F5 Multiple Choice
On January 1, year 1, a company's new CEO was awarded a $200,000 bonus that would be paid out in two $100,000 installments in years 3 and 4 of employment, contingent on employment through the year ended December 31, year 2. What amount should the company expense for this bonus for years 2 and 3?
$100,000 for year 2 and 0 for year 3
Martin Pharmaceutical Co. is currently involved in two lawsuits. One is a class-action suit in which consumers claim that one of Martin's best selling drugs caused severe health problems. It is reasonably possible that Martin will lose the suit and have to pay $20 million in damages. Martin is suing another company for false advertising and false claims against Martin. It is probable that Martin will win the suit and be awarded $5 million in damages. What amount should Martin report on its financial statements as a result of these two lawsuits?
0
Green Co. was preparing its year-end financial statements. Green had a pending lawsuit against a competitor for 5,000,000 in damages. Green's attorneys indicate that obtaining a favorable judgment was probable and the amount of damages is reasonably estimated. Green incurred 100,000 in legal fees. The income tax rate was 30%. What amount, if any, should Green recognize as a contingency gain in its financial statements?
0
In May Year 1, Caso Co. filed suit against Wayne, Inc. seeking $1,900,000 damages for patent infringement. A court verdict in November Year 4 awarded Caso $1,500,000 in damages, but Wayne's appeal is not expected to be decided before Year 6. Caso's counsel believes it is probable that Caso will be successful against Wayne for an estimated amount in the range between $800,000 and $1,100,000, with 1,000,000 considered the most likely amount. What amount should Caso record as income from the lawsuit in the year ended December 31, Year 4?
0
On November 1, Year 1, Beni Corp was awarded a judgment of $1,500,000 in connection with a lawsuit. The decision is being appealed by the defendant, and it is expected that the appeal process will be completed by the end of year. Beni's attorney feels that it is highly probably that an award will be upheld on appeal, but that the judgment may be reduced by an estimated 40%. In addition to footnote disclosure, what amount should be reported as a receivable in Beni's balance sheet at December 31, Year 1?
0
At the beginning of the year, the carrying value of an asset was $1,000,000 with 20 years of remaining life. The fair value of the liability for the asset retirement obligation was $100,000. At year end, the carrying value of the asset was $950,000. The risk-free interest rate was 5%. The credit-adjusted risk-free interest rate was 10%. What was the amount of accretion expense for the year related to the asset retirement obligation?
10,000
Verona Co. had $500,000 in short-term liabilities at the end of the current year. Verona issued $400,000 of common stock subsequent to the end of the year, but before the financial statements were issued. The proceeds from the stock issue were intended to be used to pay the short-term debt. What amount should Verona report as a short-term liability on its balance sheet at the end of the current year?
100,000
Under state law, Acme may pay 3% of eligible gross wages or it may reimburse the state directly for actual unemployment claims. Acme believes that actual unemployment claims will be 2% of eligible of gross wages and has chosen to reimburse the state. Eligible gross wages are defined as the first $10,000 of gross wages paid to each employee. Acme had five employees each of whom earned 20,000 during the current year. In its December 31, balance sheet, what amount should Acme report was accrued liability for unemployment claims?
1000
East Corp manufactures stereo systems that carry a two-year warranty against defects. Based on past experience, warranty costs are estimated at 4% of sales for the warranty period. During the current year, stereo systems sales totaled 3,000,000, and warranty costs of 67,500 were incurred. In its income statement for the year ended December 31, East should report warranty expense of:
120,000
Willem Co. reported the following liabilities at December 31, Year 1 Accounts payable-trade 750,000 Short-term borrowings 400,000 Mortgage payable, current portion 100,000 3,500,000 Other bank loan, matures June 30, Year 2 1,000,000 The 1,000,000 bank loan was refinanced with a 20-year loan on January 15, Year 2, with the first principal payment due January 15, Year 3. Willem's audited financial statements were issued February 28, Year 2. What amount should Willem report as current liabilities at December 31, Year 1.
1250000
Able, Inc. had the following amounts of long-term debt outstanding at December 31, Year 1: 3000 107000 110000 100000 =320000 Able's annual sinking-fund requirement on the guaranteed debentures is 4000 per year. What amount should Able report as current maturities of long-term debt in its December 31, Year 1, balance sheet.
13000
During Year 1, Gum Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following the sale and 4% in the second 12 months following the sale. Sales and actual warranty expenditures for the years ended December 31, Year 1 and Year 2 are as follows: Sales Actual Warr Year 1 150,000 2250 Year 2 250000 7500 400,000 9750 What amount should Gum report as estimated warranty liability in its December 31, Year 2, balance sheet?
