Exam 14: Operating Liabilities and Contingencies

Lifeline Biofuels built an oil rig at a cost of $4.5 million.The company estimates the oil rig will have a useful life of 20 years (with no salvage value),after which Federal regulations require that the oil rig must be dismantled and the land area restored.The fair value of the costs of this asset retirement project is $800,000.The present value of these asset retirement costs is $250,000 based on the 6% after-tax discount rate.What is the initial capitalized carrying value of the oil rig at the completion of construction?

Which of the following represents amounts owed for goods,supplies,or services purchased?

E-Z Electronics is running a video game promotion.For every 10 video games purchased,the customer receives a coupon upon checkout to receive a free game.The coupons expire in one year.E-Z estimates that about half of its video game customers will qualify to receive a coupon.In the past,the store has recognized a gross profit margin of 40% of the selling price on video games.How would the store determine the dollar amount of the adjusting entry to record premium expense and the related contingent liability?

Which of the following situations typically results in unearned revenues?

The defensive interval ratio gauges liquidity based on current resources available to meet current cash expenditures.

A company has a probable loss that can only be reasonably estimated within a range of outcomes.No single amount within the range is a better estimate than any other amount.Under U.S.GAAP,what amount of loss contingency should be accrued?

If management can only estimate a range for the loss,but cannot identify a single most likely outcome within that range,under U.S.GAAP it should accrue the midpoint of the range.

What are compensated absences?

Which of the following best describes the accounting for assurance-type warranty costs?

Which of the following is not a way IFRS differs from U.S.GAAP for asset retirement obligations?

Asset retirement obligations (AROs)are short-term legal obligations to dismantle and scrap assets.

A contingency is deemed to be probable if it is considered to be likely to occur.

Onopea Inc.considered two contingencies at the end of 2016: ** a probable loss in the range of $300,000 to $500,000 ** a reasonably possible loss of $150,000 Under U.S.GAAP,what is the balance for contingent liabilities at the end of 2016?

Warranties that cover longer time periods are more likely to be assurance-type warranties.

Distinguish between an interest-bearing note and a non-interest-bearing note.How are the proceeds computed for a non-interest-bearing note?