Deck 7: Liabilities

Question 1

Which of the following are classified as liabilities?

Answer 1

C

Question 2

A current liability must be paid within

A) a year.
B) a year or an operating cycle, whichever is longer.
C) a year or an operating cycle, whichever is shorter.
D) a year or an accounting cycle, whichever is longer.
E) a year or an accounting cycle, whichever is shorter.

Answer 2

a year or an operating cycle, whichever is longer.

Question 3

Which of the following is(are) characteristic of liabilities?
#1 They must be unavoidable obligations.
#2 They are obligations that require settlement by a future transfer of cash, goods, or services.
#3 They must be settled by using cash, goods, or services that were earned by an entity in the performance of its normal business operations.
#4 The underlying transaction creating the obligation must have already occurred.

A) #1, 2, and 3.
B) #1, 2, and 4.
C) #2, 3, and 4.
D) #1, 3, and 4.
E) #1, 2, 3, and 4.

Answer 3

#1, 2, and 4.

Question 4

Which of the following is a type of current liability?

A) Accrued interest
B) Long-term debt maturing within one year
C) Unearned revenues
D) Income taxes payable
E) All of the above are current liabilities

Question 5

Amounts owed by a business to its suppliers of inventory and debts documented by a promissory obligations are termed, respectively,

A) Accounts Receivable and Notes Receivable
B) Accounts Payable and Notes Payable
C) Accounts Payable and Notes Receivable
D) Notes Receivable and Accounts Receivable
E) Notes Payable and Accounts PayableUse the following information to answer questions 6 - 9:The Niven Law Firm signed a $25,000, 120-day, 10% note payable to Eastlake Bank on October 15, 2010.

Question 6

Use the following information to answer questions
The Niven Law Firm signed a $25,000, 120-day, 10% note payable to Eastlake Bank on October 15, 2010.

-Relative to this note, how would each of the following be described?

Question 7

Use the following information to answer questions
The Niven Law Firm signed a $25,000, 120-day, 10% note payable to Eastlake Bank on October 15, 2010.

-The due date for this note is

A) January 15, 2011.
B) February 12, 2011.
C) February 13, 2011.
D) February 15, 2011.
E) none of the above.

Question 8

Use the following information to answer questions
The Niven Law Firm signed a $25,000, 120-day, 10% note payable to Eastlake Bank on October 15, 2010.

-Assuming a 360-day calendar year, how much interest expense relative to this note should Niven recognize in 2010? (Round to the nearest cent.)

A) $ 520.83
B) $ 527.78
C) $ 534.72
D) $ 833.33
E) $2,500.00

Question 9

Use the following information to answer questions
The Niven Law Firm signed a $25,000, 120-day, 10% note payable to Eastlake Bank on October 15, 2010.

-Assuming a 360-day calendar year, how much interest expense relative to this note should Niven recognize in 2011? (Round to the nearest cent.)

A) $ 298.61
B) $ 305.55
C) $ 833.33
D) $2,500.00
E) none of the above

Question 10

Relative to notes payable,

A) the length of the note will affect the manner in which the note is accounted for.
B) interest expense is only accounted for on the date the note is paid.
C) the maturity value is the total amount listed on the face of the note.
D) interest rates are typically stated in terms of the length of the note.
E) a 60-day note payable signed on June 5 would mature on August 4.

Question 11

Raceway Motors signed a $100,000, 6-month, 12% note payable on August 1, 2010. What is Raceway's total liability relative to this note payable at December 31, 2010?

A) $100,000
B) $105,000
C) $106,000
D) $112,000
E) none of the above

Question 12

Diablo Co. uses a calendar year for accounting purposes. On October 1, 2010, Diablo borrows $200,000 and signs a 9-month, 12% note payable. On December 31, 2010, Diablo Co. would

A) make an adjusting entry that would include a credit to Note Payable of $6,000.
B) make an adjusting entry that would include a credit to Cash of $6,000.
C) make an adjusting entry that would include a debit to Interest Expense of $12,000.
D) make an adjusting entry that would include a credit to Interest Payable of $6,000.
E) make no adjusting entry relative to this note.

Question 13

Q Company borrows $35,000 on a one-year, non-interest-bearing note. At that time, Q receives $31,500. The going market rate of interest is 10%. At the maturity date, Q will pay the lender

A) $31,500.
B) $34,650.
C) $35,000.
D) $38,500.
E) none of the above

Question 14

Which of the following are most likely to be purchased by a business on an installment basis?