14,250
During January of the current year, Haze Corp won a litigation award for $15,000, which was tripled to $45,000 to include punitive damages. The defendant, who is financially stable, has appealed only the $30,000 punitive damages. Haze was awarded $50,000 in an unrelated suit it filed, which is being appealed by the defendant. Counsel is unable to estimate the outcome of these appeals. In its current year financial statements, Haze should report what amount of pretax gain?
15,000
In its Year 2 financial statements, Cris Co. reported interest expense of $85,000 in its income statement and cash paid for interest of $68,000 in its cash flow statement. There was no prepaid interest or interest capitalization either at the beginning or end of Year 2. Accrued interest at December 31, Year 1, was $15,000. What amount should Cris report as accrued interest payable in its December 31, Year 2 balance sheet?
32000
Invern, Inc. has a self-insurance plan. Each year, retained earnings is appropriated for contingencies in an amount equal to insurance premiums saved less recognized losses from lawsuits and other claims. As a result of a Year 10 accident, Invern is a defendant in a lawsuit in which it will probably have to pay damages of $190,000. What are the effects of this lawsuit's probable outcome on Invern's Year 10 financial statements?
An increase in both expenses and liabilities
On November 1, Year 1, Davis Co. discounted with recourse at 10% a one-year, noninterest bearing, $20,500 note receivable maturing on January 31, Year 2. What amount of contingent liability for this note must Davis disclose in its financial statements for the year ended December 31, Year 1?
$20,500
The Bake Shop sold 750,000 boxes of cake mix during the year under a new sales promotion program. Each box contains one coupon that, submitted with $4.00, entitles the customer to a baking pan. The Bake Shop pays $5.00 per pan and a $.50 for handling and shipping. The Bake Shop estimates that 80% of the coupons will be redeemed, even though only 450,000 coupons had been processed during the year. What amount should The Bake Shop report as a liability for unredeemed coupons at year-end?
$225,000
On October 1, Year 1, Gold Co. borrowed 900,000 to be repaid in three equal, annual installments. The note payable bears interest at 5% annually. Gold paid the first installment of 300,000 plus interest on September 30, Year 2. What amount should God report as a current liability on December 31, Year 2?
307,500
At the beginning of Year 1, a company hired an executive whose contract included the promise of payment of $100,000 in each of Years 6, 7, and 8, if the executive is employed at the end of Year 5. How should the compensation expense associated with this contract be recorded?
$60,000 in each of Years 1 through 5
On November 10, Year 1, a Garry Corp truck was in an accident with an auto driven by Dacey. On January 10, Year 2, Garry received notice of a lawsuit seeking $800,000 in damages for personal injuries suffered by Dacey. Garry Corp's counsel believes it is reasonably possible that Dacey will be awarded an estimated amount in the range between $250,000 and $500,000, and that $400,000 is a better estimate of potential liability than any other amount. Garry's accounting year ends on December 31, and the Year 1 financial statements were issued on March 6, Year 2. What amount of loss should Garry accrue at December 31, Year 1?
0
During Year 2, a former employee of Dane Co. began a suit against Dane for wrongful termination in November year 1. After considering all of the facts, Dane's legal counsel believes that the former employee will prevail and will probably receive damages of between 1,000,000 and 1,500,000 with 1,300,000 being the most likely amount. Dane's financial statements for the year ended December 31, Year 1, will not be issued until February Year 2. In its December 31, Year 1, balance sheet, what amount should Dane report as a liability with respect to the suit?
1,300,000
At December 31, Year 1, Cain, Inc. owed notes payable of $1,750,000, due on May 15, Year 2. Cain expects to retire this debt with proceeds from the sale of 100,000 shares of its common stock. The stock was sold for $15 per share on March 10, Year 2, prior to the issuance of the year-end financial statements. In Cain's December 31, Year 1, balance sheet, what amount of the notes payable should be excluded from current liabilities?
1,500,000
North Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, North's unadjusted balance of liability for compensated absences was $21,000. North estimated that there were 150 vacation days and 75 sick days available at December 31. North's employees earn an average of $100 per day. In its December 31 balance sheet, what amount of liability for compensated absences is North required to report?
15000
A company has the following liabilities at year-end: Mortgage-note payable; 16,000 due within 12 months 355,000 Short-term debt that the company is refinancing with long-term debt 175,000 Deferred tax liability arising from depreciation 25,000 What amount should the company include in the current liability section of the balance sheet?
16,000
On July 1, Lee Co. sold goods in exchange for a 200,000, 8-month, noninterest-bearing note receivable. At the time of the sale, the note's market rate of interest was 12%. What amount did Lee receive when it discounted the note at 10% on September 1?
