Current Liabilities Overview
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Current Liabilities Overview

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Questions and Answers

What amount should Lulzbot.com accrue on December 31 for estimated warranty costs?

  • €12,000
  • €6,000
  • €3,000
  • €9,000 (correct)

    • When should the estimated cost of honoring warranty contracts be recognized as an expense?

  • Only if repairs are expected within one year
  • In the period in which the product was sold (correct)
  • When the product is brought in for repairs
  • At the end of the warranty period

    • Current maturities of long-term debt can be properly classified during the statement of financial position preparation by which means?

  • Only if an adjusting entry is made
  • No adjusting entry is required (correct)
  • With optional reporting on the statement
  • Considering them as non-current liabilities

    • Which principle is the accounting for warranty costs based upon?

    <p>Expense recognition principle</p> Signup and view all the answers

    How are warranty expenses reported on the income statement?

    <p>As selling expenses</p> Signup and view all the answers

    What is the average repair cost per unit in the warranty for Lulzbot.com?

    <p>€50</p> Signup and view all the answers

    What percentage of the units sold by Lulzbot.com is expected to be defective?

    <p>3%</p> Signup and view all the answers

    If a company recognizes warranty expense when the product is sold, what principle are they following?

    <p>Expense recognition principle</p> Signup and view all the answers

    What entry will be made by Maple Street Bookstore to show the remittance of $1,500 in sales taxes collected during April?

    <p>Sales Taxes Payable.......................................................... 1,500 Cash.......................................................................... 1,500</p> Signup and view all the answers

    If sales taxes collected are remitted monthly, which account does Maple Street Bookstore debit when making the payment?

    <p>Sales Taxes Payable</p> Signup and view all the answers

    What total amount was reported for sales revenue in one of the entries involving cash?

    <p>$3,240</p> Signup and view all the answers

    What is the nature of the account 'Sales Taxes Payable' in accounting?

    <p>Liability</p> Signup and view all the answers

    Which type of current liability is payable upon the issuance of a note?

    <p>Notes payable</p> Signup and view all the answers

    Which of the following entries correctly records the collection of sales taxes?

    <p>Cash................................................................................... 3,240 Sales Taxes Payable................................................. 240 Sales Revenue.......................................................... 3,000</p> Signup and view all the answers

    Current liabilities are generally expected to be paid within what time frame?

    <p>One year or the operating cycle out of current assets</p> Signup and view all the answers

    When recording the issuance of an interest-bearing note, what does the entry credit Notes Payable for?

    <p>Face value</p> Signup and view all the answers

    When Rhode Company does not ring up sales taxes separately, how is the total revenue determined?

    <p>By excluding sales tax from total receipts</p> Signup and view all the answers

    In accounting entries involving sales tax, which account is generally credited when sales tax is collected?

    <p>Sales Taxes Payable</p> Signup and view all the answers

    The amount received upon issuing an interest-bearing note is generally what in relation to the note's face value?

    <p>Equal to the note's face value</p> Signup and view all the answers

    What financial impact does recording Sales Tax Expense have on the income statement?

    <p>Decreases net income</p> Signup and view all the answers

    What form does a note payable take?

    <p>A written promissory note</p> Signup and view all the answers

    What does the entry to record the proceeds upon issuing an interest-bearing note typically involve?

    <p>Cash to Notes Payable</p> Signup and view all the answers

    If a company issues a note for €600,000 at 8% interest, what is the entry made to record the issuance?

    <p>Cash crediting Notes Payable</p> Signup and view all the answers

    What distinguishes current liabilities from other liabilities?

    <p>Current liabilities are expected to be settled within a short time frame</p> Signup and view all the answers

    What amount will be reported as Warranty Liability on Lulzbot.com's statement of financial position on December 31, 2020?

    <p>€3,000</p> Signup and view all the answers

    Current liabilities generally appear in which order on the statement of financial position?

    <p>After non-current liabilities</p> Signup and view all the answers

    What is the maximum time frame a current liability can be expected to be paid?

    <p>One year or the operating cycle, whichever is longer</p> Signup and view all the answers

    Which statement regarding current liabilities is incorrect?

    <p>Current liabilities include prepaid expenses.</p> Signup and view all the answers

    How is warranty cost calculated in the case of Lulzbot.com?

    <p>Estimated defective units minus actual defective units multiplied by average cost per unit</p> Signup and view all the answers

    Which of the following is included in current liabilities?

    <p>Unearned revenue</p> Signup and view all the answers

    What is the formula for calculating the current ratio?

    <p>current assets divided by current liabilities</p> Signup and view all the answers

    Monkee's Company's working capital is calculated as:

    <p>current assets minus current liabilities</p> Signup and view all the answers

    If a company has liabilities exceeding its assets, which of the following might be true?

    <p>The company is likely insolvent.</p> Signup and view all the answers

    How much warranty expense should Landfall Navigation report for 2020?

    <p>$160,000</p> Signup and view all the answers

    What is the average repair cost per unit mentioned for warranty purposes?

    <p>€50</p> Signup and view all the answers

    What is the warranty liability Landfall Navigation should report on December 31, 2020?

    <p>$160,000</p> Signup and view all the answers

    If Wang Company honored 60 warranty contracts at a total cost of HK$3,600, what will be the estimated liability for future contracts?

    <p>HK$7,200</p> Signup and view all the answers

    Which of the following represents a common error in calculating working capital?

    <p>Using total liabilities instead of current liabilities</p> Signup and view all the answers

    In what scenario would a company report no warranty obligations by the end of the year?

    <p>If provisions are not recognized by the accounting team</p> Signup and view all the answers

    What aspect does the current ratio evaluate for a company?

    <p>Ability to cover short-term liabilities</p> Signup and view all the answers

    Study Notes

    Current Liabilities

    • Notes Payable is a written promissory note that a company issues to a lender.
    • Interest-Bearing Note is a note that pays interest to the lender.
    • Face Value is the principal amount of a note.
    • Maturity Value is the principal amount plus the accrued interest on a note.
    • Current Liabilities are debts that a company expects to pay within one year or the operating cycle, whichever is longer.
    • Operating Cycle is the time it takes to purchase inventory, sell it, and collect the cash from the customer.
    • Sales Taxes Payable is the amount of sales taxes that a company has collected from customers but has not yet remitted to the government.
    • Working Capital is the difference between current assets and current liabilities. A lower working capital may lead to liquidity issues (not enough cash to cover day-to-day expenses).
    • Current Ratio is a measure of a company's ability to meet its short-term obligations. A higher current ratio signifies better liquidity. The calculation for the current ratio is: Current Assets / Current Liabilities.
    • Warranty Expense is an expense that companies recognize to cover the cost of repairs or replacements under a warranty.
    • Warranty Liability is a liability that a company recognizes to represent its estimated future warranty costs. The expense recognition principle requires that companies recognize warranty expense in the period in which the product was sold.
    • Current Maturities of Long-Term Debt are portions of long-term debt that become due within one year and are classified as current liabilities.
    • Prepaid Expenses are not current liabilities because they represent assets, as the company has already paid for them. They are eventually expensed as the goods or services are received.

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    Related Documents

    Chapter 10: Current Liabilities PDF

    Description

    This quiz covers key concepts related to current liabilities, including notes payable, interest-bearing notes, and the current ratio. Test your understanding of terms like working capital and sales taxes payable. Explore how these elements impact a company's financial health and liquidity.

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