Transcript
CHAPTER 13 CURRENT LIABILITIES, PROVISIONS, PROVISIONS, AND CONTINGENCIES CHAPTER LEARNING OBJECTIVES 1.
Descri Describe be the the nature nature,, type, type, and and valua valuatio tion n of curre current nt liabi liabilit lities ies..
2.
Explain Explain the the classif classificati ication on issues issues of shortshort-term term debt expected expected to be refinanced. refinanced.
3.
Identi Identify fy types types of employ employee-r ee-rela elated ted liabil liabiliti ities. es.
4.
Explai Explain n the accoun accountin tin for differ different ent types types of of provi provisio sions. ns.
!.
Identify Identify the the criteria criteria used to account account for and and disclos disclose e continent continent liabilities liabilities and assets assets..
".
Indica Indicate te ho# to to present present and and analy analy$e $e liabil liability ity-rel -relate ated d inform informati ation. on.
13 ) (
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
TRUE)'ALSE*Con#e+t$a 1. % $ero-interest-bearin note payable payable that is issued issued at a discount #ill not result in any interest expense bein reconi$ed. 2. Divide Dividends nds in arrears arrears on cumula cumulativ tive e prefer preferenc ence e shares shares should should be report reported ed as a curren currentt liability. 3. &aa$ine &aa$ine subscriptions subscriptions and airline airline tic'et sales sales both result in unearned unearned revenues. revenues. 4. %ll lon-term lon-term debt maturin maturin #ithin #ithin the next year must be classified classified as a current liability liability on the statement of financial position. !. % short-ter short-term m obliation obliation can be excluded excluded from current current liabilities liabilities if the company intends intends to refinance it on a lon-term basis. ". &any companies companies do not sereate sereate the sales sales tax collected collected and the amount of the sale sale at the time of the sale. (. )hort)hort-ter term m debt debt oblia obliatio tions ns are classifi classified ed as curren currentt liabil liabiliti ities es unless unless an areem areement ent to refinance is completed before the financial statements are issued. *. % comp compan any y can can excl exclude ude a shor shortt-te term rm obli oblia ati tion on from from curre current nt liab liabil ilit itie ies s if it inte intend nds s to refinance the obliation and has an unconditional riht to defer settlement of the obliation for at least 12 months follo#in the due date. +. reference reference dividends dividends in arrears are not a liability liability until declared declared by the oard of Directors, Directors, but should be disclosed in the notes to the financial statements. 1. % company must accrue a liability for sic' pay that accumulates but does not vest. 11. /ompanies /ompanies report report the amount of social social security taxes taxes #ithheld #ithheld from employees employees as #ell as the companies0 matchin portion as current liabilities until they are remitted. 12. %ccumu %ccumulat lated ed rihts exist exist #hen an employer employer has an obliati obliation on to ma'e payment payment to an employee even after terminatin his employment. 13. /ompanies /ompanies should should reconi$e the expense expense and related liability liability for compensate compensated d absences in the year earned by employees. 14. he expecte expected d profit profit from a sales sales type #arranty #arranty that covers covers several several years should should all be reconi$ed in the period the #arranty is sold. 1!. he cause for litiation must have have occurred on or before the date of the financial statements to report a liability in the financial statements. 1". nder an assurance-typ assurance-type e #arranty, #arranty, companies chare #arranty #arranty costs only to the period in #hich they comply #ith #ith the #arranty. #arranty. 1(. or purposes purposes of reconi$in reconi$in a provision, provision, probable5 probable5 is defined as more li'ely li'ely than not.
/urrent 6iabilities, rovisions, and /ontinencies
13 ) 3
1*. % provision provision differs differs from other liabilities liabilities in that there is reater uncertainty uncertainty about the timin timin and amount of settlement. 1+. /onstructi /onstructive ve obliations, obliations, in #hich #hich the company has created created a valid expectation expectation on the part of other parties that it #ill dischare certain responsibilities, are disclosed in the notes to the financial statements but not recorded. 2. 2. rov rovis isio ions ns are are only only reco record rded ed if it is poss possib ible le that that the the comp compan any y #ill #ill have have to sett settle le an obliation at some point in the future. 21. %n onerous onerous contra contract ct is one in #hich #hich the unavoi unavoidab dable le costs costs of satisf satisfyi yin n the obliati obliations ons out#eih the economic benefits to be received. 22. Expec Expected ted future future operat operatin in losses losses can enerall enerally y be accrue accrued d as part of a restru restructu cturin rin provision. 23. I7) allo#s allo#s for reduced disclosur disclosure e of continent continent liabilitie liabilities s if the disclosure disclosure could increase increase the company0s chance of losin a la#suit. 24. /ontinent liabilities are not reported in the financial financial statements but may be disclosed in the notes to the financial statements if the li'elihood of an unfavorable outcome is possible. 2!. /ontinent /ontinent assets assets are not reported in the statement statement of financial financial position. position. 2". I7) I7) uses uses the term contine continent5 nt5 for assets assets and liabil liabiliti ities es not reconi$ reconi$ed ed in the financia financiall statements. 2(. /ontinent /ontinent assets assets are disclosed disclosed #hen an inflo# of economic economic benefits benefits is considered considered more li'ely than not to occur. 2*. repai repaid d insura insurance nce should should be includ included ed in the numerato numeratorr #hen #hen comput computin in the acid-t acid-test est 89uic': ratio. 2+. ayin a current liability #ith cash #ill al#ays reduce the current ratio. 3. /urren /urrentt liabil liabiliti ities es are usually usually record recorded ed and reported reported in financ financial ial statemen statements ts at their their full full maturity value.
Tr$e 'ase Ans-ers*Con#e+t$a I te 1. 2. 3. 4. !.
Ans.
I te ". (. *. +. 1.
Ans.
I te 11. 12. 13. 14. 1!.
Ans.
I te 1". 1(. 1*. 1+. 2.
Ans.
It e 21. 22. 23. 24. 2!.
Ans.
I te 2". 2(. 2*. 2+. 3.
Ans.
13 ) 0
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
/ULTIPLE /ULTIPLE CHOICE *Con#e+t$a 31.
6iabilities ar are a. any accounts accounts havin havin credit credit balance balances s after closin closin entries entries are made. made. b. defe deferre rred d cred credit its s that that are are reco recon ni$ i$ed ed and and meas measur ured ed in conf confor ormi mity ty #ith ith ene enera rall lly y accepted accountin principles. c. obliations obliations to to transfer transfer o#nershi o#nership p shares to to other entiti entities es in the the future. future. d. present obliations obliations arisin arisin from from past events events resultin resultin in an outflo# outflo# of resources. resources.
32.
;hich ;hich of the follo# follo#in in is a curr current ent liabil liability ity< < a. % lon-term lon-term debt debt maturin maturin currently currently,, #hich is to be paid #ith #ith cash in a sin'in fund fund b. % lon-ter lon-term m debt maturin maturin currently currently,, #hich is to be retired retired #ith #ith proceeds proceeds from a ne# debt issue c. % lon-term lon-term debt debt maturin maturin currently currently,, #hich is to be converted converted into ordinary ordinary shares shares d. =one =one of these these ans# ans#er er choice choices s are corre correct ct..
33.
%mon the shortshort-term term obliations obliations of of 6ance 6ance /ompany /ompany as of December December 31, 31, the the statemen statementt of financial position date, are notes payable totalin >2!, #ith the &adison =ational an'. hese are +-day notes, rene#able for another +-day period. hese notes should be classified on the statement of financial position of 6ance /ompany as a. curre current nt liab liabil ilit itie ies. s. b. defe deferr rred ed cha char res es.. c. nonnon-cu curre rrent nt liabi liabili liti ties es.. d. inte interm rmed edia iate te debt debt..
34.
;hich ;hich of the follo# follo#in in may be a curren currentt liab liabili ility ty< < a. ;ith ;ithhe held ld Inco Income me ax axes es b. Deposi Deposits ts 7ece 7eceive ived d from from /ust /ustome omers rs c. nea nearn rned ed 7eve 7evenu nue e d. %ll of thes these e ans# ans#ers ers are correc correct. t.
3!.
;hich ;hich of of the the follo follo#i #in n items items is a curren currentt liabi liabilit lity< y< a. onds 8for 8for #hich there there is an ade9uate ade9uate sin'in sin'in fund properly properly classif classified ied as a lon-term lon-term investment: due in three months. b. ond onds s due due in thr three ee yea years rs.. c. ond onds s 8for 8for #hic #hich h ther there e is an ade9 ade9ua uate te appr approp opri riat atio ion n of reta retain ined ed earni earnin ns: s: due due in eleven months. d. ond onds s to be refu refund nded ed #hen #hen due due in eiht eiht mont months hs,, ther there e bein bein no doubt doubt abou aboutt the the mar'etability of the refundin issue.
3".
;hi ;hich of the the fol follo#i o#in should not be includ included ed in the current current liabil liabiliti ities es sectio section n of the statement of financial position< a. rade rade note notes s paya payabl ble e b. )hort-term )hort-term $ero-intere $ero-interest-be st-bearin arin notes payable payable c. nea nearn rned ed reve revenu nues es d. %ll of of these these ans# ans#er er choic choices es are are includ included ed
/urrent 6iabilities, rovisions, and /ontinencies
13 )
3(.
;hich ;hich of the follo# follo#in in is a curr current ent liabil liability ity< < a. refer referenc ence e divid dividend ends s in in arrear arrears s b. % dividend dividend payable payable in in the form of additio additional nal shares shares c. % cash dividend dividend payabl payable e to preference preference shareholder shareholders s d. %ll of of these these ans# ans#er er choice choices s are corre correct ct..
3*.
)hare )hare divid dividend ends s distri distribut butabl able e should should be be class classifi ified ed on the a. income income statem statement ent as an an expen expense. se. b. statement statement of financ financial ial positi position on as an asset. asset. c. statement statement of financi financial al position position as a liability liability.. d. statement statement of of financial financial position position as an item item of e9uity e9uity..
3+.
?f the follo# follo#in in items items,, the the only only one #hich #hich should should not be classified as a current liability is a. current current maturi maturitie ties s of lon-t lon-term erm debt debt.. b. sale sales s tax taxes es paya payabl ble. e. c. short-term short-term obliations obliations expected expected to be refina refinanced. nced. d. unea unearn rned ed reve revenu nues es..
4.
;hich ;hich of the the follo follo#i #in n is a chara characte cteris ristic tic of of a current current liab liabili ility ty but but not a non-current liability< a. nav navoi oidab dable le obli oblia ati tion on.. b. resen resentt oblia obliatio tion n that that entails entails settleme settlement nt by probab probable le future future transfer transfer or use of cash, cash, oods, or services. c. )ettlement )ettlement is expecte expected d #ithin the normal normal operatin operatin cycle, cycle, or #ithin #ithin 12 months months after the the reportin date. d. ransac ransaction tion or other other event creati creatin n the liability liability has has already already occurred. occurred.
41. 41.
;hic ;hich h of the the foll follo# o#in in is is not considered a characteristic of a liability< a. res resen entt obli oblia ati tion on.. b. %ris %rises es fro from m past past eve event nts. s. c. 7esult 7esults s in an outf outflo# lo# of reso resourc urces. es. d. 6i9uidation 6i9uidation is reasonabl reasonably y expected expected to re9uire re9uire use of existin existin resources resources classifie classified d as current assets.
42.
;hat is the the relation relationship ship bet#e bet#een en current current liabil liabilities ities and a company@s company@s operatin operatin cycle cycle< < a. 6i9uidation 6i9uidation of current current liabilities liabilities is reasonabl reasonably y expected expected #ithin the company company@s @s operatin operatin cycle 8or one year if more:. b. /urrent /urrent liabiliti liabilities es are the result result of of operatin operatin transa transaction ctions. s. c. /urrent /urrent liabiliti liabilities es can@t exceed exceed the amount amount incurred incurred in in one operatin operatin cycle cycle.. d. here here is no no relatio relationsh nship ip bet#e bet#een en the t#o t#o..
43.
;hat ;hat is the relat relation ionshi ship p bet#een bet#een presen presentt value value and the conce concept pt of a liabil liability ity< < a. resent resent values values are used used to measure measure certain certain liabilities liabilities.. b. resent resent values values are not not used used to measure measure liabili liabilities. ties. c. resent resent values values are used used to measure measure all liabili liabilities. ties. d. resent resent values values are only only used to measure measure non-curre non-current nt liabiliti liabilities. es.
44.
;here is debt debt callabl callable e by the credit creditor or reported reported on the debtor@s debtor@s financi financial al statemen statements< ts< a. =on-cu =on-curre rrent nt liabil liability ity.. b. /urrent /urrent liability liability if the credito creditorr intends to call call the debt #ithin #ithin the year year,, other#ise other#ise a noncurrent liability. c. /urrent /urrent liability liability if it is probable probable that creditor creditor #ill #ill call the debt #ithin #ithin the year year,, other#ise other#ise a non-current liability. liability. d. /urr /urren entt lia liabi bili lity ty..
13 ) 2
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
4!.
;hic ;hich h of of the the foll follo# o#in in is not a condition necessary to exclude a short-term obliation from current liabilities< a. Intend Intend to refinance refinance the the obliati obliation on on a lon-term lon-term basis. basis. b. ?blia ?bliatio tion n must must be due #ith #ithin in one year year.. c. nconditio nconditional nal riht to to defer settlem settlement ent of the liabil liability ity for at least least 12 months. months. d. )ubse9uentl )ubse9uently y refinance refinance the obliatio obliation n on a lon-te lon-term rm basis. basis.
