosing a possible liability of $5,000,000. b. As an accrued liability of $500,000. c. As a note disclosing a possible liability of $500,000. d. No note disclosure of accrual is required for 2020 because the event occurred in 2021.
c. As a note disclosing a possible liability of $500,000.
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.
c. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.
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 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.
Included in Vernon Corp.'s liability account balances at December 31, 2020, were the following: 7% note payable issued October 1, 2020, maturing September 30, 2021 $375,000 8% note payable issued April 1, 2020, payable in six equal annual installments of $225,000 beginning April 1, 2021 900,000 Vernon's December 31, 2020 financial statements were issued on March 31, 2021. On January 15, 2021, the entire $900,000 balance of the 8% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2021, Vernon consummated a noncancelable agreement with the lender to refinance the 7%, $375,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. On the December 31, 2020 balance sheet, the amount of the notes payable that Vernon should classify as short-term obligations is a. $262,500. b. $187,500. c. $75,000. d. $0.
d. $0.
On January 3, 2021, Benton Corp. owned a machine that had cost $400,000. The accumulated depreciation was $240,000, estimated salvage value was $24,000, and fair value was $640,000. On January 4, 2021, this machine was irreparably damaged by Pogo Corp. and became worthless. In October 2021, a court awarded damages of $480,000 against Pogo in favor of Benton. At December 31, 2021, the final outcome of this case was awaiting appeal and was, therefore, uncertain. However, in the opinion of Benton's attorney, Pogo's appeal will be denied. At December 31, 2021, what amount should Benton accrue for this gain contingency? a. $640,000. b. $520,000. c. $400,000. d. $0.
d. $0.
Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2020 and 2021 are as follows: 2020 2021 Bags of dog food sold 500,000 600,000 Leashes purchased 18,000 22,000 Coupons redeemed 120,000 150,000 The premium expense for 2020 is a. $250,000. b. $60,000. c. $100,000. d. $112,500.
d. $112,500.
Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2020 and 2021 are as follows: 2020 2021 Bags of dog food sold 500,000 600,000 Leashes purchased 18,000 22,000 Coupons redeemed 120,000 150,000 The premium liability at December 31, 2021 is a. $30,000. b. $52,500. c. $60,000. d. $112,500.
d. $112,500.
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%.
Vanco Company has 70 employees who work 8-hour days and are paid hourly. On January 1, 2020, the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2020 may first be taken on January 1, 2021. Information relative to these employees is as follows: Hourly Vacation Days Earned Vacation Days Used Year Wages by Each Employee by Each Employee 2020 $20.50 10 0 2021 22.50 10 8 2022 25.50 10 10 Vanco has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned. What is the amount of expense relative to compensated absences that should be reported on Vanco's income statement for 2020? a. $0. b. $142,800. c. $126,000. d. $114,800.
d. $114,800.
On December 31, 2020, Isle Co. has $6,000,000 of short-term notes payable due on February 14, 2021. On January 10, 2019, Isle arranged a line of credit with Beach Bank which allows Isle to borrow up to $4,500,000 at one percent above the prime rate for three years. On February 2, 2021, Isle borrowed $3,600,000 from Beach Bank and used $1,500,000 additional cash to liquidate $5,100,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2020 balance sheet which is issued on March 5, 2021 is a. $0. b. $900,000. c. $1,500,000. d. $2,400,000.
d. $2,400,000.
. Roxy Co., which has a taxable payroll of $800,000, is subject to FUTA tax of 6.2% that includes a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Roxy Co.? a. $93,600 b. $65,600 c. $32,000 d. $22,400
d. $22,400
During 2019, Rao Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: (assume the accrual method) Sales Actual Warranty Expenditures 2019 $ 1,600,000 $ 39,000 2020 2,500,000 65,000 2021 2,100,000 135,000 $6,200,000 $239,000 What amount should Rao report as a liability at December 31, 2021? a. $0 b. $71,000 c. $84,000 d. $319,000
d. $319,000
Palco Co., which has a taxable payroll of $1,200,000, is subject to FUTA tax of 6.2% that includes a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Palco Co.? a. $139,200 b. $98,400 c. $48,000 d. $33,600
d. $33,600
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.
Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2020 and 2021 are as follows: 2020 2021 Bags of dog food sold 500,000 600,000 Leashes purchased 18,000 22,000 Coupons redeemed 120,000 150,000 The premium liability at December 31, 2020 is a. $50,000. b. $72,000. c. $60,000. d. $52,500.
d. $52,500.
During 2020, Eaton Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2020 and 2021 are as follows: Actual Warranty Sales Expenditures 2020 $ 800,000 $12,000 2021 1,000,000 35,000 $1,800,000 $47,000 At December 31, 2021, (assuming the accrual method) Eaton should report an estimated warranty liability of a. $0. b. $25,000. c. $35,000. d. $61,000.
d. $61,000.
During 2019, Salton Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 1% of sales in the year of sale, 2% in the year after sale, and 3% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual Warranty Expenditures 2019 $ 1,400,000 $ 26,000 2020 1,000,000 40,000 2021 1,400,000 90,000 $3,800,000 $156,000 What amount should Salton report as a liability at December 31, 2021? a. $0 b. $14,000 c. $34,000 d. $72,000
d. $72,000
Roasten Corp.'s payroll for the pay period ended October 31, 2021 is summarized as follows: Federal Amount of Wages Subject Department Total Income Tax to Payroll Taxes Payroll Wages Withheld F.I.C.A. Unemployment Factory $ 75,000 $ 9,000 $70,000 $32,000 Sales 22,000 3,000 16,000 2,000 Office 18,000 2,000 8,000 — $115,000 $14,000 $94,000 $34,000 Assume the following payroll tax rates: F.I.C.A. for employer and employee 8% each Unemployment 3% What amount should Roasten accrue as its share of payroll taxes in its October 31, 2021 balance sheet? a. $22,540. b. $15,020. c. $10,220. d. $8,540.
d. $8,540.
Composite provides extended service contracts on electronic equipment sold through major retailers. The standard contract is for four years. During the current year, Composite provided 42,000 such warranty contracts at an average price of $162 each. Related to these contracts, the company spent $800,000 servicing the contracts during the current year and expects to spend $4,200,000 more in the future. What is the net profit that the company will recognize in the current year related to these contracts? a. $1,804. b. $6,004,000. c. $800,000. d. $901,000.
d. $901,000.
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.
Qualpoint pays a weekly payroll of $255,000 that includes federal taxes withheld of $38,100, FICA taxes withheld of $23,670, and 401(k) withholdings of $27,000. What is the effect on assets and liabilities from this transaction? a. Assets decrease $255,000 and liabilities do not change. b. Assets decrease $193,230 and liabilities increase $61,770. c. Assets decrease $193,230 and liabilities decrease $61,770. d.Assets decrease $166,230 and liabilities increase $88,770.
d. Assets decrease $166,230 and liabilities increase $88,770.
Bargain Surplus made cash sales during the month of October of $375,000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions? a. Debit Accounts Receivable for $375,000. b. Credit Sales Taxes Payable for $21,226. c. Credit Sales Revenue for $347,483. d. Credit Sales Taxes Payable for $22,500.
d. Credit Sales Taxes Payable for $22,500.
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.
Xtra Processes is involved with innovative approaches to finding energy reserves. Xtra recently built a facility to extract natural gas at a cost of $12 million. However, Xtra is also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $17 million (the present value of which is $6.5 million). What is the journal entry required to record the asset retirement obligation? a. No journal entry required. b. Debit Natural Gas Facility for $17,000,000 and credit Asset Retirement Obligation for $17,000,000 c. Debit Natural Gas Facility for $5,000,000 and credit Asset Retirement Obligation for $5,000,000. d. Debit Natural Gas Facility for $6,500,000 and credit Asset Retirement Obligation for $6,500,000.
d. Debit Natural Gas Facility for $6,500,000 and credit Asset Retirement Obligation for $6,500,000.
A company buys an oil rig for $3,000,000 on January 1, 2021. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000 (present value at 10% is $231,330). 10% is an appropriate interest rate for this company. What expense should be recorded for 2021 as a result of these events? a. Depreciation expense of $360,000 b. Depreciation expense of $300,000 and interest expense of $23,133 c. Depreciation expense of $300,000 and interest expense of $60,000 d. Depreciation expense of $323,133 and interest expense of $23,133
d. Depreciation expense of $323,133 and interest expense of $23,133
A company buys an oil rig for $5,000,000 on January 1, 2021. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $1,000,000 (present value at 10% is $385,550). 10% is an appropriate interest rate for this company. What expense should be recorded for 2021 as a result of these events? a. Depreciation expense of $600,000 b. Depreciation expense of $500,000 and interest expense of $38,555 c. Depreciation expense of $500,000 and interest expense of $100,000 d. Depreciation expense of $538,555 and interest expense of $38,555
d. Depreciation expense of $538,555 and interest expense of $38,555
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 not considered 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 create other current liabilities.
d. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.
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.
Holland Company estimates its annual warranty expense as 3% of annual net sales. The following data relate to the calendar year 2021: Net sales $1,500,000 Warranty liability account Balance, Dec. 31, 2021 $10,000 debit before adjustment Balance, Dec. 31, 2021 20,000 credit after adjustment Which one of the following entries was made to record the 2021 estimated warranty expense? a. Warranty Expense ................................................................ 45,000 Retained Earnings (prior-period adjustment) ............ 7,500 Warranty Liability ....................................................... 37,500 b. Warranty Expense ................................................................ 37,500 Retained Earnings (prior-period adjustment) ....................... 7,500 Warranty Liability ....................................................... 45,000 c. Warranty Expense ................................................................ 30,000 Warranty Liability ....................................................... 30,000 d. Warranty Expense ................................................................ 45,000 Warranty Liability ....................................................... 45,000
d. Warranty Expense ...................................................................... 45,000 Warranty Liability ....................................................... 45,000
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 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. 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. 5
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.
Neer Co. has a probable loss that 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 loss accrual should be a. zero. b. the maximum of the range. c. the mean of the range. d. the minimum of the range.
d. the minimum of the range.
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
