Chapter 8 Current and Contingent Liabilities

The accounts payable turnover expressed in days is 365 divided by: A) accounts payable turnover. B) beginning accounts payable. C) ending accounts payable. D) average accounts payable.

A

Long-term notes payable are usually used to buy items such as: A) building. B) equipment. C) equity investments. D) all of the above.

D

Failure to record an accrued liability for wages earned by employees causes a company to: A) understate net income. B) overstate assets. C) overstate liabilities. D) overstate stockholders' equity.

D

Long-term liabilities are usually associated with: A) purchase of a building B) purchase of equipment C) payment of wages owed. D) both A and B.

D

According to FASB, when should a company journalize a contingent liability? A) Journalize the contingent liability, even though you will probably win the lawsuit. B) Journalize the contingent liability only if the amount can be estimated and the probability of loss is reasonably possible. C) Journalize the contingent liability if it is probable that the loss will occur, and the amount of the loss can be reasonably estimated. D) Do not journalize the contingent liability under any circumstances.

C

Aisha Company paid $1,500 cash to replace a wheel on equipment sold under a two-year warranty in the prior year. The entry to record the payment will debit: A) Warranty Expense and credit Cash. B) Repair Expense and credit Cash. C) Estimated Warranty Payable and credit Cash. D) Operating Expense and credit Cash.

C

Current liabilities are usually associated with: A) purchase of a building. B) purchase of equipment. C) payment of wages owed. D) both A and B.

C

How do you compute the purchases from suppliers: A) Cost of goods sold + ending inventory + beginning inventory. B) Cost of goods sold - ending inventory - beginning inventory. C) Cost of goods sold + ending inventory - beginning inventory. D) Cost of goods sold - ending inventory + beginning inventory.

C

If Cost of Goods Sold is $300,000, beginning inventory is $29,000, and ending inventory is $30,000, then the purchases from suppliers (assume all on account) would be: A) $359,000. B) $299,000. C) $301,000. D) $59,000

C

If the accounts payable turnover is 5.4, what is the days' payable outstanding? (Round your answer to the nearest day.) A) 58 days B) 18 days C) 68 days D) 55 days

C

Madison Bank lends Neenah Paper Company $120,000 on January 1, 2017. Neenah signs a $120,000, 10%, 6-month note. The journal entry made by Neenah on January 1, 2017 will debit: A) Cash for $108,000 and credit Note Payable for $108,000. B) Interest Expense for $12,000 and credit Cash for $12,000. C) Cash for $120,000 and credit Notes Payable for $120,000. D) Interest Expense for $12,000 and credit Interest Payable for $12,000.

C

Notes payable due in six months are reported as: A) a reduction to notes receivable on the balance sheet. B) current assets on the balance sheet. C) current liabilities on the balance sheet. D) long-term liabilities on the balance sheet.

C

On December 31st, Datton, Inc. has cost of goods sold of $550,000, ending inventory is $102,000, beginning inventory is $120,000; and average accounts payable is $114,000. What is the accounts payable turnover? (Round your answer two decimal places.) A) 4.98 B) 7.77 C) 4.67 D) 2.88

C

Potential liabilities that depend on future events arising out of past events are called: A) long-term liabilities. B) estimated liabilities. C) contingent liabilities. D) current liabilities.

C

The FASB provides guidelines to account for contingent liabilities by: A) adjusting journal entries only. B) footnote disclosures only. C) journal entries and footnote disclosures. D) preparing a new financial statement.

C

The international accounting standard for loss contingencies: A) contains the same language and requirements as the U.S. standard. B) defines the term contingency as a probable obligation that arises from a past event. C) states that contingencies can, by definition, only be disclosed in the financial statement footnotes. D) never allows a provision to be recorded.

C

The journal entry to accrue salaries earned by employees will debit: A) Salary Expense and credit Salary Payable for net pay. B) Salary Expense and credit Salary Payable for gross pay. C) Salary Expense for gross pay, credit FICA Tax Payable, credit Employee Income Tax Payable and credit Salary Payable for net pay. D) Salary Expense for net pay, debit FICA Tax Payable, debit Employee Income Tax Payable, and credit Salary Payable for gross pay.

C

The journal entry to record accrued interest on a short-term note payable includes a debit to: A) Interest Payable and a credit to Cash. B) Interest Expense and a credit to Cash. C) Interest Expense and a credit to Interest Payable. D) Interest Payable and a credit to Notes Payable.

C

To accrue a contingent liability means to: A) report it as a footnote only. B) disclose estimates of the liability. C) make an adjusting journal entry. D) do nothing.

C

Under IFRS, if it is greater than ________ probability that an obligation is going to arise, and the amount can be estimated, then a "provision" should be recorded by making a journal entry. A) 25% B) 33% C) 50% D) 67%

C

When calculating accounts payable turnover, if there is not a material difference between the company's beginning inventory and ending inventory, then: A) an adjustment still must be made for the difference to reduce or increase purchases. B) it should just be noted in the footnotes. C) it is not necessary to adjust for the inventory. D) an adjustment still must be made for the difference to reduce cost of goods sold.