Question 15

Use the following information to answer questions
On September 30, 2010, Payne Industries bought a new automobile for $16,189. Payne made a $2,000 down payment and financed the rest at 6.5% interest over the next 60 months. Payne's monthly payment is $277.62. The first payment is due on October 31, 2010.

-What is Payne's interest expense relative to this note for October 2010? (Round to the nearest cent.)

A) $ 0
B) $ 76.86
C) $ 87.69
D) $277.62
E) none of the above

Question 16

Use the following information to answer questions
On September 30, 2010, Payne Industries bought a new automobile for $16,189. Payne made a $2,000 down payment and financed the rest at 6.5% interest over the next 60 months. Payne's monthly payment is $277.62. The first payment is due on October 31, 2010.

-What is Payne's liability (principal only) relative to this note on November 1, 2010? (Round to the nearest dollar.)

A) $13,364
B) $13,911
C) $13,988
D) $14,112
E) $15,988

Question 17

On March 1, 2010, Kilgar Co. purchased an automobile for $31,000, giving a $4,000 down payment. Kilgar signed a 4-year, 8% note and agreed to make payments of $659.15 per month. Which of the following journal entries will Kilgar makes for the first installment payment on April 1, 2010?

A)

B)
C)
D)
E)

Question 18

Which of the following items commonly result in an accrued liability?

Question 19

When a company records an accrued liability, which of the following reflects the journal entry?

Question 20

Use the following information to answer questions
Royal Cookware offers its customers a lifetime guarantee that its cookware will not break. The company estimates that 3% of the sets sold will become defective. In 2009, Royal sold 1,000,000 sets of cookware. Royal did not have any cookware returned for defects in that year. However, in 2010, 2,800 sets were returned to Royal for defects. Royal's average estimated cost to repair a set of cookware is $40.

-How much, if any, warranty expense should Royal recognize in 2009?

A) $ 0
B) $ 112,000
C) $ 120,000
D) $1,200,000
E) No answer can be computed without information on actual repair cost.

Question 21

Use the following information to answer questions
Royal Cookware offers its customers a lifetime guarantee that its cookware will not break. The company estimates that 3% of the sets sold will become defective. In 2009, Royal sold 1,000,000 sets of cookware. Royal did not have any cookware returned for defects in that year. However, in 2010, 2,800 sets were returned to Royal for defects. Royal's average estimated cost to repair a set of cookware is $40.

-Which of the following journal entries would be made in 2010 to record Royal's repair costs of $85,000 for parts and $24,000 for labor?

A)
B)
C)
D)
E)

Question 22

Use the following information to answer questions
During 2009, Eversharp Co. introduced a high-quality exercise product that has a guaranteed replacement product warranty. The company expects that 2% of the products sold will need to be repaired or replaced at an average cost of $25 per unit. The company sold 300,000 units in 2010.

-Related to the sale of the products in 2010, Eversharp Co. would record

A) a debit to Warranty Expense of $6,000.
B) a credit to Warranty Liability of $6,000.
C) a debit to Warranty Expense of $150,000.
D) a credit to Warranty Liability of $300,000.
E) none of the above.

Question 23

Use the following information to answer questions
During 2009, Eversharp Co. introduced a high-quality exercise product that has a guaranteed replacement product warranty. The company expects that 2% of the products sold will need to be repaired or replaced at an average cost of $25 per unit. The company sold 300,000 units in 2010.

-Eversharp Co. incurred $15,000 of warranty costs related to the exercise product during 2010: $10,000 was for parts and $5,000 was labor cost for repair personnel. What amount should Eversharp report as estimated warranty liability in the December 31, 2010, balance sheet?

A) $ 5,000
B) $ 10,000
C) $ 15,000
D) $135,000
E) $150,000

Question 24

Glenrose Co. introduced a high-quality leather briefcase in 2010. The company provides a three-year warranty on the products and estimates that 1% of the briefcases sold will need to be repaired in Year 1, 3% in Year 2, and 4% in Year 3. The average expected repair cost per briefcase is $60. During 2010, the company sold 50,000 briefcases and spent $17,500 for repairs. Related to these briefcases, Glenrose

A) does not need to recognize any warranty liability in 2010.
B) should recognize $17,500 of warranty expense in 2010.
C) should recognize $30,000 of warranty expense in 2010.
D) should recognize $120,000 of warranty expense in 2010.
E) should recognize $240,000 of warranty expense in 2010.

Question 25

Jefferson Airways, started in 2010, has a frequent flyer program. During 2010, Jefferson's customers earned 200,000,000 miles and redeemed 120,000,000 of those miles for free tickets. The program's terms require customers to exchange 40,000 miles for one free ticket. Jefferson Airways' average free ticket cost is $175. What is Jefferson's total liability relative to its frequent flyer program at December 31, 2010?

A) $ 0
B) $350,000
C) $525,000
D) $875,000
E) none of the above

Question 26

Dallas Corp. employees receive two weeks paid vacation annually. Vacation pay accumulated by company employees equals 4% of each payroll period's payroll. Dallas Corporation's bi-weekly payroll is $200,000. No vacation pay accumulated by employees is forfeited. How much vacation pay expense should Dallas accrue each period?

A) $ 0
B) $ 8,000
C) $ 16,000
D) $200,000
E) $400,000

Question 27

Newark Co. employees receive two weeks paid vacation each year and, thus, the vacation pay rate is 4% per payroll. However, about 5% of all vacation pay is forfeited each year. Bi-weekly payroll is $430,000. How much vacation pay expense should Newark Co. accrue each period?

A) $21,500
B) $17,200
C) $16,539
D) $16,340
E) $ 860

Question 28

In accounting for compensated absences, a company following generally accepted accounting principles would account for the liability using the

A) cash basis of accounting.
B) accrual basis of accounting.
C) tax basis of accounting.
D) cash flow basis of accounting.
E) net method of accounting.

Question 29

Which of the following is a deferred liability?

A) Unearned Rent
B) Accounts Payable
C) Sales Revenue
D) Prepaid Rent
E) Wages Payable

Question 30

During October 2010, Springdale Corporation received $240,000 for one-year subscriptions for its monthly magazine, beginning with the November 2010 issue. Customer magazines were delivered throughout November and December 2010. What, if any, is Springdale's subscription liability at December 31, 2010?

A) $ 0
B) $ 20,000
C) $ 40,000
D) $200,000
E) $220,000

Question 31

Which of the following indicates the conditions that must exist for a contingent liability to be recorded in financial statements?

Question 32

Which of the following loss contingencies is normally accrued?

A) Pending or threatened litigation
B) General or unspecified business risk
C) Obligations related to product warranties
D) Risk of property loss due to fire
E) None of the above

Question 33

How would costs related to the settlement of each of the following items be classified on the income statement?

Question 34

A loss contingency that is reasonably possible and reasonably estimable should be

A) disclosed but not accrued.
B) disclosed and accrued.
C) accrued but not disclosed.
D) neither accrued but not disclosed.
E) only disclosed if it has been settled.

Question 35

An employee sued Guynan Company for wrongful termination. Guynan's lawyers believe that the likelihood of an unfavorable verdict is remote; however, if the employee is successful, the loss might range between $0 and $500,000. What impact, if any, will this lawsuit have on Guynan's financial statements and disclosures?

A) Guynan should recognize a $500,000 loss and related liability immediately and prepare a special disclosure.
B) Guynan should recognize a $500,000 loss and related liability immediately, but not prepare a special disclosure.
C) Guynan should recognize a $500,000 loss immediately, but not recognize a related liability or prepare a special disclosure.
D) This lawsuit will have no impact on Guynan's financial statements, but Guynan should prepare a special disclosure.
E) This lawsuit will have no impact on Guynan's financial statements or disclosures.

Question 36

Bonds that are collateralized by specific assets are called

Question 37

Bonds that are backed only by the issuing firm's legal commitment to make all required principal and interest payments are called

Question 38

Bonds that can be retired or redeemed by the issuing company when one or more conditions are met are

A) callable bonds.
B) convertible bonds.
C) mortgage bonds.
D) debentures.
E) unsecured bonds.

Question 39

A bond indenture is

A) a type of unsecured bond.
B) provides information on the buyer and seller of the bond.
C) gives the issuing company the right to reacquire the bond before the maturity date.
D) the underlying bond agreement.
E) none of the above

Question 40

The most common condition that must be met for a bond to be called is

A) the repayment of all principal and interest.
B) the passage of time.
C) a change in the market rate of interest from that which was agreed to at the bond issue date.
D) the sale of the asset which was financed by the bond.
E) a sale of the bond by the original purchaser.

Question 41

On January 1, 2010, Choice Co. issued a $100,000, 12%, 5-year bond for $100,000 to Morgan Corp. Interest payments are made annually on December 31. On January 1, 2012, Morgan Corp. sold the bond to Goldman Group for $105,000. On January 1, 2012, Choice Co. should make

A) no entry.
B) an entry to record a gain of $5,000.
C) an entry to split the gain with Morgan Corp.
D) an entry to record interest expense of $24,000 and a gain of $29,000.
E) an entry to record interest payable of $24,000 and a loss of $19,000.

Question 42

On May 1, Romo Corp. issued $600,000, 8%, 10-year bonds. Interest is payable semi-annually on January 1 and July 1. Proceeds from the issue amounted to $616,000. An explanation of the selling price of the bonds is that they were sold at

A) a discount.
B) a premium.
C) face plus accrued interest.
D) a higher effective interest rate.
E) b or c.

Question 43

Which of the following items does not influence the market price of a company's bonds?

A) The issuing firm's financial condition
B) The level of interest rates in the economy
C) Investor's preferences as to risk
D) Length of time to bond maturity
E) Par value of the firm's common stock

Question 44

Alpha Corporation sold 100, $1,000 bonds at 103. The appropriate journal entry to record the sale of these bonds is

A)
B)
C)

D)
E)

Question 45

Alpha Corporation sold 100, $1,000 bonds at 96. What is the appropriate journal entry to record the sale of these bonds?

A)
B)
C)
D)
E)

Question 46

Use the following information to answer questions
On July 1, 2010, Hardy Corp. issued $200,000 of 10%, 10-year bonds at 104. Interest is paid on January 1 and July 1, with any premiums or discounts amortized on a straight-line basis.

-The entry to record the issuance of the bonds would include a

A) debit of $8,000 to Discount on Bonds Payable.
B) debit of $20,000 to Accrued Interest Receivable.
C) credit of $8,000 to Premium on Bonds Payable.
D) credit of $10,000 to Accrued Interest Payable.
E) credit of $192,000 to Bonds Payable.

Question 47

Use the following information to answer questions
On July 1, 2010, Hardy Corp. issued $200,000 of 10%, 10-year bonds at 104. Interest is paid on January 1 and July 1, with any premiums or discounts amortized on a straight-line basis.

-Bond interest expense reported on the December 31, 2010, income statement of Hardy Corp. would be

A) $ 9,200.
B) $ 9,600.
C) $10,000.
D) $10,400.
E) $20,000.

Question 48

Alabama Pride retired $100,000 of bonds with a carrying value of $98,000 for $99,500. Bond interest had just been paid on the bonds. Alabama Pride should record a

A) a credit to cash for $100,000.
B) a debit to Discount on Bonds Payable for $2,000.
C) a credit to Discount on Bonds Payable for $1,500.
D) a debit to Bonds Payable for $980,000.
E) loss of $1,500.

Question 49

A lease that is cancelable by the lessee, is a relatively short-term, and does not transfer rights or risks to the lessee is called a(an)

A) operating lease.
B) capital lease.
C) bargain purchase option lease.
D) mortgage lease.
E) off balance sheet financing lease.

Question 50

A lease that is noncancelable, long-term, and transfers some ownership rights and risks to the lessee is called a(an)

A) operating lease.
B) capital lease.
C) bargain purchase option lease.
D) mortgage lease.
E) off balance sheet financing lease.

Question 51

Which of the following alternatives is not a criterion for determining whether a lease is a capital lease?

A) The lease agreement transfers legal title of the asset to the lessee at the end of the lease term.
B) The lease agreement includes a "bargain purchase option" that can be exercised by the lessee.
C) The term of the lease covers 75% or more of the asset's economic life.
D) The present value of the lease payments is equal to 90% or more of the fair market value of the leased asset.
E) The current value of the leased asset approximates 75% of the total lease payments that will occur over the life of the asset.

Question 52

At the inception of a capital lease transaction, a company records the leased property as

A) an asset and the present value of the future payments as revenue.
B) an asset and the present value of the future payments as depreciation.
C) an intangible and the present value of the future payments as stockholders' equity.
D) an asset and the present value of the future payments as a liability.
E) an expense and the present value of the future payments as a liability.

Question 53

Off-balance sheet financing

A) requires a company to disclose information about the debt in the financial statement footnotes and include the debt in the stockholders' equity (rather than the liability) section of the balance sheet.
B) makes a company's financial position appear to be of higher quality than it actually is.
C) is in violation of generally accepted accounting principles.
D) confines all debt information to the income statement and statement of cash flows.
E) refers to debt that is non-interest-bearing.

Question 54

The reported values of most current liabilities are equal to the

A) present value of future expenses.
B) amounts of cash that must be paid when those liabilities become due.
C) estimated cash flows that will result from the sale of the assets purchased when the liabilities were incurred.
D) discounted present values of the future payments that will be reviewed.
E) fair market value of the assets previously purchased at the settlement date for the liabilities.

Question 55

Ajax Company's current ratio would increase if the company

A) collects an outstanding account receivable for a major customer.
B) uses $1,000 of office supplies in the ordinary course of business.
C) receives a cash payment from a customer before Ajax renders services to that customer.
D) sells $100,000 of 20-year, 8% bonds at 103.
E) reclassifies a long-term liability as a current liability on its balance sheet.Use the following information to answer questions 57 - 59:Bracewell Corporation's current ratio is 2.5:1. The company's current liabilities total $200,000.

Question 56

Use the following information to answer questions
Bracewell Corporation’s current ratio is 2.5:1. The company’s current liabilities total $200,000.

-Bracewell has current assets of

A) $ 80,000.
B) $250,000.
C) $300,000.
D) $500,000.
E) The amount cannot be calculated from the information given.

Question 57

Use the following information to answer questions
Bracewell Corporation’s current ratio is 2.5:1. The company’s current liabilities total $200,000.

-Bracewell has working capital of

A) $(120,000).
B) $120,000.
C) $300,000.
D) $700,000.
E) The amount cannot be calculated from the information given.

Question 58

Use the following information to answer questions
Bracewell Corporation’s current ratio is 2.5:1. The company’s current liabilities total $200,000.

-If Bracewell buys equipment for $100,000 cash, working capital immediately after this transaction is

A) $100,000.
B) $200,000.
C) $300,000.
D) $400,000.
E) $500,000.

Question 59

An increase in the ability to pay debts as they come due is shown by

A) an increase in the debt to total asset ratio.
B) a decrease in the debt to total asset ratio.
C) a decrease in the current ratio.
D) an increase in the long-term debt to equity ratio.
E) a decrease in the quick ratio.

Question 60

Priscilla Corp.'s debt to total asset ratio would decrease upon

A) selling 1,000,000 shares of stock for $20 per share.
B) selling $100,000 of equipment at a $20,000 gain.
C) issuing $10,000,000 of new debt.
D) buying new equipment for $100,000 cash.
E) receiving the payment of an outstanding account receivable.

Question 61

If interest expense decreases, a company's

A) net income will decrease.
B) debt to total asset ratio will increase.
C) debt to total asset ratio will decrease.
D) times interest earned ratio will increase.
E) times interest earned ratio will decrease.

Question 62

If the market rate of interest is

A) equal to the stated rate, the bond will sell at a discount.
B) equal to the stated rate, the bond will sell at a premium.
C) greater than the stated rate, the bond will sell at a discount.
D) greater than the stated rate, the bond will sell at premium.
E) less than the stated rate, the bond will sell at a par.

Question 63

If the stated rate of interest is

A) equal to the market rate, the bond will sell at a discount.
B) equal to the market rate, the bond will sell at a premium.
C) greater than the market rate, the bond will sell at a discount.
D) greater than the market rate, the bond will sell at a premium.
E) less than the market rate, the bond will sell at a premium.

Question 64

If the market rate of interest is

A) less than the stated rate, interest expense will be equal to interest paid.
B) greater than the stated rate, interest expense will be equal to interest paid.
C) less than the stated rate, interest expense will be less than interest paid.
D) equal to the stated rate, interest expense will be less than interest paid.
E) less than the stated rate, interest expense will be greater than interest paid.

