ACCT 302 Read & Interact Spiceland, Nelson, & Thomas Chapter 13 solutions complete answers

ACCT 302 Read & Interact Spiceland, Nelson, & Thomas Chapter 13 solutions complete answers 

 

Match the following risk levels with the type of liability it is most frequently associated with from the perspective of a potential investor or creditor.

 

Cash collected from customers as refundable deposits or as advance payments for products or services are recognized as

 

Which of the following are essential characteristics of a liability? (Select all that apply.)

 

Current liabilities are those obligations that are payable within one year or the ____, whichever is ____.

 

Obligations to suppliers of merchandise and obligations for services purchased on open account are referred to as

 

Accrued liabilities relate to expenses that were _____, but not yet ____.

 

Which of the following is correct regarding accrued interest payable?

 

Which of the following transactions require recognition of a liability on December 31? (Select all that apply.)

 

Generally, a current liability is expected to be satisfied from              . (Enter one word per blank.)

 

Amounts received that will be returned or remitted to others at a future date are recognized as:

 

Accounts payable typically (Select all that apply.)

 

Revenue associated with the sale of gift cards normally is recognized

 

Sally Company owes its employees $5,250 for the last 4 days of the year ended December 31. The company will pay this amount on January 7 as part of its regular payroll disbursements of $11,800. What, if anything, should Sally recognize on December 31?

 

Lester Corp. sells merchandise to a customer for $1,000. The company also collects state and local sales taxes of 6% and 4%, respectively. At the time of sale, Lester should recognize the following credits in its ledger (Select all that apply.)

 

Interest that has been incurred but not yet been paid is recognized as

 

If a liability is classified as current, rather than noncurrent, the company's working capital will ______.

 

Wagner Company's financial records show that it has a mortgage that requires monthly principal payments of $3,000. The mortgage loan matures in 15 years. What should Wagner show on its balance sheet at the end of the current year? (Select all that apply.)

 

Which of the following transactions require the recognition of a liability? (Select all that apply.)

 

Debt that is callable by the creditor in the upcoming year, but is not expected to be called, is reported as

 

During December, Martin Department Stores sells $240,000 in gift cards. When it sells the gift cards, Martin should recognize

 

Karin Company's loan is due on July 1, 2018. What conditions must Karin meet (at a minimum) so that the note can be classified as a long-term liability on the company's balance sheet at December 31, 2017? (Select all that apply.)

 

Taxes collected for taxing authorities are recognized as

 

The feature that distinguishes loss contingencies from other liabilities is the

 

Which of the following transactions will increase a company's working capital?

 

Which of the following is an important characteristic of loss contingencies that is not commonly shared by other liabilities?

 

Norbert Company's recently signed a 20-year mortgage that requires monthly payments of principal and interest. Norbert should report the mortgage principal payments due during the following accounting period as

 

Which of the following is necessary for a loss contingency to exist?

 

Which of the following are classified as current liabilities? (Select all that apply.)

 

Which of the following are used to categorize the likelihood of the occurrence of a future loss? (Select all that apply.)

 

Which of the following statements is correct regarding short-term obligations?

 

The dollar amount of a potential loss when reporting a               can be classified as either known, reasonably estimable, or not reasonably estimable.

 

When it is uncertain whether an obligation really exists, we may recognize what is referred to as a

 

A liability is accrued for a contingent loss if (Select all that apply.)

 

When some doubt exists about whether or not a loss will occur in the future we refer to it as a(n)

 

A loss contingency is recognized only if the event that gave rise to it occurred

 

Recognition of costs related to manufacturers' quality assurance warranty during the same period that the related revenue is recognized is consistent with the

 

Match the terms with the correct description.

 

The dollar amount of a potential loss from a contingent liability can be classified as (Select all that apply.)

 

Best Equipment Inc. sells its products with a 3-year limited warranty. During 2017, Best Equipment recognizes $550,000 in sales revenue. Based on past experience, some of its products will need repair during the warranty period. What is the appropriate accounting treatment for Best Equipment's product warranty?

 

A contingent liability is accrued if which conditions are met? (Select all that apply.)

 

Revenue related to extended warranty contracts typically is recognized over time because

 

The costs of satisfying product-related warranties should be recorded as an expense

 

Information relative to a loss contingency that becomes available after the fiscal year ends, but before the financial statement date (select all that apply)

 

Warranties that assure the customer that the products are delivered free from major defects typically result in the accrual of

 

Newman Company has both a contingent gain and a contingent loss that it judges to be highly probable to result in future cash flows, which it is able to reasonably estimate. Which of the following should the company accrue for the current accounting period?

 

Revenue related to extended warranty contracts typically is recognized

 

An otherwise successful company may fail to exist, if it experiences serious _____ problems.

 

Which of the following must employers by law withhold from their employees' pay? (Select all that apply.)

 

Events occurring between the end of the fiscal year and the date the financial statements are issued or available to be issued should be

 

Which of the following is not a category used to assess the likelihood of a loss contingency?

 

Which of the following is correct regarding gain contingencies?

 

Identify a primary reason why financial statement users assess a company's liquidity.

 

By law, employers must withhold security taxes and ____ from their employees' paychecks.

