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Chapter 13 intermediate acct

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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. 1 b. 2 c. 3 d. 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. 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

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c. d. none of these. c. Present values are used to measure all liabilities. The discount represents the allowance for uncollectible amounts. Present values are not used to measure liabilities. accounts payable—debit balances. b. goods. b. d. c. Which of the following is not considered a part of the definition of a liability? a. d. Present obligation that entails settlement by probable future transfer or use of cash. b. c. d . Transaction or other event creating the liability has already occurred. balance sheet as an item of stockholders' equity. short-term obligations expected to be refinanced. c 14. c. b 16. c 12. Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less). income statement as an expense. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities. d. To better understand sources of repayment. b. d. The discount represents the cost of borrowing. balance sheet as an asset. the only one which should not be classified as a current liability is a. Long-term liability. Where is debt callable by the creditor reported on the debtor's financial statements? a. otherwise a long-term liability.10. a 17. Current liabilities are the result of operating transactions. What is the relationship between current liabilities and a company's operating cycle? a. b. d. d 13. To assist in understanding the entity's liquidity. goods. What is the relationship between present value and the concept of a liability? a. c 19. d 15. Present values are only used to measure long-term liabilities What is a discount as it relates to zero-interest-bearing notes payable? a. c. Present obligation that entails settlement by probable future transfer or use of cash. Current liabilities can't exceed the amount incurred in one operating cycle. current maturities of long-term debt. There is no relationship between the two. or services. d. The discount represents the lender's costs to underwrite the note. c. d. c. b. 11. Current liability if the creditor intends to call the debt within the year. dividends payable in the company's stock. sales taxes payable. Why is the liability section of the balance sheet of primary importance to bankers? a. c. d. Transaction or other event creating the liability has already occurred. Present values are used to measure certain liabilities. unearned revenues. An account which would be classified as a current liability is a. Unavoidable obligation. Current liability if it is probable that creditor will call the debt within the year. Of the following items. b. b. Which of the following is a characteristic of a current liability but not a long-term liability? a. d Stock dividends distributable should be classified on the a. Current liability. otherwise a long-term liability. To evaluate the entity's credit quality. or services. The discount represents the credit quality of the borrower. b. losses expected to be incurred within the next twelve months in excess of the company's insurance coverage. Unavoidable obligation. To evaluate operating efficiency. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities. balance sheet as a liability. c. d. a 18. b.

Many companies record sales taxes in the sales account. Demonstrate the ability to complete the refinancing. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis. Management indicated that they are going to refinance the obligation. c. What is the required accounting treatment or disclosure in this situation? a. d 25. Which of the following is not a correct statement about sales taxes? a. c. b. c. Have capacity under existing financing agreements that can be used to refinance the obligation. c. Record a liability for cumulative amount of preferred stock dividends not declared. Enter into a financing agreement that clearly permits the entity to refinance the obligation. All of these are true. c. b 23. d 27. entering into a financing agreement that permits the enterprise to refinance the debt on a long-term basis. A company may exclude a short-term obligation from current liabilities if the firm can demonstrate an ability to consummate a refinancing. b. the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate. Selling magazine subscriptions. No disclosure or recognition is required. c. b. Which of the following situations may give rise to unearned revenue? a. Actually refinance the obligation. b. b. Providing trade credit to customers. Cash dividends should be recorded as a liability when they are declared by the board of directors. The ability to consummate the refinancing of a short-term obligation may be demon. Obligation must be due with one year.strated by a. c. d. b. b. Record a liability for the current year's dividends only. Sales taxes are an expense of the seller. b. Which of the following statements is false? a. d 26. 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. actually refinancing the obligation by issuing a long-term obligation after the date of the balance sheet but before it is issued. 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. 21. d. 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 and demonstrates an ability to complete the refinancing. subsequently refinance the obligation on long term basis Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities? a. warranty costs are charged to expense as they are paid. Disclose the amount of the dividends in arrears. Intend to refinance the obligation on a long-term basis. d. a 22. Providing manufacturer warranties. a . d. all of these. None of these. If sales taxes are included in the sales account. actually refinancing the obligation by issuing equity securities after the date of the balance sheet but before it is issued. Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short-term debt? a. d. Which of the following statements is correct? a. A company has not declared a dividend on its cumulative preferred stock for the past three years.20. c. Subsequently refinance the obligation on a long-term basis. Under the cash basis method. d. d. c 24. Selling inventory.

