Exam 13: Current Liabilities and Contingencies

Barr Company's salaried employees are paid biweekly.Occasionally, advances made to employees are paid back by payroll deductions.Information relating to salaries for the calendar year 2007 is as follows: 12/21/06 12/31/07 Employee advances \ 12,000 \ 18,000 Accrued salaries payable 65,000 ? Salaries expense during the year 650,000 Salaries paid during the year (gross) 625,000 At December 31, 2007, what amount should Barr report for accrued salaries payable?

Paying a current liability with cash will always reduce the current ratio.

The numerator of the acid-test ratio consists of

Which of the following is the proper way to report a gain contingency?

Which of the following statements is correct?

On February 10, 2007, after issuance of its financial statements for 2006, Flynn Company entered into a financing agreement with Lebo Bank, allowing Flynn Company to borrow up to $4,000,000 at any time through 2009.Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan.Flynn Company presently has $1,500,000 of notes payable with First National Bank maturing March 15, 2007.The company intends to borrow $2,500,000 under the agreement with Lebo and liquidate the notes payable to First National.The agreement with Lebo also requires Flynn to maintain a working capital level of $6,000,000 and prohibits the payment of dividends on common stock without prior approval by Lebo Bank.From the above information only, the total short-term debt of Flynn Company as of the December 31, 2007 balance sheet date is

Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale.

On January 1, 2007, Didde Co.leased a building to Ellis Corp.for a ten-year term at an annual rental of $80,000.At inception of the lease, Didde received $320,000 covering the first two years' rent of $160,000 and a security deposit of $160,000.This deposit will not be returned to Ellis upon expiration of the lease but will be applied to payment of rent for the last two years of the lease.What portion of the $320,000 should be shown as a current and long-term liability, respectively, in Didde's December 31, 2007 balance sheet? Current Liability Long-term Liability a. \ 0 \ 320,000 b. \ 80,000 \ 160,000 c. \ 160,000 \ 160,000 d. \ 160,000 \ 80,000

An account which would be classified as a current liability is

If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except

A contingent liability

A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should

Magazine subscriptions and airline ticket sales both result in unearned revenues.

During 2006, Venable Co.introduced a new line of machines that carry a three-year warranty against manufacturer's defects.Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale.Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual Warranty Expenditures 2006 \ 400,000 \ 6,000 2007 1,000,000 30,000 2008 1,400,000 90,000 \ 2,800,000 \ 126,000 What amount should Venable report as a liability at December 31, 2008?

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles?

Which of the following is generally associated with payables classified as accounts payable? Periodic Payment Secured of Interest by Collateral a. No No b. No Yes c. Yes No d. Yes Yes

Use the following information for questions Simson Company has 35 employees who work 8-hour days and are paid hourly.On January 1, 2006, the company began a program of granting its employees 10 days of paid vacation each year.Vacation days earned in 2006 may first be taken on January 1, 2007.Information relative to these employees is as follows: Hourly Vacation Days Earned Vacation Days Used Year Wages by Each Employee by Each Emplovee 2006 \ 25.80 10 0 2007 27.00 10 8 2008 28.50 10 10 Simson has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned. -What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2008?

Horton Food Company distributes to consumers coupons which may be presented (on or before a stated expiration date) to grocers for discounts on certain products of Horton.The grocers are reimbursed when they send the coupons to Horton.In Horton's experience, 50% of such coupons are redeemed, and generally one month elapses between the date a grocer receives a coupon from a consumer and the date Horton receives it.During 2007 Horton issued two separate series of coupons as follows: Consumer Amount Disbursed Issued On Total Value Expiration Date as of 12/31/07 1/1/07 \ 375,000 6/30/07 \ 177,000 7/1/07 540,000 12/31/07 225,000 The only journal entries to date recorded debits to coupon expense and credits to cash of $536,000.The December 31, 2007 balance sheet should include a liability for unredeemed coupons of

An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's

Marx Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued.A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated, an unfavorable outcome is highly probable, and