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1) Some liabilities are not contractual obligations and may not be payable in cash. ⊚ true ⊚ false 2) Liabilities are classified as current if they are expected to be satisfied by the creation of other current liabilities. ⊚ true ⊚ false 3) A line of credit is an agree...

1) Some liabilities are not contractual obligations and may not be payable in cash. ⊚ true ⊚ false 2) Liabilities are classified as current if they are expected to be satisfied by the creation of other current liabilities. ⊚ true ⊚ false 3) A line of credit is an agreement to provide long-term financing, typically made with a bank or a group of banks. ⊚ true ⊚ false 4) Issuance of a note payable typically involves a credit to cash to record the net proceeds. ⊚ true ⊚ false 5) Amounts withheld from employees in connection with payroll often represent liabilities to be remitted to third parties. ⊚ true ⊚ false 6) A customer advance produces a liability that is satisfied when the product or service is provided. ⊚ true ⊚ false 7) Revenue is recognized upon sale of gift cards, rather than being deferred. ⊚ true ⊚ false 8) Long-term debt that is callable by the creditor in the upcoming year should be classified as a current liability only if the debt is expected to be called. ⊚ true ⊚ false 9) Expense for a quality-assurance warranty is recorded along with the related liability in the reporting period in which the product under warranty is sold. ⊚ true ⊚ false 10) For a loss contingency to be accrued, the claim must have been made before the accounting period ended. ⊚ true ⊚ false 11) A company should accrue a liability for a loss contingency if it is at least reasonably possible that assets have been impaired and the amount of potential loss can be reasonably estimated. ⊚ true ⊚ false 12) A disclosure note is required for all material loss contingencies for which the probability of loss is reasonably possible. ⊚ true ⊚ false 13) A liability for an unasserted claim must be accrued if it is reasonably possible that the claim will be asserted. ⊚ true ⊚ false 14) An asset for a gain contingency should not be accrued unless it is probable that the gain contingency will be realized. ⊚ true ⊚ false 15) Under IFRS, the term "probable" indicates a threshold of probability that is substantially more than a 50 percent chance of occurrence. ⊚ true ⊚ false 16) State and Federal Unemployment Taxes (SUTA and FUTA) must be withheld from employees' salaries. ⊚ true ⊚ false MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 17) The most common type of liability is one: A) that comes into existence due to a loss contingency. B) that must be estimated. C) that comes into existence due to a gain contingency. D) to be paid in cash and for which the amount and timing are known. 18) Which of the following is not a characteristic of a liability? A) It represents a probable, future sacrifice of economic benefits. B) It must be payable in cash. C) It arises from present obligations to other entities. D) It results from past transactions or events. 19) Which of the following is the best definition of a current liability? A) An obligation payable within one year B) An obligation payable within one year of the balance sheet date C) An obligation payable within one year or within the normal operating cycle, whichever is longer D) An obligation expected to be satisfied with current assets or by the creation of other current liabilities 20) Which of the following is not a liability? A) An unused line of credit B) Estimated income taxes C) Sales tax collected from customers D) Advances from customers 21) Current liabilities normally are recorded at their: A) Present value. B) Cost. C) Maturity amount. D) Expected value. 22) Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of: A) Matching. B) Consistency. C) Materiality. D) Conservatism. 23) The key accounting considerations relating to accounts payable are determining: A) their existence and ensuring that they are recorded in the appropriate accounting period. B) their present value and ensuring that they are recorded in the appropriate accounting period. C) their existence and determining the correct amount. D) the present value of the principal and the amount of the interest. 24) Classifying liabilities as either current or long-term helps creditors assess: A) Profitability. B) The relative risk of a firm's liabilities. C) The degree of a firm's liabilities. D) The amount of a firm's liabilities. 25) Trade notes payable differ from accounts payable is that trade notes payable are: A) Obligations to suppliers of merchandise or of services purchased on open account. B) Evidenced by a written invoice. C) Formally recognized by a written promissory note. D) Commonly due in 45 to 90 days. 26) When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in: A) A current liability. B) Revenue. C) Shareholders' equity. D) Paid-in capital. 27) A discount on a noninterest-bearing note payable is classified in the balance sheet as a(n): A) asset. B) component of shareholders' equity. C) contingent liability. - potential liability that may occur in the future, such as pending lawsuits or honoring product warranties. D) contra liability. - one that is debited for the explicit purpose of offsetting a credit to another liability account. 