Question 1

An account which would be classified as a current liability is

Accepted Answer

A)  dividends payable in the form of a company's stock. 
B)  accounts payable-debit balances. 
C)  losses expected to be incurred within the next twelve months in excess of the company's insurance coverage. 
D)  none of these answers are correct. 
A)  dividends payable in the form of a company's stock. 
B)  accounts payable-debit balances. 
C)  losses expected to be incurred within the next twelve months in excess of the company's insurance coverage. 
D)  none of these answers are correct.

Question 2

Under the expense warranty approach, companies charge warranty costs only to the period in which they comply with the warranty.

Accepted Answer

A) True 
 B)False

Question 3

A company buys an oil rig for $2,000,000 on January 1, 2014. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $400,000 (present value at 10% is $154,220). 10% is an appropriate interest rate for this company. What expense should be recorded for 2014 as a result of these events?

Accepted Answer

A)  Depreciation expense of $240,000 
B)  Depreciation expense of $200,000 and interest expense of $15,422 
C)  Depreciation expense of $200,000 and interest expense of $40,000 
D)  Depreciation expense of $215,422 and interest expense of $15,422 
A)  Depreciation expense of $240,000 
B)  Depreciation expense of $200,000 and interest expense of $15,422 
C)  Depreciation expense of $200,000 and interest expense of $40,000 
D)  Depreciation expense of $215,422 and interest expense of $15,422

Question 4

Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short-term debt?

Accepted Answer

A)  Management indicated that they are going to refinance the obligation. 
B)  Actually refinance the obligation. 
C)  Have capacity under existing financing agreements that can be used to refinance the obligation. 
D)  Enter into a financing agreement that clearly permits the entity to refinance the obligation. 
A)  Management indicated that they are going to refinance the obligation. 
B)  Actually refinance the obligation. 
C)  Have capacity under existing financing agreements that can be used to refinance the obligation. 
D)  Enter into a financing agreement that clearly permits the entity to refinance the obligation.

Question 5

Palco Co., which has a taxable payroll of $900,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Palco Co.?

Accepted Answer

A)  $104,400 
B)  $73,800 
C)  $36,000 
D)  $25,200 
A)  $104,400 
B)  $73,800 
C)  $36,000 
D)  $25,200

Question 6

In accounting for compensated absences, the difference between vested rights and accumulated rights is that:

Accepted Answer

A)  vested rights are normally for a longer period of employment than are accumu?lated rights. 
B)  vested rights are not contingent upon an employee's future service. 
C)  vested rights are a legal and binding obligation on the company, whereas accumulated rights expire at the end of the accounting period in which they arose. 
D)  vested rights carry a stipulated dollar amount that is owed to the employee; accumulated rights do not represent monetary compensation. 
A)  vested rights are normally for a longer period of employment than are accumu?lated rights. 
B)  vested rights are not contingent upon an employee's future service. 
C)  vested rights are a legal and binding obligation on the company, whereas accumulated rights expire at the end of the accounting period in which they arose. 
D)  vested rights carry a stipulated dollar amount that is owed to the employee; accumulated rights do not represent monetary compensation.

Question 7

Which of the following items is a current liability?

Accepted Answer

A)  Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. 
B)  Bonds due in three years. 
C)  Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. 
D)  Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue. 
A)  Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. 
B)  Bonds due in three years. 
C)  Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. 
D)  Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.

Question 8

Use the following information for questions 127, 128, and 129.
Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Muggs $3 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2014 and 2015 are as follows:  
-The premium expense for 2014 is

Accepted Answer

A)  $187,500. 
B)  $45,000. 
C)  $75,000. 
D)  $84,375. 
A)  $187,500. 
B)  $45,000. 
C)  $75,000. 
D)  $84,375.

