Chapter 13

Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short-term debt?

Management indicated that they are going to refinance the obligation.

Which of the following is not true about the discount on short-term notes payable?

The Discount on Notes Payable account should be reported as an asset on the balance sheet.

Which of the following may be a current liability?

Trade notes payable Short-term zero-interest-bearing notes payable The discount on short-term notes payable

A contingent liability

is the result of a loss contingency

Jeff Brown is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2017, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Brown had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Brown in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Brown appears inclined to accept the Railroad's offer. The Railroad's 2017 financial statements should include the following related to the incident:

recognition of a loss and creation of a liability for the value of the land

In a service-type warranty, warranty revenue is

recognized equally over the warranty period

Which of the following should not be included in the current liabilities section of the balance sheet?

short-term obligations expected to be refinanced.

Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty

should be reported as part current and part long-term

Crane Company borrowed $390000 on April 1. The note requires interest at 10% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31?

$29250.

Coronado Industries, is a retail store operating in a state with a 5% retail sales tax. The state law provides that the retail sales tax collected during the month must be remitted to the state during the following month. If the amount collected is remitted to the state on or before the twentieth of the following month, the retailer may keep 3% of the sales tax collected. On April 10, 2017 Coronado remitted $199820 tax to the state tax division for March 2017 retail sales. What was Coronado's March 2017 retail sales subject to sales tax?

$4120000

Sheridan newspapers sold 6800 of annual subscriptions at $150 each on June 1. How much unearned revenue will exist as of December 31

$425000

Which of the following is a condition for accruing a liability for the cost of compensation for future absences

All of these are conditions for the accrual

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles

Amount of loss is reasonably estimable and occurrence of event is probable

What is a contingency?

An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur

Which of the following is the proper way to report some gain contingencies

As a disclosure only

Swifty Surplus made cash sales during the month of October of $385000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions?

Credit Sales Taxes Payable for $23100

Which of the following terms is associated with recording a contingent liability

Probable

Which of the following statements is false

FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority

Which of these is not included in an employer's payroll tax expense

Federal income taxes

Which of the following is a characteristic of a current liability but not a long-term liability?

Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities

Which of the following is an example of a contingent liability

Obligations related to product warranties

What are compensated absences?

Paid time off.

Which of the following gives rise to the requirement to accrue a liability for the cost of compensated absences

Payment is probable. Employee rights vest or accumulate. Amount can be reasonably estimated

Which of the following is not a correct statement about sales taxes

Sales taxes are an expense of the seller

Which of the following situations may give rise to unearned revenue

Selling magazine subscriptions

Which of the following taxes does not represent a common employee payroll deduction

State unemployment taxes

An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year. The store normally recognized a gross profit margin of 40% of the selling price on video games. How would the store account for a purchase using the discount coupon

The difference between the cost of the video game and the cash received is recognized as premium expense

When is a contingent liability recorded

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

A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should

be accrued during the period when earned.

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

current liabilities

Each of the following are included in both the current ratio and the acid-test ratio except

inventory.