Ch 13 Intermedia Accounting SB

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

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

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

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 must employers by law withhold from their employees' pay? (Select all that apply.)

FICA contributions Federal taxes

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.

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

Liabilities

The dollar amount of a potential loss from a contingent liability can be classified as (Select all that apply.)

Reasonably estimable Known

Which of the following transactions require the recognition of a liability? (Select all that apply.)

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

certain

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.

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

contingent loss.

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.

By law, employers must withhold security taxes and ____ from their employees' paychecks.

income taxes

A liability is accrued for a contingent loss if (Select all that apply.)

it is probable the confirming event will occur the amount can be reasonably estimated

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.

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.

Revenue related to extended warranty contracts typically is recognized

over time.

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

before the financial statement date.

Which of the following liabilities should be classified as current?

A 6-month not that is due December of the current year will be satisfied by signing a new 6-month note An 18-month note that due in December of the current year will e satisfied by signing a new 18-month note

Which of the following is correct regarding accrued interest payable

Accrued interest payable relates to interest already incurred but notyet paid

Karin Company's loan is due on July 1, 2018. What conditions must Karin meet (at a minimum) so that the note can be classified as a long-term liability on the company's balance sheet at December 31, 2017? (Select all that apply.)

The company must have demonstrated the ability to refinance the obligation on a long-term basis. The company must intend to refinance the obligation on a long-term basis.

Which of the following are essential characteristics of a liability? (Select all that apply.)

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

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.

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? (Select all that apply.)

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

Sally Company owes its employees $5,250 for the last 4 days of the year ended December 31. The company will pay this amount on January 7 as part of its regular payroll disbursements of $11,800. What, if anything, should Sally recognize on December 31?

An accrued liability of $5,250.

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.

The dollar amount of a potential loss when reporting a can be classified as either known, reasonably estimable, or not reasonably estimable.

Blank 1: contingent, loss, or contingency Blank 2: liability, loss, or contingency

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 <------> Lower risk <------->

Current liabilities already reported on balance sheet Noncurrent liabilities already reported on the balance sheet

Which of the following are classified as current liabilities? (Select all that apply.)

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

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

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

Which of the following is correct regarding gain contingencies?

They are not accrued.

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.

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

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: (Select all that apply.)

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

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

accrued liabilities

Account payable typically select all that apply

are offered on open account are noninterest-bearing

Which of the following are used to categorize the likelihood of the occurrence of a future loss? (Select all that apply.)

remote reasonably possible probable

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 (Select all that apply.)

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

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

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

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.