C. b. c. Payroll deductions. d 33. The obligation is attributable to employee services already performed. d If a short-term obligation is excluded from current liabilities because of refinancing. and any voluntary deductions. 3. c. portion of FICA taxes and any voluntary deductions. b. d.28. 1. The amount of the liability for compensated absences should be based on 1. A liability for compensated absences such as vacations. if any.A. b. An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's a. Federal unemployment taxes c. the present value of the amount expected to be paid in future periods. vested rights are normally for a longer period of employment than are accumu¬lated rights. for which it is expected that employees will be paid. vested rights are not contingent upon an employee's future service 30. State unemployment taxes d. the terms of the new obligation incurred or to be incurred. b. The obligation relates to the rights that vest or accumulate. b. and employer's portion of FICA taxes. d . d. d 35. Federal income taxes Which of the following is a condition for accruing a liability for the cost of compensation for future absences? a. portion of FICA taxes. d. be accrued during the period following vesting. a. b. 29. whereas accumulated rights expire at the end of the accounting period in which they arose. and unemployment taxes. the current rates of pay in effect when employees earn the right to compensated absences. d. be accrued during the period when earned. In accounting for compensated absences.I. vested rights are a legal and binding obligation on the company. What are compensated absences? a. should a. (social security) taxes b. 2. vested rights are not contingent upon an employee's future service. the difference between vested rights and accumulated rights is a. a general description of the financing arrangement. d 31. All of these are conditions for the accrual. c 34. 2. the footnote to the financial statements describing this event should include all of the following information except a. Paid time off. d. federal income taxes 32. accumulated rights do not represent monetary compensation. d. the terms of any equity security issued or to be issued. the future rates of pay expected to be paid when employees use compensated time. c. c. c. portion of FICA taxes and unemployment taxes. be accrued during the period when the compensated time is expected to be used by employees. vested rights carry a stipulated dollar amount that is owed to the employee. Unpaid time off. unemployment taxes. Which of these is not included in an employer's payroll tax expense? a. Either 1 or 2 is acceptable. c. c. the number of financing institutions that refused to refinance the debt. Payment of the compensation is probable. d. not be accrued unless a written contractual obligation exists. 3. b. A form of healthcare. F.

37. Amount of loss is reasonably estimable and occurrence of event is probable. d Which gives rise to the requirement to accrue a liability for the cost of compensated absences? a. When the future events are probable to occur. Tax loss carryforwards. c. When the future events will possibly occur and the amount can be reasonably estimated. Which of the following taxes does not represent a common payroll deduction? a. d 43. Pending court case with a probable favorable outcome. Sick pay benefits can be reasonably estimated. Sick pay benefits accumulate. c 39. b. Possible receipt from a litigation settlement. b. Sick pay benefits vest. a 42. Federal income taxes. What is a contingency? a. When is a contingent liability recorded? a. d. c. Probable losses not reasonably estimable b. c. Event is unusual in nature and event occurs infrequently. Under what conditions is an employer required to accrue a liability for sick pay? a. d. When the amount can be reasonably estimated. d. As an accrued amount. c. c. Payment is probable. Event is unusual in nature and occurrence of event is probable. d. Which of the following contingencies need not be disclosed in the financial statements or the notes thereto? a. Employee rights vest or accumulate. All of the above. c. Obligations related to product warranties. d. Amount can be reasonably estimated. b. FICA taxes. d. d 40. c. As deferred revenue. An existing situation where uncertainty exists as to possible gain or loss that will not be resolved in the foreseeable future. c. Amount of loss is reasonably estimable and event occurs infrequently. d. An existing situation where uncertainty exists as to possible loss that will be resolved when one or more future events occur. Which of the following is the proper way to report a gain contingency? a. c. b. As a disclosure only. When the future events are probable to occur and the amount can be reasonably estimated. b 38. Guarantees of indebtedness of others d. Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? a. Which of the following terms is associated with recording a contingent liability? 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. 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. b. Probable. d 44. b. b . b 41. d. b. State unemployment taxes. Remote. b. b. Which of the following is an example of a contingent liability? a. Possible. Environmental liabilities that cannot be reasonably estimated c. Sick pay benefits equal 100% of the pay. d 45. As an account receivable with additional disclosure explaining the nature of the contingency. All of these must be disclosed. Likely. State income taxes.36. d.

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. included in the carrying amount of the related long-lived asset. a . A contingent liability a. due to the admitted negligence of the Railroad. Note disclosure only c. b. d 49. the government has clearly indicated its intention of having Ortiz recall all cans of this paint sold in the last six months. classified as an appropriation of retained earnings.000 Information available prior to the issuance of the financial statements indicates that it is probable that. should be reported as current. Ortiz Corporation. definitely exists as a liability but its amount and due date are indeterminable. recognition of a loss and creation of a liability for the value of the land. is not disclosed in the financial statements. c. a liability has been incurred for obligations related to product warranties. only when it hires another party to perform the retirement activities. 47. when it is probable the asset will be retired. a manufacturer of household paints. A company is legally obligated for the costs associated with the retirement of a long-lived asset a. is the result of a loss contingency. at the date of the financial statements.000 and liability of $800. Beck had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. d. Appropriation of retained earnings of $800. c 52. disclosure in note form only. What accounting recognition. disclosed but not accrued. c 51.000. c. included in a separate account. accrued.46. b 50. b. d. c. b. (3) a relatively stable pattern of annual sales. A contingency can be accrued when a. To record an asset retirement obligation (ARO). 2012. is preparing annual financial statements at December 31. should be reported as long-term. Operating expense of $800. none of these. need not be disclosed. d. 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. c. the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability incurred. d. c. expensed. c. b. b. an estimated loss contingency should be a. should be reported as part current and part long-term. (2) a one-year operating cycle. 2012. a Jeff Beck is a farmer who owns land which borders on the right-of-way of the Northern Railroad. c. d. only if it performs the activities with its own workforce and equipment.000 d. The amount of the loss involved can be reasonably estimated. On August 10. b. is accrued even though not reasonably estimated. b. Based on the above facts. neither accrued nor disclosed. an asset may have been impaired. hay on the farm was set on fire and burned. should be accorded this situation? a. c 53. d. it is certain that funds are available to settle the disputed amount. No recognition b. The Railroad's 2012 financial statements should include the following related to the incident: a. recognition of a loss only. it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated. The management of Ortiz estimates that this recall would cost $800. Because of a recently proven health hazard in one of its paints. creation of a liability only. Assume that a manufacturing corporation has (1) good quality control. whether it hires another party to perform the retirement activities or performs the activities itself. d. if any. Any liability for the warranty a. Beck appears inclined to accept the Railroad's offer. c 48. the cost associated with the ARO is a.

Warranty expense. b. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated. d. d. has a loss contingency to accrue. d 56. Expensed based on estimate in year of sale. an unfavorable outcome is highly probable. b. Expensed when incurred. The reduction in sales price attributed to the coupon is recognized as premium expense. The ability to make a reasonable estimate of the amount of the loss. b Espinosa Co. c. Company has an existing legal obligation. b. The probability of an unfavorable outcome. c. Which of the following best describes the accrual method of accounting for warranty costs? a. Which of the following best describes the cash-basis method of accounting for warranty costs? a. b 61. The amount of loss accrual should be a. d 57. Expensed when incurred. Warranty revenue. Expensed when warranty claims are certain. the maximum of the range. d 59. Expensed when liability is accrued. c. the cause for action occurred during the accounting period covered by the financial statements. b. a 62. d. the court will decide the case within one year. the customer receives a coupon upon checkout to purchase a second game at a 50% discount. c. b. An electronics store is running a promotion where for every video game purchased. c. The loss amount can only be reasonably estimated within a range of outcomes. the damages appear to be material. but before they are issued. zero. d. The coupons expire in one year. No single amount within the range is a better estimate than any other amount. b. Unearned warranty revenue. Company can reasonably estimate the amount of the liability. Estimated liability under warranties. d. The type of litigation involved. Obligation event has occurred. c.54. d. d. and a. b. the minimum of the range. c. The difference between the cost of the video game and the cash received is recognized as premium expense. is frequently justified on the basis of expediency when warranty costs are immaterial. but not the sales warranty approach? a. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale. The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense. b. Expensed based on estimate in year of sale. c 58. d. c. The type of litigation involved . finds the expense account being charged when the seller performs in compliance with the warranty. d. Which of the following is a characteristic of the expense warranty approach. b. How would the store account for a purchase using the discount coupon? a. Which of the following are not factors that are considered when evaluating whether or not to record a liability for pending litigation? a. Company has an existing legal obligation and can reasonably estimate the amount of the liability. Expensed when warranty claims are certain. 55. The store normally recognized a gross profit margin of 40% of the selling price on video games. Time period in which the underlying cause of action occurred. the Dean Company admits guilt. Dean Company becomes aware of a lawsuit after the date of the financial statements. Use of the accrual method in accounting for product warranty costs a. c. a 60. is required for federal income tax purposes. the mean of the range. Premium expense is not recognized. Expensed when paid. What condition is necessary to recognize an asset retirement obligation? a.

cash and net receivables. b. current ratio. Current assets divided by current liabilities. c 66. short-term investments. d. cash. c. net receivables. d How do you determine the acid-test ratio? a. b. Which of the following is not acceptable treatment for the presentation of current liabilities? a. d . and net receivables. c 65. d 69. c. marketable securities. b. cash. The extent of slow-moving inventories. d 68. d. d. The company's liquidity. Accrued liabilities are disclosed in financial statements by a. The numerator of the acid-test ratio consists of a. b. inventory. an appropriation of retained earnings. Current assets divided by short-term debt. 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. c. d.63. a 67. a footnote to the statements. Listing current liabilities in order of maturity b. appropriately classifying them as regular liabilities in the balance sheet. 64. acid-test ratio. What does the current ratio inform you about a company? a. showing the amount among the liabilities but not extending it to the liability total. d. b. The sum of cash and short-term investments divided by short-term debt. Listing current liabilities according to amount c. current liability turnover ratio. c. Each of the following are included in both the current ratio and the acid-test ratio except a. c. The company's profitability. total current assets. c. current asset turnover ratio. b. Offsetting current liabilities against assets that are to be applied to their liquidation d. The sum of cash. cash and marketable securities. The efficient use of assets. short-term investments and net receivables divided by current liabilities. d.