Deck 2: Current Liabilities

Question 1

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

Answer 1

False

Question 2

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.

Answer 2

True

Question 3

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.

Answer 3

False

Question 4

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

Question 5

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

Question 6

Gross pay is the same as net pay.

Question 7

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

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

Question 10

All expected future payments are liabilities.

Question 11

A long-term liability can have a current component.

Question 12

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

Question 13

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 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

Unearned revenue is another name for sales revenue.

Question 20

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

Question 21

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

Question 22

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

Question 23

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 non-current.
E)all of these.

Question 24

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

Question 25

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

Question 26

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.

Question 27

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

Question 28

The relevance principle requires that contingent assets be recorded.

Question 29

Estimated liabilities are also referred to as provisions.

Question 30

A warranty is a contingent liability.

Question 31

A pending lawsuit is an example of a contingent liability.

Question 32

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.

Question 33

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

Question 34

A gift card is an example of a contingent liability.

Question 35

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 36

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 37

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

Question 38

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 39

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.

Question 40

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 41

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 42

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 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

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 45

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.

Question 46

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

Question 47

Estimated liabilities can arise from

A)warranties.
B)property taxes.
C)income taxes.
D)employee benefits.
E)all of these.

Question 48

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 49

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)non-current liabilities.

Question 50

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 51

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

Question 52

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

Question 53

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 54

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 55

Major Company borrowed $12,000 by signing an 8% interest-bearing 45-day note payable to replace an overdue accounts payable.To record this transaction,Major Company should prepare a journal entry that includes a

A)credit to Accounts Payable for $12,000.
B)credit to Notes Payable for $12,000.
C)debit to Cash for $12,000.
D)debit to Notes Payable for $12,000.
E)debit to Cash for $12,300.

Question 56

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.

Question 57

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.

Question 58

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

Question 59

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

A)materiality.
B)consistency.
C)full disclosure.
D)timeliness.
E)matching.

Question 60

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

Question 61

Which of the following items below is recorded as an estimate when initially recognized?

A)CPP payable
B)Unearned revenue
C)Warranty obligation
D)Notes payable

Question 62

Explain known current liabilities.

Question 63

Explain the difference between current and long-term liabilities.

Question 64

Vella Physio Company is located in Ponoka,Alberta and is a retailer of physio supplies.Beginning inventory is $20,000,and Vella uses the perpetual inventory system.Complete the journal entries on the following dates,including 5% GST as applicable.

Question 65

Explain the concept of interest.

Question 66

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 67

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

Question 68

On November 16,2020,Kinsmen Sports gave Source for Sports a 120-day,8%,$130,000 note payable to extend a past due account payable.What amount of interest expense should Source for Sports report for calendar 2020?

Question 69

The employer should record payroll deductions as

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

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

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 pay cheque

Question 72

On April 18,Valley Sports gave a 120-day note payable to Slick Snowboards,instead of cash payment of an overdue account.The amount of the note was $185,000 at an interest rate of 11%.Prepare the journal entry on Valley Sports books to record the note payable.

Question 73

On March 1,2020,Jaiku Industrial gave Light Co.a 180-day,8%,$78,000 note payable to extend a past due account payable.Prepare the journal entry for Jaiku Industrial to record payment of the note on August 28,2020.Jaiku Industrial recorded a April 30^th year end adjusting entry.

Question 74

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 75

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 76

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

Question 77

On November 16,2020,Source for Sports gave Kinsmen Sports a 90-day,12%,$120,000 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 78

Discuss how to account for contingent liabilities.

Question 79

Discuss the types of estimated liabilities.

Question 80

During 2020,Hans Electronics sold 350 microwaves each at $1,050 per unit.Each microwave has one-year warranty.Hans estimates it will cost them $82 per unit,if a unit is brought in under warranty for repair.During 2020,Smith spent $17,500 on warranty costs for the appliances sold in 2020.At the end of the 2020 the warranty liability and the warranty expense related to these sales would be

A)Warranty liability: 17,500; Warranty expense: 17,500
B)Warranty liability: 15,500; Warranty expense: 15,500
C)Warranty liability: 15,500; Warranty expense: 17,500
D)Warranty liability: 11,200; Warranty expense: 17,500
E)Warranty liability: 17,500; Warranty expense: 15,200