190,000
On November 1, Year 2, Davis Co. discounted with recourse at 10% a one-year, noninterest bearing, $20,500 note receivable maturing on January 31, Year 3. What amount of contingent liability for this note must Davis disclose in its financial statements for the year ended December 31, Year 2?
20,500
During Year 1, Haft Co. became involved in a tax dispute with the IRS. At December 31, Year 1, Haft's tax advisor believed that an unfavorable outcome was probable. A reasonable estimate of additional taxes was $200,000 but could be as much as $300,000. After the Year 1 financial statements were issued, Haft received and accepted an IRS settlement offer of $275,000. What amount of accrued liability should Haft have reported in its December 31, Year 1 balance sheet?
200,000
On September 30, World Co. borrowed $1,000,000 on a 9% note payable. World paid the first of four quarterly payments of $264,200 when due on December 30. In its December 31 balance sheet, what amount should World report as note payable?
22,500
On March 1, Year 1, Fine Co. borrowed 10,000 and signed a two-year note bearing interest at 12% per annum compounded annually. Interest is payable in full at maturity on February 28, Year 3. What amount should Fine report as a liability for accrued interest at December 31, Year 2?
2320
On September 1, Year 1, Cobb Co. issued a note payable to National Bank in the amount of 900,000, bearing interest at 12%, and payable in three equal annual principal payments of 300,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, Year 2. At December 31, Year 2, Cobb should record accrued interest payable of:
24,000
On December 31, Year 1, Largo, Inc. had a $750,000 note payable outstanding, due July 31, Year 2. Largo borrowed the money to finance construction of a new plant. Largo planned to refinance the note by issuing long-term bonds. Because Largo temporarily had excess cash, it prepaid $250,000 of the note on January 12, Year 2. In February Year 2, Largo completed a $1,500,000 bond offering. Largo will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during Year 2. On march 3, Year 2, Largo issued its Year 1 financial statements. What amount of the note payable should Largo include in the current liabilities section of its December 31, Year 1, balance sheet?
250,000
Hemple Co. Maintains escrow accounts for various mortgage companies. Hemple collects the receipts and pays the bills on behalf of the customers. Hemple holds the escrow monies in interest-bearing accounts. They charge a 10% maintenance fee to the customers based on interest earned. Hemple reported the following account data: Escrow liability beginning of year $500,000 Escrow receipts during the year $1,200,000 Real estate taxes paid during the year $1,450,000 Interest earned during the year $40,000 What amount represents the escrow liability balance on Hemple's books?
286,000
Case Cereal Co. frequently distributes coupons to promote new products. On October 1, Case mailed 1,000,000 coupons for $.45 off each box of cereal purchased. Case expects 120,000 of these coupons to be redeemed before the December 31 expiration date. It takes 30 days from the redemption date for Case to receive the coupons from the retailers. Case reimburses the retailers an additional $.05 for each coupon redeemed. As of December 31, Cas had paid retailers $25,000 related to these coupons and had 50,000 coupons on hand that had not been processed for payment. What amount should Case report as a liability for coupons in its December 31, balance sheet?
35,000
Bake Co.'s trial balance included the following at December 31, Year 1: AP 80,000 BP, due Year 2 300,000 Disc on BP 15,000 Deferred income tax liability 25000 The deferred income tax liability is not related to an asset for financial accounting purposes and is expected to reverse in Year 2. What amount should be included in the current liability section of Bake's December 31, Year 1, balance sheet?
365000
In December, Mill Co. began including one coupon in each package of candy that it sells and offering a toy in exchange for 50 cents and five coupons. The toys cost Mill 80 cents each. Eventually 60% of the coupons will be redeemed. During December Mill sold 110,000 packages of candy and no coupons were redeemed. In its December 31 balance sheet, what amount should Mill report as estimated liability for coupons?
3960
House Publishers offered a contest in which the winner would receive 1,000,000, payable over 20 years. On December 31, Year 1, House announced the winner of the contest and signed a note payable to the winner for 1,000,000, payable in 50,000 installments every January 2. Also on December 31, Year 1, House purchased an annuity for 418, 250 to provide the 950,000 prize monies remaining after the first 50,000 installment, which was paid on January 2, Year 2. In its December 31, Year 1, balance sheet, what amount should House report as note payable-contest winner, net of current portion?
418250
On January 2, Year 1, Emme Co. sold equipment with a carrying amount of $480,000 in exchange for a $600,000 non-interest bearing note due January 2, Year 4. There was no established exchange price for the equipment. The prevailing rate of interest for a note of this type at January 2, Year 1, was 10°/o. The present value of 1 at 10°/o for three periods is 0.75. In Emme's Year 1 income statement, what amount should be reported as interest income?