C

Which is NOT a current liability? A) unearned revenue B) accounts payable C) service revenue D) accrued liabilities

C

A current liability would include all EXCEPT: A) Wages Payable. B) Interest Payable. C) Notes Payable. D) Interest Expense.

D

At the end of the year, a company makes a journal entry to accrue the interest expense on a short-term note payable. As a result of this transaction: A) current liabilities increase and current assets increase. B) current liabilities increase and stockholders' equity increases. C) current liabilities decrease and stockholders' equity decreases. D) current liabilities increase and stockholders' equity decreases.

D

Employers must match employee contributions (up to a maximum amount) for: A) social security. B) income tax. C) medicare. D) A and C.

D

Examples of long term debt would include: A) Notes Payable. B) Bonds Payable. C) Accounts Payable. D) A and B.

D

Montana Company sold merchandise with a retail price of $30,000 for cash. Montana Company is required to collect 8% state sales tax. The total cash received from customers was: A) $2,400. B) $27,600. C) $30,000. D) $32,400.

D

Nationwide Magazine sells 64,000 subscriptions on account in March. The subscription price is $15 each. The subscriptions start in April. The journal entry in March would include a: A) debit to Unearned Subscription Revenue for $960,000. B) debit to prepaid subscriptions for $960,000. C) credit to Cash for $960,000. D) credit to Unearned Subscription Revenue for $960,000.

D

On December 31, 2019, Accrued Warranty Payable is reported on the balance sheet for White and Decker Company. The liability pertains to products sold, in 2019, with five-year warranties. The Accrued Warranty Payable should be reported on the balance sheet at December 31, 2019 as a: A) part of stockholders' equity. B) long-term liability only. C) current liability only. D) current liability and a long-term liability.

D

On December 31st, Baxtor, Inc. has cost of goods sold of $380,000, ending inventory is $12,000, beginning inventory is $28,000; and average accounts payable is $89,000. What is the accounts payable turnover? (Round your answer two decimal places.) A) 4.45 B) 5.72 C) 3.82 D) 4.09

D

Sales taxes collected from customers are sent to the state at the end of each month. What journal entry is prepared? A) debit Accounts Receivable and credit Sales B) debit Sales Tax Payable and credit Sales C) debit Accounts Payable and credit Cash D) debit Sales Taxes Payable and credit Cash

D

The principle of representational faithfulness requires that companies: A) disclose their financial positions and operational results. B) when in doubt, disclose a contingent liability. C) ignore contingent liabilities. D) A and B.

D

To record the accrued interest on a note payable at the end of the accounting period, a journal entry should be written to debit: A) Cash. B) Interest Payable. C) Notes Payable. D) Interest Expense

D

When a business receives cash from customers before earning the revenue, the ________ account is credited. A) Accounts Receivable B) Sales Tax Payable C) Accounts Payable D) Unearned Revenue

D

Which account is NOT an example of an accrued liability? A) sales tax payable B) wages payable C) interest payable D) accounts payable

D

Which account would be reported on the income statement? A) Wages Payable B) Interest Payable C) Notes Payable D) Interest Expense

D

Which of the following liability accounts is usually NOT an accrued liability: A) Warranties Payable. B) Wages Payable. C) Taxes Payable. D) Notes Payable.

D

) On December 31st, Baxtor, Inc. has cost of goods sold of $310,000, ending inventory is $18,000, beginning inventory is $23,000; and average accounts payable is $89,000. What is the accounts payable turnover expressed as days? A) 106 B) 103 C) 74 D) 121

A

A company has a pending lawsuit that has a remote possibility of being settled in favor of the plaintiff who is a former employee. What should the company do? A) Nothing. B) Make a disclosure in a financial statement footnote. C) Prepare a journal entry. D) Make a note to the financial statements and prepare a journal entry

A

According to FASB, when should a contingent liability be disclosed? A) If it is reasonably possible you will lose the lawsuit. B) Only if the amount can be estimated and the loss is remote. C) If it is probable that the loss will occur, and the amount of the loss can be reasonably estimated. D) A contingent liability should never be disclosed.

A

All of the following are reported as current liabilities EXCEPT: A) unearned revenues for services to be provided in 16 months. B) payroll tax payable. C) accounts payable. D) notes payable due in 6 months.

A

Current liabilities are mostly for: A) operating activities B) financing activities. C) investing activities. D) both A and B.

A

FICA tax includes: A) social security and medicare. B) social security and income tax. C) income tax and medicare. D) medicare and salaries payable

A

If the accounts payable turnover is 7.9, what is the days' payable outstanding? (Round your answer to the nearest day.) A) 46 days B) 16 days C) 56 days D) 33 days

A

Mike's Pharmacy sold inventory with a selling price of $2,900 to customers for cash. They also collected sales taxes of $290. The journal entry to record this information includes a: A) debit to Cash of $3,190. B) debit to Sales Tax Expense $290. C) credit to Sales $3,190. D) debit to Sales Tax Payable $290.

