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CURRENT LIABILITIES AND CONTINGENCIES
21. Liabilities are a. any 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. Which of the following is a current liability? a. A long-term debt maturing currently, which is to be paid with cash in a sinking fund b. A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue c. A long-term debt maturing currently, which is to be converted into common stock d. None of these Which of the following is true about accounts payable? 1. Accounts payable should not be reported at their present value. 2. When accounts payable are recorded at the net amount, a Purchase Discounts account will be used. 3. When accounts payable are recorded at the gross amount, a Purchase Discounts Lost account will be used. a. b. c. d. 24. 1 2 3 Both 2 and 3 are true.
Among the short-term obligations of Lance Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Madison National Bank. These are 90-day notes, renewable for another 90-day period. These notes should be classified on the balance sheet of Lance Company as a. current liabilities. b. deferred charges. c. long-term liabilities. d. intermediate debt. Which of the following is not true about the discount on short-term notes payable? a. The Discount on Notes Payable account has a debit balance. b. The Discount on Notes Payable account should be reported as an asset on the balance sheet. c. When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate. d. All of these are true.
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Test Bank for Intermediate Accounting, Fourteenth Edition Which of the following may be a current liability? a. Withheld Income Taxes b. Deposits Received from Customers c. Deferred Revenue d. All of these Which of the following items is a current liability? a. Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. b. Bonds due in three years. c. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. d. Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue. Which of the following should not be included in the current liabilities section of the balance sheet? a. Trade notes payable b. Short-term zero-interest-bearing notes payable c. The discount on short-term notes payable d. All of these are included Which of the following is a current liability? a. Preferred dividends in arrears b. A dividend payable in the form of additional shares of stock c. A cash dividend payable to preferred stockholders d. All of these Stock dividends distributable should be classified on the a. income statement as an expense. b. balance sheet as an asset. c. balance sheet as a liability. d. balance sheet as an item of stockholders' equity.
Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less). sales taxes payable. unearned revenues. What is the relationship between present value and the concept of a liability? a. c. b. Which of the following is a characteristic of a current liability but not a long-term liability? a. 37. Which of the following is not considered a part of the definition of a liability? a. To evaluate operating efficiency. b. b. 32. accounts payable—debit balances. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities. b. Unavoidable obligation. current maturities of long-term debt. or services. Present obligation that entails settlement by probable future transfer or use of cash. c.Current Liabilities and Contingencies 31. goods. d. To better understand sources of repayment. goods. Transaction or other event creating the liability has already occurred. b. d. What is the relationship between current liabilities and a company's operating cycle? a. 34. short-term obligations expected to be refinanced. or services. b. Unavoidable obligation. none of these. d. c. d. To assist in understanding the entity's liquidity. Current liabilities can't exceed the amount incurred in one operating cycle. dividends payable in the company's stock. c. d. Present obligation that entails settlement by probable future transfer or use of cash. the only one which should not be classified as a current liability is a. c. To evaluate the entity's credit quality. losses expected to be incurred within the next twelve months in excess of the company's insurance coverage. Current liabilities are the result of operating transactions. Why is the liability section of the balance sheet of primary importance to bankers? a. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities. c. 33. c. 13 . b.3 Of the following items. 36. An account which would be classified as a current liability is a. 35. Present values are used to measure all liabilities. Present values are only used to measure long-term liabilities. d. d. Present values are used to measure certain liabilities. Transaction or other event creating the liability has already occurred. There is no relationship between the two. Present values are not used to measure liabilities. .
42. Test Bank for Intermediate Accounting. Record a liability for the current year's dividends only. Providing trade credit to customers. Have capacity under existing financing agreements that can be used to refinance the obligation. Disclose the amount of the dividends in arrears. d. Which of the following statements is correct? a. Long-term liability. Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities? a. d. Intend to refinance the obligation on a long-term basis. c.13 . d. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis. No disclosure or recognition is required. 40. Current liability if the creditor intends to call the debt within the year. Actually refinance the obligation. Record a liability for cumulative amount of preferred stock dividends not declared. Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short-term debt? a. The discount represents the lender's costs to underwrite the note. d. The discount represents the cost of borrowing. otherwise a long-term liability. b. Providing manufacturer warranties. Current liability. b. c. 41. Selling magazine subscriptions. The discount represents the allowance for uncollectible amounts. 39. 44. Fourteenth Edition What is a discount as it relates to zero-interest-bearing notes payable? a. d. A company may exclude a short-term obligation from current liabilities if the firm can demonstrate an ability to consummate a refinancing. A company has not declared a dividend on its cumulative preferred stock for the past three years. b. Subsequently refinance the obligation on a long-term basis. Demonstrate the ability to complete the refinancing. c. Selling inventory. 43. Management indicated that they are going to refinance the obligation. Current liability if it is probable that creditor will call the debt within the year. Enter into a financing agreement that clearly permits the entity to refinance the obligation. Where is debt callable by the creditor reported on the debtor's financial statements? a. b. c. The discount represents the credit quality of the borrower. b. A company may exclude a short-term obligation from current liabilities if it is paid off after the balance sheet date and subsequently replaced by long-term debt before the balance sheet is issued. None of these.4 38. Which of the following situations may give rise to unearned revenue? a. b. c. d. What is the required accounting treatment or disclosure in this situation? a. otherwise a longterm liability. b. Obligation must be due with one year. c. d. c. .
