Exam 13: Current Liabilities and Contingencies

Large,highly rated firms sometimes sell commercial paper:

The cost of promotional offers should be recorded as expenses in the accounting period when the offers are redeemed by customers.

Classifying liabilities as either current or long-term helps creditors assess:

Indicate (by number)the way each of the items listed below should be reported in a balance sheet at December 31,2016.Match each phrase with the number of the term for the accounting treatment.

Which of the following generally is associated with accounts payable?

Z Co.filed suit against W Inc.in 2016 seeking damages for patent infringement.At December 31,2016,legal counsel for Z believed that it was probable that Z would be successful against W for an estimated amount in the range of $30 million to $60 million,with each amount in that range considered equally likely.Z was awarded $40 million in April 2017.Z should report this award in its 2016 financial statements,issued in March 2017 as:

Volt Electronics sells equipment that includes a three-year warranty.Repairs under the warranty are performed by an independent service company under contract with Volt.Based on prior experience,warranty costs are estimated to be $25 per item sold.Volt should recognize these warranty costs:

What was General's coupon liability as of December 31,2016?

On April 31,2016,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:

Amounts withheld from employees in connection with payroll often represent liabilities to be remitted to third parties.

Indicate (by number)the way each of the items listed below should be reported in a balance sheet at December 31,2016.Match each phrase with the number for the correct term.

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 31,2016,M's unadjusted balance of liability for compensated absences was $30,000.M estimated that there were 200 total vacation days available at December 31,2016.M's employees earn an average of $150 per day.In its December 31,2016,balance sheet,what amount of liability for compensated absences is M required to report?

During 2016,Deluxe Leather Goods sold 800,000 reversible belts under a new sales promotional program.Each belt carried one coupon,which entitles the customer to a $5.00 cash rebate.Deluxe estimates that 70% of the coupons will be redeemed,even though only 350,000 coupons had been processed during 2016.At December 31,2016,Deluxe should report a liability for unredeemed rebates of:

When a deposit on returnable containers is forfeited,the firm holding the deposit will experience:

On June 1,2016,Dirty Harry Co.borrowed cash by issuing a 6-month noninterest-bearing note with a maturity value of $500,000 and a discount rate of 6%.Assuming straight-line amortization of the discount,what is the carrying value of the note as of September 30,2016?

Gray Co.estimates it is probable that it will receive a $10,000 gain contingency and pay a $4,000 loss contingency.After recording the appropriate journal entries to recognize contingent amounts,Gray Co.'s net assets will:

Swift Drug Company is being sued this year for a wrongful death due to violation of FDA rules.There is no doubt that Swift is guilty and the settlement is reasonably estimable at $10 billion payable evenly over 10 years starting next year.Briefly explain how Swift would address this in its current year financial statements.

Under IFRS,if it is probable that a contingent liability will result in a future payment but there is a range of equally likely amounts that will be paid,the midpoint of the range should be accrued as a loss.

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.

A discount on a noninterest-bearing note payable is classified in the balance sheet as: