Deck 16: Other Significant Liabilities

Question 1

Marin Company sells 9,000 units of its product in 2021 for $500 each.The selling price includes a one-year warranty on parts.It is expected that 3% of the units will 1.and that repair costs will average $50 per unit.In the year of the sale, warranty contracts
Are honored on 180 units for a total cost of $9,000.
What amount will be reported on Marin Company's balance sheet as Warranty Liability on December 31, 2021?

A)$9,000.
B)$13,500.
C)$4,500.
D)Cannot be determined.

Answer 1

C

Question 2

Which of the following items would not be identified if a contingent liability were disclosed in a financial statement note?

A)The nature of the item
B)The expected outcome of the future event
C)A numerical probability of the expected loss
D)The amount of the contingency, if known

Answer 2

C

Question 3

Contingent liabilities should be recorded in the accounts if there is a remote possibility that the contingency will actually occur.

Answer 3

False

Question 4

Disclosure of a contingent liability is usually made

A)parenthetically, in the body of the balance sheet.
B)parenthetically, in the body of the income statement.
C)in a note to the financial statements.
D)in the management discussion section of the financial statements.

Question 5

A contingent liability is a liability that may be incurred if some future event takes place.

Question 6

Postretirement benefits consist of payments by employers to retired employees for

A)health care and life insurance only.
B)health care and pensions only.
C)life insurance and pensions only.
D)health care, life insurance, and pensions.

Question 7

In concept, the estimating of Warranty Expense when products are sold under warranty is similar to the estimating of Bad Debts Expense based on credit sales.

Question 8

The paid absence that is most commonly accrued is

A)voting leave.
B)vacation time.
C)maternity leave.
D)disability leave.

Question 9

Repair costs incurred in honoring warranty contracts should be debited to Warranty Liability.

Question 10

Larson Company has 20 employees who each earn $120 per day.If they accumulate vacation time at the rate of 1.5 vacation days for each month worked, the amount of vacation benefits that should be accrued at the end of the month is

A)$240.
B)$2,400.
C)$3,600.
D)$360.

Question 11

When vacation benefits are paid, Vacation Benefits Expense is debited.

Question 12

An employer's estimated cost for postretirement benefits for its employees should be

A)recognized as an expense when paid.
B)recognized as an expense during the employees' work years.
C)recognized as an expense during the employees' retirement years.
D)charged to the goodwill account because providing employees with benefits generates employee goodwill.

Question 13

Postretirement benefits are accounted for on a cash basis.

Question 14

In a defined-contribution plan, an employer only recognizes pension expense for the amount that the employer is required to contribute under the plan.

Question 15

If a contingent liability is reasonably estimable and it is reasonably possible that the contingency will occur, the contingent liability

A)should be recorded in the accounts.
B)should be disclosed in the notes accompanying the financial statements.
C)should not be recorded or disclosed in the notes until the contingency actually happens.
D)must be paid for the amount estimated.

Question 16

The accounting for warranty cost is based on the expense recognition principle, which requires that the estimated cost of honoring warranty contracts should be recognized as an expense

A)when the product is brought in for repairs.
B)in the period in which the product was sold.
C)at the end of the warranty period.
D)only if the repairs are expected to be made within one year.

Question 17

If a liability is dependent on a future event, it is called a

A)potential liability.
B)hypothetical liability.
C)probabilistic liability.
D)contingent liability.

Question 18

A contingency that is remote

A)should be disclosed in the financial statements.
B)must be accrued as a loss.
C)does not need to be disclosed.
D)is recorded as a contingent liability.

Question 19

The accounting for warranty costs is based on the

A)going concern principle.
B)expense recognition principle.
C)conservatism principle.
D)full disclosure principle.

Question 20

Warranty expenses are reported on the income statement as

A)administrative expenses.
B)part of cost of goods sold.
C)contra-revenues.
D)selling expenses.

Question 21

Marin Company sells 9,000 units of its product in 2021 for $500 each.The selling price includes a one-year warranty on parts.It is expected that 3% of the units will 1.What amount should Marin Company report as Warranty Expense in its 2021 income statement?

A)$4,500.
B)$9,000.
C)$13,500.
D)$67,500.