Exam 10: Introduction to Liabilities: Economic Consequences, Current Liabilities, and Contingencies

Accounts payable typically arise because

On July 1, Gordon Company borrowed $10,000 in return for an eight-month note payable with a maturity value of $10,600. Calculate the amount of interest expense for the current year.

A suit for breach of contract seeking damages of $3,000,000 was filed against Clark Corporation on March 1, 2017. Clark's legal counsel believes that a negative outcome is highly probable. A reasonable estimate of the court's award to the plaintiff is $600,000. Settlement is expected to occur during the latter part of 2017. What accounting is necessary for the year ending June 30, 2017?

What business transaction must occur in order to reduce Estimated Warranty Payable?

Which one of the following is a current liability?

If a loss contingency related to a lawsuit against a firm is deemed to have a high probability of requiring ultimate payment and can be reasonably estimated, then the proper accounting treatment of the loss contingency will

Contingent liabilities whose ultimate payment is remote should be

Which one of the following events decreases the debt/asset ratio?

Use the information from Cen, Inc. to answer questions Cen, Inc. reported the following on its December 31, 2017, balance sheet: Current liabilities: 2017 2016 One-year short-term notes payable, net of discount of \ 9,800 \ 6,400 \ 300 and \ 400 , respectively Accrued interest on notes payable 340 280 Current portion of long-term debt 1,250 2,340 Trade accounts pavable 500 700 -Which statement is true concerning Cen's interest?

Why are gain contingencies typically omitted from financial statement disclosure?

An increase in a deferred tax liability is recognized when

The following information was taken from the annual report of Leno Inc. BALANCE SHEET Deferred incame tax liability INCOME STATEMENT Incame befare taxes \ 109,000 Incame tax expense (40,400) Net incame Effective incame tax rate 35\% Based on this information, what journal entry should Leno make in 2010 to record its income taxes? a. Income Tax Expense 40,400 Deferred Income Tax 58,300 Deferred Income Tax 59,400 Income Tax Payable 39,300 b. Income Tax Expense 40,400 Deferred Income Tax 19,000 Income Tax Payable 59,400 c. Income Tax Expense 40,000 Deferred Income Tax 1,100 Income Tax Payable 41,500 d. Income Tax Expense 40,400 Deferred Income Tax 17,900 Income Tax Payable 58,300

The following information was taken from the annual report of Jones Inc. 2017 BALANCE SHEET Deferred incame tax liability \ 29,700 \ 28,300 INCOME STATEMENT Incame befare taxes \ 89,000 Incame tax expense Net incame \ 57,600 Effective incame tax rate 40\% Based on this information, what journal entry should Jones make in 2017 to record its income taxes? A a. Income Tax Expense 30,400 Deferred Income Tax 29,700 Deferred Income Tax 28,300 Income Tax Payable 31,800 b. Income Tax Expense 30,400 Deferred Income Tax 29,700 Income Tax Payable 700 c. Income Tax Expense 31,800 Deferred Income Tax 1,400 Income Tax Payable 30,400 d. Income Tax Expense 30,400 Deferred Income Tax 1,400 Income Tax Payable 29,000

Jake Company borrowed $100,000 from Guaranty Trust Bank to finance the purchase of new equipment. The loan contract provides for a 12 percent annual interest rate and states that the principal must be paid in full in ten years. The contract also requires that Jake maintains a current ratio of 1.5:1. Before Jake borrowed the $100,000, the company's current assets and current liabilities were $120,000 and $68,000 respectively. If Jake invests $50,000 of the borrowed funds in equipment and keeps the rest as cash or short-term investment, what is the maximum amount of current liabilities it could have without violating the debt contract?

Simpson Incorporated sells fishing lures and monofilament leader material. During June, Simpson distributed 6,000 coupons to receive a free lure to each customer who purchased a dozen spools of monofilament leader material. Through December 31, 2017, Simpson honored 1,200 coupons redeemed. Simpson expects a total of 5,200 total coupons to be redeemed. Simpson sells lures for $1.00 each. The cost of each lure to Simpson is 45 cents. How much should Simpson report as a liability at December 31, 2017?

If a loss contingency related to a lawsuit against a firm is deemed to have a remote probability of requiring ultimate payment, then the proper accounting treatment of the loss contingency will

Harrison Inc. issues community concert season tickets to a number of corporations for $1,000 each. Revenue is accrued equally throughout the season that the pass is valid. How should Harrison Inc. report any amounts that have not yet been recognized as revenue?

A defined benefit plan differs from a defined contribution plan in that a defined benefit plan

Jake Company borrowed $100,000 from Guaranty Trust Bank to finance the purchase of new equipment. The loan contract provides for a 12 percent annual interest rate and states that the principal must be paid in full in ten years. The contract also requires that Jake maintains a current ratio of 1.5:1. Before Jake borrowed the $100,000, the company's current assets and current liabilities were $120,000 and $68,000 respectively. If Jake invests $80,000 of the borrowed funds in equipment and keeps the rest as cash or short-term investment, what is the maximum amount of current liabilities it could have without violating the debt contract?