28) The rate of interest printed on the face of a note payable is called the: A) Yield rate. B) Effective rate. C) Market rate. D) Stated rate. 29) The rate of interest that actually is incurred on a note payable is called the: A) Face rate. B) Contract rate. C) Effective rate. D) Stated rate. 30) On October 31, 2024, Simeon Builders borrowed $16 million cash and issued a 7-month, noninterest-bearing note. The loan was made by Star Finance Company. The stated discount rate is 8%. Simeon's effective interest rate on this loan is: A) more than the stated discount rate of 8%. B) less than the stated discount rate of 8%. C) equal to the stated discount rate of 8%. D) unrelated to the stated discount rate of 8%. 31) On April 31, 2024, Elkhorn Associates borrowed $10 million cash from Colonial Bank and issued a 5-month, noninterest-bearing note, priced to yield an effective interest rate of 10%. The stated discount rate on this loan is: A) More than the effective interest rate. B) Less than the effective interest rate. C) Equal to the effective interest rate. D) Unrelated to the effective interest rate. 32) Jane's Donut Company borrowed $210,000 on January 1, 2024, and signed a two-year note bearing interest at 15%. Interest is payable in full at maturity on January 1, 2026. In connection with this note, Jane's should report interest expense at December 31, 2024, in the amount of: A) $63,000. B) $31,500. - (210,000 x 15%) x 12/12 C) $66,780. D) $0. 33) Jane's Donut Company borrowed $200,000 on January 1, 2024, and signed a two-year note bearing interest at 12%. Interest is payable in full at maturity on January 1, 2026. In connection with this note, Jane's should report interest expense at December 31, 2024, in the amount of: A) $0. B) $24,000. - (200,000 x 12%) x 12/12 C) $48,000. D) $50,880. 34) What is the effective interest rate on a 3-month, noninterest-bearing note with a stated rate of 12.7% and a maturity value of $208,000? Note: Do not round intermediate calculations. Round final answer to 1 decimal place. A) 14.1% B) 12.1% C) 12.7% D) 13.1% $208,000 × 12.7% × 3 ÷ 12 = $6,604 $6,604 ÷ ($208,000 − $6,604) = 3.28% 3.28% × 12 ÷ 3 = 13.1% (rounded) 35) What is the effective interest rate on a 3-month, noninterest-bearing note with a stated rate of 12% and a maturity value of $200,000? Note: Do not round intermediate calculations. Round final answer to 1 decimal place. A) 12.4% B) 13.6% C) 11.5% D) 3.1% $200,000 × 12% × 3 ÷ 12 = $6,000 $6,000 ÷ ($200,000 − $6,000) = 3.09% 3.09% × 12 ÷ 3 = 12.4% (rounded) 36) On September 1, 2024, Hiker Shoes issued a $105,000, 6-month, noninterest-bearing note. The loan was made by Second Commercial Bank where the stated discount rate is 9%. Hiker's effective interest rate on this loan is: Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. A) 9.00%. B) 9.42%. C) 9.35%. D) 9.34%. $105,000 × 9% × 6 ÷ 12 = $4,725 [$4,725 ÷ ($105,000 − $4,725)] × 12 ÷ 6 = 9.42% (rounded) 37) On September 1, 2024, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank where the stated discount rate is 9%. Hiker's effective interest rate on this loan is: Note: Do not round intermediate calculations. Round final answer to 1 decimal place. A) 9.0%. B) 9.5%. C) 9.6%. D) 9.7%. $100,000 × 9% × 8 ÷ 12 = $6,000 [$6,000 ÷ ($100,000 − $6,000)] × 12 ÷ 8 = 9.6% (rounded) 38) Universal Travel Incorporated borrowed $506,000 on November 1, 2024, and signed a 12-month note bearing interest at 5%. Interest is payable in full at maturity on October 31, 2025. In connection with this note, Universal Travel Incorporated should report interest payable at December 31, 2024, in the amount of: Note: Round your final answers to the nearest whole dollar. A) $25,300. B) $16,867. C) $4,217. D) $21,083. $506,000 × 5% × 2 ÷ 12 = $4,217 39) Oklahoma Oil Corporation paid interest of $783,500 during 2024, and the interest payable account decreased by $135,000. What was interest expense for the year? A) $648,500 B) $513,500 C) $783,500 D) $918,500 interest paid 783,500 - decrease in interest payable 135,000 = total interest expense 648,500 40) Oklahoma Oil Corporation paid interest of $785,000 during 2024, and the interest payable account decreased by $125,000. What was interest expense for the year? A) $910,000 B) $660,000 C) $555,000 D) $785,000 785,000 - 125,000 = 660,000 41) On June 1, 2024, Dirty Harry Company borrowed cash by issuing a 6-month noninterest-bearing note with a maturity value of $500,000 and a discount rate of 6%. Assuming straight-line amortization of the discount, what is the carrying value of the note as of September 30, 2024? Note: Round all calculations to the nearest whole dollar amount. A) $525,000 B) $300,000 C) $495,000 D) $475,000 face amount 500,000 - discount (500,000 x 6%) x 6/12 = carrying value 6/1/2024 485,000 carrying value 485,000 - discount amortization (4/6) 10,000 = carrying value 9/30/2024 495,000 42) At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent: A) Liabilities until the product or service is provided. B) A component of shareholders' equity. C) Long-term assets until the product or service is provided. D) Revenue upon receipt of the advance payment. 43) Which of the following is not true about deferred revenue? A) Deferred revenue with respect to gift cards is recognized as revenue when the gift cards expire. B) Deferred revenue is a liability. C) Deferred revenue is recognized on credit sales only when collectability can be estimated. D) Customer prepayments typically require recognition of deferred revenue. 