Intermediate Financial Accounting II Exam 1

A contingency is defined by the accounting profession as: A. an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur. B. an existing condition, situation, or set of circumstances involving uncertainty as to a possible loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur. C. an event that will result in the requirement to record a liability if it can be shown that an asset is in danger of being lost to the enterprise and the company has no ability to avoid the loss. D. an uncertain event that must have a reasonable chance of occurrence and the amount must be reasonably determinable by the company

A {A contingency is either a gain or a loss contingency as defined by GAAP. Alternative B only provides for the loss contingency. Alternatives C and D are not at all representative of contingencies. }

Hegel Corporation has $1,500,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? A. $1,000,000. B. $1,500,000. C. $500,000. D. $0

A {The maximum amount of short-term debt that can be excluded from current liabilities is limited to the amount secured through the refinancing arrangement. In this case the amount is $1,000,000 (50,000 x $20).}

A bond that matures in installments is called a: A. serial bond. B. callable bond. C. bearer bond. D. term bond.

A. Serial bond

On January 1, 2014, Trinity Company loaned $901,560 to Litton Industries in exchange for a 3 year, zero-interest-bearing note with a face amount, $1,200,000. The prevailing rate of interest for a loan of this type is 10%. The adjusting journal entry made by Litton at December 31, 2014 with regard to the note will include A. a credit to Discount on Notes Payable for $90,156. B. a debit to Interest Expense for $120,000. C. a credit to Interest Payable for $60,000. D. a debit to Interest Expense for $29,850.

A. a credit to Discount on Notes Payable for $90,156. ($901,560 X .10) = $90,156.

The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the a. bond indenture. b. bond debenture. c. registered bond. d. bond coupon.

A. bond indenture

Federal income taxes withheld by the employer on behalf of the employee are recorded as A. current liabilities B. expenses C. unearned revenues D. receivables

A. current liabilities The taxes are reported as liabilities because the employer is acting as the collection agent for the government.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will: A. exceed what it would have been had the effective-interest method of amortization been used. B. be less than what it would have been had the effective-interest method of amortization been used. C. be the same as what it would have been had the effective-interest method of amortization been used. D. be less than the stated (nominal) rate of interest.

A. exceed what it would have been had the effective-interest method of amortization been used.

If a bond sold at 97, the market rate was: A. greater than the stated rate. B. equal to the stated rate. C. less than the stated rate. D. equal to the coupon rate.

A. greater than the stated rate.

Nietzsche Corn Flakes Company offers its customers a silver cereal spoon if they send in 5 boxtops from Nietzsche Corn Flakes boxes and $1.00. The Company estimates that 75% of the boxtops will be redeemed. In 2014 the Company sold 450,000 boxes of Corn Flakes and customers redeemed 220,000 boxtops receiving 44,000 spoons. If the spoons cost Nietzsche Company $2.50 each, how much liability for outstanding premiums should be recorded at the end of 2014? A. $23,500 B. $35,250 C. $58,750 D. $82,250

B {Boxtops sold in 2014 450,000 Estimated redemptions: 450,000 X .75 = 337,500 Boxtops redeemed in 2014 220,000 Estimated future redemptions 117,500 Liability for outstanding claims: 117,500/5 = 23,500 X ($2.50 - $1.00) = $35,250 }

The Diana Co. issues a $208,000 6-month, zero-interest-bearing note to the Tang National Bank. The present value of the note is $200,000. The entry to record this transaction by Diana Co. would include: A. a credit to Notes Payable of $200,000. B. a debit to Discount on Notes Payable of $8,000. C. a credit to Discount on Notes Payable of $8,000. D. a debit to cash of $208,000.

B {The following entry would be made by Diana Co.: Cash 200,000 DR Discount on Notes Payable 8,000 DR Notes Payable 208,000 CR}

A liability has three essential characteristics, which of the following is not one of them? A. It is a present obligation that entails settlement by probable future transfer or use of cash, goods, or services. B. The obligation must be liquidated using cash, goods, or services that were earned by the entity in the performance of their normal business operation. C. The liability must be an unavoidable obligation. D. The transaction or other event creating the obligation must have already occurred.

