MGT105

Companies should recognize the expense and related liability for compensated absences in the year earned by employees. TRUE FALSE

FALSE

Companies should recognize the expense and related liability for compensated absences in the year earned by employees. TRUE False

True

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) What amount should Rao report as a liability at December 31, 2021? $71,000 $319,000 $0 $84,000

$319,000

Venible Newspapers sold 6,000 of annual subscriptions at $150 each on June 1. How much unearned revenue will exist as of December 31? $375,000. $450,000. $900,000. $0

$375,000.

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? $700,000 and $20,000. $700,000 and $12,000. $720,000 and $0. $700,000 and $0.

$700,000 and $12,000.

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. What is the net profit that the company will recognize in the current year related to these contracts? $800,000. $6,004,000. $901,000. $1,804.

$901,000.

A company recognizes gain contingencies only when a high probability exists for realizing them. TRUE FALSE

FALSE

Which of the following should not be included in the current liabilities section of the balance sheet? The discount on short-term notes payable Short-term zero-interest-bearing notes payable Trade notes payable All of these answers are included.

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? The obligation is attributable to employee services already performed. Payment of the compensation is probable. The obligation relates to the rights that vest or accumulate. All of these are conditions for the accrual.

All of these are conditions for the accrual.

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 arising from past transactions and payable in assets or services in the future. D. obligations to transfer ownership shares to other entities in the future.

C. obligations arising from past transactions and payable in assets or services in the future

Under an assurance-type warranty, companies charge warranty costs only to the period in which they comply with the warranty. TRUE FALSE

FALSE

What is the relationship between current liabilities and a company's operating cycle? Current liabilities can't exceed the amount incurred in one operating cycle. Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less). Current liabilities are the result of operating transactions. There is no relationship between the two.

Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less).

Which of the following terms is associated with recording a contingent liability? Possible. Probable. Likely. Remote.

Probable.

When is a contingent liability recorded? When the amount can be reasonably estimated. When the future events are probable to occur. When the future events are probable to occur and the amount can be reasonably estimated. When the future events will possibly occur and the amount can be reasonably estimated.

When the future events are probable to occur and the amount can be reasonably estimated.

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 long-term liabilities. intermediate debt. current liabilities. deferred charges.

current liabilities.

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? $350,000; $650,000 $1,000,000; $650,000 $650,000; $650,000 $1,000,000; $1,000,000

$1,000,000; $650,000

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: The premium liability at December 31, 2021 is $52,500. $30,000. $60,000. $112,500.

$112,500.

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. What amount of vacation liability would be reflected on the 2020 and 2021 balance sheets, respectively? $151,200; $210,600 $172,800; $210,600 $151,200; $216,000 $172,800; $216,000

$151,200; $210,600

What is a discount as it relates to zero-interest-bearing notes payable? The discount represents the credit quality of the borrower. The discount represents the allowance for uncollectible amounts. The discount represents the lender's costs to underwrite the note. The discount represents the cost of borrowing.

The discount represents the cost of borrowing.

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 credit to Interest Expense for $5,200. debit to Interest Expense for $5,200. credit to Discount on Note Payable for $2,600. debit to Discount on Note Payable for $2,600.

debit to Interest Expense for $5,200.