a general description of the financing arrangement. the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate. b. d. if any. actually refinancing the obligation by issuing a long-term obligation after the date of the balance sheet but before it is issued. actually refinancing the obligation by issuing equity securities after the date of the balance sheet but before it is issued. S 48. warranty costs are charged to expense as they are paid. All of these are true. c. d. c. 47. 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. vested rights carry a stipulated dollar amount that is owed to the employee. accumulated rights do not represent monetary compensation. all of these. Which of the following is not a correct statement about sales taxes? a. vested rights are not contingent upon an employee's future service. d. vested rights are normally for a longer period of employment than are accumulated rights. . d. and unemployment taxes. Many companies record sales taxes in the sales account.5 The ability to consummate the refinancing of a short-term obligation may be demonstrated by a. b. the difference between vested rights and accumulated rights is a. d. unemployment taxes. portion of FICA taxes and unemployment taxes. P 50. c. b. Cash dividends should be recorded as a liability when they are declared by the board of directors. c. b. 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. 13 . c. c. whereas accumulated rights expire at the end of the accounting period in which they arose. the terms of the new obligation incurred or to be incurred. and any voluntary deductions. In accounting for compensated absences. Sales taxes are an expense of the seller. Under the cash basis method. S 49. portion of FICA taxes. and employer's portion of FICA taxes. b. the footnote to the financial statements describing this event should include all of the following information except a.Current Liabilities and Contingencies 45. entering into a financing agreement that permits the enterprise to refinance the debt on a long-term basis. b. vested rights are a legal and binding obligation on the company. An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's a. the number of financing institutions that refused to refinance the debt. If sales taxes are included in the sales account. 46. If a short-term obligation is excluded from current liabilities because of refinancing. d. portion of FICA taxes and any voluntary deductions. the terms of any equity security issued or to be issued. Which of the following statements is false? a.
53. the current rates of pay in effect when employees earn the right to compensated absences. Fourteenth Edition Which of these is not included in an employer's payroll tax expense? a. Amount can be reasonably estimated. A liability for compensated absences such as vacations. F. c. be accrued during the period following vesting. the present value of the amount expected to be paid in future periods.I. 52. a. be accrued during the period when earned. Unpaid time off. b.C. b. Federal unemployment taxes c. 3. Under what conditions is an employer required to accrue a liability for sick pay? a. be accrued during the period when the compensated time is expected to be used by employees. Which gives rise to the requirement to accrue a liability for the cost of compensated absences? a. 3. 2. Sick pay benefits can be reasonably estimated. d. State unemployment taxes d. Employee rights vest or accumulate. c. The obligation is attributable to employee services already performed. Test Bank for Intermediate Accounting. for which it is expected that employees will be paid. Payroll deductions. 1. (social security) taxes b. What are compensated absences? a. Sick pay benefits equal 100% of the pay. 54. d. 55. d. c. b. Federal income taxes Which of the following is a condition for accruing a liability for the cost of compensation for future absences? a. All of the above. d. The obligation relates to the rights that vest or accumulate. b. b. . Sick pay benefits accumulate. c. c.13 . Payment of the compensation is probable. All of these are conditions for the accrual.A. Paid time off. 2. should a. Sick pay benefits vest. Either 1 or 2 is acceptable. the future rates of pay expected to be paid when employees use compensated time. d. Payment is probable.6 51. The amount of the liability for compensated absences should be based on 1. 56. c. A form of healthcare. b. 57. not be accrued unless a written contractual obligation exists. d.
An existing situation where uncertainty exists as to possible gain or loss that will not be resolved in the foreseeable future. b. Environmental liabilities that cannot be reasonably estimated c.Current Liabilities and Contingencies 58. c. State income taxes. Which of the following contingencies need not be disclosed in the financial statements or the notes thereto? a. An existing situation where certainty exists as to a gain or loss that will be resolved when one or more future events occur or fail to occur. b. As deferred revenue. Remote. d. Probable. Likely. Pending court case with a probable favorable outcome. c. When the amount can be reasonably estimated. Which of the following is the proper way to report a gain contingency? a. b. When the future events are probable to occur. c. Tax loss carryforwards. Federal income taxes. As a disclosure only. Which of the following taxes does not represent a common payroll deduction? a. c. When is a contingent liability recorded? a. c. d. All of these must be disclosed. b. 60. FICA taxes. Probable losses not reasonably estimable b. c. 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. As an account receivable with additional disclosure explaining the nature of the contingency. d. d. State unemployment taxes. Guarantees of indebtedness of others d. Which of the following terms is associated with recording a contingent liability? a. Obligations related to product warranties. b. . When the future events will possibly occur and the amount can be reasonably estimated. b. 64. An existing situation where uncertainty exists as to possible loss that will be resolved when one or more future events occur.7 59. As an accrued amount. 62. 13 . Possible receipt from a litigation settlement. d. Which of the following is an example of a contingent liability? a. What is a contingency? a. d. Possible. 63. When the future events are probable to occur and the amount can be reasonably estimated. 61.
d. whether it hires another party to perform the retirement activities or performs the activities itself. disclosure in note form only. . b.8 65. recognition of a loss and creation of a liability for the value of the land. 69. none of these. Event is unusual in nature and occurrence of event is probable. recognition of a loss only. To record an asset retirement obligation (ARO). Test Bank for Intermediate Accounting. c. 2012. Beck had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. is accrued even though not reasonably estimated. 66. an asset may have been impaired. included in the carrying amount of the related long-lived asset. Beck appears inclined to accept the Railroad's offer. the cost associated with the ARO is a. b. c. included in a separate account. b. is the result of a loss contingency. c. it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated. Fourteenth Edition Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? a. 68. c. d. b. b. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Beck in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. only when it hires another party to perform the retirement activities. d. On August 10. c. The Railroad's 2012 financial statements should include the following related to the incident: a. only if it performs the activities with its own workforce and equipment. Event is unusual in nature and event occurs infrequently. creation of a liability only. hay on the farm was set on fire and burned. when it is probable the asset will be retired. Jeff Beck is a farmer who owns land which borders on the right-of-way of the Northern Railroad. d. A contingent liability a. is not disclosed in the financial statements. A contingency can be accrued when a. d. Amount of loss is reasonably estimable and event occurs infrequently. expensed. due to the admitted negligence of the Railroad. 67.13 . Amount of loss is reasonably estimable and occurrence of event is probable. c. definitely exists as a liability but its amount and due date are indeterminable. b. the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability incurred. A company is legally obligated for the costs associated with the retirement of a long-lived asset a. 70. it is certain that funds are available to settle the disputed amount. d.
No recognition b. the minimum of the range. an unfavorable outcome is highly probable. c. S 75. c. should be reported as long-term.9 Assume that a manufacturing corporation has (1) good quality control.000. finds the expense account being charged when the seller performs in compliance with the warranty. 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. P 74. is frequently justified on the basis of expediency when warranty costs are immaterial. What accounting recognition. 72. d. No single amount within the range is a better estimate than any other amount. Dean Company becomes aware of a lawsuit after the date of the financial statements. (2) a one-year operating cycle. is required for federal income tax purposes. Because of a recently proven health hazard in one of its paints. Based on the above facts. but before they are issued. 73. need not be disclosed. The management of Ortiz estimates that this recall would cost $800. The loss amount can only be reasonably estimated within a range of outcomes. 13 . b. if any. classified as an appropriation of retained earnings. b. d. Note disclosure only c. has a loss contingency to accrue. (3) a relatively stable pattern of annual sales.Current Liabilities and Contingencies 71. the cause for action occurred during the accounting period covered by the financial statements. a manufacturer of household paints. Espinosa Co. zero. the Dean Company admits guilt. Operating expense of $800. 2012. and a. The amount of loss accrual should be a. accrued. the damages appear to be material. . an estimated loss contingency should be a. b. the maximum of the range. the government has clearly indicated its intention of having Ortiz recall all cans of this paint sold in the last six months. S 76. disclosed but not accrued. the court will decide the case within one year. Ortiz Corporation. c. neither accrued nor disclosed. d.000 d. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale. should be reported as part current and part long-term. The amount of the loss involved can be reasonably estimated. is preparing annual financial statements at December 31. b. a liability has been incurred for obligations related to product warranties. the mean of the range. d. Appropriation of retained earnings of $800. should be reported as current. at the date of the financial statements. b.000 Information available prior to the issuance of the financial statements indicates that it is probable that. Use of the accrual method in accounting for product warranty costs a. should be accorded this situation? a. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated. d.000 and liability of $800. Any liability for the warranty a. c. c.
10 77. Premium expense is not recognized. the customer receives a coupon upon checkout to purchase a second game at a 50% discount. c. What condition is necessary to recognize an asset retirement obligation? a. The type of litigation involved. Warranty expense. 82. c. Warranty revenue. Which of the following best describes the cash-basis method of accounting for warranty costs? a. d. Which of the following are not factors that are considered when evaluating whether or not to record a liability for pending litigation? a. The probability of an unfavorable outcome. The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense. Expensed when incurred. The ability to make a reasonable estimate of the amount of the loss. Estimated liability under warranties. c. b. Expensed when warranty claims are certain. b. Expensed when incurred. How would the store account for a purchase using the discount coupon? a. d. Expensed when liability is accrued. 78. b. Test Bank for Intermediate Accounting. b. d. d. The difference between the cost of the video game and the cash received is recognized as premium expense. d. An electronics store is running a promotion where for every video game purchased. The store normally recognized a gross profit margin of 40% of the selling price on video games. c.13 . c. The reduction in sales price attributed to the coupon is recognized as premium expense. b. Company has an existing legal obligation. c. 80. but not the sales warranty approach? a. 81. . Unearned warranty revenue. Expensed when paid. Expensed based on estimate in year of sale. Which of the following is a characteristic of the expense warranty approach. b. Expensed based on estimate in year of sale. Time period in which the underlying cause of action occurred. Obligation event has occurred. d. Company can reasonably estimate the amount of the liability. 79. Expensed when warranty claims are certain. Company has an existing legal obligation and can reasonably estimate the amount of the liability. Fourteenth Edition Which of the following best describes the accrual method of accounting for warranty costs? a. The coupons expire in one year.