 

1.
Abbott Corp.'s attorney estimates that the company will ultimately have to pay between $350,000 and $500,000 relating to current litigation, and that the most likely amount of the loss will be equal to $400,000. Abbott Corporation should accrue a contingent liability and loss of
 
 
2.
The ability to refinance a loan can be demonstrated by (Select all that apply.)
 
 
3.
Able Inc. sells a new product with a 2-year warranty. The company estimates that during the two years, the costs and related probabilities are: Year 1: $10,000 (20%) and $20,000 (80%); Year 2: $15,000 (50%); $25,000 (50%).The company's effective interest rate is 4%. Assuming the warranty costs are settled at the end of Years 1 and 2, calculate the estimated warranty liability using the expected cash flow method.
 
 
5.
Adeline Company, a retail store, sold gift cards totaling $242,000 during the 2017 holiday season. The gift cards do not have an expiration date. At the end of the year, gift cards totaling $83,000 have not yet been redeemed. What is the amount of sales revenue that Adeline should recognize for the year ended 12/31/2017?
 
 
6.
Adeline Company, a retail store, sold gift cards totaling $242,000 during the holiday season. The gift cards do not have an expiration date. At the end of the year, gift cards totaling $83,000 have not yet been redeemed. The $83,000 in unredeemed gift cards should be recognized as
 
 
7.
All liabilities involve a probable ____ sacrifice of economic benefits and arise as a result of _____ transactions or events.
 
 
8.
The amount accrued for future compensated absences is based on employees' ______ salary or wages.
 
 
10.
Antoine Company purchases inventory costing $100,000 on account. Payment is due in full in 3 months. Antoine's normal borrowing rate is 8%. On the date of purchase, Antoine should recognize a liability equal to
 
 
12.
Bonuses are accrued and recognized in the financial statements in the period
 
 
13.
Cash received from customers in advance of providing the related services or delivering the related goods is recognized as:
 
 
14.
Choose the correct formula for calculating interest.
 
 
15.
Choose the statement that best reflects the nature of interest.
 
 
16.
Christenson Corp. signs a short-term notes payable and pledges a portion of its accounts receivables as collateral. This type of loan is referred to as
 
 
17.
Classifying liabilities as current or long-term helps creditors and investors assess the _________ that the liability will require expenditure of cash or another asset. (Enter one word per blank)
 
 
18.
Classifying liabilities as current or noncurrent depends on when the contingent liability is expected to be ________
 
 
19.
Consistent with SFAC No. 7, long-term contingent liabilities should be measured using
 
 
21.
A contingent liability typically is accrued for product warranties because it meets which of the following criteria? (Select all that apply.)
 
 
22.
The costs incurred to satisfy customer claims under an extended warranty period are recorded
 
 
23.
Costs incurred to satisfy customer claims under an extended warranty period are recorded during the same period as the related __________. (Enter only one word.)
 
 
25.
Coupons that are offered as part of a sale contract are accounted for as part of revenue recognition; however, coupons that aren't offered as part of a contract represent a ______ ______that should be recognized in the period issued.
 
 
27.
Current liabilities are those obligations that are payable within ______ or the operating cycle whichever is ____.
 
 
 
 
 
 
 
 
 
 
 
 

32.
Earnings-per-share, net income, and operating income are commonly used financial performance indicators used to determine:
 
 
33.
The effective interest rate on a noninterest bearing loan is _____ than the stated rate.
 
 
34.
Eric Company's accountant properly accrued a liability for sick leave that was not taken by the company's employees during the current year. Which of the following conditions caused the accountant to accrue a liability for the employees' unused sick leave?
 
 
36.
The expected cash flow approach is the appropriate method for estimating _____ ______ contingent liabilities
 
 
37.
Expenses already incurred, but not yet paid are referred to as
 
 
38.
An extended warranty contract (Select all that apply.)
 
 
40.
For a loss contingency to be accrued, (Select all that apply.)
 
 
41.
Gift certificates, magazine subscriptions, layaway deposits, special order deposits, and airline tickets all are examples of
 
 
42.
Glocken Company is trying to increase its share of the consumer electronics market. To stimulate sales, the company offers cash rebates ranging from $25-$50 on all of its products. At December 31, 2017, the company estimates that, during 2018, customers will redeem $2,550 in rebates relating to 2017 sales. On December 31, 2017, Glocken should
 
 
43.
Greenbaum Inc. sells a new product with a 2-year warranty. The company estimates that during the two years, the costs and related probabilities are: Year 1: $20,000 (40%) and $30,000 (60%); Year 2: $30,000 (70%); $20,000 (30%).The company's effective interest rate is 5%. Calculate the estimated warranty liability using the expected cash flow method.
 
 
44.
Grouper Company arranged for a line of credit with its local bank. The company can borrow up to $100,000 as needed. Grouper pays the bank a fee of $200 per year regardless of any specific borrowing under the arrangement. This is an example of
 
 
45.
Growler Commercial Cleaning Company collects a $1,000 deposit associated with the rental of industrial cleaning equipment. The deposit is refundable upon return of the equipment. When the customer returns the cleaning equipment, Growler should debit the following account
 
 
46.
Growler Commercial Cleaning Company collects a $1,000 deposit associated with the rental of industrial cleaning equipment. The deposit is refundable when the customer returns the equipment within the 30 days of rental. If the customer does not return the equipment, Growler should recognize a
 
 
47.
Hendrickson Company's accountant decided not to accrue a liability for sick leave that the company employees did not take during the current year. The sick leave carries forward to the subsequent year. What condition most likely led the accountant to decide not to accrue a liability for unused sick leave?
 