45,000
Zach Corp. pays commissions to its sales staff at the rate of 3% of net sales. Sales staff are not paid salaries but are given monthly advances of 15,000. Advances are charged to commission expense, and reconciliations against commissions are prepared quarterly. Net sales for the year ended March 31 were $15,000,000. The unadjusted balance in the commissions expense account on March 31 was $400,000. March advances were paid on April 3. In its income statement for the year ended March 31 what amount should Zach report as commission expense?
450,000
On August 1, Year 1, Vann Corp's 500,000, one year, noninterest-bearing note due July 31, Year 2, was discounted at Homestead Bank at 10.8%. Vann uses the straight-line method of amortizing bond discount. What amount should Vann report for notes payable in its December 31, Year 1, balance sheet?
468,500
Baker Co. sells consumer products that are packaged in boxes. Baker offered an unbreakable glass in exchange for two box tops and $1 as a promotion during the current year. The cost of the glass was $2.00. Baker estimated at the end of the year that it would be probably that 50% of the box tops will be redeemed. Baker sold 100,000 boxes of the product during the current year and 40,000 box tops were redeemed during the year for the glasses. What amount should Baker accrue as an estimated liability at the end of the current year, related to the redemption of box tops?
5,000
On January 1 ten years ago, Andrew Co. created a subsidiary for the purpose of buying an oil tanker depot at a cost of $1,500,000. Andrew expected to operate the depot for 10 years, at whcih time it is legally requried to dismantle the depot and remove underground storage tanks. IT was estimated that it would cost $150,000 to dismantle the depot and remove the tanks at the end of the depot's useful life. However, the actual cost to demolish and dismantle the depot and remove the tanks in the tenth year is $155,000. What amount of expense related to the demolition of the depot and the removal of the tanks should Andrew recognize in its financial statements in year 10?
5,000 expense
Bell Co. is a defendant in a lawsuit that could result in a large payment to the plaintiff. Bell's attorney believes that there is a 90% chance that Bell will lose the suit, and estimates that the loss will be anywhere from $5,000,000 to $20,000,000 and possibly as much as $30,000,0000. None of the estimates are better than the others. What amount of liability should Bell report on its balance sheet related to the lawsuit?
5,000,000
On December 31, Year 1, Andover Co. acquired Barrelman Inc. Before the acquisition, a product lawsuit seeking $10 million in damages was filed against Barrelman. As of the acquisition date, Andover believed that it was probable that a liability existed and that the fair value of the liability was $5 million. What amount should Andover record as a liability as of December 31, Year 1?
5,000,000
Marr Co. sells its products in reusable containers. The customer is charged a deposit for each container delivered and receives a refund for each container returned within two years after the year of delivery. Marr accounts for the containers not returned within the time limit as being retired by sale at the deposit amount. Information for Year is as follows: In Marr's December 31, Year 3 balance sheet, the liability for deposits on returnable containers should be:
674000
Dunn Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Dunn's past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Dunn's liability for stamp redemptions was 6,000,000 at December 31, Year 1. Additional information for Year 2 is as follows: Stamp service revenue from stamps sold to licensees: 4,000,000 Cost of redemptions 2,750,000 If all the stamps sold in Year 2 were presented for redemption in Year 3, the redemption cost would be 2,250,000. What amount should Dunn report as a liability for stamp redemptions at December 31, Year 2?
5,050,000
As of December 15, Year 3, Aviator had dividends in arrears of $200,000 on its cumulative preferred stock. Dividends for Year 3 of $100,000 have not yet been declared. The board of directors plan to declare cash dividends on its preferred and common stock on January 16, Year 4. Aviator paid an annual bonus to its CEO based on the company's annual profits. The bonus for Year 3 was $50,000, and it will be paid on February 10, Year 4. WHat amount should Aviator report as current liabilities on its balance sheet at December 31, Year 3?
50,000
Oak Co. offers a three-year warranty on its products. Oak previously estimated warranty costs to be 2% of sales. Due to a technological advance in production at the beginning of Year 3, Oak now believes 1% of sales to be a better estimate of warranty costs. Warranty costs of 80,000 and 96,000 were reported in Year 1 and Year 2, respectively. Sales for Year 3 were 5,000,000. What amount should be disclosed in Oak's Year 3 financial statements as warranty expense?
