Question 1

A customer advance produces a liability that is satisfied when the product or service is provided.

Accepted Answer

A) True 
 B)False  True

Question 2

a) What non-accounting factors are important before evaluating whether a pending lawsuit should be accrued as a liability and reflected in the financial statements?
b) What accounting factors should be considered in determining whether a pending lawsuit should be accrued as a liability and reflected in the financial statements?

Accepted Answer

a) Factors that are important for consideration include:
1. When did the cause of action occur? No liability should be recognized until after the cause of action occurs. Cause of action must occur before the balance sheet date.
2. Has the case come to trial?
3. Is there an appeal pending?
4. What is the probability of loss according to legal counsel?
5. Has this type of lawsuit occurred before? What was the outcome?
b) If a loss from a lawsuit is probable and the amount can be reasonably estimated, then a journal entry should be made to recognize the loss. If it is reasonably possible, then only note disclosure is required. If the chance of loss is remote, then nothing is required to be disclosed.

Question 3

Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of:

Accepted Answer

A)  Matching. 
B)  Consistency. 
C)  Materiality. 
D)  Conservatism. 
A)  Matching. 
B)  Consistency. 
C)  Materiality. 
D)  Conservatism. C

Question 4

On October 1, 2018, Home Builders Company issued to Carlton Bank a $600,000, 8-month, noninterest-bearing note. Interest was discounted by the bank at a 12% discount rate.
Required:
1. Prepare the appropriate journal entry by Home Builders to record the issuance of the note.
2. Determine the effective interest rate.
3. Suppose the note had been structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Home Builders.
4. Prepare the appropriate journal entry on December 31, 2018, to accrue interest expense on the note described in requirement 3, for the 2018 financial statements.

Accepted Answer

1. Issuance of the note (October 1)
Cash

Question 5

For a loss contingency to be accrued, the claim must have been made before the accounting period ended.

Accepted Answer

A) True 
 B)False

Question 6

Oklahoma Oil Corp. paid interest of $785,000 during 2018, and the interest payable account decreased by $125,000. What was interest expense for the year?

Accepted Answer

A)  $910,000. 
B)  $660,000. 
C)  $555,000. 
D)  $785,000. 
A)  $910,000. 
B)  $660,000. 
C)  $555,000. 
D)  $785,000.

Question 7

Bencorp issues a $90,000, 6-month, noninterest-bearing note that the bank discounted at a 10% discount rate.
Required:
1. Prepare the appropriate journal entry to record the issuance of the note.
2. Determine the effective interest rate.

Accepted Answer

The answer of Bencorp issues a $90,000, 6-month, noninterest-bearing note...

Question 8

A quality-assurance warranty typically results in the seller:

Accepted Answer

A)  Accruing an expense for anticipated warranty costs at the time the warrantied product is sold. 
B)  Recognizing an asset for accrued warranty costs which is amortized over the life of the warranty. 
C)  Recognizing revenue over the life of the extended warranty. 
D)  Refunding warranty payments upon expiration of the warranty. 
A)  Accruing an expense for anticipated warranty costs at the time the warrantied product is sold. 
B)  Recognizing an asset for accrued warranty costs which is amortized over the life of the warranty. 
C)  Recognizing revenue over the life of the extended warranty. 
D)  Refunding warranty payments upon expiration of the warranty.

Question 9

MullerB Company's employees earn vacation time at the rate of 1 hour per 40-hour work period. The vacation pay vests immediately, meaning an employee is entitled to the pay even if employment terminates. During 2018, total wages paid to employees equaled $808,000, including $8,000 for vacations actually taken in 2018, but not including vacations related to 2018 that will be taken in 2019. All vacations earned before 2018 were taken before January 1, 2018. No accrual entries have been made for the vacations.
Required:
Prepare the appropriate adjusting entry for vacations earned but not taken in 2018.

Accepted Answer

Wages expense (increases wages expense t

Question 10

Long-term debt that is callable by the creditor in the upcoming year should be classified as a current liability only if the debt is expected to be called.

Accepted Answer

A) True 
 B)False

Question 11

The following facts apply to TinyPart Toy Company's pending litigation as of December 31, 2018:

a.	TinyPart is defending against a lawsuit and believes there is a 51% chance it will lose in court. If it loses, TinyPart estimates that damages will be $100,000.
b.	TinyPart is defending against another lawsuit for which management believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates damages will fall somewhere in the range of $30,000 to $50,000, with each amount in that range equally likely to occur. 
c.	TinyPart is defending against another lawsuit that is identical to item (b), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $15,000 and $25,000. TinyPart's management believes the effects of time value of money on these amounts are material, but also believes the timing of these amounts is uncertain. 
d.	TinyPart is defending against a fourth lawsuit and believes there is only a 25% chance it will lose in court. If TinyPart loses, it believes damages will fall somewhere in the range of $35,000 to $40,000, with each amount in that range equally likely to occur.

-Indicate how TinyPart would disclose or account for the lawsuit described in part (c) under U.S. GAAP and under IFRS in the financial statements for the year ended December 31, 2018.

Accepted Answer

Under U.S. GAAP TinyPart would not consi

Question 12

On April 31, 2018, Elkhorn Associates borrowed $10 million cash from Colonial Bank and issued a 5-month, noninterest-bearing note, priced to yield an effective interest rate of 10%. The stated discount rate on this loan is:

Accepted Answer

A)  More than the effective interest rate. 
B)  Less than the effective interest rate. 
C)  Equal to the effective interest rate. 
D)  Unrelated to the effective interest rate. 
A)  More than the effective interest rate. 
B)  Less than the effective interest rate. 
C)  Equal to the effective interest rate. 
D)  Unrelated to the effective interest rate.

Question 13

Lake Co. receives nonrefundable advance payments with special orders for containers constructed to customer specifications. Related information for 2018 is as follows ($ in millions): C 
What amount should Lake report as a current liability for advances from customers in its Dec. 31, 2018, balance sheet?

Accepted Answer

A)  $0. 
B)  $80 million. 
C)  $125 million. 
D)  $170 million. 
A)  $0. 
B)  $80 million. 
C)  $125 million. 
D)  $170 million.

Question 14

All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party?

Accepted Answer

A)  Sales tax payable. 
B)  Customer deposits. 
C)  Employee insurance deductions. 
D)  Social security taxes deductions. 
A)  Sales tax payable. 
B)  Customer deposits. 
C)  Employee insurance deductions. 
D)  Social security taxes deductions.

Question 15

Revenue is recognized upon sale of gift cards, rather than being deferred.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following situations would not require that long-term liabilities be reported as current liabilities on a classified balance sheet?

Accepted Answer

A)  The long-term debt is callable by the creditor. 
B)  The creditor has the right to demand payment due to a contractual violation. 
C)  The long-term debt matures within the upcoming year. 
D)  The company intended to refinance the debt and did so prior to issuance of the financial statements. 
A)  The long-term debt is callable by the creditor. 
B)  The creditor has the right to demand payment due to a contractual violation. 
C)  The long-term debt matures within the upcoming year. 
D)  The company intended to refinance the debt and did so prior to issuance of the financial statements.

Question 17

In 2018, Cap City Inc. introduced a new line of televisions that carry a two-year warranty against manufacturer's defects. Based on past experience with similar products, warranty costs are expected to be approximately 1% of sales during the first year of the warranty and approximately an additional 3% of sales during the second year of the warranty. Sales were $6,000,000 for the first year of the product's life and actual warranty expenditures were $29,000. Assume that all sales are on credit.
Required:
1. Prepare journal entries to summarize the sales and any aspects of the warranty for 2018.
2. What amount should Cap City report as a liability at December 31, 2018?

Accepted Answer

The answer of In 2018, Cap City Inc. introduced a...

Question 18

M Corp. has an employee benefit plan for compensated absences that gives each employee 15 paid vacation days. Vacation days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days. At December 31, 2018, M's unadjusted balance of liability for compensated absences was $30,000. M estimated that there were 200 total vacation days available at December 31, 2018. M's employees earn an average of $150 per day. In its December 31, 2018, balance sheet, what amount of liability for compensated absences is M required to report?

Accepted Answer

A)  $0. 
B)  $30,000. 
C)  $225,000. 
D)  $450,000. 
A)  $0. 
B)  $30,000. 
C)  $225,000. 
D)  $450,000.

Question 19

Define and distinguish between current and noncurrent liabilities.

Accepted Answer

Current liabilities represent claims ari

Question 20

Which of the following is not true about deferred revenue?

Accepted Answer

A)  Deferred revenue with respect to gift cards is recognized as revenue when the gift cards expire. 
B)  Deferred revenue is a liability. 
C)  Deferred revenue is recognized on credit sales when collectibility can be estimated. 
D)  Customer prepayments typically require recognition of deferred revenue. 
A)  Deferred revenue with respect to gift cards is recognized as revenue when the gift cards expire. 
B)  Deferred revenue is a liability. 
C)  Deferred revenue is recognized on credit sales when collectibility can be estimated. 
D)  Customer prepayments typically require recognition of deferred revenue.

A customer advance produces a liability that is satisfied when the product or service is provided.

Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of:

For a loss contingency to be accrued, the claim must have been made before the accounting period ended.

Oklahoma Oil Corp. paid interest of $785,000 during 2018, and the interest payable account decreased by $125,000. What was interest expense for the year?

Bencorp issues a $90,000, 6-month, noninterest-bearing note that the bank discounted at a 10% discount rate. Required: 1. Prepare the appropriate journal entry to record the issuance of the note. 2. Determine the effective interest rate.

A quality-assurance warranty typically results in the seller:

Long-term debt that is callable by the creditor in the upcoming year should be classified as a current liability only if the debt is expected to be called.

On April 31, 2018, Elkhorn Associates borrowed $10 million cash from Colonial Bank and issued a 5-month, noninterest-bearing note, priced to yield an effective interest rate of 10%. The stated discount rate on this loan is:

All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party?

Revenue is recognized upon sale of gift cards, rather than being deferred.

Which of the following situations would not require that long-term liabilities be reported as current liabilities on a classified balance sheet?

Define and distinguish between current and noncurrent liabilities.

Which of the following is not true about deferred revenue?

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Revenue Recognition

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, Plant, and Equipment and Intangible Assets: Acquisition

Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Investments

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters

Exam 13: Current Liabilities and Contingencies

A customer advance produces a liability that is satisfied when the product or service is provided.

Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of:

For a loss contingency to be accrued, the claim must have been made before the accounting period ended.

Oklahoma Oil Corp. paid interest of $785,000 during 2018, and the interest payable account decreased by $125,000. What was interest expense for the year?

Bencorp issues a $90,000, 6-month, noninterest-bearing note that the bank discounted at a 10% discount rate. Required: 1. Prepare the appropriate journal entry to record the issuance of the note. 2. Determine the effective interest rate.

A quality-assurance warranty typically results in the seller:

Long-term debt that is callable by the creditor in the upcoming year should be classified as a current liability only if the debt is expected to be called.

On April 31, 2018, Elkhorn Associates borrowed $10 million cash from Colonial Bank and issued a 5-month, noninterest-bearing note, priced to yield an effective interest rate of 10%. The stated discount rate on this loan is:

All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party?

Revenue is recognized upon sale of gift cards, rather than being deferred.

Which of the following situations would not require that long-term liabilities be reported as current liabilities on a classified balance sheet?

Define and distinguish between current and noncurrent liabilities.

Which of the following is not true about deferred revenue?

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Revenue Recognition

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, Plant, and Equipment and Intangible Assets: Acquisition

Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Investments

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters