Question 1

What does the current ratio inform you about a company?

Accepted Answer

A)  The extent of slow-moving inventories. 
B)  The efficient use of assets. 
C)  The company's liquidity. 
D)  The company's profitability. 
A)  The extent of slow-moving inventories. 
B)  The efficient use of assets. 
C)  The company's liquidity. 
D)  The company's profitability.

Question 2

A company gives each of its 50 employees (assume they were all employed continuously through 2014 and 2015) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2014, they made $24.50 per hour and in 2015 they made $28 per hour. During 2015, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2014 and 2015 balance sheets, respectively?

Accepted Answer

A)  $117,600; $163,800 
B)  $134,400; $168,000 
C)  $117,600; $168,000 
D)  $134,400; $163,800 
A)  $117,600; $163,800 
B)  $134,400; $168,000 
C)  $117,600; $168,000 
D)  $134,400; $163,800

Question 3

Which of the following statements is false?

Accepted Answer

A)  A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing. 
B)  Cash dividends should be recorded as a liability when they are declared by the board of directors. 
C)  Under the cash basis method, warranty costs are charged to expense as they are paid. 
D)  FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority. 
A)  A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing. 
B)  Cash dividends should be recorded as a liability when they are declared by the board of directors. 
C)  Under the cash basis method, warranty costs are charged to expense as they are paid. 
D)  FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.

Question 4

Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

Accepted Answer

A)  The obligation relates to the rights that vest or accumulate. 
B)  Payment of the compensation is probable. 
C)  The obligation is attributable to employee services already performed. 
D)  All of these are conditions for the accrual. 
A)  The obligation relates to the rights that vest or accumulate. 
B)  Payment of the compensation is probable. 
C)  The obligation is attributable to employee services already performed. 
D)  All of these are conditions for the accrual.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Below are three independent situations.1. In August, 2014 a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued Barkley Co. for $800,000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $250,000 to $500,000.2. A suit for breach of contract seeking damages of $2,400,000 was filed by an author against Henderson Co. on October 4, 2014. Henderson's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $800,000 and $1,800,000. No amount within this range is a better estimate of potential damages than any other amount."3. Kroft is involved in a pending court case. Kroft's lawyers believe it is probable that Kroft will be awarded damages of $1,000,000.
InstructionsDiscuss the proper accounting treatment, including any required disclosures, for each situation. Give the rationale for your answers."

Accepted Answer

1. Barkley Co. should disclose in the no

Question 7

The amount of the liability for compensated absences should be based on1. the current rates of pay in effect when employees earn the right to compensated absences.2. the future rates of pay expected to be paid when employees use compensated time.3. the present value of the amount expected to be paid in future periods.

Accepted Answer

A)  1. 
B)  2. 
C)  3. 
D)  Either 1 or 2 is acceptable. 
A)  1. 
B)  2. 
C)  3. 
D)  Either 1 or 2 is acceptable.

Question 8

Bargain Surplus made cash sales during the month of October of $225,000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions?

Accepted Answer

A)  Debit Accounts Receivable for $225,000. 
B)  Credit Sales Taxes Payable for $12,736. 
C)  Credit Sales Revenue for $208,490. 
D)  Credit Sales Taxes Payable for $13,500. 
A)  Debit Accounts Receivable for $225,000. 
B)  Credit Sales Taxes Payable for $12,736. 
C)  Credit Sales Revenue for $208,490. 
D)  Credit Sales Taxes Payable for $13,500.

Question 9

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

Accepted Answer

A)  As an accrued amount. 
B)  As deferred revenue. 
C)  As an account receivable with additional disclosure explaining the nature of the contingency. 
D)  As a disclosure only. 
A)  As an accrued amount. 
B)  As deferred revenue. 
C)  As an account receivable with additional disclosure explaining the nature of the contingency. 
D)  As a disclosure only.

Question 10

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

Accepted Answer

A) True 
 B)False

What does the current ratio inform you about a company?

Which of the following statements is false?

Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

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

Bargain Surplus made cash sales during the month of October of $225,000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions?

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

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

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

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Exam 13: Current Liabilities and Contingencies

What does the current ratio inform you about a company?

Which of the following statements is false?

Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

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

Bargain Surplus made cash sales during the month of October of $225,000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions?

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

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

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

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