CH13 3321

Which of the following obligations is not commonly classified as a current liability?

bonds payable

Unsecured notes sold in minimum denominations of $25,000 with maturities ranging from 1 to 270 days are referred to as

commercial paper.

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.

Coupons that are offered as part of a sale contract are accounted for as part of revenue recognition; however, coupons that aren't offered as part of a contract represent a that should be recognized in the period issued.

contingent iability

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

contingent liabilities

When the DVL method is used, a LIFO layer is added when

current period ending inventory at base-year cost has increased.

The effective interest rate on a noninterest bearing loan is Blank______ the stated rate.

higher than

Ludwig Company operates in an environment of rising prices and currently utilizes the LIFO inventory method under U.S.GAAP. If the company were to adopt International Financial Reporting Standards, its pretax income likely would

inc

Under the DVL method, a layer may only be added during the current year if inventory at base-year cost has

inc

When a customer pays far in advance for goods or services, the seller should recognize

interest expense

When prices increase, the Blank______ inventory method tends to decrease a company's tax liability during a particular fiscal period relative to other inventory methods. (Enter one word per blank)

last-in, first-out

The layer year cost index is calculated by dividing the cost in

layer; base

With respect to on-going litigation, companies typically recognize related Blank______, but not related Blank______.

legal f , loss

Unearned or deferred revenues are reported as

liability

The expected cash flow approach is the appropriate method for estimating - contingent liabilities

lnng term

Jones Company signs a $15,000, 12-month note and receives $14,250 from the bank. Jones probably signed a(n)

noninterest-bearing note

Which of the following are common examples of accrued liabilities? (Select all that apply)

nterest payable Income tax payable Wages and salaries payable

In the statement of cash flows, interest paid typically is reported in the

operating activities section.

Revenue related to extended warranty contracts typically is recognized

over time.

In practice, accrual of loss contingencies related to litigation claims are uncommon because (select all that apply)

the outcome related to litigation is highly uncertain. it may adversely affect the outcome of the litigation.

Different inventory methods can produce significantly different amounts for cost of goods sold in a given year. Across the life of a company, cost of goods sold will be

the same under each cost assumption.

High recordkeeping costs and possible LIFO liquidation are disadvantages of

unit LIFO.

Which of the following is a requirement for recognizing employee compensation for future absences?

The amount of payment can be reasonably estimated.

What practical reason may motivate companies to rarely accrue losses for ongoing litigation?

Accrual of a contingent loss may adversely affect the outcome of the company's legal case.

Which of the following can affect earnings quality for a company? (Select all that apply.)

Choice of inventory method Inventory write-downs Change in inventory method

Which of the following statements regarding the recognition of liabilities is correct?

Conceptually, liabilities should be recognized at the present value of their future cash flows.

Suppose that Michale Company operates in an environment of rising prices and utilizes the periodic inventory system. If the company were to use the LIFO inventory method, its cost of goods would be $500,000; if it were to use the FIFO method, its cost of goods sold would be $400,000. Based on this information, which of the following predictions would be correct with respect to the weighted-average cost method?

Cost of goods sold would be between $400,000 and $500,000.

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

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

Supreme Inc. offers a 3-year extended warranty for all its products. On January 1, the company collects $45,000 relating to extended warranty contracts. What entry should Supreme make on January 1?

Debit cash and credit deferred revenue for $45,000.

Where must a company indicate the inventory costing method(s) used?

In a disclosure note

Which of the following transactions require recognition of a liability on December 31? (Select all that apply.)

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

If a company judges the likelihood that an unasserted claim will be asserted at a future date, it is probable the outcome will be unfavorable, and the related amount can be estimated, the company should:

accrue a contingent liability

A LIFO liquidation occurs when inventory quantities

dec

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

during the year of sale.

Taxes collected for taxing authorities are recognized as

lib

Which factors may influence a company's choice of inventory cost flow assumption? (Select all that apply.)

actual physical flow of inventory tax implications of choice financial statement effect

In a LIFO inventory system, inventory amounts shown in the balance sheet may be distorted because they may represent

costs incurred several years earlier.

