Exam 13: Current Liabilities, Provisions, and Contingencies

Constructive obligations, in which the company has created a valid expectation on the part of other parties that it will discharge certain responsibilities, are disclosed in the notes to the financial statements.

Use the following information for questions. Mott Co.includes one coupon in each bag of dog food it sells.In return for eight coupons, customers receive a leash.The leashes cost Mott $2.00 each.Mott estimates that 40 percent of the coupons will be redeemed.Data for 2010 and 2011 are as follows: -The estimated premium liability at December 31, 2010 is

Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until they are remitted.

CalCount pays a weekly payroll of $85,000 that includes federal taxes withheld of $12,700, FICA taxes withheld of $7,890, and pension withholdings of $9,000.What is the effect of assets and liabilities from this transaction?

Which of the following is the proper way to report a probable contingent asset?

Tender 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?

Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment.

Electronics4U manufactures high-end whole home electronic systems.The company provides a one-year warranty for all products sold.The company estimates that the warranty cost is $200 per unit sold and reported a liability for estimated warranty costs $6.5 million at the beginning of this year.If during the current year, the company sold 50,000 units for a total of $243 million and paid warranty claims of $7,500,000 on current and prior year sales, what amount of liability would the company report on its statement of financial position at the end of the current year?

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

Fuller 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 Fuller.The grocers are reimbursed when they send the coupons to Fuller.In Fuller'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 Fuller receives it.During 2010 Fuller issued two separate series of coupons as follows: The only journal entries to date recorded debits to coupon expense and credits to cash of $536,000.The December 31, 2010 statement of financial position should include a liability for unredeemed coupons of

What is the relationship between present value and the concept of a liability?

Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?

Use the following information for questions. Vargas Company has 35 employees who work 8-hour days and are paid hourly.On January 1, 2010, the company began a program of granting its employees 10 days of paid vacation each year.Vacation days earned in 2010 may first be taken on January 1, 2011.Information relative to these employees is as follows: Vargas 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 expense relative to compensated absences that should be reported on Vargas's income statement for 2010?

Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio.

Where is debt callable by the creditor reported on the debtor's financial statements?

Seamus Corporation sold 10,500 trash compactors for £550 each during 2011.The trash compactors are under warranty for one year following the sale.Maintenance on the trash compactors during the warranty period averages £45 each.Actual warranty costs incurred during 2011 for units sold that year were £148,000.The statement of financial position at year end will report a related liability of:

Contingent liabilities are not reported in the financial statements but may be disclosed in the notes to the financial statements if the likelihood of an unfavorable outcome is possible.

Which of the following is not considered a characteristic of a liability?

A company buys an oil rig for $2,000,000 on January 1, 2010.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 2010 as a result of these events?

Warranty4U provides extended service contracts on electronic equipment sold through major retailers.The standard contract is for three years.During the current year, Warranty4U provided 21,000 such warranty contracts at an average price of $81 each.Related to these contracts, the company spent $200,000 servicing the contracts during the current year and expects to spend $1,050,000 more in the future.What is the net profit that the company will recognize in the current year related to these contracts?