50,000
On February 5, Year 3, an employee filed a 2,000,000 lawsuit against Steel Co. for damages suffered when one of Steel's plants exploded on December 29, Year 2. Steel's legal counsel expects the company will lose the lawsuit and estimates the loss to be between 500,000 and 1,000,000. The employee has offered to settle the lawsuit out of court for 900,000, but Steel will not agree to the settlement. In its December 31, Year 2, balance sheet, what amount should Steel report as liability from lawsuit?
500,000
During the current year, Casual Wear Co. had total retail sales of 800,000 and collected a 5% state sales tax on all sales. At the end of the prior year, Casual Wear had 4500 in sales taxes that had not been remitted to the state authorities. During the current year, Casual Wear remitted 39,500 in state sales tax. What amount should be recorded in Casual Wear's current year financial statements?
5000 in sales tax payable
Lyle Inc. is preparing its financial statements for the year ended December 31, Year 1. Accounts payable amounted to $360,000 before the necessary year-end adjustment related to the following: At December 31, Year 1, Lyle has a $50,000 debit balance in its accounts payable to Ross, a supplier, resulting from a $50,000 advance payment for goods to be manufactured to Lyle's specifications Checks in the amount of 100,000 were written to vendors and recorded on December 29, Year 1. The checks were mailed on January 5, Year 2. What amount should Lyle report as accounts payable in its December 31, Year, balance sheet?
510,000
Loeb Corp. frequently borrows from the bank in order to maintain sufficient operating cash. The following loans were at a 12% interest rate, with interest payable at maturity. Loeb repaid each loan on its scheduled maturity date. Date Amt Mat Date Term 11/1 5000 10/31 1 Year 2/1 15000 7/31 6 mos 5/1 8000 1/31 9 mos Loeb records interest expense when the loans are repaid. As a result, interest expense of 1500 was recorded in Year 2. If no correction is made, by what amount would Year 2 interest expense be understated?
540
Leaf Co. purchased from Oak Co. a $20,000, 8%, 5-year note that required five equal annual year-end payments of $5,009. The note was discounted to yield a 9% rate to Leaf. At the date of purchase, Leaf recorded the note at its present value of $19,485. What should be the total interest revenue earned by Leaf over the life of this note?
5560
On January 1, Year 1, Baker Co. decided to grant its employee's 10 vacation days and five sick days each year. Neither vacation days nor sick days vest. Sick days may not be carried over to the next year. Each employee took an average of three sick days in Year 1. DUring Year 1, each of Baker's six employees earned $100 per day and earned 10 vacation days. ANy earned but unused vacation days may be carried over to the following year. These vacation days were taken during Year 2. WHat amount should Baker accrue as compensated absence liability as of December 31, Year 1?
6000
On December 30, Year 1, Chang Co. sold a machine to Door Co. in exchange for a non-interest-bearing note requiring 10 annual payments of 10,000. Door made the first payment on December 30, Year 1. The market interest rate for similar notes at date of issuance was 8%. Information on present value factors is as follows: Period PV PV ordinary 9 0.50 6.25 10 0.46 6.71 In its December 31, Year 1, a balance sheet, what amount should Chang report as note receivable?
62500
Doren Co.'s officers' compensation expense account had a balance of $490,000 at December 31, Year 1, before any appropriate year-end adjustment relating to the following: No salary accrual was made for the week of December 25-31, Year 1. Officers' salaries for this period totaled $18,000 and were paid on January 5, Year 2. Bonuses to officers for Year were paid on January 31, Year 2 in the total amount of $175,000. The adjusted balance for officers' compensation expense for the year ended December 31, Year 1, should be:
683,000
On February 12, VIP Publishing, Inc. purchased the copyright to a book for $15,000 and agreed to pay royalties equal to 10% of book sales, with a guaranteed minimum royalty of $60,000. VIP had book sales of $800,000 during the year. In its year-end income statement, what amount should VIP report as royalty expense?
80,000
Paisley Incorporated borrowed $2,000,000 from State Bank on March 1, Year 1, at a rate of 6%. According to the loan agreement, Paisley must make principal payments of $200,000 plus appropriate interest payments every March 1 until the loan balance is paid off. Paisley has made timely principal and interest payments since the loan began. The interest payable balance to report in the December 31, Year 3, balance sheet should total:
80,000
On July 1, Year 1, Ran County issued realty tax assessments for its fiscal year ended June 30, Year 2. On September 1, Year 1, Day Co. purchased a warehouse in Ran County. The purchase price was reduced by a credit for accrued realty taxes. Day did not record the entire year's real estate tax obligation, but instead records tax expenses at the end of each month by adjusting prepaid real estate taxes or real estate taxes payable, as appropriate. On November 1, Year 1, Day paid the first of two equal installments of $12,000 for realty taxes. What amount of this payment should Day record as a debit to real estate taxes payable?