Roberts Corp. sells its products with a 2-year warranty. Estimated total warranty cost relating to sales for the year ended December 31, 2024, is $210,000. One-third of these estimated costs are expected to be incurred during 2025 with two-thirds expected to be incurred during 2026. Indicate the amount and classification of the estimated warranty cost on the balance sheet at 12/31/2024. (Select all that apply.)

long-term liability of $140,000 Current liability of $70,000

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

loss contingency

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

matvh

Which of the following are common types of collections for third parties that most entities experience? (Select all that apply.)

payroll-related deductions sales taxes

Which of the following are disadvantages of unit LIFO? (Select all that apply.)

Possibility of LIFO liquidation Significant recordkeeping costs

A slowing turnover ratio combined with higher than normal inventory levels may indicate which of the following? (Select all that apply.)

Potential for decreased production Potential for inventory becoming obsolete

Multiple Select Question Select all that apply A slowing turnover ratio combined with higher than normal inventory levels may indicate which of the following? (Select all that apply.) Multiple select question. Potential for inventory becoming obsolete Potential for decreased production Potential for increased production Potential for increased net income

Potential for inventory becoming obsolete Potential for decreased production

Which of the following represent a reason why managers closely monitor inventory levels? (Select all that apply.)

To minimize costs of ordering and carrying inventory. To ensure that sufficient units are available.

The dollar-value LIFO (DVL) inventory method

allows a broader range of goods to be included in pools.

IFRS requires disclosure, but not accrual, of these present obligations: (Select all that apply.)

future sacrifice is not probable amount of probable future sacrifice cannot be reasonably estimated existence of obligation will be confirmed by future event outside company's control

______ ratio indicates the percentage of each sales dollar available to cover expenses other than cost of goods sold and then to provide a profit.

gp

The gross profit ratio is computed as Blank______ divided by net sales.

gross p

Which of the following inventory-related techniques can be used to manipulate earnings? (Select all that apply.)

hanges in inventory method Write-downs

Steiner Company's average days in inventory has decreased during the current year as compared to the prior year. From this information, we can conclude that Steiner (Select all that apply.)

has a higher inventory turnover ratio. is selling its inventory faster.

Initial adoption of IFRS by a company that currently utilizes the LIFO method would likely result in (Select all that apply.)

higher taxable income. lower cost of goods sold.

The inventory turnover ratio shows

how many times the average inventory balance is sold during the current reporting period.

Premiums that obligate the company to provide noncash items to customers are (select all that apply)

recorded as deferred revenue. identified as separate performance obligations.

Unearned revenue represents a liability until the

related product or service is provided

A just-in-time (JIT) inventory system (Select all that apply.)

ssists managers with inventory management. allows companies to maintain relatively low inventory balances.

A DVL pool is made up of items

that are likely to have similar cost change pressures.

Cost of goods sold determined under the FIFO perpetual system method is the same as under the FIFO periodic inventory system

under all circumstances.

Best Equipment Inc. sells its products with a 3-year limited warranty. During the current year, 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 the current year.

Klein Corp. obtains a 6-month noninterest-bearing loan from its financial institution. The company signs a note for $10,000 and receives $9,500 from the bank. What is the annualized effective interest rate on this loan?

10.53

What conditions must be met to recognize employee compensation for future absences? (Select all that apply.)

Payment is probable. The paid absences vest or the benefits can be accumulated over time. The amount can be reasonably estimated. The obligation is attributable to employees' services already performed.

Which of the following represents the formal credit instrument for a trade notes payable?

Promissory note

Robert Company is planning to refinance a loan that is due during 2018. On January 25, 2018, the loan is refinanced with a 5-year note. Which of the following is correct with respect to the classification of the liability on the company's December 31, 2017 balance sheet?

The liability should be classified as current under IFRS and as noncurrent under U.S. GAAP.

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

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

The most common way for corporations to obtain temporary financing is

through short-term bank loans.

