Question 1

If a contingent loss which is expected to be paid next year is accrued, this would:

Accepted Answer

A) decrease the debt/equity ratio. 
B) decrease the debt/asset ratio. 
C) decrease the current ratio. 
D) have no effect on the quick ratio. 
A) decrease the debt/equity ratio. 
B) decrease the debt/asset ratio. 
C) decrease the current ratio. 
D) have no effect on the quick ratio.

Question 2

Match between columns
                        Premises: Purchased supplies on account.
Paid accounts payable.
Issued a $1,000 short-term note payable for $970.
Amortized the discount of the short-term note payable.
A portion of long-term debt is due next year.
Declared cash dividends to stockholders.
Paid the cash dividend previously declared.
Received money from customers prior to delivery of the product to the customer.
Delivered products to a customer who previously paid for that product.
Collected sales tax on behalf of the state government.
Accrued payroll taxes that the firm has to pay to the federal government within three months.
Accrued a bonus amounting to 5% on reported income to the CEO.
In a lawsuit filed against the firm, counsel indicates that the potential $10,000 loss is remote.
In a lawsuit filed against the firm, counsel indicates that the potential $10,000 loss is reasonably possible.
In a lawsuit filed against the firm, counsel indicates that the potential $10,000 loss is highly probable.
Accrued warranty expense.

Accepted Answer

The Answer of Decrease current liabilities and Increase current liabilities is...

Question 3

On January 1 and December 31, Warranty Liability is $6,000 and $4,000, respectively. During the current year, sales were $100,000, upon which 3% was estimated to be the amount required for future warranty payments. Calculate the amount paid for warranties during the current year.

Accepted Answer

$6,000 + (

Question 4

Identify two different third-party collections and explain why they should be reported as liabilities.

Accepted Answer

Third party collections include payroll

Question 5

On December 31, 2017, Cocoa Incorporated had total liabilities of $80,000 and total shareholders' equity of $100,000, resulting in a debt/equity ratio of 0.80 before executive bonus expense is recognized. During 2017, Cocoa's CEO earned a 5% bonus on net income before bonus of $100,000. If Cocoa pays the bonus due its CEO on December 31, 2017, what is Cocoa's debt/equity ratio after the bonus expense and what related liability is recognized?

Accepted Answer

Bonus expense of $5,000 decreases shareh

Question 6

Unearned revenue typically arises because

Accepted Answer

A) cash is received as a security deposit. 
B) cash is received from customers prior to the rendering of services or delivery of products. 
C) a company temporarily requires cash for operations. 
D) merchandise is sold to customers prior to payment. 
A) cash is received as a security deposit. 
B) cash is received from customers prior to the rendering of services or delivery of products. 
C) a company temporarily requires cash for operations. 
D) merchandise is sold to customers prior to payment.

Question 7

Farley Incorporated instituted a defined benefit pension plan for its employees at the beginning of 2013. An actuarial method that is acceptable under GAAP indicates that the company should contribute $80,000 each year to the pension fund to cover the benefits that will be paid to the employees. Farley funded 80% in 2013 and 2014, 90% in 2015 and 2016, and 100 percent in 2017.
Required:
(1) Prepare the journal entries to accrue the pension liability and fund it for 2013 through 2017.
(2) Compute the balance in the pension liability account as of December 31, 2017.

Accepted Answer

a.
Thus, the balance

Question 8

What concerns might management have with additional debt on its balance sheet?

Accepted Answer

Additional debt on the balance sheet can

Question 9

Which one of the following events increases working capital?

Accepted Answer

A) Purchase of inventory on credit 
B) Payment of an installment of notes payable 
C) Payment of sales taxes for the state 
D) Selling merchandise on credit at a profit 
A) Purchase of inventory on credit 
B) Payment of an installment of notes payable 
C) Payment of sales taxes for the state 
D) Selling merchandise on credit at a profit

Question 10

How do 'determinable' current liabilities differ from 'contingent' liabilities?

Accepted Answer

Determinable current liabilities can be

Question 11

On December 31, 2017, Roper Company had current assets (cash) of $15,000 and current liabilities (accounts payable) of $8,000, resulting in a current ratio of 1.88. The company needs to increase its current ratio to 2.75 by December 31, 2018. Calculate the amount of accounts payable that needs to be paid in order to boost the current ratio to 2.75.