d. c. The numerator of the acid-test ratio consists of a. b. current asset turnover ratio. 88. an appropriation of retained earnings. d. c.11 How do you determine the acid-test ratio? a. cash and marketable securities. c. c. b. Showing current liabilities immediately below current assets to obtain a presentation of working capital The ratio of current assets to current liabilities is called the a. The sum of cash and short-term investments divided by short-term debt. Which of the following is not acceptable treatment for the presentation of current liabilities? a. short-term investments and net receivables divided by current liabilities. d. c. appropriately classifying them as regular liabilities in the balance sheet. b. Listing current liabilities according to amount c. acid-test ratio. d. current ratio. 13 . Listing current liabilities in order of maturity b. short-term investments. b. total current assets. showing the amount among the liabilities but not extending it to the liability total. The company's liquidity. cash. The efficient use of assets. The sum of cash. 84. Accrued liabilities are disclosed in financial statements by a. 87. marketable securities. net receivables. P 86. Current assets divided by current liabilities. inventory. d. current liability turnover ratio. What does the current ratio inform you about a company? a. cash. c. b. cash and net receivables. . Current assets divided by short-term debt. The company's profitability. and net receivables. a footnote to the statements. The extent of slow-moving inventories. Offsetting current liabilities against assets that are to be applied to their liquidation d. 89. b. Each of the following are included in both the current ratio and the acid-test ratio except a. d.Current Liabilities and Contingencies 83. S 85.
d d a a b d c d c d 31. 34. MULTIPLE CHOICE—Computational 90.255. 26. the adjusting entry made at December 31. 70. 40. 66. 38. 46. 24. The effective interest on a 12-month. zero-interest-bearing note payable of $300. a b c d d d a d b d 51. 88.51%. The face value of the note was $253. 79. 44. Item Ans. signed a three-month. 91. c. Glaus Corp. 62. 44. 54. 58. d. 76..675. credit to Interest Expense for $2. 83. The company must both intend to refinance the obligation on a long-term basis and demonstrate the ability to consummate the refinancing to exclude a short-term obligation from current liabilities. 2012 will include a a. A long-term debt maturing currently to be paid with current assets is a current liability.450. 23. 68. 43.225. a d d d b a c d b c 71. 69. 67. 56. 52. d d c d d d b c d b 61. 65. 8. 39. 28. 35. 74. debit to Discount on Note Payable for $1.13 . 8. 78. etc. discounted at the bank at 8% is a. 82. Item Ans. 32. 22. 25. 36. 32. a b d c c a d d d Solutions to those Multiple Choice questions for which the answer is “none of these. 21. 37. 33. would be examples of current liabilities. 29.000 of inventory. 49. credit to Discount on Note Payable for $1. 50. 27. 86. Item Ans. Assuming Glaus used a “Discount on Note Payable” account to initially record the note and that the discount will be amortized equally over the 3-month period. Accounts Payable. 72.” 22. b. 11. Fourteenth Edition Multiple Choice Answers—Conceptual Item Ans.12 Test Bank for Intermediate Accounting. 48. 30. 73.49%. 75. c c a b d d c d a b 81. 57. 53. 87. c d c d b a a c d d 41. 80. 45. 59. 2012 for the purchase of $250. 63. . Item Ans. Wages Payable. 64. 60. 47.450. 77. 42. c. 8%. 85. Item Ans.70%. b.000. debit to Interest Expense for $2. d. Item Ans. 84. zero-interest-bearing note on November 1. 55. *89.
$0. $0.000. b.13 On September 1. d. $250. b. Purchase Retailer made cash sales during the month of October of $221. 95. b. $400. How much unearned revenue will exist as of December 31? a. a. Purest owes $2 million that is due on February 28. c. 93. Freight charges were $280. $13. 94.Current Liabilities and Contingencies 92. borrowed $280. The sales are subject to a 6% sales tax that was also collected.000. b.000. Assuming Hydra uses the perpetual inventory system and the net method of accounting for purchase discounts. $13.000. $25. Credit Sales Taxes Payable for $13. 13 . $750. Sodium Inc. d. $33. d. Payment for the purchase was made on September 18. $0. Debit Cash for $221.000. $13.510.000. b. How much of the $2 million note is classified as longterm in the December 31 financial statements. $350.000 and $6.600.000 on February 25 (5-year note) and uses the proceeds to pay down the $2 million note and uses other cash to pay the balance.000 on March 1. FOB destination.000. . d. How much interest is recognized for the period from April 1 to December 31? a. d. c. c. $360. b. net 30.000.260.600. Vista newspapers sold 6. 97.580. $350.000 on October 1 and is required to pay $360. What amount is the note payable recorded at on October 1 and how much interest is recognized from October 1 to December 31? a.167.600.000.000.000 and $0.490. Collier borrowed $350. The note requires interest at 12% and principal to be paid in one year. Credit Sales Taxes Payable for $12. $8.000 and $10. Hydra purchased $13. The company borrows $1. what amount is recorded as inventory from this purchase? a. c. d.447. c. Credit Sales Revenue for $208.300. $500. $350.000 on April 1.400.000 of annual subscriptions at $125 each on September 1. $1. c. 96.000.000 and $0.300 of inventory items on credit with the terms 1/15. Which of the following would be included in the summary journal entry to reflect the sale transactions? a.200. $13. $2.