 
48.
Identify the most common loss contingency that does not result in the recognition of a liability.
 
 
 
 
 
 
 
 
 

49.
Identify the statement that best describes the discriminating definition for classifying a liability as current.
 
 
50.
If a borrower pledges specific assets as collateral for a loan, the loan is considered
 
 
52.
In practice, accrual of loss contingencies related to litigation claims are uncommon because (select all that apply)
 
 
53.
In practice, liabilities payable within 1 year typically are recorded at their maturity amount because
 
 
54.
In practice, when do companies commonly recognize the expense related to coupons? (Select all that apply.)
 
 
56.
In the statement of cash flows, interest paid typically is reported in the
 
 
57.
In which section of the statement of cash flows should short-term borrowing typically be reported?
 
 
58.
January 15, 2018, Munter Company learned of a judgment against the company in a lawsuit brought by a client relating to services provided by Munter during the 2017 fiscal period. The 2017 financial statements have not yet been issued. Munter should
 
 
59.
Jingle Company signs a 6-month, $20,000 note. Stated annual interest rate is 8% payable at the maturity date. Interest incurred on the note is calculated as
 
 
60.
Jones Company signs a $15,000, 12-month note and receives $14,250 from the bank. Jones probably signed a(n) ______.
 
 
61.
Jones Company signs a $15,000, 12-month note and receives $14,250 from the bank. On the day that Jones signs the note, the company should debit (Select all that apply.)
 
 
62.
Jones Company signs a $15,000, 12-month note and receives $14,250 from the bank. Over the next 12 months, the carrying value of the note will
 
 
64.
Klein Corp. obtains a 6-month noninterest-bearing loan from its financial institution. The company signs a note for $10,000 and receives $9,500 from the bank. What is the annualized effective interest rate on this loan?
 
 
66.
liabilities payable to be refinanced as long term liabilities: IFRS
 
 
67.
liabilities payable to be refinanced as long term liabilities: US GAAP
 
 
 
 
 
 
 
 
 

70.
Loss is probable and reasonably estimable.
 
 
71.
Loss is reasonably possible and not reasonably estimable.
 
 
72.
Loss is remote.
 
 
73.
Mark Brandt, an employee of Mueller Corp., earned 3 weeks of compensated vacation time during the current year, but only took 2 weeks of vacation. His employer permits that 1 week of vacation can be carried forward to the following year. Mark fully intends to remain at his current employer and plans to take his vacation during the following year. His current weekly salary is $2,000. Mueller Corp. expects to grant a general salary increase of 5% effective at the beginning of the next year. What amount should Mueller accrue during the current year relating to Mark Brandt's carried-forward vacation?
 
 
74.
Mikel Company grants stock options and bonuses to its full-time employees. These benefits are considered employee ______.
 
 
75.
The most common way for corporations to obtain temporary financing is
 
 
78.
Obligations to suppliers of merchandise that bear interest and are for a longer term than open accounts are called
 
 
79.
A ________ of ________is an agreement between a bank and a company that allows the company to borrow up to a specified amount without completing additional paper work. (Enter one word per blank)
 
 
80.
On December 1, 2017, Kathryn Corp. borrows $100,000 from its bank and signs a 6-month, 12% promissory note. How many months of interest should be recognized in 2017?
 
 
81.
On December 1, 2017, Kathryn Corp. borrows $100,000 from its bank and signs a 6-month, 12% promissory note. Interest is payable when the loan matures. What entry should Kathryn make on December 31 relating to its note?
 
 
82.
On December 1, 2017, Katie Corp. borrows $100,000 from its bank and signs a 6-month, 12% promissory note. What accounts should be debited when the interest is paid on the maturity date and what are the amounts? Assume that no interest accruals were made during 2018 relating to this note. (Select all that apply.)
 
 
83.
On January 1, 2017, Merkel Company received $1,814 from a customer related to products to be delivered on December 31, 2018. The company's effective interest rate is 5%. The company regularly sells the products for $2,000 in cash. The journal entry on December 31, 2018 (the date of delivery) will include a credit to revenue for:
 
 
84.
On January 1, 2017, Merkel Company receives $1,814 from a customer related to products to be delivered on December 31, 2018. The company's effective interest rate is 5%. The company regularly sells the products for $2,000 in cash. On January 1, 2017, Merkel should recognize deferred revenue of: (round to whole dollars)
 
 
85.
On January 1, Western Corp. borrows $100,000 from FirstBank using a six-month, 10% promissory note. Interest and principal are payable at maturity. The journal entry on January 1 includes (Select all that apply.)
 
 
86.
On January 1, Western Corp. borrows $100,000 from FirstBank using a six-month, 10% promissory note. Interest and principal are payable at maturity. The journal entry on June 30 includes (Select all that apply.)
 
 
 
 
 
 
 
 
 

89.
Premiums that obligate the company to provide noncash items are
 
 
90.
Premiums that obligate the company to provide noncash items to customers are (select all that apply)
 
 
97.
Robert Company is planning to refinance a loan that is due during 2018. On January 25, 2018, the loan is refinanced with a 5-year note. Which of the following is correct with respect to the classification of the liability on the company's December 31, 2017 balance sheet?
 
 
98.
Roberts Corp. sells its products with a 2-year warranty. Estimated total warranty cost relating to sales for the year ended December 31, 2017, is $210,000. One-third of these estimated costs are expected to be incurred during 2018 with two-thirds expected to be incurred during 2019. Indicate the amount and classification of the estimated warranty cost on the balance sheet at 12/31/2017. (Select all that apply.)
 
 
99.
The sale of accounts receivables to obtain short-term financing is referred to as ______ receivables.
 
 
101.
Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The interest rate stated in the loan agreement most likely applies to
 
 
102.
Short-term bank loans (Select all that apply.)
 
 
103.
Spencer Corp.'s attorney estimates that the company will ultimately have to pay between $250,000 and $500,000 relating to current litigation. Spencer should accrue a contingent liability and loss of
 
 
 
 
 
 
 
 
 
 

106.
Superior Printer Company sells a new model with a $30.00 mail-in rebate. At the end of the accounting period, the company estimates that 25% of the 2,000 rebates associated with sales during December will still be returned by customers. On December 31, Superior Printer should
 
 
107.
Supreme Inc. offers a 3-year extended warranty for all its products. On January 1, 2018, the company collects $45,000 relating to extended warranty contracts. What entry should Supreme make on December 31, 2018?
 
 
108.
Supreme Inc. offers a 3-year extended warranty for all its products. On January 1, 2018, the company collects $45,000 relating to extended warranty contracts. What entry should Supreme make on January 1, 2018?
 
 
109.
Supreme Inc. sells its products with a 3-year warranty. The company estimates warranty costs relating to sales during 2017 are as follows: 2017: $10,000; 2018: $25,000; 2019: $15,000. Assume that actual warranty costs during 2017 were as estimated. What is the amount of the estimated warranty liability that Supreme should recognize on its 2017 balance sheet?
 
 
110.
Supreme Inc. sells its products with a 3-year warranty. The company estimates warranty costs relating to sales during 2017 as follows: 2017: $10,000; 2018: $25,000; 2019: $15,000. Assume that actual warranty costs during 2017 were as estimated. What is the amount of warranty expense that Supreme should recognize in its 2017 income statement?
 
 
112.
Taylor Company's attorney informs its client that it is possible, but not probable, that the company will lose a currently litigated lawsuit. No reliable estimate of the potential loss is currently available. How should Taylor accrue and/or disclose this potential loss?
 
 
113.
True or false: Companies can ignore the interest component of advanced payments if the period between payment and delivery is less than one year.
 
 
114.
True or false: The ability to refinance on a long-term basis can only be demonstrated by actually refinancing prior to issuing financial statements.
 
 
115.
Unearned or deferred revenues are reported as
 
 
116.
Unearned revenue represents a liability until the
 
 
117.
Unredeemed cash rebates related to current year sales should be estimated and the amount treated as a(n): (Select all that apply.)
 
 
118.
Unsecured notes sold in minimum denominations of $25,000 with maturities ranging from 1 to 270 days are referred to as
 
 
119.
Victor Inc. rewards its managers for achieving certain target sales. Victor should recognize the related bonuses
 
 
122.
Walden Company collects the annual fee for 100 magazine renewals. The annual price is $104 per subscription and covers 52 weekly magazines. The subscription period is from July 1 till June 30 of the following year. During the current calendar year for each subscription, Walden should recognize
 
 
123.
Walden Company collects the annual fee for 100 magazine renewals. The annual price is $104 per subscription and covers 52 weekly magazines. When Walden Company receives payment for each subscription renewal, the company should recognize
 
 
 
 
 
 
 
 
 

124.
Werner Inc. sells its products with a 2-year warranty. On December 31, 2017, Werner recognized estimated warranty-related costs of $54,000 for its 2017 sales. During 2018, Werner incurs repair costs of $21,000 related to products sold during 2017. The journal entry to record the cost of repairs would include a debit to:
 
 
125.
What conditions must be met to recognize employee compensation for future absences? (Select all that apply.)
 
 
126.
What financial reporting aspect helps investors and creditors assess the risks associated with liabilities that require expenditures of cash or other assets in the near term?
 
 
127.
What practical reason may motivate companies to rarely accrue losses for ongoing litigation?
 
 
128.
What type of costs relating to ongoing litigation are commonly recognized by companies?
 
 
129.
When accounts receivable serve as collateral for a loan, we refer to the arrangement as ______ accounts receivable.
 
 
130.
When a customer pays far in advance for goods or services, the seller should recognize
 
 
131.
When employees have provided services for which they have not been paid by the financial statement date, the employer must recognize (Select all that apply.)
 
 
132.
When goods are delivered for which the seller received cash in advance, the seller recognizes
 
 
136.
Which of the following are common examples of accrued liabilities? (Select all that apply)
 
 
137.
Which of the following are commonly used nonfinancial performance measures for annual bonuses? (Select all that apply.)
 