8000
Hill Corp. began production of a new product. During the first calendar year, 1,000 units of the product were sold for $1,200 per unit. Each unit had a two-year warranty. Based on warranty costs for similar products, Hill estimates that warranty costs will average $100 per unit. Hill incurred $12,000 in warranty costs during the first year and $22,000 in warranty costs during the second year. The company uses the expense warranty costs during the second year. The company uses the expense warranty accrual method. What should be the balance in the estimated liability under warranties account at the end of the first calendar year?
88,000
Acme Co.'s accounts payable balance at December 31 was 850,000 before necessary year-end adjustments, if any, related to the following information: At December 31, Acme has a $50,000 debit balance in its accounts payable resulting from a payment to a supplier for goods to be manufactured to Acme's specifications. Goods shipped FOB destination on December 20 were received and recorded by ACme on January 2, the invoice cost was 45,000.
900,000
Which of the following is not a criteria for recognizing a liability associated with exit or disposal activities?
A commitment to an exit plan
A manufacturer of household appliances may incur a loss due to the discovery of a defect in one of its products. The occurrence of the loss is reasonably possible and the resulting costs can be reasonably estimated. This possible loss should be:
Accrued: No Disclosed in footnotes: Yes
At December 31, Year 1, Taos Co. estimates that its employees have earned vacation pay of $100,000. Employees will receive their vacation pay in Year 2. Should taos accrue a liability at December 31, Year 1, if the rights to this compensation accumulated over time or if the rights are vested?
Accumulated- yes Vested- yes
On December 31, Key Co. received two 10,000 non-interest-bearing notes from customers in exchange for services rendered. The note from Alpha Co., which is due in nine months, was made under customary trade terms, but the note from Omega Co., which is due in two years, was not. The market interest rate for both notes at the date of issuance is 8%. The present value of $1 due in two years at 8% is .857. At what amounts should these two notes receivable be reported in Key's December 31 balance sheet?
Alpha- 10,000 Omega-8,570
On November 25, Year 1, an explosion occurred at a Rex Co. plant causing extensive property damage to area buildings. By March 10, Year 2, claims had been asserted against Rex. Rex's management and counsel concluded that it is probable Rex will be responsible for damages, and that $3,500,000 would be a reasonable estimate of its liability. Rex's $10,000,000 comprehensive public liability policy has a $500,000 deductible clause. Rex's December 31, Year 1, financial statements, issued on March 25, Year 2, should report this item as:
An accrued liability of $3,500,000
On December 31, Year 1, Paxton Co. had a NP due on August 1 ,Year 2. On January 20, Year 2, Paxton signed a financing agreement to borrow the balance of the NP from a lending institution to refinance the note. The agreement does not expire within one year, and no violation of any provision in the financing agreement exists. On February 1, Year 2, Paxton was informed by its financial advisor that the lender is not expected to be financially capable of honoring the agreement. Paxton's financial statements were issued on March 31, Year 2. How should Paxton classify the note on its balance sheet at December 31, Year 1?
As a current liability because the lender is not expected to be financially capable of honoring the agreement
During Year 2, Leader Corp sued Cape Co. for patent infringement. On December 31, Year 2, Leader was awarded a $500,000 favorable judgment in the suit. On that date, Cape offered to settle out of court for $300,000 and not appeal the judgment. In February Year 3, after the issuance of its Year 2 financial statements, Leader agreed to the out-of-court settlement and received a certified check for $300,000. In its Year 2 financial statements, how should Leader have reported these events?
As a disclosure in the notes to the financial statements only
During Year 1, Smith Co. filed suit against West Inc. seeking damages for patent infringement. At December 31, Year 1, Smith's legal counsel believed that it was probable that SMith would be successful against West for an estimated amount in the range of $75,000 to $150,000, with all amounts in the range considered equally likely. In March Year 2, Smith was awarded $100,000 and received full payment thereof. In its Year 1 financial statements, issued in February Year 2, how should this award be reported?
As a disclosure of a contingent gain of an undetermined amount in the range of $75000 to $150,000
In Year 1, a personal injury lawsuit was brought against Halsey Co. Based on counsel's estimate, Halsey reported a 50,000 liability in its December 31, Year 1, balance sheet. In November Year 2, Halsey received a favorable judgment, requiring the plaintiff to reimburse Halsey for expenses of 30,000. The plaintiff has appealed the decision, and Halsey's counsel is unable to predict the outcome of the appeal. In its December 31, Year 2, balance sheet, Halsey should report what amounts of asset and liability related to these legal actions?