Question 9

At the financial statement date of December 31, 2014, the liabilities outstanding of Pollard Corporation included the following:1. Cash dividends on common stock, $40,000, payable on January 15, 2015.2. Note payable to Wabaso State Bank, $470,000, due January 20, 2015.3. Serial bonds, $1,400,000, of which $350,000 mature during 2015."4. Note payable to Orlando National Bank, $300,000, due January 27, 2015.The following transactions occurred early in 2015:January 15: The cash dividends on common stock were paid.January 20: The note payable to Wabaso State Bank was paid.January 25: The corporation entered into a financing agreement with Wabaso State Bank, enabling it to borrow up to $500,000 at any time through the end of 2017. Amounts borrowed under the agreement would bear interest at 1% above the bank's prime rate and would mature 3 years from the date of the loan. The corporation immediately borrowed $400,000 to replace the cash used in paying its January 20 note to the bank.January 26: 40,000 shares of common stock were issued for $350,000. $300,000 of the proceeds was used to liquidate the note payable to Orlando National Bank.February 1: The financial statements for 2014 were issued.
InstructionsPrepare a partial balance sheet for Pollard Corporation, showing the manner in which the above liabilities should be presented at December 31, 2014. The liabilities should be properly classified between current and long-term, and appropriate note disclosure should be included."

Accepted Answer

@#IMG-DLM& Note 1: On January 26, 2015, the corpor

Question 10

Of the following items, the only one which should not be classified as a current liability is

Accepted Answer

A)  current maturities of long-term debt. 
B)  sales taxes payable. 
C)  short-term obligations expected to be refinanced. 
D)  unearned revenues. 
A)  current maturities of long-term debt. 
B)  sales taxes payable. 
C)  short-term obligations expected to be refinanced. 
D)  unearned revenues.

Question 11

A company buys an oil rig for $3,000,000 on January 1, 2014. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000 (present value at 10% is $231,330). 10% is an appropriate interest rate for this company. What expense should be recorded for 2014 as a result of these events?

Accepted Answer

A)  Depreciation expense of $360,000 
B)  Depreciation expense of $300,000 and interest expense of $23,133 
C)  Depreciation expense of $300,000 and interest expense of $60,000 
D)  Depreciation expense of $323,133 and interest expense of $23,133 
A)  Depreciation expense of $360,000 
B)  Depreciation expense of $300,000 and interest expense of $23,133 
C)  Depreciation expense of $300,000 and interest expense of $60,000 
D)  Depreciation expense of $323,133 and interest expense of $23,133

Question 12

Discount on Notes Payable is a contra account to Notes Payable on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 13

In March 2015, an explosion occurred at Kirk Co.'s plant, causing damage to area properties. By May 2015, no claims had yet been asserted against Kirk. However, Kirk's management and legal counsel concluded that it was reasonably possible that Kirk would be held responsible for negligence, and that $4,000,000 would be a reasonable estimate of the damages. Kirk's $5,000,000 comprehensive public liability policy contains a $400,000 deductible clause. In Kirk's December 31, 2014 financial statements, for which the auditor's fieldwork was completed in April 2015, how should this casualty be reported?

Accepted Answer

A)  As a note disclosing a possible liability of $4,000,000. 
B)  As an accrued liability of $400,000. 
C)  As a note disclosing a possible liability of $400,000. 
D)  No note disclosure of accrual is required for 2014 because the event occurred in 2015. 
A)  As a note disclosing a possible liability of $4,000,000. 
B)  As an accrued liability of $400,000. 
C)  As a note disclosing a possible liability of $400,000. 
D)  No note disclosure of accrual is required for 2014 because the event occurred in 2015.

Question 14

On August 31, Latty Co. partially refunded $450,000 of its outstanding 10% note payable made one year ago to Dugan State Bank by paying $450,000 plus $45,000 interest, having obtained the $495,000 by using $131,000 cash and signing a new one-year $400,000 note discounted at 9% by the bank.
Instructions(1) Make the entry to record the partial refunding. Assume Latty Co. makes reversing entries when appropriate.(2) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount.