Question 65

If the stated rate of interest is

A) less than the market rate, interest expense will be equal to interest paid.
B) greater than the market rate, interest expense will be equal to interest paid.
C) less than the market rate, interest expense will be less than interest paid.
D) equal to the market rate, interest expense will be greater than interest paid.
E) less than the market rate, interest expense will be greater than interest paid.

Question 66

If the market rate of interest is

A) greater than the stated rate, the debt's carrying value will equal face value.
B) equal to the stated rate, the debt's carrying value will increase to face value over time.
C) greater than the stated rate, the debt's carrying value will increase to face value over time.
D) less than the stated rate, the debt's carrying value will equal face value.
E) greater than the stated rate, the debt's carrying value will decrease to face value over time.

Question 67

The time value of money concept

A) states that a dollar received (or paid) currently is worth less than a dollar received (or paid) in the future.
B) is not related to present value concepts.
C) states that a dollar received (or paid) currently is worth more than a dollar received (or paid) in the future.
D) is not related to discounting.
E) is directly related to the historical cost concept.

Question 68

Discounting refers to the process of

A) amortizing bonds discounts over the life of the bond.
B) applying the time value of money to current cash receipts.
C) removing interest from future cash receipts or payments.
D) recognizing a discount on bonds payable in the long-term liability section of the balance sheet.
E) issuing common stock at the present value of its future cash flows.

Question 69

In any given interest period, the amortization of a bond discount will cause interest

A) expense to be less than interest paid.
B) expense to be greater than interest paid.
C) payable to be greater than interest expense.
D) payable to be less than interest receivable.
E) expense to be equal to interest paid less the discount amortization.

Question 70

In any given interest period, the amortization of a bond premium will cause interest

A) expense to be less than interest paid.
B) expense to be greater than interest paid.
C) payable to be less than interest expense.
D) payable to be greater than interest receivable.
E) expense to be equal to interest paid plus the premium amortization.

Question 71

On October 1, 2010, a calendar year-end company issued a $100,000, 10-year, 10% bond payable. The market rate of interest at that time was 12%. Interest is paid semi-annually. The following present value factors may be necessary:

The issue price of the bond on October 1, 2010, was

A) $ 88,350.
B) $ 89,350.
C) $ 89,700.
D) $100,300.
E) $145,700.

Question 72

On October 1, 2010, a calendar year-end company issued a $100,000, 10-year, 12% bond payable. The market rate of interest at that time was 10%. Interest is paid semi-annually. The following present value factors may be necessary:

The issue price of the bond on October 1, 2010, was

A) $ 75,840.
B) $ 99,820.
C) $100,300
D) $112,760.
E) $113,760.

Question 73

Use the following information to answer questions
Alliance Corp. issued a $500,000, 8%, 10-year bond on March 1, 2010. The bond pays interest semi-annually on March 1 and September 1. At the time of issue, the market rate of interest was 10% and the bond sold for $437,700.

-How much interest expense did Alliance recognize on September 1, 2010?

A) $17,508
B) $20,000
C) $23,115
D) $25,000
E) $43,770

Question 74

Use the following information to answer questions
Alliance Corp. issued a $500,000, 8%, 10-year bond on March 1, 2010. The bond pays interest semi-annually on March 1 and September 1. At the time of issue, the market rate of interest was 10% and the bond sold for $437,700.

-How much interest expense did Alliance recognize on December 31, 2010?

A) $ 0
B) $13,333
C) $14.590
D) $15,410
E) $17,583

Question 75

Use the following information to answer questions
Alliance Corp. issued a $500,000, 8%, 10-year bond on March 1, 2010. The bond pays interest semi-annually on March 1 and September 1. At the time of issue, the market rate of interest was 10% and the bond sold for $437,700.

-How much interest expense did Alliance recognize on March 1, 2011?

A) $ 5,861
B) $ 6,667
C) $ 7,295
D) $ 7,705
E) $21,979

Question 76

An accrued liability arises from an expense that has been incurred but not yet paid.

Question 77

The maturity value of a $10,000, 8%, 5-month note is $10,800.

Question 78

A six-year installment loan that requires payments to be made each month is shown as a current liability.

Question 79

A 120-day note dated July 2 matures on October 30.

Question 80

If a company offers a three-year product warranty, only the portion of the warranty that is expected to be incurred in the upcoming period is accounted for in the year of product sale.