Exam 10: Current Liabilities and Fair Value Accounting

Use this information to answer the following question. Periods Present Value of \ 1 at 7 Percent Present Value of Ordinary Annuity of \ 1 at 7 Percent 1 0.935 0.935 2 0.873 1.808 3 0.816 2.624 What amount must be deposited today to grow to $450 in three years?

State whether each situation below implies a definitely determinable liability (D), an estimated liability (E), a contingent liability (C), or no liability at all (X). _____ 1. Lawsuit filed against the company _____ 2. Payroll liabilities _____ 3. Unearned revenues _____ 4. Accounts payable _____ 5. Product warranty liability _____ 6. Dividend to be declared in future _____ 7. Current portion of long-term debt _____ 8. Discounted notes receivable _____ 9. Liability for vacation pay _____ 10. Guarantee of debt of other companies

Because failure to record a liability generally leads to failure to record an expense, it usually results in an overstatement of income.

An employee has gross earnings of $600 and withholdings of $45.90 for social security and Medicare taxes and $60 for income taxes. The employer pays $45.90 for social security and Medicare taxes and $4.80 for FUTA. The total cost of this employee to the employer is

Liabilities that might arise from which of the following probably would be disclosed only in the notes to the financial statements?

A contingent liability is a liability that may materialize in the future because of something that happened in the past.

Which of the following phrases is not descriptive of an ordinary annuity?

Failure to record a liability probably will

All factors in a present value of a single sum table are less than 1.000.

A liability must never be classified as current if it is due in more than one year.

Which of the following is a contingent liability?

In a deferred payment arrangement, interest is charged only if it is stated.

An estimated liability is not a definite obligation of the firm because the amount cannot be definitely determined.

Contrast the accounting problems presented by definitely determinable liabilities and those associated with estimated liabilities.

During May, Photo Mart sold 150 instant cameras for $100 each. Each camera had cost Photo Mart $54 to purchase and carried a one-year warranty. If 4 percent typically need to be replaced over the warranty period and two actually are replaced during May, the entry to record the Product Warranty Expense is

The term wages refers to the compensation of employees who are paid at a monthly or yearly rate.

The owner of an amusement park is considering installing a new ride. The ride would cost $10,000, produce a net cash flow of $1,575 annually, and last for nine years. a. Assuming an interest rate of 10 percent, what is the present value of the net cash flows expected from the ride (amounts rounded)? Use future value and/or present value tables in calculating your answer. b. Should the ride be purchased?

Promotional costs, such as coupons and rebates, should be recorded as an expense with a related liability.

Use this information to answer the following question. The following totals for the month of November were taken from the payroll register of Levine Company: The entry to record the payment of net payroll would include a

Which of the following most likely is an estimated liability?