Exam 9: Current Liabilities and Contingencies

A probable loss contingency is reasonably estimated within a range of possible amounts. No amount within the range is a better estimate than any other amount within the range. The amount that should be accrued should be

Liabilities are defined as probable future sacrifices of economic benefits arising from present obligations. Explain what FASB means by probable and obligations.

The ability to refinance on a long term basis can be demonstrated if the company has already refinanced the obligations after the date of the balance sheet but before it is issued.

The operating cycle is typically defined as the time it requires to convert

How are current liabilities valued?

IFRS accounting for contingencies differs from U.S. GAAP in several details. Briefly describe three of those differences.

Lucas Company provides a bonus compensation plan under which key employees receive bonuses equal to 10% of Lucas's income after deducting income taxes but before deducting the bonus. If income before income tax and the bonus is $400,000 and the income tax rate is 30%, the bonuses should total

A gain contingency that is reasonably possible and for which the amount can be reasonably estimated should be

Mr. Luigi, the plant supervisor of Super Brothers Corp. is allowed a bonus of 4% of income after bonus and tax. For 2014, the tax rate is 30% and income before bonus and tax amounts to $1,200,000. Required: Compute the amount of Mr. Luigi's 2014 bonus.

Current liabilities based on a contractual amount is known based upon reasonable certainty. Provide 5 examples of liabilities based on contractual amounts.

Discount on Notes Payable should be classified as a

Mason Company makes sales on which an 6% sales tax is assessed. The following summary transactions were made during 2014: a.Cash sales of $900,000, excluding sales taxes. b.Credit sales of $2,150,000, including sales taxes. c.Sales taxes of $213,500 were paid to the state. Required: Prepare journal entries to record the preceding transactions. (Round to the nearest whole number.)

Liabilities whose amounts must be estimated are disclosed in financial statements by

Gain contingencies should

Assume that a company has the following situations existing at its year-end: Required: Use "yes," "no," or "optional" to indicate whether each situation should or should not be classified as a current liability or if accrual is optional.

Vacation pay or year end bonuses would be considered a legal liability.

How are current liabilities classified? Provide an example of each.

Short-term debt expected to be refinanced

GAAP requires a company to categorize the likelihood of occurrence of a future event that will confirm the loss as plausible, remotely plausible, or remote.

Which of the following statements is true?