chapter 11 quiz ACG 2100
lana appliances sells dishwashers with a four-year warranty, in 2024, sales revenue for dishwashers is $96,000. the company estimates warranty expense at 4.5% of revenues. what is the 2024 warrant expense? (round your final answer to the nearest dollar).
$4,320
state street digital, inc. starts the year with $3,400 in its estimated warranty payable account. during the year, there were $222,000 in sales and $5,400 in warranty repair payments. state street digital estimates warranty expense at 2% of sales. the warranty expense for the year is _____.
$4,440
gold services sells travel insurance policies. the price for each insurance policy is $100, paid in advance. during october of the current year, ten travel policies were sold for cash. the journal entry would be:
(DR) cash $1,000 (CR) unearned revenue $1,000
on october 1, 2025, bella, inc. took out a cash loan for $50,000 by signing a six-month, 8% note payable. the journal entry for bella when the note is issued would be:
(DR) cash $50,000 (CR) notes payable $50,000
on october 1, 2025, bella, inc. took out a cash loan for $50,000 by signing a six-month 3% note payable. the journal entry to record the accrued interest expense on december 31, 2025, would be:
(DR) interest expense $375 (CR) interest payable $375
classic sales corporation offers warranties on all their electronic goods. warranty expense is estimated at 3% of sales revenue. in 2024, the company had $604,000 of sales. in the same year, it paid out $12,500 of warranty payments. what is the correct entry needed to record the estimated warranty expense?
(DR) warranty expense $18,120 (CR) estimated warranty payable $18,120
which of the following is included in the entry to record estimated warranty payable? - a credit to estimated warranty payable - a credit to warranty expense - a credit to merchandise inventory - a debit to estimated warranty payable
a credit to estimated warranty payable
a debt that must be paid within one year or within the entity's operating cycle, whichever is longer, is considered _____.
a current liability
a debt that does not need to be paid within one year or within the entity's operating cycle, whichever is longer, is considered _____.
a long-term liability
which of the following is not a liability that must be estimated? - bonuses - health benefits - accounts payable - pension benefits
accounts payable
your company co-signs a two year notes payable for another entity. this is considered a _____.
contingent liability
your company is sued over alleged patent infringement. this is considered a _____.
contingent liability
accounts payable is considered a _____.
current liability
unearned revenue, for services to be performed in six months, appears on the balance sheet as _____.
current liability
if the exact amount of a current liability is not known, it must be _____.
estimated and reported on the balance sheet
the matching principles requires businesses to report warranty expense _____.
in the same period that the company records the revenue related to that warranty
which of the following is a characteristic of a current liability? - it is an avoidable obligation - it occurs because of a future transaction or event - it cannot be settles with services - it creates a present obligation for future payment of cash or services
it creates a present obligation for future payment of cash or services
which of the following is true of a contingent liability? - it is a potential liability that depends on a future event - it is an actual liability that depends on a past event - it is an actual liability that is difficult to estimate - it is a liability resulting from a lawsuit settled in court
it is a potential liability that depends on a future event
vacation, health, and pension benefits must be estimated and recorded as _____.
liabilities
which of the following would be considered a long-term liability? - mortgages payable - accounts payable - salaries payable - interest payable
mortgages payable
which of the following is not a liability that must be estimated? - employer paid benefits - vacation pay - warranties - notes payable
notes payabl
when determining how businesses record or do not record contingent liabilites, which is not one of the three likelihoods that are considered? - probable - remote - reasonably probable - reasonably possible
reasonably probable
how a company records or doesn't record a contingent liability is based on one of which three likelihoods that an event will take place in the future?
remote, reasonably possible, and probable
what is the proper treatment for a contingency that is probable but the exact amount of which is not known? the amount can be estimated.
the liability should be estimated and recorded.
which of the following accounting principles requires that warranty expense must be estimated and recognized in the same period when the related sales revenue is recognized? - the matching principle - the consistency principle - the revenue principle - the disclosure principle
the matching principle
a restaurant is being sued because a customer claims to have found a bug in her chili. the company's lawyers believe their is only a remote possibility that the lawsuit will result in actual liability. what actions should be taken by the company's management?
the possible liability should not be shown in the financial statements
which of the following is not a main characteristic of liabilities? - they are paid within 45 days of the invoice date - they create a present obligation for future payment of cash or services - they are an unavoidable obligation - they occur because of past transactions or events
they are paid within 45 days of the invoice date
a short-term notes payable _____.
usually involves interest and is to be paid within one year or less
the expense for warranty costs is recorded in the period _____.
when the product is sold