44) M Corporation has an employee benefit plan for compensated absences that gives each employee 15 paid vacation days. Vacation days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days. At December 31, 2024, M's unadjusted balance of liability for compensated absences was $31,200. M estimated that there were 200 total vacation days available at December 31, 2024. M's employees earn an average of $156 per day. In its December 31, 2024, balance sheet, what amount of liability for compensated absences is M required to report? A) $0 B) $31,200 C) $468,000 D) $234,000 $31,200 for the 200 vacation days times $156 per day. 45) Lake Company receives nonrefundable advance payments with special orders for containers constructed to customer specifications. Related information for 2024 is as follows ($ in millions): Customer advances balance, December 31, 2023 $ 115 Advances received with 2024 orders 199 Advances applicable to orders shipped in 2024 176 Advances from orders canceled in 2024 45 What amount should Lake report as a current liability for advances from customers in its December 31, 2024, balance sheet? A) $138 million B) $314 million C) $93 million D) $0 $115 + $199 − $176 − $45 = $93 million 46) Which one of the following is not a collection for a third party? A) Sales tax payable B) Customer deposits C) Employee insurance deductions D) Social security taxes 47) When a deposit on returnable containers is forfeited, the firm holding the deposit will experience a(n): A) decrease in cost of goods sold. B) increase in current liabilities. C) increase in accounts receivable. D) increase in revenue. 48) B Corporation has an employee benefit plan for compensated absences that gives each employee 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 2024, B's unadjusted balance of liability for compensated absences was $52,000. B estimated that there were 280 total vacation days and 140 sick days available at December 31, 2024. B's employees earn an average of $210 per day. In its December 31, 2024, balance sheet, what amount of liability for compensated absences is B required to report? A) $58,800 B) $88,200 C) $109,200 D) $168,000 280 x 210 = 58,800 49) On January 1, 2024, G Corporation agreed to grant all its employees two weeks paid vacation each year, with the stipulation that vacations earned each year can be taken the following year. For the year ended December 31, 2024, G's employees each earned an average of $830 per week. A total of 520 vacation weeks earned in 2024 were not taken during 2024. Wage rates for employees rose by an average of 6 percent by the time vacations actually were taken in 2025. What is the amount of G's 2025 salaries expense related to 2024 vacation time? A) $431,600 B) $457,496 C) $0 D) $25,896 (520 × $830) × 6% = $25,896 50) Revenue for gift card breakage should be recognized: A) When the gift card is sold. B) No later than the last day of the operating period in which the gift card is delivered to the customer. C) When the probability of gift card redemption is viewed as remote. D) Under no circumstances, as gift cards are not themselves a delivered product, but rather a selling technique. 51) All else equal, a large increase in deferred revenue in the current period would be expected to produce what effect on revenue in a future period? A) Large increase, because deferred revenue becomes revenue when the seller has satisfied its performance obligations B) Large decrease, because deferred revenue implies that less revenue has been earned, which reduces future revenue C) No effect, because deferred revenue is a liability, so payment will use assets rather than providing revenue D) Large decrease, because deferred revenue indicates collection problems that will reduce net revenues in future periods 52) Peterson Photoshop sold $2,900 in gift cards on a special promotion on October 15, 2024, and sold $4,350 in gift cards on another special promotion on November 15, 2024. Of the cards sold in October, $290 were redeemed in October, $725 in November, and $870 in December. Of the gift cards sold in November, $435 were redeemed in November and $1,015 were redeemed in December. Peterson views the probability of redemption of a gift card as remote if the card has not been redeemed within two months. At 12/31/2024, Peterson would show a deferred revenue account for the gift cards with a balance of: A) $4,350. B) $3,915. C) $2,900. D) $0. All of October sales recognized as revenue; $435 + $1,015 of November sales recognized as revenue So deferred revenue = $4,350 November sales − $1,450 recognized as revenue = $2,900. 53) When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes a debit to a(n): A) revenue and a credit to a liability account. B) revenue and a credit to an asset account. C) asset and a credit to a revenue account. D) liability and a credit to a revenue account. 54) Clark's Chemical Company received refundable deposits on returnable containers in the amount of $106,000 during 2024. Fifteen percent of the containers were not returned. The deposits are based on the container cost marked up 35%. What is cost of goods sold relative to this forfeiture? A) $11,778 B) $4,122 C) $0 D) $45,429 ($106,000 × 15%) ÷ 135% = $11,778 55) In May of 2024, Raymond Financial Services became involved in a penalty dispute with the EPA. At December 31, 2024, the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable. The additional penalties were estimated to be $764,000 but could be as high as $1,158,000. After the year-end, but before the 2024 financial statements were issued, Raymond accepted an EPA settlement offer of $888,000. Raymond should have reported an accrued liability on its December 31, 2024, balance sheet of: A) $764,000. B) $1,158,000. C) $270,000. D) $888,000.