B {A liability must meet the three characteristics noted in alternatives A, C, and D. The indication in alternative B that the obligation be liquidated using assets earned in the normal course of operations is not an essential characteristic. The funds used to liquidate a liability could come from borrowing. }

Which of the following would not constitute evidence concerning the ability to consummate the refinancing of a short-term obligation? A. Actual refinancing after the balance sheet date by issuance of a long-term obligation. B. A statement by the board of directors that refinancing is inevitable. C. Entering into a financing agreement that clearly permits refinancing on a long-term basis with terms that are readily determinable. D. Actual refinancing after the balance sheet date by issuance of equity securities.

B {The ability to consummate refinancing of a short-term obligation is best demonstrated by actual refinancing after the financial statement date but before the financial statements are issued. A mere statement by the board of directors that it can accomplish refinancing is not sufficient to classify the short-term debt as long-term debt. }

In accounting for compensated absences, the difference between vested rights and accumulated rights is: A. vested rights are normally for a longer period of employment than are accumulated rights. B. vested rights are not contingent upon an employee's future service. C. vested rights are a legal and binding obligation on the company, whereas accumulated rights expire at the end of the accounting period in which they arose. D. vested rights carry a stipulated dollar amount that is owed to the employee; accumulated rights do not represent monetary compensation.

B {Vested rights exist when an employer has an obligation to make payment to an employee even if his or her employment is terminated; thus, vested rights are not contingent on an employee's future service. Accumulated rights are those that can be carried forward to future periods if not used in the period in which they are earned. The length of time, the legality, or compensation involved are not characteristics which identify specific differences. }

Ultra-energy Company offers a cash rebate of $2 on each $9 package of protein powder sold during 2014. Historically, 20% of customers mail in the rebate form. During 2014, 3,000,000 packages are sold, and 250,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the company's 2014 financial statements? A. $500,000; $700,000 B. $1,200,000; $700,000 C. $1,200,000; $500,000 D. $500,000; $1,200,000

B. $1,200,000; $700,000 The expense is (3,000,000 packages X 20% X $2/ package) = $1,200,000. Since 250,000 $2 rebates were mailed in during 2014, the liability balance is ($1,200,000 - $500,000) $700,000.

On January 1, 2014, Kimbrough Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Kimbrough uses the effective-interest method of amortizing bond discount. At December 31, 2014, Kimbrough should report unamortized bond discount of A. $274,500. B. $285,500. C. $258,050 D. $255,000.

B. $285,500 ($5,000,000 - $4,695,000) = $305,000 at issuance. The amortization of discount in 2014 is [$450,000 -($4,695,000 X .10)] =$19,500 leaving a balance of $305,000 - $19,500 = $285,500.

On June 30, 2014, Prouty Co. had outstanding 9%, $5,000,000 face amount, 10-year bonds that pay interest semi-annually on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $200,000 and $50,000, respectively. On June 30, 2014, Prouty acquired all of these bonds at 101 and retired them. What amount of gain or loss would Prouty record on this early extinguishment of debt? A. $505,000 gain. B. $300,000 loss. C. $200,000 gain. D. $250,000 loss.

B. $300,000 loss. The bonds' net carrying amount is ($5,000,000 - $200,000 - $50,000) = $4,750,000. The loss on extinguishment is ($5,000,000 X 1.01) - $4,750,000 = $300,000.

Ferrone Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Ferrone uses effective-interest amortization. What amount of interest expense will Ferrone record for the June 30 payment? A. $390,000 B. $392,082 C. $400,000 D. $784,164

B. $392,082 Interest expense for the first six months is ($9,802,072 X .04) =$392,082.

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? A. Amount of loss is reasonably estimable and event occurs infrequently. B. Amount of loss is reasonably estimable and occurrence of event is probable. C. Event is unusual in nature and occurrence of event is probable. D. Event is unusual in nature and event occurs infrequently.

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

Which of the following is not an example of a current liability? A. Dividends Payable B. Preferred dividends in arrears. C. Unearned Service Revenue. D. Salaries Payable

B. Preferred dividends in arrears. Preferred dividends in arrears are not a liability until declared by the Board of Directors.