 
138.
Which of the following are common types of collections for third parties that most entities experience? (Select all that apply.)
 
 
139.
Which of the following are common types of employee compensation? (Select all that apply.)
 
 
140.
Which of the following are common types of transactions that are recognized as "advances from customers?" (Select all that apply.)
 
 
142.
Which of the following are financially based performance measures commonly used to determine employee bonuses? (Select all that apply.)
 
 
 
 
 
 
 
 
 

145.
Which of the following is a requirement for recognizing employee compensation for future absences?
 
 
149.
Which of the following items represent loss contingencies? (Select all that apply.)
 
 
150.
Which of the following liabilities should be classified as current? (Select all that apply.)
 
 
151.
Which of the following obligations are commonly classified as current liabilities? (Select all that apply.)
 
 
152.
Which of the following obligations is not commonly classified as a current liability?
 
 
153.
Which of the following represent an accrued liability? (Select all that apply.)
 
 
154.
Which of the following represent common examples of employee-related third-party collections? (Select all that apply.)
 
 
155.
Which of the following represents the formal credit instrument for an accounts payable?
 
 
156.
Which of the following represents the formal credit instrument for a trade notes payable?
 
 
157.
Which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for accrual but are at least reasonably possible? (Select all that apply.)
 
 
158.
Which of the following situations would give rise to an employee-related accrued liability as of December 31 of the current year? (Select all that apply.)
 
 
160.
Which of the following statements regarding commercial paper are correct? (Select all that apply.)
 
 
161.
Which of the following statements regarding noninterest-bearing notes is correct? (Select all that apply.)
 
 
162.
Which of the following statements regarding the recognition of liabilities is correct?
 
 
 
 
 
 
 
 
 

166.
With respect to on-going litigation, companies typically recognize related ____, but not related _____.
 
 
 

 

1.
Accounting for the issuance and payment of commercial paper is the same as for notes payable because in essence they represent

(a) unsecured loans
(b) short-term liabilities
(c) notes payable
 
 
3.
Adeline Company sold gift cards totaling $242,000 during 2015 Holiday season. The gift cards do not have an expiration date. At the end of the year, gift cards totaling $83,000 have not been redeemed. What is the amount of sales revenue that Adeline should recognize for the year ended 12/31/2015?

(a) $242,000
(b) $159,000
(c) $83,000
 
 
5.
Anastasia Company recognizes payroll for the month of May. Gross employee income is $200,000; federal taxes withheld are $40,000; state taxes withheld are $6,000; Social Security and Medicare taxes are $15,000. Employees contribute $10,000 to a 401(k) retirement plan. Anastasia will pay which net amount to its employees?

(a) $129,000
(b) $200,000
(c) $210,000
(d) $154,000
 
 
6.
Choose the correct formula for calculating interest.

(a) Maturity Amount Rate per interest period Time to maturity
(b) Face Amount Annual interest rate Fraction of the year
(c) Face Amount * Rate per interest period
 
 
7.
Choose the statement that best reflects the nature of interest.

(a) Interest represents the return of investment to the lender.
(b) Interest is a fee that the lender charges for processing a loan agreement.
(c) Interest is the "rent" paid by the borrower for using the lender's money.
 
 
8.
Classifying liabilities as current or long-term helps creditors and investors assess the __________ that the liability will require expenditure of cash or another asset.
 
 
9.
Common types of collections for third parties that most companies encounter include employee-related and _________-related collections
 
 
10.
A company's cash position, its overall ability to obtain cash in the normal course of business, and to satisfy its current obligations reflects the company's

(a) solvency.
(b) liquidity.
(c) profitability.
 
 
12.
A contingent liability typically is accrued for product warranties because it meets which of the following criteria(s)?

(a) a future loss is certain.
(b) The amount of the loss cannot be reasonably estimated.
(c) A future loss is probable.
(d) A future loss is uncertain.
(e) The amount of the future loss can be reasonably estimated.
 
 
13.
Correctly match the accounting treatment with the specific scenario described. 

Loss is probable and not reasonably estimable.

(a) Disclosure note only.
(b) Liability is accrued and related information disclosed.
(b) No disclosure note needed.
 
 
14.
Correctly match the accounting treatment with the specific scenario described. 

Loss is probable and reasonably estimable.

(a) Disclosure note only.
(b) Liability is accrued and related information disclosed.
(b) No disclosure note needed.
 
 
15.
Correctly match the accounting treatment with the specific scenario described. 

Loss is reasonably possible and not reasonably estimable. 

(a) Disclosure note only.
(b) Liability is accrued and related information disclosed.
(b) No disclosure note needed.
 
 
 
 
 
 
 
 
 
 
 
 

16.
Correctly match the accounting treatment with the specific scenario described. 

Loss is remote

(a) Disclosure note only.
(b) Liability is accrued and related information disclosed.
(b) No disclosure note needed.
 
 
18.
The current ratio represents the commonly used ratio to assess a company's ___________.
 
 
19.
The estimated amounts of warranty costs typically are not ___________.
 
 
21.
Extended warranty contracts typically are accounted for as separate _____________ ________________.
 
 
23.
The feature that distinguishes loss contingencies from the liabilities is the _________ that a loss will occur.
 
 
25.
Grouper Company arranged a line of credit with its bank. The company can borrow up to $100.000 as needed. Grouper pays the bank a fee of $200 per year regardless of any specific borrowing under the arrangement. This is an example of a 

(a) secured loan.
(b) committed line of credit.
(c) noncommited line of credit.
 
 
26.
Growler Commercial Cleaning Company collects a $1,000 deposit associated with the rental of industrial cleaning equipment. The deposit is refundable when the customer returns the equipment. Upon receipt of the deposit, Growler should credit a 

(a) other income - refundable deposits.
(b) expense - refundable deposits.
(c) revenue - refundable deposits.
(d) liability - refundable deposits.
 
 
28.
Identify the steps necessary to determine whether unasserted claims or assessments should be recognized or disclosed.

• If probability conditions are met, treat the claim as if they had been asserted
• Assess probability of whether claims will be asserted
• Recognize contingency if conditions are met and amount can be estimated; otherwise disclose
 
 
 
 
 
 
 
 
 

29.
In practice, the assets most commonly used to secure loans are:

(a) cash
(b) inventory
(c) interest receivable
(d) notes receivable
(e) accounts receivable
 
 
30.
Interest that has been incurred but not yet paid is recognized as

(a) accrued interest payable.
(b) deferred interest.
(c) unearned interest.
(d) prepaid interest receivable.
 
 
31.
Jones signs a $15,000, 12-month note and receives $14,250 from the bank. Jones probably signed a ________ note.

(a) interest-bearing
(b) noninterest-bearing
 
 
33.
Match each set of accounting standards with the correct recognition of contingent gains.

Accrued if the realization is virtually certain

(a) GAAP
(b) IFRS
 
 
34.
Match each set of accounting standards with the correct recognition of contingent gains.

Never accrued

(a) GAAP
(b) IFRS
 
 
35.
Match the risk level (Higher Risk or Lower Risk) with the type of liability it is most frequently associated with from the perspective of a potential investor or creditor. 

Current liabilities already reported on balance sheet.
 
 
36.
Match the risk level (Higher Risk or Lower Risk) with the type of liability it is most frequently associated with from the perspective of a potential investor or creditor. 

Noncurrent liabilities already reported on the balance sheet
 
 
37.
Match the type of leave earned by employees during the current year but carried over to future years with the required accounting treatment. 

Sick leave 

(a) Accrued
(b) Not accrued
 
 
38.
Match the type of leave earned by employees during the current year but carried over to future years with the required accounting treatment. 

Vacation and holidays

(a) Accrued
(b) Not accrued
 
 
39.
Math the term with the correct description.

Confirming event is likely to occur

(a) Probable
(b) Reasonably possible
(c) Remote
 
 
40.
Math the term with the correct description.

The chance that the confirming event will occur is more than remote but less than likely

(a) Probable
(b) Reasonably possible
(c) Remote
 
 
41.
Math the term with the correct description.

The chance that the confirming event will occur is slight

(a) Probable
(b) Reasonably possible
(c) Remote
 
 
42.
Mikel Company grants stock options and bonuses to its full time employees. These benefits are considered employee _____________.
 
 
 
 
 
 
 
 
 

43.
The name _______ paper refers to the fact that a paper certificate traditionally is issued to the lender to signify the obligation.
 
 
44.
On December 1, 2015, Kathryn Corp. borrows $100,000 from its bank and signs a 6-moth. 12% promissory note. Interest is payable when the loan matures. What entry should Kathryn make on December 31 relating to the note?

(a) no entry is necessary on December 31.
(b) Recognize interest expense and interest payable of $6,000.
(c) Recognize interest expense and interest payable of $1,000.
 
 
45.
Place the following steps necessary to assess reporting for unasserted claims and assessments in the correct order.

• Assess the likelihood of an unfavorable outcome.
• Assess whether the amount of a loss can be estimated
• Assess whether an unasserted claim or assessment is probable.
 
 
46.
Sally Company manufactures large kitchen appliances. For the first year of purchase, the company will repair any manufacturing defect free of charge. Sally apparently sells its appliances with a(n) ___________.
 
 
48.
The two basic sources of a business entity's assets are:

(a) net income
(b) liabilities 
(c) owner's equity
(d) cash
 
 
49.
Walden Company collects the annual fee for 100 magazine renewals. The annual price is $104 per subscription and covers 52 weekly magazines. The subscription period is from July 1 till June 30 of the following year. During current calendar year for each subscription, Walden should recognize

(a) no revenue.
(b) revenue of $104.
(c) revenue of $52.
 
 
50.
What conditions must be met to recognize employee compensation for future absences?

(a) The obligation is attributable to employee's services already performed.
(b) Payment is probable.
(c) The paid absences vest or the benefits can be accumulated over time.
(d) The amount can be accurately determined.
(e) The amount can be reasonably estimated.
 
 
52.
Which of the following are common examples of accrued liabilities? (select all that apply)

(a) Interest payable
(b) Income tax payable
(c) Wages and salaries payable
(d) Short-term notes payable
(e) Bonds payable
 
 
 

53.
Which of the following are commonly used non financial performance measures for annual bonuses?

(a) sales revenue
(b) product or service quality
(c) customer satisfaction
(d) earnings-per-share
 
 
54.
Which of the following are common types of premiums offered by manufacturing companies to stimulate sales?

(a) extended warranties
(b) merchandise
(c) noncash items
 
 
55.
Which of the following are common types of transactions that are recognized as "advances from customers?"

(a) gift certificates and cards
(b) sales on account
(c) payment of accounts receivable 
(d) airline tickets
(e) magazine subscriptions
 
 
58.
Which of the following obligations are commonly classified as current liabilities?

(a) Dividends payable
(b) Commercial paper
(c) Accounts payable
(d) Bonds payable
 
 
59.
Which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for accrual but are at least reasonably possible?

(a) The contingency should not be accrued nor disclosed.
(b) A disclosure must describe the contingency.
(c) An estimate of the potential loss should be made (if possible) and disclosed.
 
 
60.
Which of the following statements relating to the timing of issuance of financial statements is correct?

(a) Financial statements are issued several weeks after the end of the fiscal year.
(b) Financial statements must be issued within 1 week after the end of the fiscal year.
(c) Financial statements are issued immediately after the end of the fiscal year.
 
 
62.
Which transactions require recognition of a liability on December 31?

(a) Receipt of inventory purchases on account.
(b) The utility bill for December will be paid January 3.
(c) Employees are promised a 4% pay raise starting next month.
 
 
 
 
 
 
 
 
 

 

1.
Abbott Corp.'s attorney estimates that the company will ultimately have to pay between $350,000 and $500,000 relating to current litigation, and that the most likely amount of the loss will be equal to $400,000. Abbott Corporation should accrue a contingent liability and loss of 
 
 
3.
All liabilities involve a probable ____ sacrifice of economic benefits and arise as a result of _____ transactions or events.
 
 
5.
Choose the statement that best reflects the nature of interest.
 
 
6.
Classifying liabilities as current or noncurrent depends on when the contingent liability is expected to be 
 
 
7.
A company's cash position, its overall ability to obtain cash in the normal course of business, and to satisfy its current obligations reflects the company's 
 
 
8.
Consistent with SFAC No. 7, long-term contingent liabilities should be measured using 
 
 
10.
A contingent liability typically is accrued for product warranties because it meets which of the following criteria? (Select all that apply.)
 
 
11.
Correctly match each scenario relating to probable future losses that exist at the balance sheet date with the correct accounting treatment.
 
 
12.
Correctly match the accounting treatment with the specific scenario described.
 
 
13.
The costs incurred to satisfy customer claims under an extended warranty period are recorded 
 
 
14.
Costs incurred to satisfy customer claims under an extended warranty period are recorded during the same period as the related 
 
 
22.
The expected cash flow approach is the appropriate method for estimating _________ _________ contingent liabilities.
 
 
23.
Expenses already incurred, but not yet paid are referred to as 
 
 
24.
An extended warranty contract (Select all that apply.)
 
 
25.
Extended warranty contracts provide 
 
 
27.
For a loss contingency to be accrued, (Select all that apply.)
 
 
28.
Greene Company experienced a warehouse fire on January 28, 2018. The company estimates that the uninsured portion of its loss will be approximately $10,000. If the company's 2017 financial statements have not yet been issued, Greene should 
 
 
29.
Grouper Company arranged for a line of credit with its local bank. The company can borrow up to $100,000 as needed. Grouper pays the bank a fee of $200 per year regardless of any specific borrowing under the arrangement. This is an example of 
 
 
 
 
 
 
 
 
 
 
 

30.
Growler Commercial Cleaning Company collects a $1,000 deposit associated with the rental of industrial cleaning equipment. The deposit is refundable upon return of the equipment. When the customer returns the cleaning equipment, Growler should debit the following account 
 
 
31.
Growler Commercial Cleaning Company collects a $1,000 deposit associated with the rental of industrial cleaning equipment. The deposit is refundable when the customer returns the equipment. Upon receipt of the deposit, Growler should credit a 
 
 
32.
Gunner Corp. has $2 million in bonds outstanding that mature during 2018. The company intends to refinance some of its obligation by issuing $1 million in 10-year bonds. On January 31, 2018, the new bond issue is sold. The funds will be utilized to pay part of the maturing bond obligation. The balance sheet at 12/31/2017 should show the following regarding the maturing bonds: (Select all that apply.)
 
 
34.
Identify the most common loss contingency that does not result in the recognition of a liability.
 
 
35.
Identify the statement that best describes the discriminating definition for classifying a liability as current.
 
 
36.
Identify the steps necessary to determine whether unasserted claims or assessments should be recognized or disclosed.
 
 
37.
If a borrower pledges specific assets as collateral for a loan, the loan is considered 
 
 
38.
If a company judges the likelihood that an unasserted claim will be asserted at a future date, it is probable the outcome will be unfavorable, and the related amount can be estimated, the company should 
 
 
42.
In practice, accrual of loss contingencies related to litigation claims are uncommon because (select all that apply)
 
 
43.
In practice, the assets most commonly used to secure loans are (Select all that apply.)
 
 
 
 
 
 
 
 
 

44.
An interest rate, unless otherwise specified, is typically a(n) ______ rate. (Enter one word per blank)
 
 
46.
January 15, 2018, Munter Company learned of a judgment against the company in a lawsuit brought by a client relating to services provided by Munter during the 2017 fiscal period. The 2017 financial statements have not yet been issued. Munter should 
 
 
47.
Jones Company signs a $15,000, 12-month note and receives $14,250 from the bank. Jones probably signed a(n) ______.
 
 
52.
Match the following risk levels with the type of liability it is most frequently associated with from the perspective of a potential investor or creditor.
 
 
54.
Mikel Company grants stock options and bonuses to its full-time employees. These benefits are considered employee ______.
 
 
55.
The most common way for corporations to obtain temporary financing is 
 
 
59.
Obligations to suppliers of merchandise that bear interest and are for a longer term than open accounts are called
 
 
60.
A ________ of _________ of 2 is an agreement between a bank and a company that allows the company to borrow up to a specified amount without completing additional paper work.
 
 
 
 
 
 
 
 
 

66.
Roberts Corp. sells its products with a 2-year warranty. Estimated total warranty cost relating to sales for the year ended December 31, 2017, is $210,000. One-third of these estimated costs are expected to be incurred during 2018 with two-thirds expected to be incurred during 2019. Indicate the amount and classification of the estimated warranty cost on the balance sheet at 12/31/2017. (Select all that apply.)
 
 
68.
Seine Company, a trucking company, accidentally spilled a load of ice cream across an open field. The owner of the field has not yet demanded clean-up of the spill. Seine's expert source predicts that it is probable that the owner will file a claim and that Seine will probably have to pay for the clean-up cost of approximately $29,000. Upon determining these facts, Seine should 
 
 
69.
Short-term bank loans (Select all that apply.)
 
 
70.
Spencer Corp.'s attorney estimates that the company will ultimately have to pay between $250,000 and $500,000 relating to current litigation. Spencer should accrue a contingent liability and loss of 
 
 
71.
Superior Printer Company sells a new model with a $30.00 mail-in rebate. At the end of the accounting period, the company estimates that 25% of the 2,000 rebates associated with sales during December will still be returned by customers. On December 31, Superior Printer should 
 
 
72.
Supreme Inc. offers a 3-year extended warranty for all its products. On January 1, 2018, the company collects $45,000 relating to extended warranty contracts. What entry should Supreme make on December 31, 2018?
 
 
73.
Supreme Inc. offers a 3-year extended warranty for all its products. On January 1, 2018, the company collects $45,000 relating to extended warranty contracts. What entry should Supreme make on January 1, 2018?
 
 
74.
Supreme Inc. sells its products with a 3-year warranty. The company estimates warranty costs relating to sales during 2017 are as follows: 2017: $10,000; 2018: $25,000; 2019: $15,000. Assume that actual warranty costs during 2017 were as estimated. What is the amount of the estimated warranty liability that Supreme should recognize on its 2017 balance sheet?
 
 
 
 
 
 
 
 
 

75.
Supreme Inc. sells its products with a 3-year warranty. The company estimates warranty costs relating to sales during 2017 as follows: 2017: $10,000; 2018: $25,000; 2019: $15,000. Assume that actual warranty costs during 2017 were as estimated. What is the amount of warranty expense that Supreme should recognize in its 2017 income statement?
 
 
77.
Taylor Company's attorney informs its client that it is possible, but not probable, that the company will lose a currently litigated lawsuit. No reliable estimate of the potential loss is currently available. How should Taylor accrue and/or disclose this potential loss?
 
 
78.
Unredeemed cash rebates related to current year sales should be estimated and the amount treated as a(n): (Select all that apply.)
 
 
79.
Unsecured notes sold in minimum denominations of $25,000 with maturities ranging from 1 to 270 days are referred to as 
 
 
82.
Werner Inc. sells its products with a 2-year warranty. On December 31, 2017, Werner recognized estimated warranty-related costs of $54,000 for its 2017 sales. During 2018, Werner incurs repair costs of $21,000 related to products sold during 2017. The journal entry to record the cost of repairs would include a debit to 
 
 
83.
What conditions must be met to recognize employee compensation for future absences? (Select all that apply.)
 
 
84.
What practical reason may motivate companies to rarely accrue losses for ongoing litigation?
 
 
85.
What type of costs relating to ongoing litigation are commonly recognized by companies?
 
 
87.
Which of the following are common types of employee compensation? (Select all that apply.)
 
 
91.
Which of the following is a requirement for recognizing employee compensation for future absences?
 
 
 
 
 
 
 
 
 

96.
Which of the following items represent loss contingencies? (Select all that apply.)
 
 
97.
Which of the following liabilities should be classified as current? (Select all that apply.)
 
 
98.
Which of the following represents the formal credit instrument for an accounts payable?
 
 
99.
Which of the following represents the formal credit instrument for a trade notes payable?
 
 
100.
Which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for accrual but are at least reasonably possible? (Select all that apply.)
 
 
102.
Which of the following statements regarding commercial paper are correct? (Select all that apply.)
 
 
103.
Which of the following statements regarding noninterest-bearing notes is correct? (Select all that apply.)
 
 
104.
Which of the following statements relating to subsequent events that occur between the end of the fiscal period and the issuance of the financial statements is correct?
 
 
106.
With respect to on-going litigation, companies typically recognize related ____, but not related _____.