$0. b. $13. The amount of the short-term notes payable that should be reported as current liabilities on the December 31. On January 10.000. The amount of sales taxes (to the nearest dollar) for May is a.000 of the short-term notes payable.000. c. records the sales tax in the Sales Revenue account.348. $14.000 of notes payable with First National Bank maturing March 15. $13. 100. $1.14 98. The retailer may keep 2% of the sales tax collected. $1. Irey borrowed $2. b. The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is a. 2013. Irey Co. $2. Stine Co. c. $13.000. b. 2012. $6.089. 2012. d.13 .000.000. $0. the total short-term debt of House Company as of the December 31. House Company presently has $2. 99. has $4.400. d.000. c. .089. 2013. 101.873.000 additional cash to liquidate $3.000. 2012. 2012 balance sheet date is a. allowing House Company to borrow up to $6. On December 31.000. Test Bank for Intermediate Accounting.400. Fourteenth Edition On February 10.000 of short-term notes payable due on February 14. The amount recorded in the Sales Revenue account during May was $222.000 and prohibits the payment of dividends on common stock without prior approval by Lebo Bank. d. $13.000 under the agreement with Lebo and liquidate the notes payable to First National. after issuance of its financial statements for 2011.000. The company intends to borrow $3.000 at any time through 2014.600.600. b. c.000.250. $12. $600. d.250. $3. 2013 is a. $12. On February 2. 2013.356.000 at one percent above the prime rate for three years.826. Use the following information for questions 100 and 101.000.750.600.000. House Company entered into a financing agreement with Lebo Bank. Irey arranged a line of credit with County Bank which allows Irey to borrow up to $3. is a retail store operating in a state with a 6% retail sales tax.000 from County Bank and used $1. The agreement with Lebo also requires House to maintain a working capital level of $9. 2012 balance sheet which is issued on March 5.000. Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan.157.000. Stine Co. From the above information only. $12.
900 b.000 shares of common stock.800.400 c.000 c. $700. If the stock is sold for $20 per share subsequent to the balance sheet date. the company’s state rate has been reduced to 2%.600 Roark Co.? a. $0 Ermler Corporation has $1. 104. the company’s state rate has been reduced to 2%. which has a taxable payroll of $600. $49. $57.000 d. If the stock is sold for $20 per share subsequent to the balance sheet date. What is the total amount of federal and state unemployment tax for Roark Co..500. d. $2. The state law provides that the retail sales tax collected during the month must be remitted to the state during the following month.000 of short-term debt it expects to retire with proceeds from the sale of 50.741. .000. $1. What is the total amount of federal and state unemployment tax for Preston Co. $81.4%. $2. On April 10. 2012. What was Vopat 's March 2012 retail sales subject to sales tax? a. However.000 b.. If the amount collected is remitted to the state on or before the twentieth of the following month. b. $2. 105.Current Liabilities and Contingencies 102. $800.000 d. Inc. c. $1.800.200 c.000 d. $2.800.000 d.660. Jenkins Corporation has $2. $2. $28.000 shares of common stock. the retailer may keep 3% of the sales tax collected. $24.000.800 tax to the state tax division for March 2012 retail sales. $0 Preston Co.2% and a state contribution rate of 5.4%. However.000 of short-term debt it expects to retire with proceeds from the sale of 90.500.000. is a retail store operating in a state with a 5% retail sales tax.667.200 b.000 b.000 c.716. Vopat remitted $135.2% and a state contribution rate of 5. what amount of short-term debt could be excluded from current liabilities? a.? a. what amount of short-term debt could be excluded from current liabilities? a.000.800. because of stable employment experience.000.800 103.. $16. $19. because of stable employment experience. $70. is subject to FUTA tax of 6. but before the balance sheet is issued. but before the balance sheet is issued.000. 106. which has a taxable payroll of $700. is subject to FUTA tax of 6. $1. 13 .15 Vopat.