4".
% company has not declared a dividend on its cumulative preference shares for the past three years. ;hat is the re9uired accountin treatment or disclosure in this situation< a. 7ecord 7ecord a liability for for cumulative cumulative amount amount of preference preference shares shares dividends dividends not declared. declared. b. Disclose Disclose the amount amount of the the dividen dividends ds in arrears. arrears. c. 7ecord 7ecord a liability liability for the the current current year@s year@s dividend dividends s only. only. d. =o discl disclosu osure re or reco reconit nition ion is is re9uire re9uired. d.
4(.
;hich ;hich of the the follo follo#i #in n situat situation ions s may ive ive rise rise to unear unearned ned reven revenue< ue< a. rovid rovidin in trad trade e credit credit to to custom customers ers.. b. )ell )ellin in inv inven ento tory ry.. c. )ellin )ellin maa maa$in $ine e subs subscri cripti ptions ons.. d. rovid rovidin in manuf manufact acture urerr #arran #arrantie ties. s.
4*. 4*.
;hic ;hich h of the the fol follo# lo#in in state stateme ment nts s is cor corre rect ct< < a. % company company may exclude exclude a short-term short-term obliati obliation on from current current liabilitie liabilities s if it intends to refinance the obliation on a lon-term basis. b. % company company may exclu exclude de a shortshort-ter term m obliati obliation on from current current liabil liabiliti ities es if it has an unconditional riht to defer settlement of the liability for at least 12 months. c. % compan company y may exclu exclude de a shortshort-ter term m obliatio obliation n from from current current liabilit liabilities ies if it is paid off after the statement of financial position date and subse9uently replaced by lon-term debt before the statement of financial position is issued. d. =one =one of these these ans# ans#er er choice choices s are corre correct ct..
4+. 4+.
;hic ;hich h of of the the foll follo# o#in in stat statem emen ents ts is fase? a. % company company may exclude exclude a short-term short-term obliati obliation on from current current liabilitie liabilities s if it intends to refinance the obliation on a lon-term basis and have an unconditional riht to defer settlement of the liability for at least 12 months. b. /ash dividen dividends ds should should be recorded recorded as a liability liability #hen #hen they are are declared declared by the board board of directors. c. nder the the cash basis basis method, method, #arranty #arranty costs costs are are chared to expense expense as they they are paid. paid. d. )oci )ocial al secu securi rity ty taxe taxes s #ithh #ithhel eld d from from empl employ oyee ees@ s@ payr payroll oll chec chec's 's shou should ld neve neverr be recorded as a liability since the employer #ill eventually remit the amounts #ithheld to the appropriate taxin authority. authority.
!. !.
;hic ;hich h of the the foll follo# o#in in is is not a correct statement about sales taxes< a. )ales )ales taxes taxes are are an expen expense se of the the seller seller.. b. &any compani companies es record record sales sales taxes taxes in in the sales sales account account.. c. If sales sales taxes taxes are includ included ed in the sales sales account, account, the first first step step to find the amoun amountt of sales taxes is to divide sales by 1 plus the sales tax rate. d. %ll of thes these e ans#e ans#err choice choices s are true. true.
/urrent 6iabilities, rovisions, and /ontinencies
13 )
)
!1. !1.
In acco accoun unti tin n for for comp compen ensa sate ted d abse absenc nces es,, the the diff differ eren ence ce bet# bet#ee een n vest vested ed rih rihts ts and accumulated rihts is a. vested vested rihts rihts are normall normally y for a loner loner period period of employ employmen mentt than than are accumula accumulated ted rihts. b. vested vested rihts rihts are not not continent continent upon upon an employe employee@s e@s future future service. service. c. vested vested rihts are are a leal and bindin bindin obliation obliation on the the company company, #hereas #hereas accumulated accumulated rihts expire at the end of the accountin period in #hich they arose. d. vest vested ed rih rihts ts carr carry y a stip stipul ulat ated ed doll dollar ar amou amount nt that that is o#ed o#ed to the the empl employ oyee eeAA accumulated rihts do not represent monetary compensation.
!2.
%n employe employee@s e@s net 8or ta'e-h ta'e-home: ome: pay is is determine determined d by ross earnins earnins minus minus amounts amounts for income tax #ithholdins and the employee@s a. port portio ion n of I/ I/% % tax taxes es.. b. and emplo employer yer@s @s portio portion n of I/% I/% taxes. taxes. c. portion portion of I/% I/% taxes, taxes, and any mandato mandatory ry deducti deductions. ons. d. portion portion of I/% I/% taxes taxes and any any voluntary voluntary deductions. deductions.
!3. !3.
% liabi liabili lity ty for compen compensa sate ted d abse absenc nces es such as vaca vacati tion ons, s, for #hich #hich it is expe expect cted ed that employees #ill be paid, should a. be accrued accrued durin durin the period period #hen the compen compensat sated ed time is expect expected ed to be used used by employees. b. be accrue accrued d durin durin the perio period d follo#i follo#in n vestin vestin. . c. be accru accrued ed duri durin n the the period period #hen #hen earned earned.. d. not be accrued accrued unless unless a #ritten #ritten contractu contractual al obliation obliation exists exists..
!4.
he amou amount nt of the the liabi liabilit lity y for comp compens ensate ated d absence absences s should should be based based on 1. the the curr curren entt rate rates s of pay pay in effe effect ct #hen #hen empl employ oyee ees s earn earn the the rih rihtt to compensated absences. 2. the the expe expect cted ed rate rates s of pay pay expe expect cted ed to be paid paid #hen hen empl employ oyee ees s use use compensated time. 3. the present present value value of the the amount amount expected expected to be paid in in future future periods. periods. a. b. c. d.
1. 2. 3. Eith Either er 1 or or 2 is acc accep epta tabl ble. e.
!!. !!.
;hat ;hat are are com compe pens nsat ated ed abs absen ence ces< s< a. npa npaid id time time off. off. b. % form form of heal health thca care re.. c. ayr ayroll oll dedu deduct ctio ions ns.. d. ai aid tim time e of off.
!".
nder #hat conditions conditions is an employer employer re9uire re9uired d to accru accrue e a liabili liability ty for for sic' sic' pay< pay< a. )ic' pay benefits benefits can can be reasonably reasonably estimated. estimated. b. )ic' )ic' pay pay bene benefi fits ts vest vest.. c. )ic' )ic' pay bene benefit fits s e9ual e9ual 1B 1B of the the pay pay. d. )ic' )ic' pay pay bene benefit fits s accu accumul mulate ate..
!(.
;hich ;hich of the the follo#i follo#in n terms terms is assoc associat iated ed #ith #ith recon reconi$i i$in n a provisi provision< on< a. oss ossib ible le but but not pro proba babl ble. e. b. 6i'ely. c. 7emote. d. robable.
13 ) 5
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
!*.
o record record an enviro environmenta nmentall liability liability,, the cost cost associ associated ated #ith #ith the liability liability is is a. expensed sed. b. included included in the the carryin carryin amount amount of the the related related lon-liv lon-lived ed asset. asset. c. includ included ed in in a separa separate te accoun account. t. d. =one =one of these these ans# ans#er er choice choices s are corre correct ct..
!+.
% compa company ny is leally leally oblia obliated ted for the costs costs assoc associat iated ed #ith #ith the retirem retirement ent of a lon-liv lon-lived ed asset a. only #hen #hen it hires hires another another party party to perform perform the the retirement retirement activ activities ities.. b. only if it perform performs s the activitie activities s #ith its its o#n #or'forc #or'force e and e9uipment. e9uipment. c. #heth #hether er it hires hires another another party to perform perform the retireme retirement nt activiti activities es or perfor performs ms the activities itself. d. only #hen #hen the obliati obliation on arises arises at the outset outset of the asset0 asset0s s use.
". ".
%ssu %ssume me that that a manu manufa fact ctur urin in corp corpor orat atio ion n has has 81: 81: ood ood 9ualit 9uality y cont contro rol, l, 82: a oneone-ye year ar operatin cycle, 83: a relatively stable pattern of annual sales, and 84: a continuin policy of uaranteein ne# products aainst defects for three years that has resulted in material but rather stable #arranty repair and replacement costs. %ny liability for the #arranty a. should should be repo reporte rted d as non-cu non-curre rrent. nt. b. should should be repo reporte rted d as curren current. t. c. should should be report reported ed as part current current and and part non-current. non-current. d. need need not not be be dis discl clos osed ed..
"1. "1.
?rti ?rti$ $ /orp /orpor orat atio ion, n, a manu manufa fact ctur urer er of hous househ ehol old d pain paints ts,, is prepa prepari rin n annu annual al fina financ ncia iall statements at December 31, 21!. ecause of a recently proven health ha$ard in one of its paints, the overnment has clearly indicated its intention of havin ?rti$ recall all cans of this paint sold in the last six months. he manaement of ?rti$ estimates that this recall #ould cost >*,. ;hat accountin reconition, if any, any, should be accorded this situation< a. =o rec reconi oniti tion on b. =ote =ote disc disclo losu sure re only only c. ?peratin ?peratin expense expense of >*, >*, and and liabilit liability y of >*, >*, d. %pprop %ppropria riatio tion n of retained retained earnin earnins s of >*, >*,
"2.
Info Inform rmati ation on availa available ble prior prior to the the issu issuanc ance e of the financ financia iall stat statem emen ents ts indica indicates tes that that it is probable that, at the date of the financial statements, a company has a present obliation related to product #arranties. he amount of the expense involved can be reasonably estimated. ased on the above facts, the estimated #arranty expense should be a. accrued. b. disc disclo lose sed d but but not accrued. c. ne"t4er accrued nor disclosed. d. classifie classified d as an appropri appropriation ation of retain retained ed earnins earnins..
"3.
Espino Espinosa sa /o. has has a provisio provision n to accrue. accrue. he he amoun amountt can only only be reasona reasonably bly estim estimate ated d #ithin a rane of outcomes. =o sinle amount #ithin the rane is a better estimate than any other amount. he amount of the accrual should be a. $ero. b. the the mid mid poin pointt of the the ran rane. e. c. the the mini minimu mum m of of the the ran rane. e. d. the the maxi maximu mum m of the the ran rane. e.
/urrent 6iabilities, rovisions, and /ontinencies )
13 ) 6
"4.
%ccoun %ccountin tin for produc productt #arran #arranty ty costs costs under under an assur assuranc ance-t e-typ ype e #arrant #arranty y a. is re9u re9uire ired d for for incom income e tax purpos purposes. es. b. is fre9uently fre9uently Custifi Custified ed on the basis of expedienc expediency y #hen #arranty #arranty costs costs are immaterial immaterial.. c. char chare es s an expe expens nse e acco accoun untt #hen hen the the sell seller er perf perfor orms ms in comp compli lian ance ce #ith ith the the #arranty. #arranty. d. represents represents accepte accepted d practice practice and should should be used #henever #henever the #arranty #arranty is an an interal interal and inseparable part of the sale.
"!.
;hich of the the follo#i follo#in n best describes describes the the accountin accountin for assurance-t assurance-type ype #arranty #arranty costs< costs< a. Ex Expe pens nsed ed #he #hen n paid. paid. b. Expens Expensed ed #hen #hen #arrant #arranty y claims claims are certa certain. in. c. Expens Expensed ed based based on on estima estimate te in year year of of sale. sale. d. Expen Expense sed d #he #hen n incu incurr rred ed..
"".
In a servic service-ty e-type pe #arra #arranty nty,, #arra #arranty nty revenu revenue e is a. recon reconi$e i$ed d in the year year of of sale sale.. b. not not reco recon ni$ i$ed ed.. c. reconi$ed reconi$ed only in the the last last year year of the #arrant #arranty y period. period. d. recon reconi$e i$ed d e9ually e9ually over over the #arr #arrant anty y period. period.
"(.
;hich of the the follo#in follo#in is a charac characteris teristic tic of of an assuranc assurance-ty e-type pe #arranty #arranty,, but not not a service service-type #arranty< a. ;arra arrant nty y liabil liabilit ity y. b. ;arra arrant nty y expe expens nse. e. c. nea nearn rned ed #arr #arran anty ty reve revenu nue. e. d. ;arra arrant nty y reven revenue ue..
"*.
%n electr electroni onics cs store store is runnin runnin a promot promotion ion #here #here for for every vide video o ame purcha purchased sed,, the custom customer er receives receives a coupon coupon upon chec'o chec'out ut to purcha purchase se a second second ame at a !B discount. he coupons expire in one year. he store normally reconi$ed a ross profit marin of 4B of the sellin price on video ames. o# #ould the store account for a purchase usin the discount coupon< a. he he redu reduct ctio ion n in sale sales s pric price e attr attrib ibut uted ed to the the coup coupon on is reco recon ni$ i$ed ed as prem premiu ium m expense. b. he he diff differ eren ence ce bet# bet#ee een n the the cost cost of the the vide video o ame ame and and the the cash cash rece receiv ived ed is reconi$ed as premium expense. c. remiu remium m expen expense se is is not not reco reconi$ ni$ed. ed. d. he differ differenc ence e bet#een bet#een the cost of the video video ame and the sellin sellin price prior prior to the coupon is reconi$ed as premium expense.
"+.
;hat ;hat conditi condition on is necess necessary ary to reco reconi$ ni$e e an environ environmen mental tal liabi liabilit lity< y< a. /ompany /ompany has an existin existin leal leal obliation obliation and can can reasonably reasonably estimate estimate the the amount of the liability. b. /ompany /ompany can reasona reasonably bly estimate estimate the the amount amount of the the liability liability.. c. /ompan /ompany y has an exis existin tin leal leal obliat obliation ion.. d. ?blia ?bliatio tion n event event has occurr occurred. ed.
(. (.
;hic ;hich h of of the the follo ollo# #in in is not to be considered considered #hen evaluatin #hether or not to record a liability for pendin litiation< a. ime ime period period in #hich #hich the the underlyin underlyin cause of action action occurre occurred. d. b. he type type of litia litiatio tion n invol involved ved.. c. he prob probabi abilit lity y of an unfav unfavorab orable le outcom outcome. e. d. he ability ability to ma'e ma'e a reasonabl reasonable e estimate estimate of the amount amount of the the loss. loss.
13 ) 18
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
(1.
;hich ;hich of the the follo follo#i #in n is the the proper proper #ay #ay to repor reportt a probabl probable e contin continent ent asset asset< < a. %s an accr accrue ued d amo amoun unt. t. b. %s defe deferr rred ed reve revenu nue. e. c. %s an acco accoun untt rece receiv ivab able le #ith #ith addi additi tion onal al disc disclo losu sure re expl explai aini nin n the the natu nature re of the the continency. d. %s a disc disclo losu sure re onl only y.
(2.
/onti ontin nen entt asse assetts nee need d not be disclosed in the financial statements or the notes thereto if they are considered< a. irt irtua uall lly y cert certai ain. n. b. robable. c. 6i'ely. d. oss ossib ible le but but not pro proba babl ble. e.
(3.
% cont contiinen nentt liliabil abilit ity y a. al#ays al#ays exists exists as a liability liability but its its amount amount and due date are are indetermina indeterminable. ble. b. is accr accrued ued even even thouh thouh not prob probabl able. e. c. is al#ays al#ays the the result result of a loss loss conti contine nency ncy.. d. is not not report reported ed as a liabi liabilit lity y if not prob probabl able. e.
(4.
;hich of the the follo#in follo#in is the the proper proper #ay #ay to report a continent continent asset considered considered probable< probable< a. %s an an as asset. b. %s defe deferr rred ed reve revenu nue. e. c. %s a dis discl clos osur ure e onl only y. d. =o disc disclos losure ure or or accrual accrual re9uir re9uired. ed.
(!.
;hich ;hich of the the follo# follo#in in is the the proper proper #ay to to report report a contin continent ent asset asset,, receipt receipt of of #hich #hich is virtually certain< a. %s an an as asset. b. %s unea unearn rned ed reve revenu nue. e. c. %s a dis discl clos osur ure e onl only y. d. =o disc disclos losure ure or or accrual accrual re9uir re9uired. ed.
(". (".
rov rovis isio ions ns are are cont contin ine ent nt liabi liabili liti ties es #hich #hich are are accr accrue ued d beca becaus use e the the li'e li'eli lihoo hood d of an unfavorable outcome is a. virt virtua uall lly y cert certai ain. n. b. rea reate terr tha than n !B !B.. c. at le least (! (!B. d. possible.
((.
Exampl Examples es of contin continen entt assets assets includ include e all of the the foll follo# o#in in e7#e+tF a. nreal nreali$e i$ed d ain on on the sale sale of inve investm stment ents. s. b. endin endin la#sui la#suitt #ith #ith a favorabl favorable e outcome outcome.. c. ax refund refund disputed disputed by the overnm overnment ent but #ith #ith a possible possible favorable favorable outcome. outcome. d. rom romis ise e of land to be donate donated d by city city as an enti entice ceme ment nt to move move manu manufa fact ctur urin in facilities.
/urrent 6iabilities, rovisions, and /ontinencies
13 ) 11
(*.
%ll of the follo# follo#in in are true true reardin reardin the present presentation ation of current current liabili liabilities ties in in the statem statement ent of financial position e7#e+t a. he non-current non-current liabili liabilities ties section section follo#s follo#s the current current liabiliti liabilities es section. section. b. /urrent /urrent liabilities liabilities may be listed listed in order of maturit maturity y, in descendin descendin order of manitud manitude e or in order of li9uidity preference. c. /urrent /urrent liabiliti liabilities es are enerally enerally recorded recorded at their their full full maturity maturity values. values. d. /urrent /urrent liabilities liabilities should should not be offset offset aainst aainst the the assets that that #ill #ill be used to li9uidate li9uidate them.
(+. (+.
o# o# do you you dete determ rmin ine e the the acid acid-t -tes estt rati ratio< o< a. he sum sum of cash cash and short-te short-term rm investme investments nts divided divided by short-t short-term erm debt. debt. b. /urrent /urrent assets assets divided divided by current current liabili liabilities. ties. c. /urren /urrentt assets assets divi divided ded by short short-te -term rm debt. debt. d. he he sum sum of cash cash,, shor shortt-te term rm inve invest stme ment nts s and and net net rece receiv ivab able les s divi divide ded d by curr curren entt liabilities.
*.
;hat ;hat does does the the curr current ent ratio ratio info inform rm you you abou aboutt a comp company any< < a. he ext extent ent of slo# slo#-mov -movin in inven inventor tories ies.. b. he effic efficien ientt use use of of asse assets. ts. c. he he compa company ny@s @s li9u li9uidi idity ty.. d. he company company@s @s profi profitab tabili ility ty..
)
*1.
;hich of the follo#in is not accept acceptabl able e treatm treatment ent for the presen presentat tation ion of curren currentt liabilities< a. 6istin 6istin current current liabilitie liabilities s in order of maturi maturity ty b. 6istin 6istin current current liabilitie liabilities s accordin accordin to to amount amount c. ?ffsettin ?ffsettin current liabilit liabilities ies aainst aainst assets assets that are to be applied applied to their li9uidati li9uidation on d. )ho#in )ho#in current current liabilit liabilities ies in order of li9uidati li9uidation on preference preference..
*2.
he rati ratio o of curr current ent asse assets ts to curren currentt liabil liabiliti ities es is call called ed the the a. curre urrent nt rat ratio io.. b. acid acid-t -tes estt rat ratio io.. c. current current asset asset turnov turnover er ratio. ratio. d. current current liabil liability ity turnov turnover er ratio ratio..
*3.
he numera numerator tor of the acid-t acid-test est ratio ratio consis consists ts of a. tota totall cur curre rent nt asse assets ts.. b. cash cash and shortshort-ter term m inves investme tments nts.. c. cash cash and and net net rec recei eiva vabl bles es.. d. cash, short-term short-term investment investments, s, and and net receivable receivables. s.
*4.
Each of of the follo#in follo#in are include included d in both both the the current current ratio and the the acid-tes acid-testt ratio ratio e7#e+t a. cash. b. shor shortt-te term rm inves investm tmen ents ts.. c. net net rece receiv ivab able les. s. d. inven nvento tory ry..
13 ) 1(
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
/$t"+e C4o"#e Ans-ers* Con#e+t$a Ite
31. 32. 33. 34. 3!. 3". 3(. 3*.
Ans.
d d a d c d c d
Ite
3+. 4. 41. 42. 43. 44. 4!. 4".
Ans.
c c d a a d d b
Ite
4(. 4*. 4+. !. !1. !2. !3. !4.
Ans.
c d d a b d c d
Ite
!!. !". !(. !*. !+. ". "1. "2.
Ans.
d b d b c c c a
Ite
"3. "4. "!. "". "(. "*. "+. (.
Ans.
b d c d a b a b
Ite
(1. (2. (3. (4. (!. (". ((. (*.
Ans.
d d d c a b a a
Ite
(+. *. *1. *2. *3. *4.
Ans.
d c c a d d
)olutions to those &ultiple /hoice 9uestions for #hich the ans#er is none of these.5 32. % lon-term lon-term debt debt maturin maturin currently currently to to be paid paid #ith #ith current current assets assets is a current current liability liability.. 4*. he compa company ny must must both both intend intend to refin refinanc ance e the oblia obliatio tion n on a lon-ter lon-term m basis basis and have have an unconditional riht to defer settlement of the liability for at least 12 month.
/ULTIPLE CHOICE *Co+$tat"ona *!.
Glaus Glaus /orp. /orp. sined sined a threethree-mon month, th, $ero$ero-int intere erestst-bea bearin rin >1!2,2! >1!2,2! note note on =ovember =ovember 1, 21! for the purchase of >1!, >1!, of inventory. inventory. he adCustin adCustin entry made at December 31, 21! #ill include a a. debit debit to =ote =ote ayabl ayable e for for >(3!. >(3!. b. debit debit to Inte Interes restt Expen Expense se for for >1,4( >1,4(.. c. credit credit to =ote =ote aya ayable ble for >(3!. >(3!. d. credit credit to to Intere Interest st Expen Expense se for for >1,4( >1,4(..
*". *".
he he effe effect ctiv ive e inte intere rest st on a 12-m 12-mon onth th,, $ero $ero-i -int nter eres estt-be bear arin in note note paya payabl ble e of >3 >3, , ,, discounted at the ban' at 1B is a. 1.*(B. b. 1B. c. +.+B. d. 11.11B.
*(. *(.
?n )epte )eptemb mber er 1, ydr ydra a purc purcha hase sed d >+,! >+,! of invent inventory ory item items s on cred credit it #ith #ith the the terms terms 1H1!, net 3, ? destination. reiht chares #ere >2. ayment for the purchase #as made on )eptember 1*. %ssumin ydra uses the perpetual inventory system and the net method of accountin for purchase discounts, #hat amount is recorded on )eptember 1 as accounts payable from this purchase< a. >+,4!. b. >+,"!. c. >+,(. d. >+,!.
**.
)odium Inc. borro#ed borro#ed >1(!, >1(!, on %pril 1. he he note note re9uires re9uires interest interest at 12B 12B and principal principal to be paid in one year. o# much interest is reconi$ed for the period from %pril 1 to December 31< a. >. b. >21,. c. >!,2!. d. >1!,(!.
/urrent 6iabilities, rovisions, and /ontinencies
13 ) 13
*+. *+.
/oll /ollie ierr borr borro# o#ed ed >1(!, >1(!, on ?ctobe ?ctoberr 1 and and is re9u re9uir ired ed to pay >1*, >1*, on &arc &arch h 1. ;hat amount is the note payable recorded at on ?ctober 1 and ho# much interest is reconi$ed from ?ctober 1 to December 31< a. >1(! >1(!, , and and >. >. b. >1(! >1(!, , and and >3, >3, .. c. >1* >1*, , and and >. >. d. >1(! >1(!, , and and >!, >!, ..
+.
?n )eptemb )eptember er 3, an an /ompany /ompany sined sined a J>1! J>1!, ,, , one-year one-year $ero-in $ero-inter terest est-be -beari arin n note at irst )olvent an'. an0s borro#in rate on such obliations is 12B 8.*+2*" present value factor:. he )eptember 3 Cournal entry to record issuance of the note #ould includeF a. a debit debit to /ash /ash for for J>1 J>1!, !, .. b. a debit debit to =otes =otes 7ecei 7eceivabl vable e for J>1! J>1!, ,. . c. a credit credit to to =otes =otes ayab ayable le for for J>133 J>133,+2 ,+2+. +. d. a debit debit to Inter Interest est Exp Expens ense e for J>1" J>1",( ,(1. 1.
+1.
?n Kune Kune 2, in in /ompa /ompany ny purcha purchased sed oods oods from from /hee-/ /hee-/ho# ho# /ompa /ompany ny for J>3 J>3, ,, , terms 2H1, nH3. he invoice #as paid on Kune 2(. he company uses a perpetual inventory system and records purchases ross. he Kune 2( Cournal entry to record payment of the account #ould includeF a. a cred credit it to /ash /ash for for J>3 J>3, ,. . b. a credit credit to urch urchase ases s Discou Discounts nts for for J>" J>".. c. a debit debit to %ccoun %ccounts ts ayabl ayable e for J>2+ J>2+,4 ,4. . d. a credi creditt to Invent Inventory ory for J>" J>"..
+2. +2.
?n Decem Decembe berr 31, 31, 21!, 21!, rye rye /o. /o. has L4, L4,, , of short short-t -ter erm m notes notes payabl payable e due due on ebruary 2*, 21". ?n December 23, 21!, rye arraned a line of credit #ith /ounty an' #hich allo#s allo#s rye to borro# up to L3,!, at one percent percent above the prime rate for three years. ?n ebruary 2, 21", rye borro#ed L2,!, from /ounty an' and used L!, additional additional cash to li9uidate li9uidate L3,, L3,, of the short-term short-term notes payable. payable. he amount of the short-term notes payable that should be reported as current liabilities on the December 31, 21! statement of financial position #hich is issued on &arch 1!, 21" is a. >. b. >!,. c. >1,,. d. >4, >4, , , ..
13 ) 10
+3.
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
alencia alencia /orporat /orporation ion has the follo#in follo#in liabilitie liabilities s at December December 31, 21!F *.+B note payable issued =ovember 1, 21!, maturin ?ctober 31, 21" (.2!B note payable issued %uust 1, 21!, payable in t#elve e9ual annual installments of >+, beinnin %uust 1, 21"
M1,1!, 1,*,
alencia0s December 31, 21! financial statements #ere issued on &arch 1+, 21". ?n Kanuar Kanuary y 23, 21", the entire entire M1,1! M1,1!, , balanc balance e of the *.+B note note #as #as refina refinance nced d by issuance of a lon-term obliation payable in a lump sum. In addition, on December 2+, 21!, alencia consummated a non-cancelable areement #ith the lender to refinance the (.2!B, M1,*, note on a lon-term basis, on readily determinable terms that have not yet been implemented. ?n the December 31, 21! statement of financial position, the amount of these notes payable that alencia should classify as short-term obliations is a. >. b. >1, >1,*, *, . . c. >1,1!,. d. >2, >2,23, 23, . . +4.
urest urest o#es o#es >1 milli million on that that is due on on ebrua ebruary ry 2*. he he compa company ny borro# borro#s s >*, >*, on ebruary 2! 8!-year note: and uses the proceeds to pay do#n the >1 million note and uses other cash to pay the balance. o# much of the >1 million note is classified as lonterm in the December 31 financial statements< a. >1, >1,, , . . b. >. c. >*,. d. >2,.