Obligations to suppliers of merchandise that bear interest and are for a longer term than open accounts are called

trade notes payable

Short-term bank loans (Select all that apply.)

usually have a lower interest rate than long-term debt. are frequently used by large corporations as a significant component of capital structure.

Multiple Choice Question Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold? Multiple choice question. Weighted-average LIFO FIFO

fifo

Which of the following cost flow assumptions currently are acceptable under U.S. GAAP? (Select all that apply.)

first-in, first-out last-in, first-out weighted average

Which set of accounting standards permits the use of LIFO?

g

On January 1, Carmen Company has 100 units costing $100 in beginning inventory. On January 2, Carmen purchases an additional 400 units for $1.50 per unit, and sells 300 units. On January 3, the company purchases an 200 additional units for $1.60 per unit. On January 4, Carmen sells 100 additional units. If Carmen utilizes a perpetual LIFO system, per unit cost of goods sold associated with the January 4 sale will be

$1.60.

On January 1, 2024, Merkel Company received $1,814 from a customer related to products to be delivered on December 31, 2025. The company's effective interest rate is 5%. The company regularly sells the products for $2,000 in cash. The journal entry on December 31, 2025 (the date of delivery) will include a credit to revenue for:

$2,000

Joachim Company has 300 units costing $10 per unit in beginning inventory. During the year, the company purchases an additional 1,000 units costing $20 per unit and sells 1,200 units. The company has used the LIFO inventory method for the past 5 years. If the company had purchased 1,200 units, pretax income would have been

$2,000 lower.

Supreme Inc. sells its products with a 3-year warranty. The company estimates warranty costs relating to sales during the current year are as follows: Current year (Year 1): $10,000; Year 2: $25,000; Year 3: $15,000. Assume that actual warranty costs during the current year were as estimated. What is the amount of the estimated warranty liability that Supreme should recognize on its current year balance sheet?

40

Which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for accrual but are at least reasonably possible? (Select all that apply.)

A disclosure must describe the contingency. An estimate of the potential loss should be made (if possible) and disclosed.

A contingent liability typically is accrued for product warranties because it meets which of the following criteria? (Select all that apply.)

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

Which of the following statements relating to subsequent events that occur between the end of the fiscal period and the issuance of the financial statements is correct?

Any material event should be disclosed in the financial statement notes.

Taylor Company's attorney informs its client that it is possible, but not probable, that the company will lose a currently litigated lawsuit. No reliable estimate of the potential loss is currently available. How should Taylor accrue and/or disclose this potential loss?

Disclose the contingency and state that an estimate cannot be made.

______ inventory pool groups items based on physical similarities.

LIFO

Which of the following are common types of employee compensation? (Select all that apply.)

Pensions Salaries Commissions

Which of the following situations would result in a LIFO liquidation for a company that has 200 units in beginning inventory and sales of 1,000 units?

The company purchases 950 units during the year.

Which of the following statements regarding commercial paper are correct? (Select all that apply.)

They are often purchased by other companies as investments. They have minimum denominations of $25,000. They are unsecured notes.

Gunner Corp. has $2 million in bonds outstanding that mature during 2025. The company intends to refinance some of its obligation by issuing $1 million in 10-year bonds. On January 31, 2025, the new bond issue is sold. The funds will be utilized to pay part of the maturing bond obligation. The balance sheet at 12/31/2024 should show the following regarding the maturing bonds: (Select all that apply.)

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

Under the DVL approach, cost indexes are used to determine whether

a real increase in inventory quantity has occurred.

An interest rate, unless otherwise specified, is typically a(n)

ann

Earnings-per-share, net income, and operating income are commonly used financial performance indicators used to determine:

annual bonuses

Accounts payable typically (Select all that apply.)

are offered on open account. are noninterest-bearing.

When inventory quantities Blank______ during a period, out-of-date inventory layers are liquidated and cost of goods sold will match noncurrent costs with current selling prices in a LIFO inventory costing system.

dec

______ during a period, out-of-date inventory layers are liquidated and cost of goods sold will match noncurrent costs with current selling prices in a LIFO inventory costing system.

decline

Greene Company experienced a warehouse fire on January 28. The company estimates that the uninsured portion of its loss will be approximately $10,000. If the company's prior year financial statements have not yet been issued, Greene should

disclose the estimated loss in its prior year financial statements.

