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Questions and Answers
Which of the following is a current liability?
Which of the following is a current liability?
- A long-term debt maturing currently, which is to be paid with cash in a sinking fund
- None of these (correct)
- A long-term debt maturing currently, which is to be converted into common stock
- A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue
Which of the following is true about accounts payable?
Which of the following is true about accounts payable?
- Both 2 and 3 are true.
- Accounts payable should not be reported at their present value. (correct)
- When accounts payable are recorded at the net amount, a Purchase Discounts account will be used.
- When accounts payable are recorded at the gross amount, a Purchase Discounts Lost account will be used.
Among the short-term obligations of Lance Company as of December 31, the balance sheet date, are notes payable totaling $250,000. These should be classified on the balance sheet of Lance Company as:
Among the short-term obligations of Lance Company as of December 31, the balance sheet date, are notes payable totaling $250,000. These should be classified on the balance sheet of Lance Company as:
- Long-term liabilities
- Deferred charges
- Current liabilities (correct)
- Intermediate debt
Which of the following items is a current liability?
Which of the following items is a current liability?
Which of the following should not be included in the current liabilities section of the balance sheet?
Which of the following should not be included in the current liabilities section of the balance sheet?
Which of the following is a current liability?
Which of the following is a current liability?
Of the following items, the only one which should not be classified as a current liability is:
Of the following items, the only one which should not be classified as a current liability is:
An account which would be classified as a current liability is:
An account which would be classified as a current liability is:
What is the relationship between current liabilities and a company's operating cycle?
What is the relationship between current liabilities and a company's operating cycle?
What is the relationship between present value and the concept of a liability?
What is the relationship between present value and the concept of a liability?
What is a discount as it relates to zero-interest-bearing notes payable?
What is a discount as it relates to zero-interest-bearing notes payable?
Where is debt callable by the creditor reported on the debtor's financial statements?
Where is debt callable by the creditor reported on the debtor's financial statements?
Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?
Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?
Which of the following is a condition for accruing a liability for the cost of compensation for future absences?
Which of the following is a condition for accruing a liability for the cost of compensation for future absences?
Which of the following is not a correct statement about sales taxes?
Which of the following is not a correct statement about sales taxes?
The amount of the liability for compensated absences should be based on:
The amount of the liability for compensated absences should be based on:
Which of the following taxes does not represent a common payroll deduction?
Which of the following taxes does not represent a common payroll deduction?
A contingent liability:
A contingent liability:
Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years. Any liability for the warranty should be reported as:
Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years. Any liability for the warranty should be reported as:
Espinosa Co. has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. What should the amount of loss accrual be?
Espinosa Co. has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. What should the amount of loss accrual be?
Dean Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be estimated, an unfavorable outcome is highly probable, and:
Dean Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be estimated, an unfavorable outcome is highly probable, and:
Use of the accrual method in accounting for product warranty costs:
Use of the accrual method in accounting for product warranty costs:
Which of the following is a characteristic of the expense warranty approach, but not the sales warranty approach?
Which of the following is a characteristic of the expense warranty approach, but not the sales warranty approach?
An electronics store provides coupons for video game purchases with a discount. How would the store account for a purchase using the discount coupon?
An electronics store provides coupons for video game purchases with a discount. How would the store account for a purchase using the discount coupon?
Study Notes
Current Liabilities
- Long-term debts maturing currently are not classified as current liabilities if they are to be converted into common stock.
- Exclude short-term obligations from current liabilities if there is intent to refinance on a long-term basis, demonstrating the ability to complete the refinancing.
- Current liabilities include accounts payable measured at their gross amount or the net amount with a Purchase Discounts account.
- 90-day notes payable are classified as current liabilities and renewable for another 90 days should be recognized accordingly.
Sales Taxes
- Sales taxes are the seller's expense and should not be included in the sales account unless calculated accordingly.
- To determine sales taxes included in sales, divide total sales by one plus the sales tax rate.
Compensation and Absences
- Accrual conditions for liabilities regarding compensated absences include employee rights accumulation, probable payment, and existing obligation due to prior services.
- Compensated absences liabilities should be based either on current or future rates of pay when employees utilize their rights.
Contingent Liabilities
- A contingent liability arises from a loss contingency and may not always be disclosed unless certain conditions are met.
- If liabilities can only be reasonably estimated within a range, record the minimum amount of loss accrual.
Product Warranty Costs
- Use of accrual accounting for warranty costs should be adopted when warranties form an integral part of the sale, representing accepted practice.
- The expense warranty approach focuses on estimated liabilities under warranties, contrasting with the sales warranty approach.
Financial Statement Reporting
- Debt callable by a creditor is reported as a current liability if it is probable that the creditor will call the debt within a year.
- Losses from a lawsuit after financial statements must be recorded if estimations are reasonable and the outcome is highly probable, occurring during the accounting period.
Premium Expenses
- In promotional sales offering discounts, the difference between the cost of goods sold and the cash received is recognized as premium expense, reflecting the store's gross profit margin.
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Description
Test your understanding of current liabilities, sales tax calculations, and compensation absences in this comprehensive quiz. Explore the classification and treatment of these financial elements to enhance your accounting knowledge.