Asset- 0 Liability- 0
An entity, upon initial recognition of an asset retirement obligation, should not take which of the following actions?
Capitalize the asset retirement cost at its undiscounted cash flow value
What is the underlying concept governing the generally accepted accounting principles pertaining to recording gain contingencies?
Conservatism
Which of the following is a cost associated with exit and disposal activities?
Costs to relocate eployees
As of December 1, Year 2 a company obtained a $1,000,000 line of credit maturing in one year on which it has drawn $250,000, a $750,000 secured note due in five annual installments, and a $300,000 three-year balloon note. The company has no other liabilities. How should the company's debt be presented in its classified balance sheet on December 31, Year 2 if no debt repayments were made in December?
Current liabilities of $400,000; long-term liabilities of $900,000
A company has outstanding accounts payable of 30,000 and a short-term construction loan in the amount of 100,000 at year end. The loan was refinanced through issuance of long-term bonds after year end but before issuance of financial statements. How should these liabilities be recorded in the balance sheet?
Current liabilities of 30,000, long-term liabilities of 100,000
Conlon Co. is the plaintiff in a patent-infringement case. Conlon has a high probability of a favorable outcome, and can reasonably estimate the amount of the settlement. What is the proper accounting treatment of the patent infringement case?
Disclosure in the notes only
The discount resulting from the determination of a note payable's present value should be reported on the balance sheets as a:
Direct reduction from the face amount of the note
Blythe Corp. is a defendant in a lawsuit. Blythe's attorneys believe it is reasonably possible that the suit will require Blythe to pay a substantial amount. What is the proper financial statement treatment for this contingency?
Disclosed but not accrued
Management can estimate the amount of loss that will occur if a foreign government expropriates some company assets. If expropriation is reasonably possible, a loss contingency should be:
Disclosed but not accrued as a liability
Eagle Co. has cosigned the mortgage note on the home of its president, guaranteeing the indebtedness in the event that the president should default. Eagle considers the likelihood of default to be remote. How should the guarantee be treated in Eagle's financial statements?
Disclosed only
Potter Co. has the following contingencies, all resulting from lawsuits in progress during the current year: Probable loss contingency 1,500,000 Reasonably possible loss contingency 500,000 Probable gain contingency 700,000 Reasonably possible gain contingency 300,000 Potter's accountant believes the financial statements will be misleading if the probable loss contingency is not disclosed. How much should be disclosed, and how much should be accrued in Potter's financial statements for the current year?
Disclosed- 2,000,000 loss 1,000,000 gain Accrued- 1,500,000 loss
In Year 1, a contract dispute between Dollis Co. and Brooks Co. was submitted to binding arbitration. In Year 1, each party's attorney indicated privately that the probable award in Dollis' favor could be reasonably estimated. In Year 2, the arbitrator decided in favor of Dollis. When should Dollis and Brooks recognize their respective gain and loss?
Dollis' gain- Year 2 Brooks' loss- Year 1
On December 31, Jet Co. received two $10,000 notes receivable from customers in exchange for services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity. The note from Hart Corp., made under customary trade terms is due in 9 months and the note from Maxx, Inc., is due in 5 years. The market interest rate for similar notes on December 31 was 8%. The compound interest factors to convert future values into present values at 8% follow: Present value of $1 due in 9 months .944 Present value of $1 due in 5 years .680 At what amounts should these two notes receivable be reported in Jet's December 31 balance sheet?
Hart- 10,000 Max- 7,820
Which of the following is reported as interest expense?
Imputed interest on non-interest bearing note
At December 31, Date Co. awaits judgment on a lawsuit for a competitor's infringement of Date's patent. Legal counsel believes it is probable that Date will win the suit and indicated the most likely award together with a range of possible awards. How should the lawsuit be reported in Date's December 31 financial statements?
In note disclosure only
On August 15, Benet Co. sold goods for which it received a note bearing the market rate of interest on that date. The four-month note was dated July 15. Note principal, together with all interest, is due November 15. When the note was recorded on August 15, which of the following accounts increased?
Interest receivable
A company completes construction of a 400 million offshore oil platform and places it into service on January 1. State law requires that the platform be dismantled and removed at the end of its useful life, which is estimated to be 10 years. The company estimates that the cost of dismantling the platform will be $20 million. The discounted value of the liability is $9 million using the company's credit-adjusted, risk-free rate. The company has already capitalized the $400 million construction cost of the platform. What amounts should the company record as liability and expense when the asset is placed into service?