Companies must disclose the impact of a LIFO liquidation on earnings to provide users information about

earings qua;ituy

A LIFO inventory pool consists of inventory grouped according to

physical similarities

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

probable remote reasonably possible

Walden Company collects the annual fee for 100 magazine renewals. The annual price is $104 per subscription and covers 52 weekly magazines. The subscription period is from July 1 of the current year until June 30 of the following year. During the current calendar year for each subscription, Walden should recognize

revenue of $52.

Extended warranty contracts provide

warranty protection beyond the manufacturer's original warranty.

Revenue associated with the sale of gift cards normally is recognized

when the gift cards are redeemed

Victor Inc. rewards its managers for achieving certain target sales. Victor should recognize the related bonuses

when the targets are met.

Because of the , companies that obtain tax advantages of using LIFO must also report lower net income to shareholders and other external parties.

✓ LIFO conformity rule

Abbott Corp.'s attorney estimates that the company will ultimately have to pay between $350,000 and $500,000 relating to current litigation, and that the most likely amount of the loss will be equal to $400,000. Abbott Corporation should accrue a contingent liability and loss of

400,000

Adams Company utilizes LIFO inventory pools. Current period beginning inventory cost was $5,500. At the end of the period, the company determines that a layer of 100 units has been added. Average current year purchase price per unit was $6.00; the most recent cost per unit was $6.50. The amount of ending inventory should be

6100

Which of the following statements is correct?

A company can apply more than one inventory cost flow assumption.

In December of the current year, Becker Corp. learned of a favorable judgment of $1.5 million relating to litigation involving a competitor. The company's attorney informs Becker that the opposing litigant has filed an appeal and that the company may ultimately receive about $400,000. How should Becker recognize this gain contingency in its December 31 financial statements?

Disclose the gain contingency in the notes only.

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

Reasonably estimable Known

Within LIFO inventory pools, all purchases during the period are considered to be made at the same and the same

cost and time

If prices have changed and a company uses dollar-value LIFO, we need to determine whether an observed increase in inventory is an actual increase in the quantity of inventory or one caused by an increase in prices. This is accomplished by using

cost indexes

Over the total life of a company, total cost of goods sold

is the same under each cost flow assumption.

______ to measure taxable income, they must use the same method for external financial reporting.

lifo

On January 1, 2024, Merkel Company receives $1,814 from a customer related to products to be delivered on December 31, 2025. The company's effective interest rate is 5%. The company regularly sells the products for $2,000 in cash. On January 1, 2024, Merkel should recognize deferred revenue of: (round to whole dollars)

$1,814

Adeline Company, a retail store, sold gift cards totaling $242,000 during the current year. The gift cards do not have an expiration date. At the end of the current year, gift cards totaling $83,000 have not yet been redeemed. What is the amount of sales revenue that Adeline should recognize for the current year ended 12/31?

$159,000

What financial reporting aspect helps investors and creditors assess the risks associated with liabilities that require expenditures of cash or other assets in the near term?

Classification as current or long-term

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

contingent loss.

Which of the following represent common examples of employee-related third-party collections? (Select all that apply.)

ncome taxes Voluntary employee retirement contributions Social security contributions Union dues

Hendrickson Company's accountant decided not to accrue a liability for sick leave that the company employees did not take during the current year. The sick leave carries forward to the subsequent year. What condition most likely led the accountant to decide not to accrue a liability for unused sick leave?

Future absences are contingent on illness.

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.

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

accounts payable

When employees have provided services for which they have not been paid by the financial statement date, the employer must recognize (Select all that apply.)

an accrued liability compensation expense

Mikel Company grants stock options and bonuses to its full-time employees. These benefits are considered employee

comp

The amount accrued for future compensated absences is based on employees'

curr

Generally, a current liability is expected to be satisfied from . (Enter one word per blank.)

current assets

Multiple Select Question Select all that apply Which of the following obligations are commonly classified as current liabilities? (Select all that apply.) Multiple select question. Bonds payable Accounts payable Commercial paper Dividends payable

Accounts payable Commercial paper Dividends payable

Which of the following are common types of transactions that are recognized as "advances from customers?" (Select all that apply.)

magazine subscriptions gift certificates and cards airline tickets

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

Pernell Company reported LIFO reserves of $150,000 and $100,000 in Year 2 and Year 1, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that at the end of Year 2, Pernell's ending inventory would have been

$150,000 higher if it had used FIFO.

Able Inc. sells a new product with a 2-year warranty. The company estimates that during the two years, the costs and related probabilities are: Year 1: $10,000 (20%) and $20,000 (80%); Year 2: $15,000 (50%) and $25,000 (50%).The company's effective interest rate is 4%. Assuming the warranty costs are settled at the end of Years 1 and 2, calculate the estimated warranty liability using the expected cash flow method.

$35,797

Greenbaum Inc. sells a new product with a 2-year warranty. The company estimates that during the two years, the costs and related probabilities are: Year 1: $20,000 (40%) and $30,000 (60%); Year 2: $30,000 (70%) and $20,000 (30%). The company's effective interest rate is 5%. Calculate the estimated warranty liability using the expected cash flow method.

$49,251

Pernell Company reported LIFO reserves of $150,000 and $100,000 in Year 2 and Year 1, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that Pernell's pretax income for the Year 2 fiscal year would have been

$50,000 higher if it had used FIFO.

Pernell Company reported LIFO reserves of $150,000 and $100,000 in Year 2 and Year 1, respectively. The company utilized the FIFO assumption for internal purposes. Based on this information, we can conclude that Pernell's cost of goods sold for the Year 2 fiscal year would have been

$50,000 lower if it had used FIFO.

Smith Company adopted dollar-value LIFO (DVL) as of January 1, when it had an inventory of $690,000. Its inventory as of December 31, of the same year was $758,100 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31?

$723,600

Western Company adopted dollar-value LIFO (DVL) as of January 1, when it had an inventory of $715,000. Its inventory as of December 31, of the same year was $815,400 at year-end costs and the cost index was 1.08. What was DVL inventory on December 31?

$758,200

On December 1, Kathryn Corp. borrows $100,000 from its bank and signs a 6-month, 12% promissory note. How many months of interest should be recognized on December 31?

1

On January 1, Gerhard Company has 100 units in beginning inventory. On January 3, the company purchases 500 units; on February 23, 800 units; and on March 19, 1,000 units. If the company sells 100 units on March 18, which units would be assumed to have been sold in a perpetual LIFO system?

100 of the units purchased on February 23

Rudy Company reports gross sales revenue of $5.2 million, net sales revenue of $5 million, and cost of goods sold of $3 million. Its inventory balance was $250,000 at the beginning of the accounting period and $300,000 at the end of the accounting period. The company's inventory turnover ratio is closest to

11

Doris recently started her position at Monro Company. The company uses the dollar-value LIFO inventory method. On her first day at work, Doris was asked to calculate the cost index for a new inventory layer. The company's records reveal that the cost in terms of the base year was $50,000 and the cost in terms of the layer year was $100,000. What is the cost index for the new layer?

2

Spencer Corp.'s attorney estimates that the company will ultimately have to pay between $250,000 and $500,000 relating to current litigation. Spencer should accrue a contingent liability and loss of

250

Chase Company reports gross sales revenue of $7.5 million, net sales revenue of $7 million, and cost of goods sold of $3.5 million. Rounding to the nearest percent, the company's gross profit ratio would be

50

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

Supreme Inc. offers a 3-year extended warranty for all its products. On January 1, of the current year the company collects $45,000 relating to extended warranty contracts. What entry should Supreme make on December 31, of the current year?

Debit deferred revenue for $15,000 and credit revenue—extended warranty for $15,000.

What may offset the income tax motivation for using LIFO in periods of rising prices?

Desire to report higher net income.

______ inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.

FIFO

Question Mode Multiple Select Question Select all that apply The LIFO reserve shows how ending inventory would have differed if the company had utilized Blank______ or Blank______, instead of LIFO. (Select all that apply.)

FIFO weighted-average

Which of the following inventory methods result in the same ending inventory and cost of goods sold? (Select all that apply.)

FIFO perpetual inventory system FIFO periodic inventory system

Many companies maintain their internal records using Blank______ or the average cost method, but use Blank______ for external reporting and income tax purposes.

FIFO; LIFO

In which section of the statement of cash flows should short-term borrowing typically be reported?

In the financing activities section

Which of the following is a correct interpretation of the information provided by the gross profit margin?

It indicates the percentage of each sales dollar available to cover other expenses.

If a company uses LIFO to measure its taxable income, the IRS requires that LIFO also be used to measure income reported to investors and creditors. This is know as the

LIFO conformity rule.

Which of the following items represent loss contingencies? (Select all that apply.)

Legal liabilities Warranty liabilities Uncollectible receivables

Which of the following could motivate a company that uses LIFO for external reporting to use another method for internal recordkeeping? (Select all that apply.)

The high recordkeeping cost of LIFO. Contractual agreements such as bonus contracts.

Which of the following represent differences between U.S. GAAP and IFRS with respect to loss contingencies? (Select all that apply.)

The measurement of accrued contingent liabilities The term used for accrued contingent liabilities The definition of "probable"

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.

Identify the most common loss contingency that does not result in the recognition of a liability.

Uncollectible receivables

In practice, when do companies commonly recognize the expense related to coupons? (Select all that apply.)

When the coupons are redeemed. When the coupons are issued.

When a LIFO inventory pool is used and the quantity of ending inventory increases, ending inventory will consist of beginning inventory plus

a single layer at the average cost of purchases during the period.

Classifying liabilities as current or noncurrent depends on when the contingent liability is expected to be

satsified

Consistent with SFAC No. 7, long-term contingent liabilities should be measured using

an expected cash flow approach.

Periodic LIFO applies the last-in, first-out concept Blank______ and perpetual LIFO applies the last-in, first-out concept Blank______ resulting in different cost of goods sold and inventory amounts.

at the end of the period; every time a sale is made

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

certain

The inventory turnover ratio is computed as Blank______ divided by average inventory.

cogs

Glocken Company is trying to increase its share of the consumer electronics market. To stimulate sales, the company offers cash rebates ranging from $25-$50 on all of its products. At December 31 of the current year, the company estimates that during the following year, customers will redeem $2,550 in rebates relating to current year sales. On December 31, of the current year, Glocken should

decrease revenue and recognize a liability for $2,550.

An extended warranty contract (Select all that apply.)

essentially constitutes a separate performance obligation. provides protection beyond the manufacturer's original warranty.

Werner Inc. sells its products with a 2-year warranty. On December 31, Werner recognized estimated warranty-related costs of $54,000 for its current year sales. During the following year, Werner incurs repair costs of $21,000 related to products sold during the previous year. The journal entry to record the cost of repairs would include a debit to:

estimated warranty liability

The sale of accounts receivables to obtain short-term financing is referred to as

factoring

The amount of cost of goods sold determined under the average cost method typically

falls between the amounts determined using LIFO and FIFO.

Steiner Company's average days in inventory has decreased during the current year as compared to the prior year. From this information, we can conclude that Steiner (Select all that apply.) Multiple select question. has a lower inventory turnover ratio.

has a higher inventory turnover ratio. is selling its inventory faster.

A contingent liability is accrued if which conditions are met? (Select all that apply.)

he amount of the loss can be reasonably estimated. It is probable that a future loss will occur.

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

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

The costs incurred to satisfy customer claims under an extended warranty period are recorded

in the same period as the warranty revenue

Bonuses are accrued and recognized in the financial statements in the period

in which they are earned.

In practice, accrual of loss contingencies related to litigation claims are uncommon because (select all that apply)

it may adversely affect the outcome of the litigation. the outcome related to litigation is highly uncertain.

Unearned or deferred revenues are reported as

liabilities

Unredeemed cash rebates related to current year sales should be estimated and the amount treated as a(n): (Select all that apply.)

liability reduction in revenue

In which type of inventory costing system are inventory costs on the balance sheet generally out of date?

lifo

Companies closely monitor inventories to maintain a sufficient Blank______ of inventory to meet customer demand, while also controlling the Blank______ of carrying inventory. Multiple choice question. cost; quantity

quantity; cost

Superior Printer Company sells a new model with a $30.00 mail-in rebate. At the end of the accounting period, the company estimates that 25% of the 2,000 rebates associated with sales during December will still be returned by customers. On December 31, Superior Printer should

recognize an expense and estimated liability of $15,000.

Costs incurred to satisfy customer claims under an extended warranty period are recorded during the same period as the related

rev

When goods are delivered for which the seller received cash in advance, the seller recognizes

rev

LIFO inventory pools

simplify recordkeeping.

A JIT inventory system allows companies to maintain Blank______ inventory levels.

smal

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

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

For a loss contingency to be accrued, (Select all that apply.)

the cause of the lawsuit must have occurred before the end of the accounting period. it is not necessary that the lawsuit was filed before the end of the accounting period.

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

the warranty provides coverage over time.

Premiums that obligate the company to provide noncash items are

treated as separate performance obligations. recorded as deferred revenue until the premium is delivered.

Analyzing changes in the inventory ratio can provide information about the quality of current period earnings.

turnover

Fill in the Blank Question Fill in the blank question. In a period of rising prices, LIFO produces a higher cost of goods sold, lower net income and therefore, lower liability. (Enter only one word.)

tzx

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

before the financial statement date.

Which of the following obligations is not commonly classified as a current liability? Multiple choice question. accrued liabilities bonds payable dividends payable accounts payable dividends payable accounts payable

bonds

Adeline Company, a retail store, sold gift cards totaling $242,000 during the current year. The gift cards do not have an expiration date. At the end of the year, gift cards totaling $83,000 have not yet been redeemed. The $83,000 in unredeemed gift cards should be recognized as

deferred revenue.

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

deferred revenue.

Jones Company signs a $15,000, 12-month note and receives $14,250 from the bank. On the day that Jones signs the note, the company should debit (Select all that apply.)

discount on notes payable for $750. cash for $14,250.

Multiple Select Question Select all that apply On December 1, year 1 Katie Corp. borrows $100,000 from its bank and signs a 6-month, 12% promissory note. What accounts should be debited when the interest is paid on the maturity date and what are the amounts? Assume that no interest accruals have been made during year 2 relating to this note. (Select all that apply.) Multiple select question. Interest payable: $6,000 Interest payable: $5,000 Interest expense: $6,000 Interest expense: $5,000 Interest payable: $1,000

Interest expense: $5,000 Interest payable: $1,000

Which of the following situations would give rise to an employee-related accrued liability as of December 31 of the current year? (Select all that apply.)

Labor negotiations resulted in a 4% pay increase retroactively applied to December of the current year. Employee bonuses earned during the year have not yet been paid.

Grouper Company arranged for a line of credit with its local bank. The company can borrow up to $100,000 as needed. Grouper pays the bank a fee of $200 per year regardless of any specific borrowing under the arrangement. This is an example of

a committed line of credit.

Walden Company collects the annual fee for 100 magazine renewals. The annual price is $104 per subscription and covers 52 weekly magazines. When Walden Company receives payment for each subscription renewal, the company should recognize

a liability for $104.

Christenson Corp. signs a short-term notes payable and pledges a portion of its accounts receivables as collateral. This type of loan is referred to as

a secured loan.

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

accrued interest payable.

Gift certificates, magazine subscriptions, layaway deposits, special order deposits, and airline tickets all are examples of

advances from customers

Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The interest rate stated in the loan agreement most likely applies to

an entire year.

The ability to refinance a loan can be demonstrated by (Select all that apply.)

an existing refinancing agreement actual financing prior to the issuance of financial statements

Jones Company signs a $15,000, 12-month note and receives $14,250 from the bank. Over the next 12 months, the carrying value of the note will

inc

On January 1, 2024, Merkel Company received $1,814 from a customer related to products to be delivered on December 31, 2025. The company normally sells the products for $2,000 in cash. The company's effective interest rate is 5%. On December 31, 2024, Merkel should recognize

interest expense of $91

Norbert Company 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

c linb

On January 1, Western Corp. borrows $100,000 from FirstBank using a six-month, 10% promissory note. Interest and principal are payable at maturity. The journal entry on June 30 includes (Select all that apply.)

credit cash $105,000 debit interest expense $5,000 debit notes payable $100,000

On January 1, Western Corp. borrows $100,000 from FirstBank using a six-month, 10% promissory note. Interest and principal are payable at maturity. The journal entry on January 1 includes (Select all that apply.)

credit notes payable $100,000 debit cash $100,000

Multiple Choice Question Mark Brandt, an employee of Mueller Corp., earned 3 weeks of compensated vacation time during the current year, but only took 2 weeks of vacation. His employer permits that 1 week of vacation can be carried forward to the following year. Mark fully intends to remain at his current employer and plans to take his vacation during the following year. His current weekly salary is $2,000. Mueller Corp. expects to grant a general salary increase of 5% effective at the beginning of the next year. What amount should Mueller accrue during the current year relating to Mark Brandt's carried-forward vacation? Multiple choice question. $0 $2,000 $2,100 $6,300 $6,000

2k

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

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

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

Multiple Choice Question Which of the following is correct regarding accrued interest payable? Multiple choice question. Accrued interest payable relates to interest already incurred but not yet paid. Accrued interest payable relates to interest that was prepaid but not yet incurred. Accrued interest payable relates to interest that was neither paid nor incurred.

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

Which of the following statements regarding noninterest-bearing notes is correct? (Select all that apply.)

Noninterest-bearing notes incur interest. The face amount of noninterest-bearing notes includes interest.

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

Receipt of cash on a long-term note

Eric Company's accountant properly accrued a liability for sick leave that was not taken by the company's employees during the current year. Which of the following conditions caused the accountant to accrue a liability for the employees' unused sick leave?

The company has a policy to pay employees for unused sick leave.

Karin Company has a loan due on July 1 of next year. 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 of the current year? (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 represent an accrued liability? (Select all that apply.)

Unpaid wages relating to the last few days in the current fiscal period just ended. Unpaid interest relating to the past few months.

In practice, the assets most commonly used to secure loans are (Select all that apply.)

inventory account receivable

Cash received from customers in advance of providing the related services or delivering the related goods is recognized as:

liabi

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

Growler Commercial Cleaning Company collects a $1,000 deposit associated with the rental of industrial cleaning equipment. The deposit is refundable upon return of the equipment. When the customer returns the cleaning equipment, Growler should debit the following account

liability—refundable deposits

Growler Commercial Cleaning Company collects a $1,000 deposit associated with the rental of industrial cleaning equipment. The deposit is refundable when the customer returns the equipment. Upon receipt of the deposit, Growler should credit a

liability—refundable deposits.

is an agreement between a bank and a company that allows the company to borrow up to a specified amount without completing additional paper work. (Enter one word pe

line credit

When accounts receivable serve as collateral for a loan, we refer to the arrangement as

pleg

Which of the following are commonly used nonfinancial performance measures for annual bonuses? (Select all that apply.)

product or service quality customer satisfaction

When goods are delivered for which the seller received cash in advance, the seller recognizes

revenue

Fill in the Blank Question Fill in the blank question. Classifying liabilities as current or long-term helps creditors and investors assess the that the liability will require expenditure of cash or another asset. (Enter one word per blank)

risk

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.

In practice, liabilities payable within 1 year typically are recorded at their maturity amount because

the time value of money component associated with these liabilities is immaterial.

The feature that distinguishes loss contingencies from other liabilities is the

uncertainty that a loss will occur.