Exam 13: Current Liabilities and Contingencies

Mansour Company makes sales on which an 8% sales tax is assessed.The following summary transactions were made during 2010: a. Cash sales of $\$ 900,000$ , excluding sales taxes. b. Credit sales of $\$ 2,150,000$ , including sales taxes c. Sales taxes of $\$ 250,000$ were paid to the state. Required: Prepare journal entries to record the preceding transactions.(Round to the nearest whole number.)

Gain contingencies should

Analysts use the quick ratio (also known as the acid test ratio)and the current ratio.The use of both ratios has become common because

Exhibit 13-1 The Jung Company includes a premium in each box of its cereal.For four premiums plus $2.00, customers are entitled to a plastic doll that costs Jung $4.50 each.Jung expects 60% of the premiums to be redeemed.In 2010, Jung sold 500, 000 boxes of cereal and distributed 25, 000 dolls. - Refer to Exhibit 13-1.What is Jung's estimated liability for unredeemed premiums on December 31, 2010?

Which of the following statements concerning contingencies is true?

Walter Corp.introduced a new machine on January 1, 2010.The machine carried a two-year warranty against defects.The estimated warranty costs related to dollar sales were 3% in the year of sale and 5% in the year after sale.Additional information follows: Actual Waranty Year Sales Expenditures 2010 \ 40,000 \ 600 2011 60.000 2,200 If the expense warranty accrual method is used, what amount relating to warranty expense should be reflected on the December 31, 2011 income statement?

On December 31, 2010, the Williams Company had the following liabilities: Trade accounts payable \1 40,000 11 \% note payable, maturing in equal installments of \ 30,000 per year on December 30 through 2013 90,000 12\% note payable, issued O ctober 15,2010 , maturing February 15,2011 70,000 On December 31, Williams signed a binding agreement with its bank to refinance the 12% note through February 14, 2013, at a variable interest rate. What is the amount of Williams' current liabilities on December 31, 2010?

Assume that a company has the following situations existing at its year-end: Required: Use "yes, " "no, " or "optional" to indicate whether each situation should or should not be classified as a current liability or if accrual is optional.

Sick pay benefits that are related to an employee's services already rendered, whose payment is probable and the amount reasonably estimated, must be accrued and recognized as a current liability if the obligation relates to rights that Accumulate Vest I. No No II. No Yes III. Yes No IV Yes Yes

Under what conditions can a short-term obligation be classified as a long-term liability?

Under current standards of the FASB, liabilities include

A probable loss contingency is reasonably estimated within a range of possible amounts.No amount within the range is a better estimate than any other amount within the range.The amount that should be accrued should be

Discount on Notes Payable should be classified as a

Short-term debt expected to be refinanced

Which of the following statements is not true?

Exhibit 13-2 In 2010, the Markel Company sold 14, 000 washing machines.Markel estimated that 12% of the machines would require repairs under the two-year warranty at an average cost of $50.During 2010, Markel had an actual outlay of $48, 000 for repairs under warranty.Markel uses the expense warranty accrual method. - Refer to Exhibit 13-2.What amount should the company report for estimated liability under warranties at the end of 2010?

Which of the following is the best rationale for the recommended method of accounting for property taxes?

Cooper's inventory has been financed 100% with a long-term note.The note is coming due in 2011.Cooper has received a commitment from a new lender that permits five-year refinancing of debt up to an amount equal to 50% of inventory, which is expected to range between $9, 000 and $15, 000 in 2011.At December 31, 2010, how much of the company's currently maturing note payable can be classified as long-term debt?

Which of the following is a legal liability?

Which journal entry would probably be made if the modified cash basis of accounting for warranties is in use for a sale made in 2010?