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Questions and Answers
What journal entry is appropriate when a product is delivered after receiving an advance payment?
What journal entry is appropriate when a product is delivered after receiving an advance payment?
What is the cost of goods sold related to the forfeited deposits for the containers not returned?
What is the cost of goods sold related to the forfeited deposits for the containers not returned?
What amount should Raymond Financial Services report as an accrued liability on its December 31, 2024, balance sheet?
What amount should Raymond Financial Services report as an accrued liability on its December 31, 2024, balance sheet?
How should refundable deposits for returnable containers be treated when some are not returned?
How should refundable deposits for returnable containers be treated when some are not returned?
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If 15% of the containers were never returned, what is the basis of calculating the penalty cost associated with the 35% markup?
If 15% of the containers were never returned, what is the basis of calculating the penalty cost associated with the 35% markup?
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What type of account increases when cash is received from customers as a refundable deposit?
What type of account increases when cash is received from customers as a refundable deposit?
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How is a discount on a noninterest-bearing note payable classified in the balance sheet?
How is a discount on a noninterest-bearing note payable classified in the balance sheet?
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What is the term for the rate of interest printed on the face of a note payable?
What is the term for the rate of interest printed on the face of a note payable?
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What is the effective interest rate on a noninterest-bearing note payable related to its stated discount rate?
What is the effective interest rate on a noninterest-bearing note payable related to its stated discount rate?
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If a loan is priced to yield an effective interest rate of 10%, how does the stated discount rate compare?
If a loan is priced to yield an effective interest rate of 10%, how does the stated discount rate compare?
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What amount should Jane's Donut Company report as interest expense at December 31, 2024, for a two-year note of $210,000 at 15% interest?
What amount should Jane's Donut Company report as interest expense at December 31, 2024, for a two-year note of $210,000 at 15% interest?
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What is the incorrect classification of interest payable on a note that is paid at maturity?
What is the incorrect classification of interest payable on a note that is paid at maturity?
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In the context of notes payable, what does 'contract rate' refer to?
In the context of notes payable, what does 'contract rate' refer to?
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What is the most common type of liability?
What is the most common type of liability?
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Which characteristic does not define a liability?
Which characteristic does not define a liability?
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Which option best defines a current liability?
Which option best defines a current liability?
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Which of the following is not classified as a liability?
Which of the following is not classified as a liability?
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Current liabilities are typically recorded at which amount?
Current liabilities are typically recorded at which amount?
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The practice of recording current liabilities at the amount expected to be paid rather than at their present value is supported by which concept?
The practice of recording current liabilities at the amount expected to be paid rather than at their present value is supported by which concept?
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When determining accounts payable, which key consideration is necessary?
When determining accounts payable, which key consideration is necessary?
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Classifying liabilities as current or long-term assists creditors in assessing which aspect?
Classifying liabilities as current or long-term assists creditors in assessing which aspect?
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What was the interest expense for Oklahoma Oil Corporation in 2024?
What was the interest expense for Oklahoma Oil Corporation in 2024?
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Calculate the carrying value of a noninterest-bearing note issued by Dirty Harry Company as of September 30, 2024.
Calculate the carrying value of a noninterest-bearing note issued by Dirty Harry Company as of September 30, 2024.
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What do customer advances represent in accounting terms until the product or service is provided?
What do customer advances represent in accounting terms until the product or service is provided?
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Which statement about deferred revenue is not true?
Which statement about deferred revenue is not true?
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M Corporation has a liability for compensated absences of $31,200 as of December 31, 2024. How much liability should M report for compensated absences given there are 200 vacation days available and employees earn $156 per day?
M Corporation has a liability for compensated absences of $31,200 as of December 31, 2024. How much liability should M report for compensated absences given there are 200 vacation days available and employees earn $156 per day?
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When a company borrows cash using a noninterest-bearing note, which of the following calculations is used to find the carrying value?
When a company borrows cash using a noninterest-bearing note, which of the following calculations is used to find the carrying value?
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In accounting, what constitutes deferred revenue?
In accounting, what constitutes deferred revenue?
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Which formula correctly determines total interest expense for a corporation based on interest paid and changes in interest payable?
Which formula correctly determines total interest expense for a corporation based on interest paid and changes in interest payable?
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What is the amount of G's 2025 salaries expense related to 2024 vacation time?
What is the amount of G's 2025 salaries expense related to 2024 vacation time?
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When should revenue for gift card breakage be recognized?
When should revenue for gift card breakage be recognized?
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What would a large increase in deferred revenue in the current period lead to in a future period?
What would a large increase in deferred revenue in the current period lead to in a future period?
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What balance would Peterson Photoshop show in its deferred revenue account for the gift cards at 12/31/2024?
What balance would Peterson Photoshop show in its deferred revenue account for the gift cards at 12/31/2024?
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What percentage was the average wage rate increase for employees from 2024 to 2025?
What percentage was the average wage rate increase for employees from 2024 to 2025?
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If a gift card has not been redeemed within how many months does Peterson deem the probability of redemption as remote?
If a gift card has not been redeemed within how many months does Peterson deem the probability of redemption as remote?
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What was the total amount of gift cards sold by Peterson Photoshop in October 2024?
What was the total amount of gift cards sold by Peterson Photoshop in October 2024?
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How much revenue was recognized from gift cards sold in November by Peterson Photoshop by the end of December 2024?
How much revenue was recognized from gift cards sold in November by Peterson Photoshop by the end of December 2024?
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Study Notes
Liabilities
- Most common liability: paid in cash, amount & timing known
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Characteristics of a liability:
- Probable future sacrifice of economic benefit
- Arises from present obligations to other entities
- Results from past transactions or events
- Current liability: payable within one year or operating cycle, whichever is longer
- Current liabilities are recorded at the amount expected to be paid
- Accounts payable: key considerations are existence & correct amount
- Trade notes payable: formally recognized by written promissory note
- Deferred revenue: liability, recognized as revenue when performance obligation met
Interest Bearing Notes Payable
- Stated rate: rate printed on face of note
- Effective rate: rate actually incurred
- Discount on noninterest-bearing note payable: classified as contra-liability
- When cash is received from customers as a refundable deposit, it is recorded as a liability
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Interest expense:
- Calculated based on the principal amount of the note, stated rate and time period
- Usually recognized using the effective interest method
- Amortization of discount: affects carrying value of the note
Other Liabilities
- Customer advances: represent liabilities until product or service is provided
- Gift card breakage: revenue recognized when probability of redemption is remote
- Deferred revenue: can significantly affect future period's revenue
- Refundable deposits: represent liabilities until containers are returned or forfeited
- Contingent liabilities: potential liabilities that may occur in the future, recorded if probable and reasonably estimable
- Accrued liabilities: obligations that are incurred by the company and are not yet paid such as utilities, salaries, salaries, and rent, recognized as a liability and expense in the period incurred
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Description
Test your knowledge on liabilities, including their characteristics, types, and interest-bearing notes. This quiz covers key concepts such as current liabilities, accounts payable, and deferred revenue to enhance your understanding of financial obligations.