+!.
ista ista ne#s ne#spape papers rs sold sold 4, 4, of annual annual subsc subscrip riptio tions ns at >12! >12! each on )ept )eptemb ember er 1. o# o# much unearned revenue #ill exist as of December 31< a. >. b. >333,333. c. >1"",""(. d. >!,.
+".
urcha urchase se 7etail 7etailer er made made cash cash sales sales durin durin the month month of ?ctob ?ctober er of >132," >132,". . he he sales sales are subCect to a "B sales tax that #as also collected. ;hich of the follo#in #ould be included in the summary Cournal entry to reflect the sale transactions< a. Debi Debitt /ash /ash for for >13 >132, 2," ". . b. /redit /redit )ale )ales s ax ax ayab ayable le for >(,! >(,!". ". c. /red /redit it )al )ales es for for >12 >12!, !,+ +4. 4. d. /redit /redit )ale )ales s ax ax ayab ayable le for >(,+ >(,+!". !".
/urrent 6iabilities, rovisions, and /ontinencies
13 ) 1
+(. +(.
?n ebr ebrua uary ry 1, 1, 21! 21!,, afte afterr issu issuan ance ce of its its fina financ ncia iall stat statem emen ents ts for for 214 214,, ous ouse e /ompany entered into a financin areement #ith 6ebo an', allo#in ouse /ompany to borro# up to >4,, at any time throuh 21(. %mounts borro#ed under the areement bear interest at 2B above the ban'@s prime interest rate and mature t#o years from the date of loan. ouse /ompany presently has >1,!, of notes payable #ith irst =ational an' maturin &arch 1!, 21!. he company intends to borro# >2,!, under the areement #ith 6ebo and li9uidate the notes payable to irst =ational. he are areem emen entt #ith #ith 6ebo 6ebo also also re9u re9uir ires es ous ouse e to main mainta tain in a #or' #or'in in capi capita tall leve levell of >", >",, , and prohib prohibits its the paymen paymentt of divide dividends nds on ordina ordinary ry shares shares #itho #ithout ut prior prior approval by 6ebo an'. rom the above information only, the total short-term debt of ouse /ompany as of the December 31, 214 statement of financial position date is a. >. b. >1,! >1,! , , .. c. >2,,. d. >4, >4, , , ..
+*. +*.
?n Decem Decembe berr 31, 31, 214 214,, Irey Irey /o. has >2, >2,, , of short short-t -ter erm m note notes s paya payabl ble e due due on ebruary 14, 21!. ?n Kanuary 1, 21!, Irey arraned a line of credit #ith /ounty an' #hich allo#s Irey to borro# up to >1,!, at one percent above the prime rate for three years. ?n ebruary 2, 21!, Irey borro#ed >1,2, from /ounty an' and used >!, additional cash to li9uidate >1,(, of the short-term notes payable. he amount of the short-term notes payable that should be reported as current liabilities on the December 31, 214 statement of financial position #hich is issued on &arch !, 21! is a. >. b. >3,. c. >!,. d. >*,. Use t4e foo-"n% "nforat"on for 9$est"ons 66 an! 188.
)tine /o. is a retail store operatin in a state #ith a "B retail sales tax. he retailer may 'eep 2B of the sales tax collected. )tine /o. records the sales tax in the )ales account. he amount recorded in the )ales account durin &ay #as >14*,4. ++.
1. 1.
he amount amount of sale sales s taxes taxes 8to 8to the the neares nearestt dolla dollar: r: for for &ay &ay is a. >*,(2". b. >*,4. c. >*,+4. d. >+,43*. he amoun amountt of sales sales taxes taxes payabl payable e 8to the neare nearest st dollar dollar:: to the state state for the the month month of &ay is a. >*,!!1. b. >*,232. c. >*,(2". d. >+,24+.
13 ) 12
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
11. 11.
opat, opat, Inc., Inc., is a retail retail store store operat operatin in in a state state #ith #ith a !B retail retail sales sales tax. tax. he he state state la# provides that the retail sales tax collected durin the month must be remitted to the state durin the follo#in month. If the amount collected is remitted to the state on or before the t#entieth t#entieth of the follo#in follo#in month, the retailer may 'eep 3B of the sales tax collected. collected. ?n %pril 1, 21!, opat remitted remitted >*1,4* >*1,4* tax to the state state tax division division for &arch 21! retail retail sales. ;hat #as opat @s &arch 21! retail sales subCect to sales tax< a. >1, >1,"2+, "2+," ". . b. >1, >1,!+", !+", . . c. >1,"*,. d. >1, >1,"4!, "4!, . .
12. 12.
Ken'in Ken'ins s /orporat /orporation ion has >2,! >2,!, , of short-te short-term rm debt it expec expects ts to retire retire #ith #ith proceeds proceeds from from the the sale sale of (!, (!, ordi ordina nary ry shar shares es.. If the the shar shares es are are sold sold for for >2 >2 per per shar share e subse9 subse9uen uentt to the statem statement ent of financ financial ial positi position on date, date, but before before the statem statement ent of financ financial ial positi position on is issued issued,, #hat #hat amount amount of shortshort-ter term m debt debt could could be exclud excluded ed from from current liabilities< a. >1,!, b. >2,!, c. >1,, d. >
13. 13.
Ermler Ermler /orpo /orporat ration ion has >1,* >1,*, , of short-t short-term erm debt debt it expects expects to retire retire #ith #ith proceeds proceeds from from the the sale sale of ", ", ordi ordina nary ry shar shares es.. If the the shar shares es are are sold sold for for >2 >2 per per shar share e subse9 subse9uen uentt to the statem statement ent of financ financial ial positi position on date, date, but before before the statem statement ent of financ financial ial positi position on is issued issued,, #hat #hat amount amount of shortshort-ter term m debt debt could could be exclud excluded ed from from current liabilities< a. >1,2, b. >1,*, c. >", d. >
14.
% company company ives ives each each of of its ! employee employees s 8assume 8assume they they #ere #ere all employed employed continuou continuously sly throuh 214 and 21!: 12 days of vacation a year if they are employed at the end of the year. he vacation vacation accumulates and may be ta'en startin Kanuary 1 of the next year. he employees #or' * hours per day. day. In 214, they made >14 per hour and in 21! they made >1" >1" per per hour hour.. Duri Durin n 21! 21!,, they they too' too' an aver avera ae e of + days days of vaca vacati tion on each each.. he he company0s policy is to record the liability existin at the end of each year at the #ae rate for that year. ;hat amount of vacation vacation liability #ould #ould be reflected on the 214 and 21! balance sheets, respectively< a. >"(, >"(,2 2A A >+3, >+3," " b. >(", >(",* *A A >+", >+", c. >"(, >"(,2 2A A >+", >+", d. >(", >(",* *A A >+3, >+3," "
/urrent 6iabilities, rovisions, and /ontinencies 1!. 1!.
13 ) 1
% compa company ny ives ives each of its its ! employee employees s 8assume 8assume they #ere #ere all employ employed ed continu continuous ously ly throuh 214 and 21!: 12 days of vacation a year if they are employed at the end of the year. he vacation vacation accumulates and may be ta'en startin Kanuary 1 of the next year. he employees #or' * hours per day. In 214, they made >1(.! per hour and in 21! they made >2 per hour. Durin 21!, they too' an averae of + days of vacation each. he company0s policy is to record the liability existin at the end of each year at the #ae rate for that year. ;hat amount of vacation vacation liability #ould #ould be reflected on the 214 and 21! balance sheets, respectively< a. >*4, >*4, A A >11 >11(, (, b. >+", >+", A A >12 >12, , c. >*4, >*4, A A >12 >12, , d. >+", >+", A A >11 >11(, (, Use t4e foo-"n% "nforat"on for 9$est"ons 182 an! 18.
aras /ompany has 3! employees #ho #or' *-hour days and are paid hourly. ?n Kanuary 1, 214, the company bean a proram of rantin its employees 1 days of paid vacation each year. acation days earned in 214 may first be ta'en on Kanuary 1, 21!. Information relative to these employees is as follo#sF ear 214 21! 21"
ourly ;aes >2!.* 2(. 2*.!
acation Days Earned by Each Employee 1 1 1
acation Days sed by Each Employee * 1
aras has chosen to accrue the liability for compensated absences at the current rates of pay in effect #hen the compensated time is earned. 1".
;hat is is the amount of expense expense relati relative ve to compensated compensated absences absences that that should should be reported reported on aras0s aras0s income statement for 214< a. >. b. >"*,**. c. >(!,". d. >(2,24.
1(. 1(.
;hat ;hat is the the amou amount nt of the the accr accrue ued d liab liabil ilit ity y for for comp compen ensa sate ted d abse absenc nces es that that shou should ld be reported at December 31, 21"< a. >+4,+2. b. >+,(2. c. >(+,*. d. >+!,(".
1*. 1*.
/al/ /al/ou ount nt pay pays a #ee'l ee'ly y payr payrol olll of >*!, >*!, that that incl includ udes es fede federa rall tax taxes #ithh ithhel eld d of >12,(, I/% taxes #ithheld of >(,*+, and pension #ithholdins of >+,. ;hat is the effect of assets and liabilities from this transaction< a. %ssets %ssets decrease decrease >*!, >*!, and liabilities liabilities do not chane. chane. b. %ssets %ssets decrease decrease >"4,41 >"4,41 and liabilities liabilities increase increase >2,!+. >2,!+. c. %ssets %ssets decrease decrease >"4,41 >"4,41 and liabilities liabilities decrease decrease >2,!+. >2,!+. d. %ssets %ssets decrease decrease >!!,41 >!!,41 and liabilities liabilities increase increase >2+,!+. >2+,!+.
13 ) 15
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
1+. 1+.
/al/ou /al/ount nt provide provides s its employ employees ees t#o t#o #ee's #ee's of paid vacati vacation on per year year.. %s of Decem December ber 31, "! employees have earned t#o #ee's of vacation time to be ta'en the follo#in year. If the averae #ee'ly salary for these employees is >+!, #hat is the re9uired Cournal entry< a. Debi Debitt )ala )alari ries es and and ;ae ;aes s Expen Expense se for for >123 >123,! ,! and and cred credit it )ala )alari ries es and and ;aes aes ayable for >123,!. b. =o Cou Courn rnal al entr entry y re9u re9uir ired ed.. c. Debi Debitt )ala )alari ries es and and ;aes aes ayabl ayable e for for >123 >123, , and and cred credit it )alari )alaries es and and ;aes aes Expense for >123,. d. Debi Debitt )ala )alari ries es and and ;aes aes Expe Expens nse e for for >"1, >"1,(! (! and and cred credit it )ala )alari ries es and and ;aes aes ayable for >"1,(!.
11. 11.
7ecycl 7ecycle e Explor Explorati ation on is involv involved ed #ith innova innovativ tive e approache approaches s to findin findin enery reserv reserves. es. 7ecycle recently built a facility to extract natural as at a cost of >1! million. o#ever, 7ecycle is also leally responsible to remove the facility at the end of its useful life of t#enty years. his cost is estimated to be >21 million 8the present value of #hich is >* million:. ;hat is the Cournal entry re9uired to record the environmental liability< a. =o Cou Courn rnal al entr entry y re9u re9uir ired ed.. b. Debi Debitt =atu =atura rall Gas aci acili lity ty for for >21, >21, , , and and cred credit it Envi Enviro ronm nmen enta tall 6iab 6iabil ilit ity y for for >21,, c. Debi Debitt =atu =atura rall Gas aci acili lity ty for for >", >", , , and and cred credit it Envi Enviro ronm nmen enta tall 6iab 6iabil ilit ity y for for >",,. d. Debi Debitt =atu =atura rall Gas aci acili lity ty for for >*, >*, , , and and cred credit it Envi Enviro ronm nmen enta tall 6iab 6iabil ilit ity y for for >*,,.
111. 111.
;arra ;arranty nty4 4 provide provides s extended extended service service contra contract cts s on electr electroni onic c e9uipmen e9uipmentt sold sold throuh throuh maCor maCor retail retailers ers.. he standa standard rd contra contract ct is for three three years. years. Durin Durin the curren currentt year year,, ;arranty4 provided 21, such #arranty contracts at an averae price of >*1 each. 7elated to these contracts, the company spent >2, servicin the contracts durin the current year and expects to spend >1,!, more in the future. ;hat is the net profit that the company #ill reconi$e in the current year related to these contracts< a. >4!1,. b. >1, >1,!1, !1, . . c. >1!,333. d. >3"(,.
112. 112.
Elec Electr tron onic ics4 s4 manu manufa fact ctur ures es hih hih-en -end d #hole #hole home home elec electr tron onic ic syst system ems. s. he he comp compan any y provid provides es a one-ye one-year ar #arra #arranty nty for all produc products ts sold. sold. he compan company y estima estimates tes that that the #arranty cost is >2 per unit sold and reported a liability for estimated #arranty costs >".! million at the beinnin of this year. If durin the current year, the company sold !, units for a total of >243 million and paid #arranty claims of >(,!, on current and prior year sales, #hat amount of liability #ould the company report on its statement of financial position at the end of the current year< a. >2, >2,!, !, . . b. >3, >3,!, !, . . c. >+,,. d. >1, >1, , , . .
/urrent 6iabilities, rovisions, and /ontinencies
13 ) 16
113.
% company company offers offers a cash cash rebate rebate of of >1 on each >4 >4 pac'ae pac'ae of liht bulbs sold sold durin durin 21. 21. istorically, 1B of customers mail in the rebate form. Durin 21!, 4,, pac'aes of liht bulbs are sold, and 14, >1 rebates are mailed to customers. ;hat is the rebate expense and liability, respectively, sho#n on the 21! financial statements dated December 31< a. >4 >4, , AA >4, >4, b. >4 >4, , AA >2", >2", c. >2" >2", , AA >2" >2", , d. >14 >14, , AA >2", >2",
114. 114.
% comp company any buys buys an oil oil ri for >1, >1, , , on Kanua Kanuary ry 1, 21!. 21!. he he life life of the ri is 1 years and the expected cost to dismantle the ri at the end of 1 years is >2, 8present 8present value at 1B is >((,11:. 1B is an appropriate appropriate interest interest rate for this company company.. ;hat expense should be recorded for 21! as a result of these events< a. Deprec Depreciat iation ion expens expense e of >12, >12, b. Depreciati Depreciation on expense expense of >1, >1, and interes interestt expense expense of >(,(11 >(,(11 c. Depreciati Depreciation on expense expense of >1, >1, and interes interestt expense expense of >2, >2, d. Depreciati Depreciation on expense expense of >1(,(11 >1(,(11 and interes interestt expense expense of >(,(11 >(,(11
11! .
Nieler Nieler /ompany /ompany self insures insures its property property for for fire and and storm storm damae. damae. If the company company #ere to obtain insurance on the property, property, it #ould cost them >1,, per year. he company estimates that on averae it #ill incur losses of >*, per year. year. Durin 21!, >3!, #orth of losses #ere sustained. o# much total expense andHor loss should be reconi$ed by Nieler /ompany for 21!< a. >3!, >3!, in losse losses s and no insu insuran rance ce expen expense se b. >3!, >3!, in losses losses and >4!, >4!, in insurance insurance expense expense c. > in losse losses s and >*, >*, in insu insuranc rance e expens expense e d. > in in losses losses and and >1,, >1,, in in insurance insurance expense expense
11". 11".
% compa company ny offer offers s a cash rebat rebate e of >1 on each >4 pac'a pac'ae e of batter batteries ies sold sold durin durin 21!. 21!. istorically, 1B of customers mail in the rebate form. Durin 21!, ",, pac'aes of batteries are sold, and 21, >1 rebates are mailed to customers. ;hat is the rebate expens expense e and liabil liability ity,, respec respectiv tively ely,, sho#n sho#n on the 21! 21! financ financial ial statem statement ents s dated dated December 31< a. >" >", , AA >", >", b. >" >", , AA >3+, >3+, c. >3+ >3+, , AA >3+ >3+, , d. >21 >21, , AA >3+, >3+,
11(. 11(.
% comp company any buys buys an oil oil ri for >2, >2, , , on Kanua Kanuary ry 1, 21. 21. he he life life of the ri is 1 years and the expected cost to dismantle the ri at the end of 1 years is >4, 8present value at 1B is >1!4,22:. 1B is an appropriate interest rate for this company. ;hat expense should be recorded for 21! as a result of these events< a. Deprec Depreciat iation ion expens expense e of >24, >24, b. Depreciati Depreciation on expense expense of >2, >2, and interes interestt expense expense of >1!,422 >1!,422 c. Depreciati Depreciation on expense expense of >2, >2, and interes interestt expense expense of >4, >4, d. Depreciati Depreciation on expense expense of >21!,422 >21!,422 and interes interestt expense expense of >1!,422 >1!,422
13 ) (8
11*. 11*.
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
Duri Durin n 214, 214, anpe anpelt lt /o. intro introdu duce ced d a ne# ne# line line of mach machin ines es that that carr carry y a thre threee-ye year ar #arranty aainst manufacturer0s defects. ased on industry experience, #arranty costs are estimated estimated at 2B of sales in the year of sale, 4B in the year after sale, and "B in the second year after sale. )ales and actual #arranty expenditures for the first three-year period #ere as follo#sF 214 21! 21"
)ales > ", 1,!, 2,1, >4,2,
%ctual ;arranty Expenditures Expend itures > +, 4!, 13!, >1*+,
;hat amount should anpelt report as a liability at December 31, 21"< a. > b. >1!, c. >24, d. >31!, 11+.
almer almer rosted rosted la'es la'es /ompany /ompany offers offers its its customer customers s a pottery pottery cereal cereal bo#l bo#l if they send send in 3 boxtops from almer rosted la'es boxes and >1.. he company estimates that "B of the boxtops #ill be redeemed. In 21!, the company sold "(!, boxes of rosted la'es and customers redeemed 33, boxtops receivin 11, bo#ls. If the bo#ls cost almer /ompany >2.! each, ho# much liability for outstandin premiums should be recorded at the end of 21!< a. >2!, b. >3(,! c. >"2,! d. >*(,!
12. 12.
Duri Durin n 21!, 21!, )tab )table lerr /o. /o. intr introd oduc uced ed a ne# ne# line line of mach machin ines es that that carr carry y a thre threee-ye year ar #arranty aainst manufacturer0s defects. ased on industry experience, #arranty costs are estimated estimated at 2B of sales in the year of sale, 4B in the year after sale, and "B in the second year after sale. )ales and actual #arranty expenditures for the first three-year period #ere as follo#sF 214 21! 21"
)ales > 4, 1,, 1,4, >2,*,
%ctual ;arranty Expenditures Expendi tures > ", 3, +, >12",
;hat amount should )tabler report as a liability at December 31, 21"< a. > b. >1, c. >13", d. >21,
/urrent 6iabilities, rovisions, and /ontinencies 121.
13 ) (1
6e&ay rosted rosted la'es la'es /ompany /ompany offers offers its custom customers ers a pottery pottery cereal bo#l ifif they send in in 4 boxtops from 6e&ay rosted la'es boxes and >1.. he company estimates that "B of the boxtops #ill be redeemed. In 21!, the company sold !, boxes of rosted la'es and customers redeemed 22, boxtops receivin !!, bo#ls. If the bo#ls cost 6e&ay /ompany >2.! each, ho# much liability for outstandin premiums should be recorded at the end of 21!< a. >2, b. >3, c. >!, d. >(, Use t4e foo-"n% "nforat"on for 9$est"ons 1(( :1(0.
&ott /o. includes one coupon in each ba of do food it sells. In return for eiht coupons, customers receive a leash. he leashes cost &ott >2. each. &ott estimates that 4 percent of the coupons #ill be redeemed. Data for 214 and 21! are as follo#sF as of do food sold 6eashes purchased /oupons redeemed 122. 122.
he he prem premiu ium m expe expens nse e for for 214 214 is is a. >2!,. b. >3,. c. >3!,. d. >!,.
123. 123.
he he prem premiu ium m liab liabil ilit ity y at Dec Decem embe berr 31, 21 214 4 is a. >(,!. b. >1,. c. >1(,!. d. >2,.
124. 124.
he he prem premiu ium m liab liabil ilit ity y at Dec Decem embe berr 31, 21 21! ! is a. >11,2!. b. >21,2!. c. >22,!. d. >42,!.
214 !, 1*, 12,
21! ", 22, 1!,
13 ) ((
12!. 12!.
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
=ance =ance /ompan /ompany y estimat estimates es its annu annual al #arran #arranty ty expen expense se as 4B of annual annual net sale sales. s. he he follo#in data relate to the calendar year 21!F =et sales ;arranty liability account alance, Dec. 31, 21! alance, De Dec. 31 31, 21!
>1,!, >1, !,
debit before adCustment credit af after adCustment
;hich one of the follo#in entries #as made to record the 21! estimated #arranty expense< a. ;arran arranty ty Expe Expense nse .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ...... ...... ..... ", ", 7etained Earnins 8prior-period adCustment: ............ 1, ;arranty 6iability ...................................................... !, b. ;arran arranty ty Expe Expense nse .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ...... ...... ..... !, !, 7etain 7etained ed Earnin Earnins s 8prior 8prior-pe -perio riod d adCust adCustmen ment: t: ........ ............ .......... .......... .... 1, 1, ;arranty 6iability ...................................................... ", c. ;arran arranty ty Expe Expense nse .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ...... ...... ..... 4, 4, ;arranty 6iability ...................................................... 4, d. ;arran arranty ty Expe Expense nse .... ...... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ...... ...... ...... ..... ", ", ;arranty 6iability ...................................................... ", 12". 12".
In 214, 214, ayton ayton /orpo /orporat ration ion bean bean sellin sellin a ne# line of produc products ts that that carry carry a t#o-year t#o-year #arranty aainst defects. ased upon past experience #ith other products, the estimated #arranty costs related to dollar sales are as follo#sF irst year of #arranty 2B )econd year of #arranty !B )ales and actual #arranty expenditures for 214 and 21! are presented belo#F 214 21! )ales >3, >4, %ctual #arranty expenditures 1, 2, ;hat is the estimated #arranty liability at the end of 21!< a. >1+,. b. >2+,. c. >4+,. d. >*,.
/urrent 6iabilities, rovisions, and /ontinencies 12(. 12(.
13 ) (3
uller uller ood ood /ompany /ompany distr distribu ibutes tes to consum consumers ers coupo coupons ns #hich #hich may be presen presented ted 8on 8on or before a stated expiration date: to rocers for discounts on certain products of uller. he rocers are reimbursed #hen they send the coupons to uller. In uller@s experience, !B of such coupons are redeemed, and enerally one month elapses bet#een the date a rocer receives a coupon from a consumer and the date uller receives it. Durin 21! uller issued t#o separate series of coupons as follo#sF Issued ?n 1H1H1! (H1H1!
otal alue >3(!, !4,
/onsumer Expiration Date "H3H1! 12H31H1!
%mount Disbursed as of 12H31H1! >1((, 22!,
he only Cournal entries to date recorded debits to coupon expense and credits to cash of >!3",. he December 31, 21! statement of financial position should include a liability for unredeemed coupons of a. >. b. >4!,. c. >+3,. d. >2(,. 12*. 12*.
atc atche herr /orp /orpor orat atio ion n sold sold 1,! 1,! dish dish#a #ash sher ers s for for L1,1 L1,1 each each duri durin n 21! 21!.. he he dish#ashers are under #arranty for one year follo#in the sale. &aintenance on the dish#a dish#ashe shers rs durin durin the #arra #arranty nty period period avera averaes es L+ each. each. %ctual %ctual #arran #arranty ty costs costs incurred incurred durin 21! for units sold that year #ere L2+",. L2+",. he statement statement of financial financial position at year end #ill report a related liability ofF a. >2+",. b. >"4+,. c. >+4!,. d. >1, >1,3 3,+ ,+ ..
12+. 12+.
=andin =andina a Inc. offer offers s a cash rebat rebate e of 7s! 7s! on each 7s2 7s2 pac'a pac'ae e of biscui biscuits ts sold sold durin durin the last three months of 21!. istoricall istorically y, 3B of the company0s company0s customers mail in the rebate form. Durin the last three months of 21!, !,!, pac'aes of biscuits are sold, and 1,!, 7s! rebates are mailed to customers. ;hat is the rebate expense and liability, respectively, respectively, sho#n on the company0s 21! financial statements< a. 7s*2, 7s*2,! !, ,A A 7s3, 7s3, , , b. 7s*2, 7s*2,! !, ,A A 7s*2, 7s*2,! !, , c. 7s*2 7s*2!, !, A A 7s!2 7s!2!, !, d. 7s>*, 7s>*,2! 2!, ,A A 7s3,2 7s3,2!, !,
13. 13.
lit lit$ $ /orp /orpor orat atio ion, n, a manu manufa fact ctur urer er of clea cleani nin n prod produc ucts ts,, is prep prepar arin in annu annual al fina financ ncia iall statements at December 31, 21!. ecause of a recently proven health ha$ard in one of its cleanin products, the .J. overnment has clearly indicated its intention of havin lit$ recall all cans of this paint sold in the last three months. he manaement of lit$ estimates estimates that this recall #ould cost L!,*,. L!,*,. ;hat accountin accountin reconition, reconition, if any, any, should be accorded this situation< a. =o reco recon nit itio ion. n. b. =ote =ote dis discl clos osure ure onl only y. c. Expense Expense of of L!,*, L!,*, and liability liability of L!,*,. L!,*,. d. Expense Expense of L!,*, L!,*,, , and retaine retained d earnins earnins restricti restriction on of O!,*, O!,*,. .
13 ) (0
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
131. 131.
)eamus )eamus /orpo /orporat ration ion sold sold 1,! 1,! trash trash compact compactors ors for for L!! L!! each durin durin 21!. 21!. he he trash trash compactors are under #arranty for one year follo#in the sale. &aintenance on the trash compactors durin the #arranty period averaes L4! each. %ctual #arranty costs incurred durin 21! for units sold that year #ere L14*,. he statement of financial position at year end #ill report a related liability ofF a. >14*,. b. >324,!. c. >4(2,!. d. >!1!,4!.
132.
7endina 7endina Inc. Inc. offers offers a cash cash rebate rebate of 7s! on each each 7s2 7s2 pac'ae pac'ae of biscuits biscuits sold sold durin durin the last three months of 21!. istorically istorically,, 3B of the company0s company0s customers mail in the rebate form. Durin the last three months of 21!, (,(, pac'aes of biscuits are sold, and 1,4(, 7s! rebates are mailed to customers. ;hat is the rebate expense and liability, liability, respectively, respectively, sho#n on the company0s 21! financial statements< a. 7s11! 7s11!,! ,!, ,A A 7s42, 7s42,, , .. b. 7s11! 7s11!,! ,!, ,A A 7s11!, 7s11!,! !, ,. . c. 7s1, 7s1,1! 1!!, !, A A 7s( 7s(3! 3!, , .. d. 7s>11 7s>11,!! ,!!, ,A A 7s4,!! 7s4,!!, ,. .
133.
ender oot oot Inc. Inc. is involve involved d in litiation litiation reardi reardin n a faulty faulty product product sold sold in a prior prior year year.. he company has consulted #ith its attorney and determined that it is possible that they may lose the case. he attorneys estimated that there is a 4B chance of losin. If this is the case, their attorney estimated that the amount of any payment #ould be >!,. ;hat is the re9uired Cournal entry as a result of this litiation< a. Debit 6itiat 6itiation ion Expense Expense for >!, >!, and and credit 6itia 6itiation tion liability liability for for >!,. >!,. b. =o Cou Courn rnal al entr entry y is re9u re9uir ired ed.. c. Debit 6itiat 6itiation ion Expense Expense for >2, >2, and and credit 6itia 6itiation tion 6iability 6iability for for >2,. >2,. d. Debit 6itiat 6itiation ion Expense Expense for >3, >3, and and credit 6itia 6itiation tion 6iability 6iability for for >3,. >3,.
/urrent 6iabilities, rovisions, and /ontinencies
13 ) (
134. 134.
;inter ;inter /o. /o. is bein bein sued for for illness illness cause caused d to local local residen residents ts as a result result of neli nelienc ence e on the the comp compan any@ y@s s part part in perm permit itti tin n the the loca locall resi reside dent nts s to be expo expose sed d to hih hihly ly toxi toxic c chemicals from its plant. ;inter@s la#yer states that it is probable that ;inter #ill lose the suit and be found liable for a Cudment costin ;inter any#here from >1,2, to >",,. o#ever, the la#yer states that the most probable cost is >3,",. %s a result of the above facts, ;inter should accrue a. a loss contine continency ncy of >1,2, >1,2, and disclose disclose an additiona additionall contin continen ency cy of up to >4,*,. b. a loss contine continency ncy of >3,", >3,", and disclose disclose an additiona additionall contin continen ency cy of up to >2,4,. c. a loss loss cont contin inenc ency y of >3," >3,", , but not disclose disclose any an y additional continency. continency. d. no loss contin continency ency but disclo disclose se a continency continency of of >1,2, >1,2, to >",, >",,. .
13!. 13!.
?n Kanua Kanuary ry 3, 21! 21!,, oye oyerr /orp /orp.. o#ne o#ned d a mach machin ine e that that had cost cost >2 >2, , .. he he accumulated depreciation #as >12,, estimated salvae value #as >12,, and fair value #as >32,. ?n Kanuary 4, 21!, this machine #as irreparably damaed by ine /orp. and became #orthless. In ?ctober 21!, a court a#arded damaes of >32, aainst ine in favor of oyer. %t December 31, 21!, the final outcome of this case #as a#aiti a#aitin n appeal appeal and #as, #as, theref therefore ore,, uncert uncertain ain.. o#ever o#ever,, in the opinio opinion n of oyer0s oyer0s attorney, it is probable ine0s appeal #ill be denied. %t December 31, 21!, #hat amount should oyer accrue for this continent asset< a. >32,. b. >2",. c. >2,. d. >.
13". 13".
resen resented ted belo belo# # is infor informat mation ion avail availabl able e for &orto &orton n /ompan /ompany y. /urrent %ssets Inventories repaid expenses %ccounts receivable )hort-term investments /ash otal current assets
>11, 3, "1, (!, 4, >2*,
otal current liabilities are >12,. he acid-test ratio for &orton is a. 2.33 to 1. b. 2.* to 1. c. 1.1( to 1. d. .!4 to 1.
13 ) (2
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
/$t"+e C4o"#e Ans-ers* Co+$tat"ona Ite
*!. *". *(. **. *+. +. +1. +2.
Ans.
Ite
Ans.
Ite
Ans.
Ite
Ans.
Ite
Ans.
Ite
Ans.
b d a d b c d b
+3. +4. +!. +". +(. +*. ++. 1.
c c b d b d b b
11. 12. 13. 14. 1!. 1". 1(. 1*.
c d d c c d a d
1+. 11. 111. 112. 113. 114. 11!. 11".
a d d c b d a b
11(. 11*. 11+. 12. 121. 122. 123. 124.
d d b d b d d d
12!. 12". 12(. 12*. 12+. 13. 131. 132.
d a b b a c b a
Ite
133. 134. 13!. 13".
Ans.
b b d c
/urrent 6iabilities, rovisions, and /ontinencies
13 ) (
/ULTIPLE CHOICE *CPA A!a+te! 13(. 13(.
;hic ;hich h of the the foll follo# o#in in is enera enerall lly y asso associ ciat ated ed #ith ith paya payable bles s clas classi sifi fied ed as acco accoun unts ts payable< eriodic ayment )ecured of Interest by /ollateral a. =o =o b. =o es c. es =o d. es es
13*. 13*.
?n Kanuar Kanuary y 1, 21!, 21!, eyer eyer /o. leas leased ed a buildin buildin to eins eins /orp. /orp. for a ten-ye ten-year ar term term at an annual rental of >*,. %t inception of the lease, eyer received >32, coverin the first t#o years@ rent of >1", and a security deposit of >1",. his deposit #ill not be returned to eins upon expiration of the lease but #ill be applied to payment of rent for the last t#o years of the lease. ;hat portion of the >32, should be sho#n as a current and non-current liability, respectively, in eyer@s December 31, 21! statement of financial position< /urr /urren entt 6iab 6iabil ilit ity y =on=on-cu curr rren entt 6iab 6iabil ilit ity y a. > >32, b. >*, >1", c. >1", >1", d. >1", >*,
13+. 13+.
?n )epte )eptemb mber er 1, 214 214,, erm erman an /o. issue issued d a note note payab payable le to =atio =ationa nall an' an' in the the amount amount of >1,2 >1,2, ,, , bearin bearin intere interest st at 12B, 12B, and payable payable in three three e9ual e9ual annual annual principal payments of >4,. ?n this date, the ban'@s prime rate #as 11B. he first payment for interest and principal #as made on )eptember 1, 21!. %t December 31, 21!, erman should record accrued interest payable of a. >4*,. b. >44,. c. >32,. d. >2+,334.
14. 14.
Incl Includ uded ed in erno ernon n /orp /orp.@ .@s s liab liabil ilit ity y acco accoun untt bala balanc nces es at Decem Decembe berr 31, 31, 214 214,, #ere #ere the the follo#inF (B not note e pay payable able iss issue ued d ?cto ?ctobe berr 1, 214 214,, matu maturi rin n )ep )epte temb mber er 3, 3, 21 21! ! *B note payable issued %pril 1, 214, payable in six e9ual annual installments of >1, beinnin %pril 1, 21!
>2! >2!, , ",
ernon@s December 31, 214 financial statements #ere issued on &arch 31, 21!. ?n Kanu Kanuar ary y 1!, 1!, 21! 21!,, the the enti entire re >" >", , bala balanc nce e of the the *B note note #as #as refi refina nanc nced ed by issuance of a lon-term obliation payable in a lump sum. In addition, on &arch 1, 21!, ernon consummated a noncancelable areement #ith the lender to refinance the (B, >2!, note on a lon-term basis, on readily determinable terms that have not yet been implemented. ?n the December 31, 214 statement of financial position, the amount of the notes payable that ernon should classify as short-term obliations is a. >3!,. b. >2!,. c. >1,. d. >.
13 ) (5
141.
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
Ede /ompany /ompany0s 0s salarie salaried d employees employees are paid bi#ee' bi#ee'ly ly.. ?ccasionall ?ccasionally y, advances advances made made to employees are paid bac' by payroll deductions. Information relatin to salaries for the calendar year 21! is as follo#sF 12H3 12 H31H 1H14 14 12H31 12 H31H1 H1! ! Employee advances >12, > 1*, %ccrued salaries payable "!, < )alaries expense durin the year "!, )alaries paid durin the year 8ross: "2!, %t December 31, 21!, #hat amount should Ede report for accrued salaries payable< a. >+,. b. >*4,. c. >(2,. d. >2!,.
142. 142.
elt elton on /o. /o. sell sells s maCo maCorr hous househ ehol old d appl applia ianc nce e serv servic ice e cont contra ract cts s for for cash cash.. he he serv servic ice e contracts are for a one-year, t#o-year, or three-year period. /ash receipts from contracts are credit credited ed to unearn unearned ed servi service ce contra contract ct revenu revenues. es. his accoun accountt had a balanc balance e of >4*, at December 31, 214 before year-end adCustment. )ervice contract costs are chared as incurred to the service contract expense account, #hich had a balance of >12, at December 31, 214. ?utstandin service contracts at December 31, 214 expire as follo#sF Durin 21! Durin 21" Durin 21( >1, >1", >(, ;hat ;hat amount amount should should be report reported ed as unearn unearned ed servic service e contra contract ct revenu revenues es in elton elton@s @s December 31, 214 statement of financial position< a. >3",. b. >33,. c. >24,. d. >22,.
143. 143.
ount ount radi radin n )tam )tamp p /o. /o. reco record rds s stam stamp p serv servic ice e reve revenu nue e and and prov provid ides es for for the the cost cost of redemptions in the year stamps are sold to licensees. ount@s past experience indicates that only *B of the stamps sold to licensees #ill be redeemed. ount@s liability for stamp redemptions #as >(,!, at December 31, 214. %dditional information for 21! is as follo#sF )tamp service re revenue fr from st stamps sold to to licensees /ost of redemptions
>!,, 3,4,
If all the stamps sold in 21! #ere presented for redemption in 21!, the redemption cost #ould be >2,!, >2,!,.. ;hat amount amount should should ount ount report as a liability liability for for stamp stamp redemptions redemptions at December 31, 21! < a. >+, >+,1, 1, . . b. >", >",", ", . . c. >",1,. d. >4, >4,1, 1, . .
/urrent 6iabilities, rovisions, and /ontinencies
13 ) (6
144. 144.
=eer =eer /o. has a prob probab able le loss loss that that can only only be reas reason onab ably ly estim estimat ated ed #ithi #ithin n a rane rane of outcomes. =o sinle amount #ithin the rane is a better estimate than any other amount. he loss accrual should be a. $ero. b. the the maxi maximu mum m of the the ran rane. e. c. the the min minim imum um of the the ran rane e.. d. the the mid mid poin pointt of the the ran rane. e.
14!. 14!.
Durin Durin 214, 214, Eaton Eaton /o. intro introduc duced ed a ne# product product carryi carryin n a t#o-year t#o-year #arra #arranty nty aains aainstt defects. he estimated #arranty costs related to dollar sales are 2B #ithin 12 months follo#in sale and 4B in the second 12 months follo#in sale. )ales and actual #arranty expenditures for the years ended December 31, 214 and 21! are as follo#sF %ctual ;arranty Expendi Expe nditur tures es >12, 3, >42,
)ales )al es > *, 1,, >1,*,
214 21!
%t December 31, 21!, Eaton should report an estimated #arranty liability of a. >. b. >1,. c. >3,. d. >"",. 14". 14".
In &arc &arch h 21! 21!,, an expl explos osio ion n occu occurr rred ed at Jir' Jir' /o.@ /o.@s s plan plant, t, caus causin in dama damae e to area area properties. y &ay 21!, no claims had yet been asserted aainst Jir'. o#ever, Jir'@s manaement and leal counsel concluded that it #as possible but not probable that Jir' #ould be held responsible for nelience, and that >4,, #ould be a reasonable estimate of the damaes. Jir'@s >!,, comprehensive public liability policy contains a >4, deductible clause. In Jir'@s December 31, 214 financial statements, for #hich the auditor@s field#or' #as completed in %pril 21!, ho# should this casualty be reported< a. %s a note disclosin disclosin a possible possible liabili liability ty of >4,,. >4,,. b. %s an an accru accrued ed liab liabili ility ty of of >4, >4, .. c. %s a note disclosin disclosin a possible possible liabili liability ty of >4,. >4,. d. =o note disclos disclosure ure of accrual accrual is re9uired re9uired for 214 214 because because the event event occurred occurred in 21!. 21!.
/$t"+e C4o"#e Ans-ers* CPA A!a+te! Ite
Ans.
Ite
Ans.
Ite
Ans.
Ite
Ans.
Ite
Ans.
13(. 13*.
a b
13+. 14.
c a
141. 142.
a b
143. 144.
c d
14!. 14".
d c
13 ) 38
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
DERIVATIONS * Co+$tat"ona No. Ans-er
Der";at"on
*!.
b
>1!2,2! P >1!, Q >2,2!. >2,2! R 2H3 Q >1,4(.
*".
d
>3, S 8>3, P >3,: Q .1111 Q 11.11B.
*(.
a
8>+,! R .++: Q >+,4!.
**.
d
>1(!, R .12 R +H12 Q >1!,(!.
*+.
b
8>1*, P >1(!,: R 3H! Q >3,.
+.
c
of >1 for 1 period at 12B Q .*+2*"A .*+2*" R J>1!, Q J>133,+2+.
+1.
d
J>3, R .2Q J>".
+2.
b
O!, additional cash 8classified as current asset:.
+3.
c
M1,1!, 8refinancin not yet completed at 12-31-1!:.
+4.
c
>*,.
+!.
b
84, R >12!: R *H12 Q >333,333.
+".
d
>132," R ." Q >(,+!".
+(.
b
>1,!,.
+*.
d
>2,, P >1,2, Q >*,.
++.
b
) T .") Q >14*,4, ∴ ) Q >14,. >14*,4 P >14, Q >*,4.
1.
b
>*,4 R .+* Q >*,232.
11.
c
.!) R .+( Q >*1,4*,
12.
d
7efinancin not completed by financial reportin date.
13.
d
7efinancin not completed by financial reportin date.
14.
c
! R 12 R * R >14 Q >"(,2A ! R 1! R * R >1" Q >+",.
1!.
c
! R 12 R * R >1(.! Q >*4,A ! R 1! R * R >2 Q >12,.
) Q >1,"*,.
∴
/urrent 6iabilities, rovisions, and /ontinencies
DERIVATIONS * Co+$tat"ona <#ont.= No. Ans-er
Der";at"on
1".
d
>2!.* R * R 1 R 3! Q >(2,24.
1(.
a
8>2*.! R * R 1 R 3!: T 8>2(. R * R 2 R 3!: Q >+4,+2.
1*.
d
>12,( T >(,*+ T >+, Q >2+,!+A >*!, P >2+,!+ Q >!!,41.
1+.
a
"! R 2 #ee's R >+!H#ee' Q >123,!.
11.
d
resent value of the removal cost.
111.
d
U821, R >*1: ÷ 3 yrs. V P >2, Q >3"(,.
112.
c
>",!, T 8!, R >2: P >(,!, Q >+,,.
113.
b
4,, R .1 R >1 Q >4,A >4 >4, P >14, Q >2",.
114.
d
8>1,, T >( >((,11: S 1 Q >1(,(11A >( >((,11 R .1 .1 Q >( >(,(11.
11!.
a
11".
b
",, R .1 R >1 Q >",A >" >", P >21, Q >3+,.
11(.
d
8>2,, T >1!4,22: S 1 Q >21!,422A >1!4,22 R .1 Q >1!,422.
11*.
d
8>4,2, R .12: P >1*+, Q >31!,.
11+.
b
WU8"(!, R .": P 33,V S 3X R >1.! Q >3(,!.
12.
d
8>2,*, x .12: P >12", Q >21,.
121.
b
WU8!, R .": P 22,V S 4X R >1.! Q >3,.
122.
d
U8!, R .4: S *V R >2 Q >!,.
123.
d
U82, P 12,: S *V R >2 Q >2,.
124.
d
WU8", R .4: P 1!,V S *X R >2 Q >22,!. >22,! T >2, Q >42,!.
12!.
d
>1,!, R .4 Q >",.
13 ) 31
13 ) 3(
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
DERIVATIONS * Co+$tat"ona <#ont.= No. Ans-er
Der";at"on
12".
a
U8>3, T >4,: R .(V P >3, Q >1+,.
12(.
b
8>!4, R .!: P >22!, Q >4!,.
12*.
b
81,!: 8L+: Q L+4!, P L2+", Q >"4+,.
12+.
a
8!,!,: 83B: Q 1,"!, x 87s!: Q 7s*2,!,A 81,"!, Y 1,!,: x 87s!: Q 7s3,,.
13.
c
131.
b
81,!: 8L4!: Q L4(2,! P L14*, Q >324,!.
132.
a
8(,(,: 83B: Q 2,31, x 87s!: Q 7s11!,!,A 82,31, Y 1,4(,: x 87s!: Q 7s42,,.
133.
b
6i'elihood of loss is only possible, not probable.
134.
b
>3,", and >2,4,.
13!.
d
>, continent assets are not recorded unless virtually certain.
c
>4, T >(!, T >"1, ZZZZZZZZZZZZZ Q 1.1( to 1. >12,
13".
DERIVATIONS * CP C PA A!a+te A!a+te! ! No. Ans-er
Der";at"on
13(.
a
/onceptualZaccounts payable enerally are $ero-interest-bearin and unsecured.
13*.
b
>*, and >1",.
13+.
c
>*, R .12 R
14.
a
>2!, T >1, Q >3!,.
141.
a
>"!, T >"!, P >"2!, Q >+,.
142.
b
>1, T >1", T >(, Q >33,.
143.
c
8>2,!, R .*: T >(,!, P >3,4, Q >",1,.
144.
d
/onceptual.
14!.
d
8>1,*, R .": P >42, Q >"",.
14".
c
/onceptual.
4 12
Q >32,.
/urrent 6iabilities, rovisions, and /ontinencies
13 ) 33
E>ERCISES E7. 13)10Z=otes payable.
?n %uust 31, Ken's /o. partially refunded >1*, of its outstandin 1B note payable made one year ao to %rma )tate an' by payin >1*, plus >1*, interest, havin obtained the >1+*, by usin >!2,4 cash and sinin a ne# one-year >1", note discounted at +B by the ban'. Instr$#t"ons 81: &a'e the entry entry to record record the partial partial refundin. refundin. %ssume %ssume Ken's /o. ma'es ma'es reversin reversin entries entries #hen appropriate.
82: repare repare the adCustin adCustin entry at Decembe Decemberr 31, assumin assumin straiht-li straiht-line ne amorti$atio amorti$ation n of the discount.
So$t"on 13)10
81: =otes ayabl ayable e U>1*, U>1*, T 8>1", 8>1", × .+ .+:V :V.. ..... ...... ...... ...... ...... ...... ...... ...... ..... Intere Interest st Expens Expense.. e..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... .... =otes ayable................................................................ /ash..............................................................................
1+4, 1+4,4 4 1*, 1*,
82: Interest Interest Expense Expense U81H3 U81H3 R 8>1", 8>1", × .+ .+:V :V.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. =otes a ayable................................................................
4,* 4,*
1", !2,4
4,*
E7. 13)105Zayroll entries.
otal payroll of ;atson /o. #as >+2,, of #hich >1", represented amounts paid in excess of >1, to certain employees. Income taxes #ithheld #ere >22!,. he )ocial )ecurity tax is *B on an employee0s #aes up to >1,. Instr$#t"ons 8a: repare the the Cournal entry entry for the #aes #aes and salaries salaries paid. 8b: repare the entry entry to record the employer employer payroll payroll taxes.
So$t"on 13)105
8a: )alari )alaries es and ;aes ;aes Expense. Expense.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ...... ;ithholdin axes ay ayable............................................ )ocial )e )ecurity a axes a ayable....................................... /ash.............................................................................. [ U8>+2, P >1",: R *BV
+2, +2, 22!, ",*[ "34,2
13 ) 30
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
So$t"on 13)105 8cont.:
8b: ayroll ayroll ax Expens Expense e ...... ......... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ....... ... )ocial )ecurity axes ayable 8>(", R *B:......................................................
",* ",* ",*
E7. 13)106Z/ompensated absences.
ates /o. bean operations on Kanuary 2, 214. It employs 1! people #ho #or' *-hour days. Each employee earns 1 paid vacation days annually. acation days may be ta'en after Kanuary 1 of the year follo#in follo#in the year in #hich they are earned. he averae averae hourly #ae rate #as >24. in 214 and >2!.! in 21!. he averae vacation days used by each employee in 21! #as +. ates /o. accrues the cost of compensated absences at rates of pay in effect #hen earned. Instr$#t"ons repare Cournal entries to record the transactions related to paid vacation days durin 214 and 21!.
So$t"on 13)106
21 21
)ala )alari ries es and ;a ;aes es Expe Expens nse. e... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ..... )alaries and ;aes ayable...............................
2*,* 2*,* 81: 81: 2*,*
81: 1! R * R >24. Q >2,**A >2,** R 1 Q >2*,*. 211 211
)ala )alari ries es and and ;ae ;aes s Expe Expens nse. e... .... .... .... .... .... .... .... .... .... .... ..... ...... ...... ...... ...... ...... ..... )alari )alaries es and ;aes ;aes ayabl ayable.. e..... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ .... /ash.....................................................................
1,"2 1,"2 2!,+2 2!,+2 82:
)alari )alaries es and ;aes ;aes Expense. Expense.... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ .... )alaries and ;aes ayable...............................
3," 3," 84:
2(,!4 83 83:
3,"
82: >2,** R + Q >2!,+2. 83: 1! × * × >2!.! Q >3,"A >3," × + Q >2(,!4. 84: >3," × 1 Q >3,".
E7. 13)18Zremiums.
Irvin &usic )hop ives its customers coupons redeemable for a poster plus a Dixie /hic's /D. ?ne coupon is issued for each dollar of sales. ?n the surrender of 1 coupons and >!. cash, the poster and /D are iven to the customer. It is estimated that *B of the coupons #ill be presented presented for redemption. redemption. )ales for the first period #ere >(,, >(,, and the coupons coupons redeemed redeemed totaled 34,. )ales for the second period #ere >*4,, and the coupons redeemed totaled *!,. Irvin &usic )hop bouht 2, posters at >2.Hposter and 2, /Ds at >".H/D. Instr$#t"ons repar repare e the follo#i follo#in n entrie entries s for the t#o t#o periods periods,, assumi assumin n all the coupon coupons s expect expected ed to be redeemed from the first period #ere redeemed by the end of the second period.
/urrent 6iabilities, rovisions, and /ontinencies
13 ) 3
E7. 13)18 8cont.:
Entr En try y
eri e riod od 1
eri e riod od 2
8a: o o record coupons redeemed ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ 8b: o o record estimated liability ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ
So$t"on 13)18
Entr En try y
eri e riod od 1
eri e riod od 2
8a: remium 6iability "," remium Expense U834, S 1: R 8>*. P >!:V 1,2 1*,+ /ash 834, S 1: R >! 1(, 42,! remium Inventory 2(,2 "*, ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ 8b: r remium Expense remium 6iability [U8(, R .*: P 34,V S 1 R >3.
","[
1,2" ","
1,2"
E7. 13)11Zremiums.
Ed#ards /o. includes one coupon in each ba of do food it sells. In return for 4 coupons, customers receive a do toy that the company purchases for >1.2 each. Ed#ards@s experience indicates that " percent of the coupons #ill be redeemed. Durin 214, 1, bas of do food #ere sold, 12, toys #ere purchased, and 4, coupons #ere redeemed. Durin 21!, 12, bas of do food #ere sold, 1", toys #ere purchased, and ", coupons #ere redeemed. Instr$#t"ons Determine the premium expense to be reported in the income statement and the premium liability on the statement of financial position for 214 and 21!.
So$t"on 13)11
remium Expense remium 6iability 81: 82: 83: 84:
214 >1*, 81: ", 82:
21! >21," 83: +," 84:
1, 1, R ." ." Q ",A ",A ", S 4 Q 1!,A 1!,A 1!, 1!, R >1.2 >1.2 Q >1*,. >1*,. 4, 4, S 4 Q 1,A 1,A 1!, 1!, P 1, 1, Q !,A !, R >1.2 >1.2 Q >",. >",. 12, 12, R ." ." Q (2,A (2,A (2, S 4 Q 1*,A 1*,A 1*, 1*, R >1.2 >1.2 Q >21,". >21,". ", ", S 4 Q 1!,A 1!,A !, !, T 1*, 1*, P 1!, Q *,A *,A *, R >1.2 >1.2 Q >+,". >+,".
13 ) 32
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
E7. 13)1(Zrovisions
he follo#in situations relate to ;ashburn /ompany. /ompany. 1. ;ash ;ashbu burn rn prov provid ides es a #arr #arran anty ty #ith #ith all all its its prod produc ucts ts it sell sells. s. It esti estima mate tes s that that it #ill #ill sell sell 1,2, units of its product for the year ended December 31, 21!, and that its total revenue for the product #ill be >1,,. It also estimates that "B of the product #ill have no defects, 3B #ill have maCor defects, and 1B #ill have minor defects. he cost of a minor defect is estimated to be >! for each product repaired, and the cost for a maCor defect cost is >1!. he company also estimates that the minimum amount of #arranty expense #ill be >2,!, and the maximum #ill be >12,,. 2. ;ashburn ;ashburn is involved involved in a tax dispute dispute #ith #ith the tax authorities authorities.. he most li'ely li'ely outcome outcome of this this dispute is that ;ashburn #ill lose and have to pay >!,. he minimum it #ill lose is >2!, and the maximum is >3,,. 3. ;ashb ;ashburn urn has a policy policy of refund refundin in purchase purchases s to dissatis dissatisfie fied d custom customers ers,, even even thouh thouh it is under no obliation to do so. o#ever, it has created a valid expectation #ith its customers to continue this practice. hese refunds can rane from !B of sales to +B of sales, #ith any amount in bet#een a reasonable possibility. In 21!, ;ashburn has >!,, of sales subCect to possible refund. Instr$#t"ons repare the Cournal entry to record provisions, if any, any, for ;ashburn at December 31, 21!. So$t"on 13)1(
81:
;arra ;arranty nty Expen Expense[. se[.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ......... ......... ........ ........ ........ ...... ",, ",, ;arranty 6iability............................................................
",,
[Expected #arranty costs B
nits
/ost per nit
"B 3B 1B 1B
(2, 3", 12, 1,2,
> 1! !
=o defects &aCor defects &inor defects otal 82: 83:
ax Expens Expense.. e..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... .... axes ayable................................................................
otal /osts > !,4, ", ",,
!, !,
)ales )ales 7eturn 7eturns[. s[.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ...... 3,!, 3,!, %llo#ance fo for )a )ales 7e 7eturns..........................................
!, 3,!,
[>!,, × 8!B T +B:H2 E7. 13)13Z/ontinent liabilities.
elo# are three independent situations. 1. In %uus %uust, t, 21! a #or'er #or'er #as #as inCure inCured d in the factory factory in an accident accident partial partially ly the result result of his o#n neli nelienc ence. e. he #or'er #or'er has sued sued ;esley ;esley /o. for >*, >*,. . /ounsel /ounsel believ believes es it is possible but not probable that the outcome of the suit #ill be unfavorable and that the settlement #ould cost the company from >2!, to >!,.
/urrent 6iabilities, rovisions, and /ontinencies
13 ) 3
E7. 13)13 8cont.:
2. % suit suit for breach breach of contract contract see'in see'in damaes damaes of >2,4, >2,4, #as #as filed by an author author aainst aainst Greer /o. on ?ctober 4, 21!. Greer@s leal counsel believes that an unfavorable outcome is probabl probable. e. % reason reasonabl able e estima estimate te of the a#ard a#ard to the plaint plaintif ifff is bet#een bet#een >", >", and >1,*,. >1,*,. =o amount #ithin this rane is a better estimate of potential damaes than any other amount. 3. \uinn is involved involved in a pendin pendin court case. case. \uinn0s \uinn0s la#yers la#yers believe believe it is probable probable that \uinn \uinn #ill be a#arded damaes of >1,,. Instr$#t"ons Discuss the proper accountin treatment, includin any re9uired disclosures, for each situation. Give the rationale for your ans#ers.
So$t"on 13)13
1.
;esl ;esley ey /o. shoul should d disc disclo lose se in the the note notes s to the financ financia iall stat statem emen ents ts the exist existen ence ce of a possible possible continent liability liability related to the la#suit. la#suit. he note should indicate the rane of the possible loss. he continent liability should not be accrued because the loss is possible, not probable.
2. he probab probable le a#ard a#ard should should be accrued accrued by a chare chare to an estima estimated ted loss loss and a credit credit to an estimated liability of >1,2,. Greer /o. should disclose the follo#in in the notes to the financial statementsF the amount of the suit, the nature of the continency, the reason for the accrual, and the rane of the possible loss. he accrual is made because it is probable that a liability has been incurred and a reasonable estima estimate te can be made made of the obliati obliation on amount amount.. he midpoin midpointt amount amount in the rane of possible losses is used #hen no amount is a better estimate than an y other amount. 3.
\uinn should should not record record the the continent continent asset asset unless unless it is is virtually virtually certain certain.. sually sually,, continent continent assets assets are neithe neitherr accrue accrued d nor disclo disclosed sed.. he >1, >1,, , contin continen entt asset asset should should be disclosed because its outcome is considered probable.
13 ) 35
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
PROBLE/S Pr. Pr. 13)10Z%ccounts and =otes ayable.
Described belo# are certain transactions of 6arson /ompany for 21!F 1.
?n &ay 1, the the company company purchas purchased ed oods from ry /ompany /ompany for >!,, >!,, terms 2H1, nH3. urchases and accounts payable are recorded at net amounts. he invoice #as paid on &ay 1*.
2.
?n Kune Kune 1, the company company purcha purchased sed e9uipm e9uipment ent for >", >", from 7aney 7aney /ompan /ompany y, payin payin >2, in cash and ivin a one-year, +B note for the balance.
3.
?n )eptemb )eptember er 3, the company company borro borro#ed #ed >1*, >1*,, , by sinin sinin a one-year one-year $ero-i $ero-inte nteres resttbearin >12, note at irst )tate an'.
Instr$#t"ons 8a: repar repare e the Cournal Cournal entrie entries s necess necessary ary to record record the transa transacti ctions ons above usin usin approp appropria riate te dates.
8b: repar repare e the adCust adCustin in entries entries necess necessary ary at December December 31, 21! in order to proper properly ly report report interest expense related to the above transactions. %ssume straiht-line amorti$ation. 8c: Indica Indicate te the manner manner in #hich #hich the above above transacti transactions ons should should be reflec reflected ted in the /urrent /urrent 6iabilities section of 6arson /ompany@s December 31, 21! statement of financial position.
So$t"on 13)10
8a: 8a: &ay &ay 1, 1, 21! 21! urcha urchases sesHIn HInven ventory tory... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ .... %ccounts ayable..........................................................
4+, 4+,
&ay 1*, 21! %ccoun %ccounts ts ayabl ayable.. e..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ....... ... /ash..............................................................................
4+, 4+,
Kune 1, 21! E9uipm E9uipment ent... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ .... /ash.............................................................................. =otes ayable................................................................ )eptember 3, 21! /ash...... /ash........... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ................. .............. .. =otes ayable................................................................
4+,
4+, ", ", 2, 4,
1*, 1*, 1*,
8b: Intere Interest st Expens Expense... e...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... Interest ayable 8>4, R .+ R (H12:.........................
2,1 2,1
Intere Interest st Expens Expense... e...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... =otes ayable 8>12, R 3H12:....................................
3, 3,
2,1
3,
/urrent 6iabilities, rovisions, and /ontinencies 8c: /urren /urrentt 6iabili 6iabilitie ties s Interest payable =ote payableZ7aney /ompany =ote payableZirst )tate an'8>1*, T >3,:
13 ) 36
>
2,1 4, 111, >1!3,1
Pr. Pr. 13)1 13) 1Z7efinancin of short-term debt.
%t the financial statement date of December 31, 214, the liabilities outstandin of ac'ard /orporation included the follo#inF 1. 2. 3. 4.
/ash dividen dividends ds on ordinary ordinary shares, shares, >",, >",, payable payable on Kanuary Kanuary 1!, 1!, 21!. =ote payable payable to Galena Galena )tate )tate an', an', >4(,, >4(,, due due Kanuary Kanuary 2, 21!. 21!. )erial bonds, >1,,, >1,,, of #hich #hich >2!, >2!, mature mature durin durin 21!. =ote payable payable to hird =ation =ational al an', >3,, >3,, due Kanuary Kanuary 2(, 2(, 21!. 21!.
he follo#in transactions occurred early in 21!F Kanuary 1!F he cash cash divide dividends nds on ordinary ordinary shares shares #ere paid. Kanuary 2F he note note payable payable to to Galena Galena )tate )tate an' an' #as #as paid. paid. Kanuary Kanuary 2!F he corporat corporation ion entered entered into into a financ financin in areemen areementt #ith #ith Galena Galena )tate an', enablin it to borro# up to >!, at any time throuh the end of 21(. %mounts borro#ed under the areement #ould bear interest at 1B above the ban'@s prime rate rate and and #ould ould matu mature re 3 year years s from from the the date date of the the loan loan.. he he corp corpor orat atio ion n immediately borro#ed >4, to replace the cash used in payin its Kanuary 2 note to the ban'. Kanuary 2"F 4, ordinary ordinary shares shares #ere #ere issued for >3!,. >3!,. >3, >3, of the the proceeds proceeds #as used to li9uidate the note payable to hird =ational an'. ebruary ebruary 1F 1F he financ financial ial stateme statements nts for 214 214 #ere #ere issued. issued. Instr$#t"ons repare a partial statement of financial position for ac'ard /orporation, sho#in the manner in #hich the above liabilities should be presented at December 31, 214. he liabilities should be properly properly classifie classified d bet#een bet#een current current and non-current, non-current, and appropriate appropriate note disclosure disclosure should be included.
So$t"on 13)1
=on-current liabilitiesF =ote payableZhird =ational an', refinanced in Kanuary, 21!Z=ote 1 )erial bonds not maturin currently otal non-current liabilities /urrent liabilitiesF Dividends payable on common stoc' =otes payableZ Galena )tate an' /urrently maturin portion of serial bonds otal current liabilities otal liabilities
>3, (!, >1,!,
", 4(, 2!, (*, >1,*3,
13 ) 08
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
=ote 1F ?n Kanuary 2", 21!, the corporation issued 4, ordinary shares and received proceeds totalin >3!,, of #hich >3, #as used to li9uidate a note payable that matured on Kanuary 2(, 21!.
Pr. Pr. 13)12Zremiums.
aie /andy /ompany offers a coffee mu as a premium for every ten !-cent candy bar #rappers presented by customers toether #ith >1.. he purchase price of each mu to the company is + centsA in addition it costs " cents to mail each mu. he results of the premium plan for the years 214 and 21! are as follo#s 8assume all purchases and sales are for cash:F 214 21! /offee mus purchased (2, *, /andy bars sold !,", ",(!, ;rappers redeemed 2,*, 4,2, 214 #rappers expected to be redeemed in 21! 2,, 21! #rappers expected to be redeemed in 21" 2,(, Instr$#t"ons 8a: repar repare e the eneral eneral Cournal Cournal entrie entries s that should should be made in 214 214 and 21! related related to the above plan by b y aie /andy.
8b: Indicate Indicate the account account names, names, amounts, amounts, and classif classificati ications ons of the items items related related to the premium premium plan that #ould appear on the aie /andy /ompany statement of financial position and income statement at the end of 214 and 21!. So$t"on 13)12
8a:
214 remium remium Inventory. Inventory...... .......... .......... .......... .......... .......... .......... .......... .......... .......... ................. ....................... ........... /ash.................................................................... ...... .... .... .... .... .... .... .... .. 8(2, R >.+ Q >"4*,:
"4*, "4*, "4*,
/ash................................................ /ash........................................................................... ................................................ ..................... 2,*, )ales 7evenue.............................................. ...... .... .... .... .... .... .... .... .... .... .... .. 8!,", R >.! Q >2,*,: /ash...... /ash........... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .............. ........... remium remium Expense.... Expense......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ............. .................... .............. remium Inventory............................................................... U2,*, S 1 Q 2*, R 8>1. P >.": Q >112, 2*, R >.+ Q >2!2,V
112, 112, 14, 14,
remium remium Expense.... Expense......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ............. .................... .............. remium 6iability................................................................. 82,, S 1 Q 2, R >.! Q >1,:
1, 1,
21! remium remium Inventory. Inventory...... .......... .......... .......... .......... .......... .......... .......... .......... .......... ................. ....................... ........... /ash .................................................................. .......... ...... .... .... .... .... .... .. 8*, R >.+ Q >(2,:
2,*,
2!2,
1,
(2, (2, (2,
/urrent 6iabilities, rovisions, and /ontinencies
13 ) 01
13 ) 0(
Test Bank for Intere!"ate A##o$nt"n%& I'RS E!"t"on, (e
/ash................................................ /ash........................................................................... ................................................ ..................... 3,3(!, )ales 7evenue.............................................. ...... .... .... .... .... .... .... .... .... .... .... .. 8",(!, R >.! Q >3,3(!,: /ash...... /ash........... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .............. ........... remium remium 6iabilit 6iability y ....... ............ .......... .......... .......... .......... .......... .......... .......... .......... .......... ............. ................... ........... remium remium Expense.... Expense......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ............. .................... .............. remium Inventory............................................................... U4,2, S 1 Q 42, R 8>1. P >.": Q >1"*, 42, R >.+ Q >3(*,V
1"*, 1"*, 1, 1, 11, 11,
remium remium Expense.... Expense......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ............. .................... .............. remium 6iability................................................................. 82,(, S 1 Q 2(, R >.! Q >13!,:
13!, 13!,
3,3(!,
3(*,
13!,
8b: )tatement )tatement of inanc inancial ial osition osition =ame remium Inventory remium 6iability
/lass /urrent %sset /urrent 6iability
214 >3+", 1,
21! >(3*, 13!,
/lass ?peratin Expense
214 >24,
21! >24!,
Income )tatement =ame remium Expense
Pr. Pr. 13)1Z;arranties.
&iley E9uipment E9uipment /ompany sells computers computers for >1,! each and also ives each customer customer a 2year #arranty that re9uires the company to perform periodic services and to replace defective parts. parts. Durin Durin 214, the company sold ( computers. computers. ased on past experience, experience, the company company has estimated the total 2-year #arranty costs as >3 for parts and >" for labor. 8%ssume sales all occur at December 31, 214.: In 21!, &iley incurred actual #arranty costs relative to 214 computer sales of >1, for parts and >1*, for labor. Instr$#t"ons 8a: 8a: nde nderr an assu assura ranc ncee-ty type pe warranty , prepare the entries to reflect the above transactions 8accrual method: for 214 and 21!.
8b: 8b: he he tran transa sact ctio ions ns of part part 8a: 8a: crea create te #hat bala balanc nce e unde underr curr curren entt liab liabil ilit itie ies s in the the 214 214 statement of financial position<
/urrent 6iabilities, rovisions, and /ontinencies
13 ) 03
So$t"on 13)1
8a:
214 %ccounts 7eceivable................... 7eceivable.............................................. .................................................... ......................... 1,!, )ales 7evenue.............................................. ...... .... .... .... .... .... .... .... .... .... .... .. ;arra ;arranty nty Expen Expense. se.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ...... .. ;arranty 6iability................................................................. 21! ;arranty ;arranty 6iability.. 6iability....... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... .......... ................. ............... ... Inventory.............................................................................. %ccrued a ayroll....................................................................
8b: 8b:
214 214
1,!,
"3, "3, "3,
2*,
/urr /urren entt 6iabi 6iabili liti ties esZ; Z;ar arra rant nty y 6iab 6iabil ilit ity y >31,! >31,! .. 8he remainder of the >"3, liability is a non-current liability.:
1, 1*,