Black Water Inc. is being sued by former employees as a result of negligence on the company's part. Black Water's lawyers state that it is probable that the company will lose the suit and be found liable for a judgment costing the company anywhere from $100,000,000 to $200,000,000. However, the lawyer states that the most probable cost is $125,000,000. As a result of the above facts, Black Water should accrue A. a loss contingency of $100,000,000 and disclose an additional contingency of up to $100,000,000. B. a loss contingency of $125,000,000 and disclose an additional contingency of up to $75,000,000. C. a loss contingency of $125,000,000 but not disclose any additional contingency. D. no loss contingency but disclose a contingency of $100,000,000 to $200,000,000.

B. a loss contingency of $125,000,000 and disclose an additional contingency of up to $75,000,000. Because a loss of $125,000,000 is more likely than any other amount in the range, Black Water should accrue $125,000,000 and disclose the potential additional loss of $75,000,000.

When a bond sells at a premium, interest expense will be: A. none of these answer choices are correct. B. less than the bond interest payment. C. equal to the bond interest payment. D. greater than the bond interest payment.

B. less than the bond interest payment.

The selling price of a bond is the sum of the present values of the principal and the periodic interest payments. The present values are determined by discounting using the: A. nominal rate. B. market rate. C. stated rate. D. coupon rate.

B. market rate

A loss related to general or unspecified business risks is A. always accrued. B. not accrued. C. sometimes accrued. D. usually accrued.

B. not accrued.

Employer payroll taxes include all of the following except A. federal unemployment taxes. B. state income taxes. C. FICA taxes. D. state unemployment taxes.

B. state income taxes.

Current liabilities are: A. liabilities that are due and payable on the balance sheet date. B. liabilities that may be paid out of any asset pool accumulated by the enterprise as long as payment is due within one year. C. due within one year or one operating cycle, whichever is longer. D. void of notes payable, as notes are always long-term.

C {Current liabilities are obligations that mature within one year or the operating cycle, whichever is longer, and they are reasonably expected to require the use of current assets for their liquidation. }

Which of the following is not acceptable treatment for the presentation of current liabilities? A. Listing current liabilities in order of maturity. B. Listing current liabilities according to amount. C. Offsetting current liabilities against assets that are to be applied to their liquidation. D. Showing current liabilities immediately below current assets to obtain a presentation of working capital.

C {Offsetting current liabilities against assets that are to be applied to their liquidation would be inappropriate. Such a presentation would cause working capital and current ratio-type analyses to be difficult to perform. Also, readers of the financial statements could be misled by such a presentation}

On October 1, 2013, a company borrowed cash and signed a one-year, interest-bearing note on which both the principal and interest are payable on October 1, 2014. How will the note payable and the related interest be classified in the December 31, 2013, balance sheet? Note Payable; Accrued Interest A. Current liability; Noncurrent liability B. Noncurrent liability; Current liability C. Current liability; Current liability D. Noncurrent liability; Noncurrent liability

C {Since these liabilities will be paid within one year from the December 31, 2013 balance sheet date, both the note payable and the related accrued interest payable should be classified as current liabilities. }

In accounting for compensated absences, a company following GAAP would account for the liability using the: Cash Basis; Accrual Basis A. Yes; Yes B. Yes; No C. No; Yes D. No; No

C {The accounting profession requires that a liability be accrued for the cost of compensation for future absences if all of the following conditions are met: 1. The employer's obligation relating to the employees' rights to receive compensation for future absences is attributable to employees' services already rendered. 2. The obligation relates to rights that vest or accumulate. 3. Payment of the compensation is probable. 4. The amount can be reasonably estimated. }

Which of the following loss contingencies is normally accrued? A. Pending or threatened litigation. B. General or unspecified business risk. C. Obligations related to product warranties. D. Risk of property loss due to fire.