A

Monthly sales are $530,000. Warranty costs are estimated at 5% of monthly sales. Warranties are honored with replacement products. No defective products are returned during the month. At the end of the month, the company should record a journal entry with a credit to: A) Estimated Warranty Payable for $26,500. B) Warranty Expense for $26,500. C) Sales for $26,500. D) Inventory for $26,500.

A

The accounts payable turnover is calculated by purchases from suppliers divided by: A) average accounts payable B) beginning accounts payable. C) ending accounts payable. D) average accounts receivable

A

To disclose a contingent liability means: A) report it as a footnote. B) disclose and make a journal entry. C) make an adjusting journal entry. D) do nothing.

A

Typically, the hard part about computing the accounts payable turnover is getting the: A) purchases from suppliers. B) beginning inventory. C) ending inventory. D) average inventory.

A

When calculating accounts payable turnover, if there is not a material difference between the company's beginning inventory and ending inventory, then the accounts payable turnover will be ________ whether purchases or cost of goods sold are used. A) similar B) unavailable C) drastically different D) noncomparable

A

Which number is needed in calculating the accounts payable turnover that is NOT normally reported on the financial statements? A) purchases from suppliers B) cost of goods sold C) ending inventory D) beginning inventory

A

Wisconsin Bank lends Local Furniture Company $110,000 on November 1. Local Furniture Company signs a $110,000, 6%, 4-month note. The fiscal year end of Local Furniture Company is December 31. The journal entry made by Local Furniture Company on December 31 is: A) debit Interest Expense and credit Interest Payable for $1,100. B) debit Interest Payable and credit Interest Expense for $1,100. C) debit Interest Expense and credit Cash for $1,100. D) debit Interest Payable and credit Cash for $1,100.

A

At January 1, 2019, the Accrued Warranty Payable is $1,000. During 2019, the company recorded Warranty Expense of $19,100. During 2019, the company replaced defective products in accordance with product warranties at a cost of $12,400. What is the Accrued Warranty Payable at December 31, 2019? A) $6,700 B) $7,700 C) $20,100 D) $19,100

B

Illinois Bank lends Lisle Furniture Company $90,000 on December 1. Lisle Furniture Company signs a $90,000, 10%, 4-month note. The total cash paid at maturity of the note is: (Round your final answer to the nearest dollar.) A) $90,000. B) $93,000. C) $94,500. D) $99,000.

B

Long-term liabilities are mostly for: A) operating activities B) financing activities. C) investing activities. D) both A and B.

B

Michigan Bank lends Detroit Furniture Company $110,000 on December 1. Detroit Furniture Company signs a $110,000, 9%, 4-month note. The total cash paid for interest (only) at maturity of the note is: (Round your final answer to the nearest dollar.) A) $1,100. B) $3,300. C) $6,600. D) $9,900.

B

On December 31st, Datton, Inc. has cost of goods sold of $550,000, ending inventory is $112,000, beginning inventory is $129,000; and average accounts payable is $107,000. What is the accounts payable turnover expressed as days? (Round any intermediary calculations to two decimal places, and round your final answer to the nearest day.) A) 69 B) 73 C) 44 D) 126

B

The accounting principle that requires a company to record warranty expense in the same period that it records sales revenue is the: A) going concern principle. B) expense recognition principle. C) conservatism principle. D) consistency principle.

B

The most frequently used current liabilities are: A) accounts payable, accounts receivable, and accrued liabilities. B) accounts payable, notes payable, and accrued liabilities. C) cash, notes payable, and accrued liabilities. D) accounts payable, notes payable, and inventories.

B

To record the accrued interest on a note payable at the end of the accounting period, a journal entry should be written to credit: A) Cash. B) Interest Payable. C) Notes Payable. D) Interest Expense.

B

Total wages employees earned for the payroll period are called ________. The amount of wages the employees take home is the ________. A) gross pay; withholding amount B) gross pay; net pay C) net pay; gross pay D) net pay; taxes withheld amount

B

Unearned Service Revenue relating to services to be provided in one month, is reported on the balance sheet as: A) a revenue account. B) a current liability. C) a component of stockholders' equity. D) a long-term liability.

B

Which is NOT an example of long-term debt? A) notes payable B) accounts payable C) bonds payable D) All of the above are examples of long-term debt.

B

) If Cost of Goods Sold is $240,000, beginning inventory is $57,000, and ending inventory is $40,000, then the purchases from suppliers (assume all on account) would be: A) $337,000. B) $257,000. C) $223,000. D) $240,000.

C

A typical credit period for payment is: A) 10 days. B) 15 days. C) 30 days. D) 45 days.

C