Accepted Answer

The answer of On August 31, Latty Co. partially refunded...

Question 15

Kane Candy Company offers a coffee mug as a premium for every ten $1 candy bar wrappers presented by customers together with $2. The purchase price of each mug to the company is $1.80; in addition it costs $1.20 to mail each mug. The results of the premium plan for the years 2014 and 2015 are as follows (assume all purchases and sales are for cash):   
Instructions
(a) Prepare the general journal entries that should be made in 2014 and 2015 related to the above plan by Kane Candy.
(b) Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the Kane Candy Company balance sheet and income statement at the end of 2014 and 2015.

Accepted Answer

The answer of Kane Candy Company offers a coffee mug...

Question 16

Which of the following is a characteristic of a current liability but not a long-term liability?

Accepted Answer

A)  Unavoidable obligation. 
B)  Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. 
C)  Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities. 
D)  Transaction or other event creating the liability has already occurred. 
A)  Unavoidable obligation. 
B)  Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. 
C)  Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities. 
D)  Transaction or other event creating the liability has already occurred.

Question 17

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

Accepted Answer

A)  be accrued during the period when the compensated time is expected to be used by employees. 
B)  be accrued during the period following vesting. 
C)  be accrued during the period when earned. 
D)  not be accrued unless a written contractual obligation exists. 
A)  be accrued during the period when the compensated time is expected to be used by employees. 
B)  be accrued during the period following vesting. 
C)  be accrued during the period when earned. 
D)  not be accrued unless a written contractual obligation exists.

Question 18

Sandy Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $500,000. What is the required journal entry as a result of this litigation?

Accepted Answer

A)  Debit Litigation Expense for $500,000 and credit Litigation liability for $500,000. 
B)  No journal entry is required. 
C)  Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000. 
D)  Debit Litigation Expense for $300,000 and credit Litigation Liability for $300,000. 
A)  Debit Litigation Expense for $500,000 and credit Litigation liability for $500,000. 
B)  No journal entry is required. 
C)  Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000. 
D)  Debit Litigation Expense for $300,000 and credit Litigation Liability for $300,000.

Question 19

What is the relationship between current liabilities and a company's operating cycle?

Accepted Answer

A)  Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less). 
B)  Current liabilities are the result of operating transactions. 
C)  Current liabilities can't exceed the amount incurred in one operating cycle. 
D)  There is no relationship between the two. 
A)  Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less). 
B)  Current liabilities are the result of operating transactions. 
C)  Current liabilities can't exceed the amount incurred in one operating cycle. 
D)  There is no relationship between the two.

Question 20

The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability.

Accepted Answer

A) True 
 B)False

An account which would be classified as a current liability is

Under the expense warranty approach, companies charge warranty costs only to the period in which they comply with the warranty.

Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short-term debt?

Palco Co., which has a taxable payroll of $900,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Palco Co.?

In accounting for compensated absences, the difference between vested rights and accumulated rights is that:

Which of the following items is a current liability?

Of the following items, the only one which should not be classified as a current liability is

Discount on Notes Payable is a contra account to Notes Payable on the balance sheet.

Which of the following is a characteristic of a current liability but not a long-term liability?

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

What is the relationship between current liabilities and a company's operating cycle?

The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability.

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters

Exam 13: Current Liabilities and Contingencies

An account which would be classified as a current liability is

Under the expense warranty approach, companies charge warranty costs only to the period in which they comply with the warranty.

Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short-term debt?

Palco Co., which has a taxable payroll of $900,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Palco Co.?

In accounting for compensated absences, the difference between vested rights and accumulated rights is that:

Which of the following items is a current liability?

Of the following items, the only one which should not be classified as a current liability is

Discount on Notes Payable is a contra account to Notes Payable on the balance sheet.

Which of the following is a characteristic of a current liability but not a long-term liability?

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

What is the relationship between current liabilities and a company's operating cycle?

The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability.

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters