Deck 11: Current Liabilities

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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 5

A long-term liability can have a current component.

Question 6

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

Question 7

Unearned revenue is another name for sales revenue.

Question 8

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

Question 9

Gross pay is the same as net pay.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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 15

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

Question 16

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 17

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

Question 18

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

Question 19

All expected future payments are liabilities.

Question 20

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 ticket revenue.

Question 21

Long-term liabilities:

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

Question 22

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

Question 23

The characteristics of a liability include:

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

Question 24

A warranty is a contingent liability.

Question 25

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

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

Question 26

The relevance principle requires that contingent assets be recorded.

Question 27

Estimated liabilities are also referred to as provisions.

Question 28

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 $800 credit to Estimated Warranty Liability.

Question 29

Liabilities:

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

Question 30

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

Question 31

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

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

Question 32

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 33

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 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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 long term liability when they prepare the December 31,2015 balance sheet?

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

Question 39

A pending lawsuit is an example of a contingent liability.

Question 40

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

Question 41

The employer should record payroll deductions as:

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

Question 42

Gross pay is:

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

Question 43

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

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

Question 44

The current portion of long-term debt:

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

Question 45

A short-term note payable:

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

Question 46

Accounts payable:

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

Question 47

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

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

Question 48

Fees accepted in advance from a client:

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

Question 49

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

Question 50

Known liabilities:

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

Question 51

Provincial sales tax payable:

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

Question 52

West Coast Outdoor Co.signed a $8,000,90-day,4% interest-bearing note payable at the bank in exchange for cash.Which of the following journal entries should West Coast Outdoor Co.use to record the note?

A)

B)

C)

D)

E)

Question 53

Unearned revenue is initially recognized with a:

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

Question 54

Unearned revenues are:

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

Question 55

Payroll liabilities for current employees are:

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

Question 56

Short-term notes payable:

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

Question 57

An estimated liability:

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

Question 58

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

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

Question 59

Promissory notes:

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

Question 60

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

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

Question 61

Discuss how to account for contingent liabilities.

Question 62

Discuss the types of estimated liabilities.

Question 63

On June 14,Cool Sports gave a 90-day note payable to Quick Skis,instead of cash payment of an overdue account.The amount of the note was $85,000 at an interest rate of 12%.
Prepare the journal entry on Cool Sports books to record the note payable.

Question 64

Pending lawsuits:

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

Question 65

On November 16,2015,Williams Industrial gave Phillip Co.a 90-day,8%,$80,000 note payable to extend a past due account payable.
Prepare the journal entry for Williams Industrial to record payment of the note on Feb 14,2016.Williams Industrial recorded a December 31^st year end adjusting entry.

Question 66

Provisions must be recorded if:

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

Question 67

Uncertainties such as doubtful accounts:

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

Question 68

On November 16,2015,Source for Sports gave Kinsmen Sports a 90-day,12%,$60,000 note payable to extend a past due account payable.
Prepare the journal entry for Source for Sports to record the note and the extension of the past due account.

Question 69

Breathe Therapeutic Company is located in Medicine Hat,Alberta and is a retailer of massage supplies.Beginning inventory is $70,000,and Breathe uses the perpetual inventory system.Complete the journal entries on the following dates,including 5% GST as applicable.

Question 70

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

Question 71

West Coast Outdoor Co.estimates that warranty expense will be 1% of sales.The current period's sales were $740,000.The entry to record the warranty expense is:

A)

B)

C)

D)

E)

Question 72

On June 14 ,Multi Sports received a 90-day note payable from Single Sport,instead of cash payment of an overdue account.The amount of the note was $45,000 at an interest rate of 10%.
What is the total amount of interest for the note?

Question 73

Estimated liabilities can arise from:

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

Question 74

Employee vacation benefits:

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

Question 75

Explain the difference between current and long-term liabilities.

Question 76

Explain known current liabilities.

Question 77

Contingent liabilities occur when the liability is:

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

Question 78

Explain the concept of interest.

Question 79

On November 16,2015,Kinsmen Sports gave Source for Sports a 120-day,8%,$120,000 note payable to extend a past due account payable.
What amount of interest expense should Source for Sports report for calendar 2015?

Question 80

A contingent liability:

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