Deck 10: Current Liabilities

Question 1

A note payable can be used to extend the credit period for an account payable.

Answer 1

True

Question 2

Unearned revenue is another name for sales revenue.

Answer 2

False

Question 3

The stated interest rate on a short-term note payable is to compensate for the time until payment is made.

Answer 3

True

Question 4

The matching principle requires that the total interest expense be allocated over the term of the note.

Question 5

Estimated liabilities include employee health benefits, property taxes, and warranties.

Question 6

A long-term liability can have a current component.

Question 7

Amounts received in advance from a customer for future products or services are initially recorded as liabilities.

Question 8

A company's obligations not expected to be paid within the longer of one year of the balance sheet date or the next operating cycle are reported as current liabilities.

Question 9

The Toronto Raptors received $6 million in season ticket sales. Prior to the beginning of the basketball season, these sales are recorded as a credit to unearned season ticketrevenue.

Question 10

Known liabilities are agreements, contracts, or laws that are measurable and have little uncertainty.

Question 11

Goods and Services Tax GST) is not paid by a wholesaler.

Question 12

A short-term note payable is a written promise to pay a specified amount on a specified future date within one year or the payee's operating cycle, whichever is shorter.

Question 13

Gross pay is the same as net pay.

Question 14

Long-term liabilities are obligations of a company requiring payment within one year.

Question 15

A liability is a future payment of assets or services that a company is currently obligated to make as a result of past transactions or events.

Question 16

Sales taxes payable is credited and cash is debited when firms send sales taxes collected from customers to the government.

Question 17

A liability exists because of a past event that creates a future obligation for future sacrifices.

Question 18

Trade accounts payable are amounts owed to suppliers for products or services purchased on credit.

Question 19

All expected future payments are liabilities.

Question 20

Provincial Sales Tax Payable is a tax levied on sales to all final consumers of taxable products.

Question 21

Promissory notes:

A) Can be transferred from party to party by endorsement.
B) Are due on a specific date.
C) Can be current or non-current.
D) Are negotiable.
E) All of these answers are correct.

Question 22

The characteristics of a liability include:

A) Requirement of future payment of assets or rendering of services.
B) A liability can be current or noncurrent.
C) Occurrence of a past transaction or event.
D) Existence of a present obligation.
E) All of these answers are correct.

Question 23

Both partnerships and corporations calculate an income tax liability based on their taxable incomes, but proprietorships do not.

Question 24

A warranty is a contingent liability.

Question 25

On December 31, 2015, Peligrino Co. has a long term note payable of $800,000. Of that balance, $100,000 will be paid within one year from the balance sheet date. How much of the note payable should Peligrino Co. report as a non-current liability when theyprepare the December 31, 2015 balance sheet?

A) $800,000.
B) $900,000.
C) $1,000,000.
D) $700,000.
E) Nothing. Disclose in a note to the financial statements.

Question 26

Estimated liabilities are also referred to as provisions.

Question 27

A gift card is an example of a contingent liability.

Question 28

At their fiscal year end, Lorax Corp has an unadjusted) $62,000 credit balance in their Income Tax Payable account. However, a review reveals that the actual liability is$70,000. Lorax Corp should prepare an adjusting entry to debit Income Tax Expense for $8,000 and credit Income Taxes Payable for $8,000.

Question 29

A contingent liability exists when a potential liability that depends on a future event arising out of a past transaction liability is either not probable or it cannot be reliably estimated.

Question 30

The accounting for a contingent liability is the same as for a provision.

Question 31

Contingent assets should be recognized as soon as they are probable and can be reliably estimated.

Question 32

Accounts payable:

A) Are amounts owed to suppliers for products and services purchased on credit.
B) Have specific due dates.
C) Are estimated liabilities.
D) Are long-term liabilities.
E) All of these answers are correct.

Question 33

Known liabilities:

A) Are measurable.
B) Have a known payee.
C) Are set by agreements, contracts, or laws.
D) Have definite due dates.
E) All of these answers are correct.

Question 34

A company can have a liability even if the amount of the obligation is uncertain.

Question 35

Kirland performed warranty repair work for a customer which cost $800. The journal entry to record the work should be a debit of $800 to Warranty Expense and a $800credit to Estimated Warranty Liability.

Question 36

Management can withhold any information regarding future events if releasing the information could cause a share price decline.

Question 37

A pending lawsuit is an example of a contingent liability.

Question 38

Recording provisions is required when it is probable that the liability will occur and the amount can be reasonably estimated.

Question 39

The relevance principle requires that contingent assets be recorded.

Question 40

An estimated liability is a known obligation of an uncertain amount that can be reasonably estimated.

Question 41

Estimated liabilities can arise from:

A) Property taxes.
B) Income taxes.
C) Employee benefits.
D) Warranties.
E) All of these answers are correct.

Question 42

Contingent liabilities occur when the liability is:

A) Cannot be reliably estimated.
B) Reliably estimated.
C) Probable and can be reliably estimated.
D) Known and determinable.
E) All of these answers are correct.

Question 43

The difference between the amount received from a note payable and the amount repaid is:

A) Premium.
B) Interest.
C) Face value.
D) Discount.
E) Principal.

Question 44

A short-term note payable:

A) Is not recorded until it is repaid.
B) Is a written promise to pay a specified amount.
C) Usually does not bear interest.
D) Is a contingent liability.
E) Is an estimated liability.

Question 45

MiniCompany borrowed $6,000 by signing an 8% interest-bearing 45-day note payable in exchange for an overdue accounts payable. To record this transaction, MiniCompany should prepare a journal entry that includes a:

A) Credit to Accounts Payable for $6,000.
B) Debit to Cash for $6,000.
C) Credit to Notes Payable for $6,000.
D) Debit to Cash for $6,300.
E) Debit to Notes Payable for $6,000.

Question 46

A combined GST and PST rate of 12% applied to taxable supplies is called:

A) Combined Sales Tax.
B) Harmonized Sales Tax.
C) Input Tax Credit.
D) Zero-rated tax.
E) None of these answers is correct.

Question 47

Payroll liabilities for current employees are:

A) Current liabilities.
B) Can be either current or long-term depending on when workers retire.
C) Estimated liabilities.
D) Contingent liabilities.
E) None of these answers is correct.

Question 48

The receipt of $6,000 in advance ticket sales would be recorded as:

A) Debit Unearned Revenue, credit Sales.
B) Debit Sales, credit Unearned Revenue.
C) Debit Unearned Revenue, credit Cash.
D) Debit Cash, credit Unearned Revenue.
E) Debit Cash, credit Revenue Payable.

Question 49

Unearned revenue is initially recognized with a:

A) Credit to unearned revenue.
B) Credit to revenue.
C) Debit to unearned revenue.
D) Debit to revenue.
E) Credit to revenue payable.

Question 50

An estimated liability:

A) Can be the result of a lawsuit.
B) Is a liability that may occur if a future event occurs.
C) Is an unknown liability of a certain amount.
D) Is a known obligation of an uncertain amount.
E) None of these answers is correct.

Question 51

Provincial sales tax payable:

A) Is a contingent liability.
B) Is an estimated liability.
C) Is a business expense.
D) Is a current liability for retailers.
E) All of these answers are correct.

Question 52

Which of the following accounting policy is being observed when we recognize a warranty obligation?

A) Materiality
B) Consistency
C) Full disclosure
D) Matching
E) Timeliness

Question 53

Short-term notes payable:

A) Are usually interest bearing.
B) Are recorded as current liabilities.
C) Usually represent money borrowed from a bank.
D) Can replace an account payable.
E) All of these answers are correct.

Question 54

Employee vacation benefits:

A) Are estimated liabilities.
B) Are not recorded until the employee leaves.
C) Are contingent liabilities.
D) Are not required by law.
E) Become an expense when the employee takes a vacation.

Question 55

Long-term liabilities:

A) Are sometimes reported on the income statement.
B) Are obligations requiring payment within one year or less.
C) Are obligations of a company not requiring payment within one year.
D) Are not recorded until they are paid.
E) Are liabilities arising from future events.