Accepted Answer

If Roper pays $4,000 of accoun

Question 12

State laws generally require insurance companies to maintain certain debt and solvency ratios. Insurance companies that fail to maintain the minimum levels are subject to severe penalties, most often affecting the company's continuation as a going concern. How may regulatory requirements such as these impact management decisions?

Accepted Answer

Some debt restrictions discourage manage

Question 13

On December 31, 2017, Stanley Co. had current assets of $20,000 (all cash) and current liabilities of $9,000 in accounts payable, resulting in a current ratio of 2.22. On December 31, 2017, Stanley purchases $6,000 of inventory on account. Calculate Stanley's current ratio after the inventory has been purchased.

Accepted Answer

The purchase of $6,000 of inve

Question 14

Porter Products recognizes expenses for wages and interest when cash payments are made. The following related cash payments were made during December 2017:
 $\begin{array}{|l|l|}
\hline \text { December } 5 \& 20 &
\text { Wages in the amount of } \$ 15,000 \text { are paid on the } 5^{\text {th }} \text { and the } 20^{\text {th }} \text { of } \
&\text { each month for the fifteen days just ended. The next payment will } \
&\text { be on January } 5,2018 .\
\hline \text { December 15 } &
\text { Paid a semi-annual } \$ 300 \text { interest payment on an outstanding note } \
&\text { payable with a face value of } \$ 10,000 \text { and a } 6 \text { percent annual } \
&\text { interest rate. }\
\hline 
\end{array}$ 
As of December 31, the current assets and current liabilities reported on Porter's balance sheet were $36,000 and $22,500, respectively. Porter's income statement reported net income of $11,250.
Required: Compute Porter's current ratio and net income if the company were to account for wages and interest on an accrual basis.

Accepted Answer

\[\begin{array} { l c c c } 
& \text { C

Question 15

On March 2, 2017, Knight Company's CFO, Bob Martin, will receive a bonus equal to 6% of income before income taxes as reported for the year ended December 31, 2016. The current 2016 income statement shows income before income taxes as $600,000.
Required:
(1) What journal entry should be made on December 31, 2016?
(2) What journal entry should be made on March 2, 2017?
(3) If Bob decides to postpone $50,000 of 2016 research and development expenditures until 2017, what impact would this have on his bonus? Explain and show your calculations.

Accepted Answer

(1)
 \[\begin{array} { | l | l | l | l |

Question 16

An employee of Susann Inc. failed two drug tests. The employee has sued and Susann Inc.'s. lawyers appropriately believe that, at best, it is only reasonably possible that Susann Inc. will lose the court case. The proper accounting treatment of the lawsuit will

Accepted Answer

A) increase earnings per share. 
B) increase the debt/asset ratio. 
C) decrease the current ratio. 
D) not affect the debt/equity ratio. 
A) increase earnings per share. 
B) increase the debt/asset ratio. 
C) decrease the current ratio. 
D) not affect the debt/equity ratio.

Question 17

Pitts Incorporated owns a chain of retail stores. During December of 2017, a customer slipped in a doorway of its Nebraska store and broke his ribs. He is suing Pitts for $200,000 for negligence. The legal counsel of Pitts believes that it is remote that Pitts will lose its defense of the lawsuit because the doorway recently was rebuilt with all-weather traction stripping and a sign on the door warned customers that the doorway was slippery when icy. On December 30, 2017, before considering the effects of this lawsuit, the company's current assets, total assets, current liabilities, and total liabilities were $420,000, $840,000, $100,000, and $300,000, respectively. After this event is properly accounted for, calculate the company's debt/equity ratio on December 31, 2017.

Accepted Answer

The remote obligation resultin

Question 18

Julia Used Cars offers a one-year warranty from the date of sale on all cars it sells. From historic data, Bill Julia estimates that, on average, each car will require the company to incur warranty cost of $820. The following activities occurred during 2017.
$$\begin{array} { | l | l | l | } 
\hline \text { Feb } & 4 & \text { Sold five cars. } \
\hline \text { Mar } & 23 & \text { Sold ten cars. } \
\hline \text { May } & 20 & \text { Incurred warranty costs of } \$ \mathbf { 6 , 0 0 0 } \text {on four cars sold in 2016. } \
\hline \text { July } &  6  & \text { Sold eight cars. } \
\hline \text { Sep } & 1 & \text { Incurred warranty costs of } \$ 5,000 \text { on five cars sold in 2016. } \
\hline \text { Noy } & 14 & \text { Incurred warranty costs of } \$ 4,000 \text { on one car sold in 2016. } \
\hline \text { Dec } & 22 & \text { Sold twelve cars. } \
\hline
\end{array}$$
If the January 1, 2017 beginning balance in the warranty liability account was $2,500, what would be the year-end warranty liability balance?

Accepted Answer

A) $31,200 
B) $16,200 
C) $11,200 
D) $13,700 
A) $31,200 
B) $16,200 
C) $11,200 
D) $13,700

Question 19

Abbott Co. has 5 employees who worked the entire year. Each employee earns 6 paid vacation days annually. Vacation days may be taken during December of 2016 and all of 2017. All unused vacation days are paid when the employee leaves the company. The daily wage in 2016 per employee is $100. This is an example of

Accepted Answer

A) a definite liability. 
B) a third party liability. 
C) a gain contingency. 
D) unearned revenue. 
A) a definite liability. 
B) a third party liability. 
C) a gain contingency. 
D) unearned revenue.

Question 20

Short-term notes payable typically arise because

Accepted Answer

A) the firm temporarily requires cash for operations. 
B) cash is received from customers prior to the rendering of services or delivery of products. 
C) the board of directors have declared a dividend that will be paid at a later date. 
D) cash is received as a security deposit. 
A) the firm temporarily requires cash for operations. 
B) cash is received from customers prior to the rendering of services or delivery of products. 
C) the board of directors have declared a dividend that will be paid at a later date. 
D) cash is received as a security deposit.

If a contingent loss which is expected to be paid next year is accrued, this would:

On January 1 and December 31, Warranty Liability is $6,000 and $4,000, respectively. During the current year, sales were $100,000, upon which 3% was estimated to be the amount required for future warranty payments. Calculate the amount paid for warranties during the current year.

Identify two different third-party collections and explain why they should be reported as liabilities.

Unearned revenue typically arises because

What concerns might management have with additional debt on its balance sheet?

Which one of the following events increases working capital?

How do 'determinable' current liabilities differ from 'contingent' liabilities?

An employee of Susann Inc. failed two drug tests. The employee has sued and Susann Inc.'s. lawyers appropriately believe that, at best, it is only reasonably possible that Susann Inc. will lose the court case. The proper accounting treatment of the lawsuit will

Short-term notes payable typically arise because

Financial Accounting and Its Economic Context

A Closer Look at the Financial Statements

The Measurement Fundamentals of Financial Accounting

The Mechanics of Financial Accounting

Using Financial Statement Information

The Current Asset Classification, Cash, and Accounts Receivable

Merchandise Inventory

Investments in Equity Securities

Long-Lived Assets

Long-Term Liabilities: Notes, Bonds, and Leases

Stockholders Equity

The Complete Income Statement

The Statement of Cash Flows

The Time Value of Money

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

If a contingent loss which is expected to be paid next year is accrued, this would:

On January 1 and December 31, Warranty Liability is $6,000 and $4,000, respectively. During the current year, sales were $100,000, upon which 3% was estimated to be the amount required for future warranty payments. Calculate the amount paid for warranties during the current year.

Identify two different third-party collections and explain why they should be reported as liabilities.

Unearned revenue typically arises because

What concerns might management have with additional debt on its balance sheet?

Which one of the following events increases working capital?

How do 'determinable' current liabilities differ from 'contingent' liabilities?

An employee of Susann Inc. failed two drug tests. The employee has sued and Susann Inc.'s. lawyers appropriately believe that, at best, it is only reasonably possible that Susann Inc. will lose the court case. The proper accounting treatment of the lawsuit will

Short-term notes payable typically arise because

Financial Accounting and Its Economic Context

A Closer Look at the Financial Statements

The Measurement Fundamentals of Financial Accounting

The Mechanics of Financial Accounting

Using Financial Statement Information

The Current Asset Classification, Cash, and Accounts Receivable

Merchandise Inventory

Investments in Equity Securities

Long-Lived Assets

Long-Term Liabilities: Notes, Bonds, and Leases

Stockholders Equity

The Complete Income Statement

The Statement of Cash Flows

The Time Value of Money

Filters