Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following is not acceptable treatment for the presentation of current liabilities?

Accepted Answer

A) Listing current liabilities in order of maturity 
B) Listing current liabilities according to amount 
C) Offsetting current liabilities against assets that are to be applied to their liquidation 
D) Showing current liabilities in order of liquidation preference. 
A) Listing current liabilities in order of maturity 
B) Listing current liabilities according to amount 
C) Offsetting current liabilities against assets that are to be applied to their liquidation 
D) Showing current liabilities in order of liquidation preference. C

Question 4

Examples of contingent assets include all of the following except:

Accepted Answer

A) Unrealized gain on the sale of investments. 
B) Pending lawsuit with a favorable outcome. 
C) Tax refund disputed by the government but with a possible favorable outcome. 
D) Promise of land to be donated by city as an enticement to move manufacturing facilities. 
A) Unrealized gain on the sale of investments. 
B) Pending lawsuit with a favorable outcome. 
C) Tax refund disputed by the government but with a possible favorable outcome. 
D) Promise of land to be donated by city as an enticement to move manufacturing facilities.

Question 5

A company must accrue a liability for sick pay that accumulates but does not vest.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is the proper way to report a contingent asset, receipt of which is virtually certain?

Accepted Answer

A) As an asset. 
B) As unearned revenue. 
C) As a disclosure only. 
D) No disclosure or accrual required. 
A) As an asset. 
B) As unearned revenue. 
C) As a disclosure only. 
D) No disclosure or accrual required.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis.

Accepted Answer

A) True 
 B)False

Question 9

Accounting for product warranty costs under an assurance-type warranty

Accepted Answer

A) is required for income tax purposes. 
B) is frequently justified on the basis of expediency when warranty costs are immaterial. 
C) charges an expense account when the seller performs in compliance with the warranty. 
D) represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale. 
A) is required for income tax purposes. 
B) is frequently justified on the basis of expediency when warranty costs are immaterial. 
C) charges an expense account when the seller performs in compliance with the warranty. 
D) represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.

Question 10

In a service-type warranty, warranty revenue is

Accepted Answer

A) recognized in the year of sale. 
B) not recognized. 
C) recognized only in the last year of the warranty period. 
D) recognized equally over the warranty period. 
A) recognized in the year of sale. 
B) not recognized. 
C) recognized only in the last year of the warranty period. 
D) recognized equally over the warranty period.

Question 11

Liabilities are

Accepted Answer

A) any accounts having credit balances after closing entries are made. 
B) deferred credits that are recognized and measured in conformity with generally accepted accounting principles. 
C) obligations to transfer ownership shares to other entities in the future. 
D) present obligations arising from past events resulting in an outflow of resources. 
A) any accounts having credit balances after closing entries are made. 
B) deferred credits that are recognized and measured in conformity with generally accepted accounting principles. 
C) obligations to transfer ownership shares to other entities in the future. 
D) present obligations arising from past events resulting in an outflow of resources.

Question 12

A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized.

Accepted Answer

A) True 
 B)False

Question 13

Short-term debt obligations are classified as current liabilities unless an agreement to refinance is completed before the financial statements are issued.

Accepted Answer

A) True 
 B)False

Question 14

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

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 15

An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount.The coupons expire in one year.The store normally recognized a gross profit margin of 40% of the selling price on video games.How would the store account for a purchase using the discount coupon?

Accepted Answer

A) The reduction in sales price attributed to the coupon is recognized as premium expense. 
B) The difference between the cost of the video game and the cash received is recognized as premium expense. 
C) Premium expense is not recognized. 
D) The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense. 
A) The reduction in sales price attributed to the coupon is recognized as premium expense. 
B) The difference between the cost of the video game and the cash received is recognized as premium expense. 
C) Premium expense is not recognized. 
D) The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense.

Question 16

Which of the following may be a current liability?

Accepted Answer

A) Withheld Income Taxes 
B) Deposits Received from Customers 
C) Unearned Revenue 
D) All of these answers are correct. 
A) Withheld Income Taxes 
B) Deposits Received from Customers 
C) Unearned Revenue 
D) All of these answers are correct.

Question 17

IFRS uses the term "contingent" for assets and liabilities not recognized in the financial statements.

Accepted Answer

A) True 
 B)False

Question 18

IFRS allows for reduced disclosure of contingent liabilities if the disclosure could increase the company's chance of losing a lawsuit.

Accepted Answer

A) True 
 B)False

Question 19

Among the short-term obligations of Lance Company as of December 31, the statement of financial position date, are notes payable totaling $250,000 with the Madison National Bank.These are 90-day notes, renewable for another 90-day period.These notes should be classified on the statement of financial position of Lance Company as

Accepted Answer

A) current liabilities. 
B) deferred charges. 
C) non-current liabilities. 
D) intermediate debt. 
A) current liabilities. 
B) deferred charges. 
C) non-current liabilities. 
D) intermediate debt.

Question 20

Which of the following statements is false?

Accepted Answer

A) A company may exclude a short-term obligation from current liabilities if it intends to refinance the obligation on a long-term basis and have an unconditional right to defer settlement of the liability for at least 12 months. 
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) Social security 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 it intends to refinance the obligation on a long-term basis and have an unconditional right to defer settlement of the liability for at least 12 months. 
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) Social security 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.

Exam 13: Current Liabilities, Provisions, and Contingencies

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

The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements.

Which of the following is not acceptable treatment for the presentation of current liabilities?

Examples of contingent assets include all of the following except:

A company must accrue a liability for sick pay that accumulates but does not vest.

Which of the following is the proper way to report a contingent asset, receipt of which is virtually certain?

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

A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis.

Accounting for product warranty costs under an assurance-type warranty

In a service-type warranty, warranty revenue is

Liabilities are

A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized.

Short-term debt obligations are classified as current liabilities unless an agreement to refinance is completed before the financial statements are issued.

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

Which of the following may be a current liability?

IFRS uses the term "contingent" for assets and liabilities not recognized in the financial statements.

IFRS allows for reduced disclosure of contingent liabilities if the disclosure could increase the company's chance of losing a lawsuit.

Which of the following statements is false?

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position 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

Non-Current Liabilities

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

Presentation and Disclosure in Financialreporting

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