Exam 13: Operating Liabilities and Contingencies

If a litigation-related loss is not probable, it should not be accrued as a liability.

The defensive interval ratio gauges liquidity based on current resources available to meet current cash expenditures.

Under U.S. GAAP, accounting for an ARO requires estimating the fair value that the company would have to pay to retire the asset in today's market.

Some loss contingencies may be disclosed only in the footnotes even if the losses are deemed to be probable.

Income tax payable, as reported on a company's balance sheet, represents the amount that is owed to the governmental units.

Which of the following represents amounts owed for goods, supplies, or services purchased?

One of the three characteristics of liabilities is that they must arise from the firm's primary business obligations.

The cost of promotional premiums offered to customers is accrued as part of Cost of Goods Sold in the period in which the related sales revenue is recognized.

A company has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. Under IFRS, what amount of loss contingency should be accrued?

When a company sells the service-type warranty contract, it records a liability for unearned revenue.

Warranties that cover longer time periods are more likely to be assurance-type warranties.

Under U.S. GAAP, a contingency is deemed to be probable if it is considered to be likely to occur.

A liability for a contingent loss of a known amount will be disclosed in a footnote if the occurrence of the obligation is deemed to be probable.

Big Dots provides a one-year warranty with all its products it sells. It estimates that it will sell 350,000 units of its product for the year ended December 31, 2018, and that its total revenue for the product will be $105,000,000. It also estimates that 75% of the product will have no defects, 5% will have major defects, and 20% will have minor defects. The cost of a minor defect is estimated to be $6 for each product repaired, and the cost for a major defect cost is about $21. The company also estimates that the minimum amount of warranty expense will be $1,500,000 and the maximum will be $6,000,000. Prepare the journal entry for 2018 under the warranty.

Lifeline Biofuels built an oil rig at a cost of $4.5 million that it places into service on the first day of the current year. The company estimates the oil rig will have a useful life of 20 years (with no salvage value), after which Federal regulations require that the oil rig must be dismantled and the land area restored. The expected fair value of this asset retirement project is $845,000. The present value of these asset retirement costs is $126,000 based on the 10% after-tax discount rate. Under U.S. GAAP, what is the company's accretion expense for the first year?

The quick ratio is calculated as the sum of cash and short-term marketable securities divided by current liabilities.

In December, 2018, Shooger Candy Company began including one coupon in each package of candy and offered customers a Stuffed Shooger Bear in exchange for $5 and five coupons. The stuffed bears cost Shooger $5.10 each. Eventually, it is expected that 30% of the coupons will be redeemed. During December, Shooger sold 230,000 packages of candy and no coupons were redeemed. In its December 31, 2018 balance sheet, what amount should Shooger report as estimated liability for the coupons?

Accounting for product warranty costs under an assurance-type warranty ________.

Dismantling an ocean oil-rig platform is an example of an asset retirement obligation.

Pegasus Corp. signed a three-month, 10% note on November 1, 2019 for the purchase of $246,000 of inventory. If Pegasus makes adjusting entries only at the end of the year, the entry made at January 31, 2020 will include a ________. (Do not round any intermediary calculations. Round your final answer to the nearest dollar.)