Accounting Chapter 13

Accrued liabilities relate to expenses that were _____, but not yet ____.

already incurred; paid

Events occurring between the end of the fiscal year and the date the financial statements are issued or available to be issued should be

considered to clarify financial statement elements at the reporting date.

Warranties that assure the customer that the products are delivered free from major defects typically result in the accrual of

contingent liabilities

When some doubt exists about whether or not a loss will occur in the future we refer to it as a(n)

contingent liability

When it is uncertain whether an obligation really exists, we may recognize what is referred to as a

contingent loss.

An otherwise successful company may fail to exist, if it experiences serious _____ problems.

liquidity

A company's cash position, its overall ability to obtain cash in the normal course of business, and to satisfy its current obligations reflects the company's

liquidity.

Recognition of costs related to manufacturers' quality assurance warranty during the same period that the related revenue is recognized is consistent with the

matching principle

Current liabilities are those obligations that are payable within ______ or the operating cycle whichever is ____.

one year; longer

Current liabilities are those obligations that are payable within one year or the ____, whichever is ____.

operating cycle; longer

Revenue related to extended warranty contracts typically is recognized

over time.

Revenue associated with the sale of gift cards normally is recognized

when the gift cards are redeemed

Which of the following statements is correct regarding short-term obligations?

They may be classified as long-term liabilities if they meet certain criteria.

Which of the following is correct regarding gain contingencies?

They are not accrued.

Information relative to a loss contingency that becomes available after the fiscal year ends, but before the financial statement date

should be considered in determining the probability of a loss contingency. should be considered in estimating the amount of the loss.

Wagner Company's financial records show that it has a mortgage that requires monthly principal payments of $3,000. The mortgage loan matures in 15 years. What should Wagner show on its balance sheet at the end of the current year?

A current liability of $36,000 A noncurrent liability of $504,000

A contingent liability typically is accrued for product warranties because it meets which of the following criteria?

A future loss is probable. The amount of the future loss can be reasonably estimated.

Which of the following is correct regarding accrued interest payable?

Accrued interest payable relates to interest already incurred but not yet paid.

Which of the following liabilities should be classified as current?

An 18-month note that is due in December of the current year will be paid in full. A 6-month note that is due in December of the current year will be satisfied by signing a new 6-month note.

Best Equipment Inc. sells its products with a 3-year limited warranty. During 2017, Best Equipment recognizes $550,000 in sales revenue. Based on past experience, some of its products will need repair during the warranty period. What is the appropriate accounting treatment for Best Equipment's product warranty?

Best should estimate the contingent liability and accrue it in 2017.

Exam2

Chp 12 or CHP 13

Which of the following concepts or principles is the primary reason why gain contingencies are not accrued, even if they are probable?

Conservatism

Newman Company has both a contingent gain and a contingent loss that it judges to be highly probable to result in future cash flows, which it is able to reasonably estimate. Which of the following should the company accrue for the current accounting period?

Contingent loss only

Higher risk

Current liabilities already reported on balance sheet

Which of the following are classified as current liabilities?

Debt callable in the upcoming year, even when not expected to be called Current portion of long-term debt Long-term loans with violated debt covenants

Identify a primary reason why financial statement users assess a company's liquidity.

Lack of liquidity can lead to the demise of a company that otherwise may have been successful.

Lower risk

Noncurrent liabilities already reported on the balance sheet

Which of the following transactions will increase a company's working capital?

Receipt of cash on a long-term note

Which of the following transactions require the recognition of a liability?

Receipt of payment for a service performed next month. Collection of a refundable deposit from a customer.

Which of the following represents the formal credit instrument for an accounts payable?

Supplier's invoice

Which of the following are essential characteristics of a liability?

The future sacrifice arises from a present obligation. A future sacrifice of an economic benefit is probable. The obligation results from a past event.

Identify the statement that best describes the discriminating definition for classifying a liability as current.

The liability is expected to be satisfied from current assets.

Which of the following is necessary for a loss contingency to exist?

The potential loss must arise from an event that occurred prior to the financial statement date.

Which of the following transactions require recognition of a liability on December 31?

The utility bill for December will be paid January 3. Receipt of inventory purchases on account.

Which of the following is an important characteristic of loss contingencies that is not commonly shared by other liabilities?

Uncertainty exists regarding whether a future event giving rise to the obligation will occur.

Gunner Corp. has $2 million in bonds outstanding that mature during 2018. The company intends to refinance some of its obligation by issuing $1 million in 10-year bonds. On January 31, 2018, the new bond issue is sold. The funds will be utilized to pay part of the maturing bond obligation. The balance sheet at 12/31/2017 should show the following regarding the maturing bonds:

a current bonds payable of $1 million. a long-term bonds payable of $1 million.

Debt that is callable by the creditor in the upcoming year, but is not expected to be called, is reported as

a current liability

Norbert Company's recently signed a 20-year mortgage that requires monthly payments of principal and interest. Norbert should report the mortgage principal payments due during the following accounting period as

a current liability

Obligations to suppliers of merchandise and obligations for services purchased on open account are referred to as

accounts payable

Interest that has been incurred but not yet been paid is recognized as

accrued interest payable

Expenses already incurred, but not yet paid are referred to as

accrued liabilities.

Accounts payable typically

are offered on open account. are noninterest-bearing.

A loss contingency is recognized only if the event that gave rise to it occurred

before the financial statement date.

Which of the following is not a category used to assess the likelihood of a loss contingency?

certain

If a liability is classified as current, rather than noncurrent, the company's working capital will ______.

decrease

During December, Martin Department Stores sells $240,000 in gift cards. When it sells the gift cards, Martin should recognize

deferred revenue.

The costs of satisfying product-related warranties should be recorded as an expense

during the year of sale.

All liabilities involve a probable ____ sacrifice of economic benefits and arise as a result of _____ transactions or events. Multiple choice question.

future; past

Amounts received that will be returned or remitted to others at a future date are recognized as:

liabilities

Cash collected from customers as refundable deposits or as advance payments for products or services are recognized as

liabilities.

Taxes collected for taxing authorities are recognized as

liabilities.

Which of the following are used to categorize the likelihood of the occurrence of a future loss?

remote probable reasonably possible

Lester Corp. sells merchandise to a customer for $1,000. The company also collects state and local sales taxes of 6% and 4%, respectively. At the time of sale, Lester should recognize the following credits in its ledger

sales taxes payable of $100. sales revenue of $1,000.

Revenue related to extended warranty contracts typically is recognized over time because

the warranty provides coverage over time.

The feature that distinguishes loss contingencies from other liabilities is the

uncertainty that a loss will occur.