C {To accrue a loss contingency, it must be probable that a liability has been incurred and the amount must be reasonably estimated. Alternatives B and D might in some cases be considered probable,m but the amount of any loss could not be predicted with any accuracy. Alternative A is incorrect because threatened litigation might not be probable and the amount would be difficult to estimate. Obligations related to product warranties are definitely probable, and the amount is normally estimable because of the past experience of the company. }

If a loss is either probable or estimable, but not both, and if there is at least a reasonable possibility that a liability may have been incurred, the proper accounting treatment would be reflected by which of the following? A. Record the loss and the related liability, but at an amount that is significantly conservative. B. Record the loss and the related liability, but indicate in a footnote to the financial statements that this loss may not occur because one of the criteria may not be met. C. Disclose in the footnotes to the financial statements (1) the nature of the contingency, and (2) an estimate of the possible loss or range of loss or a statement that an estimate cannot be made. D. Do not record the contingency or make mention of it in the financial statements because it lacks meeting the required criteria.

C {When a loss is either probable or estimable, but not both, and if there is at least a reasonable possibility that a liability may have been incurred, the disclosures noted in alternative C should be made. To record this contingency would violate GAAP as the specified criteria have not been fully met. }

Eckert Company issues $10,000,000, 6%, 5-year bonds dated July 1, 2014 on July 1, 2014. The bonds pay interest semiannually on December 31 and June 30. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods 0.88385 0.86261 0.78353 0.74726 Present value of a single sum for 10 periods 0.78120 0.74409 0.61391 0.55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 A. $10,000,000 B. $10,432,988 C. $10,437,618 D. $10,434,616

C. $10,437,618

In 2013, General Dynamics Corporation began selling a new line of products that carries a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows: First year of warranty 2% Second year of warranty 5% Sales and actual warranty expenditures for 2016 and 2017 are presented below: 2016 2017 Sales $600,000 $800,000 Actual warranty expenditures 20,000 40,000 What is the estimated warranty liability at the end of 2017? A $16,000. B $98,000. C $38,000. D $58,000.

C. $38,000

On June 30, 2014, Baker Co. had outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2024. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $210,000 and $60,000, respectively. On June 30, 2014, Baker acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt? A. $5,940,000. B. $5,790,000. C. $5,730,000. D. $5,640,000.

C. $5,730,000. ($6,000,000 - $210,000 - $60,000) = $5,730,000.

The current ratio measures: A. Profitability B. Solvency C. Liquidity D. All of these options are correct.

C. Liquidity The current ratio is a measure of a firm's ability to meet its currently maturing debt

Which of the following statements is false? A. When rights are vested, an employer has an obligation to make payment to an employee. B. Unemployment taxes are paid by the employer. C. Profit-Sharing Bonus Payable is usually reported as a long-term liability. D. The liability for compensated absences should be recognized in the year earned.

C. Profit-Sharing Bonus Payable is usually reported as a long-term liability.

Strassberg Co. purchases a truck from Forward Auto for $65,000 on January 2, 2017. Forward estimated the assurance-type warranty costs on the truck to be $800 (Forward will pay for repairs for the first 50,000 miles or two years, whichever comes first). Strassberg Co. also purchases $1,000 service-type warranty for an additional 50,000 miles or two years. Forward incurs warranty costs related to the assurance-type warranty of $300 in 2017 and $500 in 2018. Forward records revenue on the service-type warranty on a straight-line basis. What is the amount of warranty liability and unearned warranty revenue that should be shown on the balance sheet of Forward at December 31, 2017? Warranty Liability Unearned Warranty Revenue A. $500 $500 B. $400 $1,000 C. $500 $1,000 D. $400 $500

C. Warranty Liability - $500 Unearned Warranty Revenue - $1,000

Lyric Company issued a 90-day zero-interest bearing note with a face amount of $3,000. The present value of the note is $2,855. The journal entry to record the insurance of the note will include A. a credit to Notes Payable for $2,855. B. a debit to Interest Expense for $145. C. a debit to Cash for $2,855. D. None of these answers are correct.

C. a debit to Cash for $2,855. The borrower receives the present value of the note because the interest has already been deducted so the Cash account is debited for that amount.

The printing costs and legal fees associated with the issuance of bonds should: A. be expensed when incurred. B. be reported as a deduction from the face amount of bonds payable. C. be accumulated in a deferred charge account and amortized over the life of the bonds. D. not be reported as an expense until the period the bonds mature or are retired.

C. be accumulated in a deferred charge account and amortized over the life of the bonds.

A bond for which the issuer has the right to call and retire the bonds prior to maturity is a A. convertible bond. B. retirable bond. C. callable bond. D. debenture bond.

C. callable bond

Short-term obligations expected to be refinanced are not classified as current liabilities because A. they will be paid by the balance sheet date. B. the obligations will be satisfied before the financial statements are issued. C. their satisfaction will not require the use of assets classified as current as of the balance sheet date. D. None of these answers are correct.

C. their satisfaction will not require the use of assets classified as current as of the balance sheet date. Because these obligations will not require the use of working capital during the next year (or operating cycle), they are not classified as current liabilities.

Pontchartrain Company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. The company uses effective-interest amortization. Interest expense reported on the 2014 income statement will total: A. $1,529,115 B. $1,560,000 C. $1,568,498 D. $1,600,000

C.$1,568,498 Interest expense for the first 6 month period is ($19,604,145 X.04) =$784,166. The new carrying value for the bonds is [$19,604,145 + ($784,166 - $780,000)] = $19,608,311. Interest expense for the second six months is ($19,608,311 X .04) = $784,332. Total interest expense for 2014 is ($784,166 + $784,332) = $1,568,498.

Wilson Company is involved in a litigation suit concerning the clean-up of old underground oil storage tanks on property it sold to a housing development company five years ago. The attorneys for Wilson Company cannot give a best estimate for the probable liability; however, the attorneys state that the liability to Wilson Company will probably fall within a range of $2 million to $10 million. According to the SEC, what should Wilson Company record with regards to this environmental liability? A. No entry is required. B. A loss and liability of $10 million. C. A loss and liability of $6 million. D. A loss and liability of $2 million

D {The SEC argues that if an environmental liability is within a range and no amount within the range is the best estimate, then management should recognized the minimum amount of the range. }

Williams Co., which has a taxable payroll of $300,000, is subject to the FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Williams Co.? A. $35,100 B. $24,600 C. $12,000 D. $ 8,400

D {The computation of the federal and state unemployment taxes for Williams Co. is as follows: State unemployment tax payment (.02 x $300,000) $6,000 + Federal unemployment tax (6.2% - 5.4%) ($300,000) 2,400 Total federal and state unemployment tax $8,400} [When employers display by their benefit and contribution experience that they have provided steady employment and thus receive a reduction in state unemployment taxes, they are still allowed the federal credit of 5.4% even though the effective state contribution rate is less than 5.4%. ]

During 2013 Wannstedt Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: year; sales; actual warranties expenditures 2013; $ 200,000; $ 3,000 2014; 500,000; 15,000 2015; 700,000; 45,000 Total: $1,400,000; $63,000 What amount should Wannstedt report as a liability at December 31, 2015? A. $ 0 B. $ 5,000 C. $ 68,000 D. $105,000

D {Wannstedt's warranty liability at December 31, 2015, can be computed as follows: Total credited to the warranty liability account in 2013, 2014, and 2015 (12% x $1,400,000) $168,000 Less: Total amount debited to the warranty liability account in 2013, 2014, and 2015 63,000 Warranty liability, 12/31/15 $105,000 x 2% + 4% + 6% = 12% }

If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except: A. a general description of the financing arrangement. B. the terms of the new obligation incurred or to be incurred. C. the terms of any equity security issued or to be issued. D. the number of financing institutions that refused to refinance the debt, if any.

D {Alternatives A, B, and C must be disclosed in the footnotes to the financial statements. There is no requirement to indicate failures to secure financing. }

With respect to the following loss contingencies, would a liability normally be accrued or not accrued? Loss related to: receivable collections; product warranties A. Accrued; Not Accrued B. Not Accrued; Accrued C. Not Accrued; Not Accrued D. Accrued; Accrued

D {Both of these items represent loss contingencies that would normally be accrued. In both cases the loss is probable and the amount can be reasonably estimated. }

The currently maturing portion of long-term debt should be classified as a current liability if: A. the debt is to be converted into capital stock. B. the debt is to be refinanced on a long-term basis. C. the funds used to liquidate it are currently classified as a long-term investment on the balance sheet. D. the portion so classified will be liquidated within one year using current assets

D {The item would be classified as a current liability as long as it met the relevant criteria. The criteria include payment within one year or the operating cycle, whichever is longer, and payment made using assets classified as current. }

Marx Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated, and unfavorable outcome is highly probable, and: A. the Marx Company admits guilt. B. the court will decide the case within one year. C. the damages appear to be material. D. the cause for action occurred during the accounting period covered by the financial statements

D {The liability must be related to the period covered by the financial statements. The other alternatives (A, B, and C) are inconsequential to recording the liability. }

On December 31, 2013, SoBou Co. has $5,000,000 of short-term notes payable due on February 14, 2014. On January 10, 2014, soBou arranged a line of credit with Suntrust Bank which allows SoBou to borow up to $3,500,000 at one percent above the prime rate for three years. On February 3, 2014, SoBou borrowed $3,500,000 from Suntrust and used $500,000 additional cash to liquidate $4,000,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as a current liability on the December 31, 2013 balance sheet which is issued on March 2, 2014 is A. $0. B. $500,000. C. $1,000,000. D. $1,500,000.

D. $1,500,000. The correct amount is ($5,000,000-$4,000,000) +$500,000= $1,500,000.

Fancy Fish Company offers a cash rebate of $.25 on each $12 package of fish food sold during 2014. Historically, 10% of customers mail in the rebate form. During 2014, 5,000,000 packages are sold, and 150,000 $.25 rebates are mailed to customers. What is the rebate expense and liability, respectively, reported in the company's 2014 financial statements? A. $125,000; $37,500 B. $37,500; $87,500 C. $125,000; $125,000 D. $125,000; $87,500

D. $125,000; $87,500 The expense is 5,000,000 packages X 10% X $.25 per package or $125,000. Since 150,000 $.25 rebates were mailed in during 2014, the liability balance is ($125,000 - $37,500) $87,500.

Which of the following statements is false? A. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing B. Cash dividends should be recorded as a liability when they are declared by the board of directors C. Unearned revenues represent advance payments for goods or services from customers D. Stock dividends declared but not yet distributed are a reported as a liability until the stock is issued

D. Stock dividends declared but not yet distributed are a reported as a liability until the stock is issued

On January 1, Gasperson Inc. issued $100,000,000, 7% bonds at 102. The journal entry to record the issuance of the bonds will include A. a credit to Bonds Payable for $102,000,000. B. a credit to Interest Expense for $2,000,000. C. a debit to Cash for $100,000,000. D. a credit to Premium on Bonds Payable for $2,000,000.

D. a credit to Premium on Bonds Payable for $2,000,000.

A large anticipated insurance recovery is reported as A. an accrued amount B. deferred revenue C. an account receivable with additional disclosure explaining the nature of the contingency. D. a disclosure only

D. a disclosure only An anticipated insurance recovery is a gain contingency and thus is reported as a disclosure only.

Accrued liabilities are disclosed in the financial statements by A. a footnote to the statements. B. showing the amount among the liabilities but not extending it to the liability total. C. an appropriation of retained earnings. D. appropriately classifying them as regular liabilities in the balance sheet.

D. appropriately classifying them as regular liabilities in the balance sheet. Accrued liabilities are disclosed in the financial statements by appropriately classifying them as regular liabilities in the balance sheet.

Under the effective interest method, interest expense: A. always increases each period the bonds are outstanding. B. always decreases each period the bonds are outstanding. C. is the same annual amount as straight-line interest expense. D. is the same total amount as straight-line interest expense over the term of the bonds.

D. is the same total amount as straight-line interest expense over the term of the bonds.

Liabilities are: A. accounts having credit balances after closing entries are made. B. deferred credits that are recognized and measured in conformity with generally accepted accounting principles. C. obligations to transfer ownership shares to other entities in the future. D. obligations arising from past transactions and payable in assets or services in the future.

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