Question 56

A contingent liability:

A) Is a potential obligation that depends on a future event arising out of a past transaction.
B) Is an obligation not requiring immediate payment.
C) Is a liability of a specific amount.
D) Is an obligation arising from the purchase of goods or services on credit.
E) None of these answers is correct.

Question 57

Which of the following is created by the adjusting entry to recognize interest expense incurred but not yet paid?

A) Notes payable.
B) Unearned revenue.
C) Interest expense.
D) Interest revenue.
E) Prepaid interest.

Question 58

Fees accepted in advance from a client:

A) Are recorded as earned revenues on the income statement.
B) Are recorded as liabilities.
C) Do not increase assets.
D) Increase income.
E) None of these answers is correct.

Question 59

Obligations not expected to be paid within one year are reported as:

A) Revenues.
B) Current liabilities.
C) Current assets.
D) Long term liabilities.
E) Operating cycle liabilities.

Question 60

Obligations due to be paid within one year or the company's operating cycle, whichever is longer, are:

A) Non current liabilities.
B) Revenues.
C) Operating cycle liabilities.
D) Current assets.
E) Current liabilities.

Question 61

Discuss the types of estimated liabilities.

Question 62

Provisions must be recorded if:

A) The future event is unlikely, but the amount can be reliably estimated.
B) The future event is probable and the amount can be reliably estimated.
C) The future event is probable, but the amount cannot be estimated.
D) The future event is unlikely.
E) All of these answers are correct.

Question 63

Liabilities:

A) Must have a known payee.
B) Must have a date for payment.
C) Must be certain.
D) Can be reliably estimated.
E) Must be for a specific amount.

Question 64

During 2017, Smith Electronics sold 250 microwaves each at $950 per unit. Eachmicrowave has one year warranty. In Smith estimate, it will cost them $62 per unit, if a unit is brought in under warranty for repair. During 2017, Smith spent $12,500 onwarranty costs for the appliances sold in 2017. At the end of the 2017 the warranty liability and the warranty expense related to these sales would be:

A) Warranty liability: 15,500; Warranty expense: 15,500
B) Warranty liability: 12,500; Warranty expense: 12,500
C) Warranty liability: 3.000; Warranty expense: 12,500
D) Warranty liability: 3,000; Warranty expense: 15,500

Question 65

Gross pay is:

A) Total compensation earned by an employee.
B) Deductions withheld by an employer.
C) Take-home pay.
D) Salaries after taxes are deducted.
E) The amount of the paycheque.

Question 66

The current portion of long-term debt:

A) Will be a known amount.
B) Is shown separately from the long term portion on the balance sheet.
C) Refers to the part of long-term debt that is due within one year.
D) Must be disclosed.
E) All of these answers are correct.

Question 67

The employer should record payroll deductions as:

A) Employee receivables.
B) Current liabilities.
C) Wages payable.
D) Employee payables.
E) Payroll taxes expense.

Question 68

Pending lawsuits:

A) Should always be recorded.
B) Should be disclosed if payment for damages is probable but the amount cannot be reliably estimated.
C) Should always be disclosed.
D) Are always considered estimated liabilities.
E) None of these answers is correct.

Question 69

Unearned revenues are:

A) Amounts received in advance from customers for future delivery of products or services.
B) The same as accrued revenues.
C) Reduce assets.
D) Not recorded as liabilities.
E) All of these answers are correct.

Question 70

Uncertainties such as doubtful accounts:

A) Should not be disclosed.
B) Are provisions because they are future events arising from past transactions.
C) Are not provisions since they relate to normal business activities.
D) Are not provisions because they are future events not arising out of past transactions.
E) Are provisions because the amounts are uncertain.

Question 71

West Coast Outdoor Co. sold $22,000 worth of trampolines with a one year warranty. The company estimates that 2% of the sales will result in warranty work. West Coast Outdoor Co. should:

A) Recognize warranty liability at the time of sale.
B) Recognize warranty expense at the time warranty work is performed and warranty liability at the time of sale.
C) Recognize warranty expense at the time of sale.
D) Recognize warranty expense at the time warranty work is performed.
E) Recognize warranty expense and warranty liability at the time of sale.