400 A company gives each of its 50 employees (assume they were all employed continuously through 2012 and 2013) 12 days of vacation a year if they are employed at the end of the year. Vargas Company has 35 employees who work 8-hour days and are paid hourly. On January 1. $140. c. During 2013.000 d. The company’s policy is to record the liability existing at the end of each year at the wage rate for that year. they made $21 per hour and in 2013 they made $24 per hour. $38. $117. What amount of vacation liability would be reflected on the 2012 and 2013 balance sheets. respectively? a. The employees work 8 hours per day. During 2013.75 Vacation Days Earned by Each Employee 10 10 10 Vacation Days Used by Each Employee 0 8 10 Vargas has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned.800. $188.200.000 c. $115.50 per hour and in 2013 they made $28 per hour. 2011. $47. the federal unemployment tax is . The company’s policy is to record the liability existing at the end of each year at the wage rate for that year.16 107.000 of federal income taxes and $15. Use the following information for questions 110 and 111. $500. $168. tax is 7.000 maximum subject to unemployment taxes. What amount should Teeter record as payroll tax expense? a. $100.45% in excess of $106. $115. respectively? a. $168.A.000 of union dues were withheld. The vacation accumulates and may be taken starting January 1 of the next year. $144. they took an average of 9 days of vacation each.400. $163.400.400. b. The employees work 8 hours per day.800 to certain employees. In 2012. the company began a program of granting its employees 10 days of paid vacation each year. $163.700.000 represented amounts paid to employees in excess of the $7. $144.800 b.400. $117. $140. $100. $150. they made $24. .C. of which $150. 108.200. $134.800 and 1.13 . 2012.800 The total payroll of Teeter Company for the month of October. $197.600. Information relative to these employees is as follows: Year 2011 2012 2013 Hourly Wages $21.8%.65% on an employee’s wages to $106.400 b.000 c. 109.400. they took an average of 9 days of vacation each.50 23. The state unemployment tax is 1%. What amount of vacation liability would be reflected on the 2012 and 2013 balance sheets.600. The vacation accumulates and may be taken starting January 1 of the next year. In 2012.800.000 represented amounts paid in excess of $106.000. 2012 was $600.000 d. Fourteenth Edition A company gives each of its 50 employees (assume they were all employed continuously through 2012 and 2013) 12 days of vacation a year if they are employed at the end of the year. Vacation days earned in 2011 may first be taken on January 1.I. Test Bank for Intermediate Accounting. d. $134.800.50 22. and the current F.
c. $79. 115. Assets decrease $128.000.820 and liabilities increase $41. No journal entry is required. is involved in litigation regarding a faulty product sold in a prior year.600. d.200.780. $75.100. CalCount provides its employees two weeks of paid vacation per year. 2013? a.820 and liabilities increase $59.180. $57. b. b. What is the required journal entry as a result of this litigation? a. . d.400. Debit Litigation Expense for $300. Debit Salaries and Wages Expense for $148. What is the effect of assets and liabilities from this transaction? a.000 and credit Litigation Liability for $300.180.600. b. and 401(k) withholdings of $18. c. b.140.820 and liabilities decrease $41.100. $0. Debit Litigation Expense for $200.800. 114.000 111. This cost is estimated to be $21 million (the present value of which is $8 million). 113. No journal entry required. Debit Natural Gas Facility for $21.000 and credit Litigation liability for $500. $60. However.400. The company has consulted with its attorney and determined that it is possible that they may lose the case.000.000. $66.000. Tender Foot Inc. Recycle is also legally responsible to remove the facility at the end of its useful life of twenty years. As of December 31.000. What is the journal entry required to record the asset retirement obligation? a. Debit Salaries and Wages Payable for $147.500. d. 65 employees have earned two weeks of vacation time to be taken the following year.000. The attorneys estimated that there is a 40% chance of losing.000 and credit Litigation Liability for $200.Current Liabilities and Contingencies 110. Debit Litigation Expense for $500. b.180. $63. FICA taxes withheld of $15. CalCount pays a weekly payroll of $170. c. d. Assets decrease $128. If the average weekly salary for these employees is $1. their attorney estimated that the amount of any payment would be $500. No journal entry required. b.000 and credit Asset Retirement Obligation for $21. d. What is the amount of the accrued liability for compensated absences that should be reported at December 31.100 and credit Salaries and Wages Payable for $74. Debit Salaries and Wages Expense for $74.200. Assets decrease $110. If this is the case.17 What is the amount of expense relative to compensated absences that should be reported on Vargas’s income statement for 2011? a. c.000. $79. Recycle recently built a facility to extract natural gas at a cost of $15 million.600 and credit Salaries and Wages Expense for $147. 112.200 and credit Salaries and Wages Payable for $148. 13 . Assets decrease $170.000 and liabilities do not change. c.000.000 that includes federal taxes withheld of $25. what is the required journal entry? a. Recycle Exploration is involved with innovative approaches to finding energy reserves.
$300. If the company were to obtain insurance on the property. The company estimates that on average it will incur losses of $1.000.000 worth of losses were sustained. what amount of liability would the company report on its balance sheet at the end of the current year? a. Depreciation expense of $200. Fourteenth Edition c.8 million at the beginning of this year. Depreciation expense of $200. d.000.000.000 such warranty contracts at an average price of $81 each. Related to these contracts.422 c.000. d.000. Warranty4U provides extended service contracts on electronic equipment sold through major retailers.000 in losses and no insurance expense 116. d. Depreciation expense of $240.002. A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2012.100.000. the company sold 60.000. Historically.000 (present value at 10% is $154.000. During 2012.000 A company buys an oil rig for $2. $140. What is the rebate expense and liability.200.18 Test Bank for Intermediate Accounting. $3. 119.000 packages of light bulbs are sold.000. If during the current year. The standard contract is for three years.000 and interest expense of $40. .000 more in the future. Debit Natural Gas Facility for $8. Warranty4U provided 42.000 $1 rebates are mailed to customers. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $400.000 and interest expense of $15. Electronics4U manufactures high-end whole home electronic systems. Debit Natural Gas Facility for $6.000 c.000 on current and prior year sales.667.000.000. 117.13 .420 and interest expense of $15. $4.000 d. b.200.000 per year. respectively. What is the net profit that the company will recognize in the current year related to these contracts? a. During the current year. c. $10.000 and credit Asset Retirement Obligation for $8.000 b. $300.000 b. During 2012. the company spent $400.000. 2012. shown on the 2012 financial statements dated December 31? a. $3.000.000 d. $734.000 units for a total of $243 million and paid warranty claims of $9. $525. $140. c.422 Ziegler Company self insures its property for fire and storm damage. $525.000. The company provides a one-year warranty for all products sold. $160. Depreciation expense of $215.800. 10% is an appropriate interest rate for this company.000 per year.000. $140. 118.500.000. What expense should be recorded for 2012 as a result of these events? a.000. 3. b. $300. 120.000 on January 1.000 and credit Asset Retirement Obligation for $6. The company estimates that the warranty cost is $200 per unit sold and reported a liability for estimated warranty costs $7. $140. 10% of customers mail in the rebate form. and 160.000.000. $300.000 servicing the contracts during the current year and expects to spend $2. $12.000. it would cost them $1. $902.000. How much total expense and/or loss should be recognized by Ziegler Company for 2012? a.220).000.
$525. $1.000 d.000 $209.000 $4.000 c.330).000 b.200.000 in insurance expense d.000 c. 3% in the year after sale. $75. warranty costs are estimated at 2% of sales in the year of sale.000 Actual Warranty Expenditures $ 9. What expense should be recorded for 2012 as a result of these events? a.000 65.000.000 boxtops receiving 110. 123. Depreciation expense of $360.000 b.133 c. 10% is an appropriate interest rate for this company. and 4% in the second year after sale.000.000. Sales and actual warranty expenditures for the first three-year period were as follows: 2011 2012 2013 Sales $ 600.000 and interest expense of $23. $1. Based on industry experience. $0 in losses and $1.000 boxes of Frosted Flakes and customers redeemed 330.000 in losses and $675. $1.000 135. $780. $50. $780.000 d. Vanpelt Co. $270.500. $138.200. $780. 2012. how much liability for outstanding premiums should be recorded at the end of 2012? a.000 1. During 2012.000 and interest expense of $60.000.19 A company offers a cash rebate of $2 on each $6 package of batteries sold during 2012. The company estimates that 60% of the boxtops will be redeemed.100. $169.200. 10% of customers mail in the rebate form.000 in insurance expense 121.000 in insurance expense c.000 122.000 packages of batteries are sold. Depreciation expense of $300. Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes and $1. $0 b.200. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects.000. In 2012.000 c. $780. $420. Depreciation expense of $323.000 d. 13 . What is the rebate expense and liability.133 During 2011.000 124.000 d.000 bowls. respectively. $12. Historically. and 210. If the bowls cost Palmer Company $3 each.000.000 A company buys an oil rig for $3. 2013? a.133 and interest expense of $23.200. $54. shown on the 2012 financial statements dated December 31? a.000 $2 rebates are mailed to customers.000 on January 1. 6.500.Current Liabilities and Contingencies b.000 (present value at 10% is $231.000 b.000 2. Depreciation expense of $300. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600.000 . the company sold 675. What amount should Vanpelt report as a liability at December 31. $0 in losses and $1.
Fourteenth Edition During 2011. c.000 22.000. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. $150. Data for 2012 and 2013 are as follows: Bags of dog food sold Leashes purchased Coupons redeemed 127. 2013? a. . $37. warranty costs are estimated at 2% of sales in the year of sale.000 d. $116. and 4% in the second year after sale. $52. $26.000 bowls.000 c.000 boxes of Frosted Flakes and customers redeemed 220.000 What amount should Stabler report as a liability at December 31. In 2012. d.000.000 Actual Warranty Expenditures $ 6. The company estimates that 60% of the boxtops will be redeemed. $30. c. $0 b.000 1.000 1.000 126.20 125.000 40. b. If the bowls cost LeMay Company $3 each.000 b.000 128. $45. Test Bank for Intermediate Accounting.250.000 150. $36.000 Use the following information for questions 127. Sales and actual warranty expenditures for the first three-year period were as follows: 2011 2012 2013 Sales $ 400.000 d.000. 2012 500.000 c. The premium liability at December 31. Mott Co. In return for eight coupons. d.000 $2.500. The leashes cost Mott $3 each. includes one coupon in each bag of dog food it sells.000 2013 600.000 $136. customers receive a leash.13 .000 120. $84. LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from LeMay Frosted Flakes boxes and $1.000. $28.250. 3% in the year after sale.000 boxtops receiving 55. $11. the company sold 500.400. b. $15. 128.000 18. Based on industry experience. $40. 2012 is a. $60.000 90.000.800. $75. how much liability for outstanding premiums should be recorded at the end of 2012? a. Mott estimates that 40 percent of the coupons will be redeemed. and 129. The premium expense for 2012 is a. Stabler Co.500.
000 Warranty Liability ...000 b... $63..000 but not disclose any additional contingency................... 30........ 30.......000 Retained Earnings (prior-period adjustment) ................. a loss contingency of $4... c..... 31......000 $800............ $33.. Winter Co..... Dec...........000 to $8. Warranty Expense ........ As a result of the above facts....... 30...........000.600.....000 to $8..... a loss contingency of $4.....000 Warranty Liability . Warranty Expense ........ 5...200. In 2012.... 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 2012 and 2013 are presented below: 2012 2013 Sales $600......000..........000 50.. Warranty Expense .............750.... Warranty Expense ...... 13 .......... is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant....... 25...........000 $10............000 c.. Based upon past experience with other products........000 d. Nance Company estimates its annual warranty expense as 2% of annual net sales. b.... a loss contingency of $1.............. no loss contingency but disclose a contingency of $1..875 b..... Dec..Current Liabilities and Contingencies 129.........000 Retained Earnings (prior-period adjustment) .........000.............000 40........ 25...... 2013 is a. 2012 $1..........21 130.........000 and disclose an additional contingency of up to $3... 30. $16............875.800.... Winter should accrue a. 5.500... Which one of the following entries was made to record the 2012 estimated warranty expense? a.... $31.........000 Actual warranty expenditures 20..000 ............000 and disclose an additional contingency of up to $6.......... d.... 31.......... However............................. d.....800.......... The premium liability at December 31....600.000...400.......600...000 Warranty Liability ................000..000 Warranty Liability .....000........ the lawyer states that the most probable cost is $4...000 132......750.. 20. Payton Corporation began selling a new line of products that carry a two-year warranty against defects.. 2012 Balance..........000 debit before adjustment credit after adjustment 131.......... The following data relate to the calendar year 2012: Net sales Warranty liability account Balance.............800....000.... Winter's lawyer states that it is probable that Winter will lose the suit and be found liable for a judgment costing Winter anywhere from $1.. 20........ c...
The December 31. $124. 2012.000. the final outcome of this case was awaiting appeal and was.000.000 110. a court awarded damages of $480. .000 61. b. 135.000. in the opinion of Boyer’s attorney. c. 1. c. On January 4. $58. The only journal entries to date recorded debits to coupon expense and credits to cash of $715.000.000.27 to 1.000. The acid-test ratio for Morton is a. However. Fourteenth Edition What is the estimated warranty liability at the end of 2013? a.000 300. 2012.000 134. $38. $480.000. $0. what amount should Boyer accrue for this gain contingency? a. uncertain. 2012.22 Test Bank for Intermediate Accounting.000. $300. d.13 . $98. 133. During 2012 Fuller issued two separate series of coupons as follows: Issued On 1/1/12 7/1/12 Total Value $500.000 75.27 to 1. On January 3. In October 2012. At December 31. c. $360. 2012. and became worthless.000.000 $ Total current liabilities are $110.72 to 1. $0.000. Presented below is information available for Morton Company. and generally one month elapses between the date a grocer receives a coupon from a consumer and the date Fuller receives it.000 against Pine in favor of Boyer. $16. b.000 30. The accumulated depreciation was $180. Boyer Corp.000. 2.000. c. Current Assets Cash Short-term investments Accounts receivable Inventory Prepaid expenses Total current assets 4. The grocers are reimbursed when they send the coupons to Fuller.000 Consumer Expiration Date 6/30/12 12/31/12 Amount Disbursed as of 12/31/12 $236. owned a machine that had cost $300. $390. this machine was irreparably damaged by Pine Corp.000. b. d.000.000 $280.55 to 1. estimated salvage value was $18.000. b. $60. In Fuller's experience. At December 31. 2. d. 50% of such coupons are redeemed. 2012 balance sheet should include a liability for unredeemed coupons of a. Fuller Food Company distributes to consumers coupons which may be presented (on or before a stated expiration date) to grocers for discounts on certain products of Fuller. and fair value was $480. 0. therefore. Pine’s appeal will be denied.000 720.000. d.
114. 124. 94. 102. 96. 105. 119. 128. 126. Item Ans. 91. 95. 117. 134. 103. 98. 116. 93. 90. 92. 130. 120.Current Liabilities and Contingencies 13 . 109. Item Ans. 135. 101. 113. 123. 112. 106. b d a b d d b 125. a d d c c c d 111. 99. 115. d b d b b c a 104. a d b c . 108. a d a b d d c 118. b d a d b c b 97.23 Multiple Choice Answers—Computational Item Ans. Item Ans. 122. 127. 129. Item Ans. 100. 131. 133. 107. d b d d d b d 132. Item Ans. 110. Item Ans. 121.
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