Liability 9000000 Expense 0
A company issued a short-term note payable with a stated 12% rate of interest to a bank. The bank charged a 0.5% loan origination fee and remitted the balance to the company. The effective interest rate paid by the company in this transaction would be:
More than 12.5%
Delect Co. provides repair services for the AZ195 TV set. Customers prepay the fee on the standard one-year service contract. The Year 1 and Year 2 contracts were identical, and the number of contracts outstanding was substantially the same at the end of each year. However, Delect's December 31, Year 2, deferred revenues' balance on unperformed service contracts was significantly less than the balance at December 31, Year 1. Which of the following situations might account for this reduction in the deferred revenue balance?
Most Year 2 contracts were signed earlier in the calendar year than were the Year 1 contracts
Which of the following is generally associated with payables classified as accounts payable?
Periodic Payment of Interest: no Secured by Collateral: no
Butterfield Technologies has been named in a lawsuit relative to product defects that may have caused injuries to one of its customers. The plaintiff has requested a settlement of $500,000. Butterfield's attorney has determined that an unfavorable settlement is probable but estimates that the liability ranges between $150,00- and $300,000. In connection with this liability, Butterfield is most likely to:
Record a liability for $150,000
A state requires quarterly sales tax returns to be filed with the sales tax bureau by the 20th day following the end of the calendar quarter. However, the state further requires that sales taxes collected to be remitted to the sales tax bureau by the 20th day of the month following any month such collections exceed $500. These payments can be taken as credits on the quarterly sales tax return. Taft Corp. operates a retail hardware store. ALl items are sold subject to a 6% state sales tax, which Taft collects and records as sales revenue. The sales taxes paid by Taft are charged against sales revenue. Taft pays the sales taxes when they are due. Following is a monthly summary appearing in Taft's first quarter sales revenue account: Debit Credit January - 10,600 February 600 7,420 March - 9,540 In its financial statements for the quarter ended March 31, Taft's sales revenue and sales taxes payable would be:
Sales Revenue 26,000 Sales taxes payable 960
Hudson Hotel collects 15% in city sales taxes on room rentals, in addition to a $2 per room, per night occupancy tax. Sales taxes for each month are due at the end of the following month, and occupancy taxes are due 15 days after the end of each calendar quarter. On January 3, Year 2, Hudson paid its November, Year 1 sales taxes and its fourth quarter Year 1 occupancy taxes. Additional information pertaining to Hudson's operations is: Rentals Nights October 100k 1100 Nov 110k 1200 Dec 150k 1800 What amounts should Hudson report as sales taxes payable and occupancy taxes payable in its December 31, Year, balance sheet?
Sales- 39000 Occupancy- 8200
In accordance with Sam Company's loan agreement with First Bank, Sam Company must maintain a debt-to-equity ratio of 0.60 or less. At year-end, Sam Company's balance sheet includes total liabilities of 55,000 and total stockholders' equity of 95,500. What is Sam Company's debt-to-equity ratio at the year-end, and has Sam Company met the bank's debt covenant requirement?
Sam Company's debt-to-equity ratio at year-end is 0.58 and has satisfied the bank's debt covenant
A company recorded a decommissioning liability and recognized the amount recorded as part of the cost of the related property. After the property was fully depreciated, the decommissioning liability was reviewed and adjusted. How should this change in the decommissioning liability be recognized under IFRS?
The change in the liability is recognized in profit or loss
Which of the following methods should a company use to account for a contingent liability when the loss is probable but not reasonably estimated?
The liability should only be disclosed in the notes to the financial statements
Which of the following is not one of the liability reporting criteria for post-employment benefits?
The obligation depends upon whether the individual continues to be available for questions and assistance after employment ceases.
Which of the following information about threatened litigation should not be considered to determine whether an accrual is appropriate prior to an issuance of a company's financial statements?
The period in which the threatened litigation became known to management
Pie Co. uses the installment sales method to recognize revenue. Customers pay the installment notes in 24 equal monthly amounts, which include 12o/o interest. What is an installment note's receivable balance six months after the sale? a. 75°/o of the original sales price. b. Less than 75°/o of the original sales price. c. The present value of the remaining monthly payments discounted at 12°/o. d. Less than the present value of the remaining monthly payments discounted at 12°/o
The present value of the remaining monthly payments discounted at 12%.
In June, Northan Retailers sold refundable merchandise coupons. Northan received $10 for each coupon redeemable from July 1 to December 31 for merchandise with a retail price of $11. At June 30, how should Northan report these coupon transactions?
Unearned revenues at the cash received amount
Vadis Co. sells appliances that include a three-year warranty. Service calls under the warranty are performed by an independent mechanic under a contract with Vadis. Based on experience, warranty costs are estimated at $30 for each machine sold. When should Vadis recognize these warranty costs?
When the machines are sold
