Question 1

If the likelihood of a loss is reasonably possible rather than probable,we record no entry,but make full disclosure in a footnote to the financial statements to describe the contingency.

Accepted Answer

A) True 
 B)False

Question 2

A gain contingency is an existing uncertain situation that might result in a gain,which often is the flip side of loss contingencies.

Accepted Answer

A) True 
 B)False

Question 3

Bears Inc.sells football helmets to local schools and warrants all of its products for one year.While no helmets sold in 2012 have been returned to them yet,based upon previous years,Bears Inc.estimates that 3% of its products will need repairs or be replaced within the next year.What effect would this warranty have on assets,liabilities,and stockholders' equity in 2012?

Accepted Answer

A)  A decrease in assets and decrease in stockholders' equity.
B)  No journal entry is necessary until products under warranty are returned.
C)  An increase in stockholders' equity and a decrease in liabilities.
D)  A decrease in stockholders' equity and an increase in liabilities.E) None of the above
F) All of the above

Question 4

All states impose a state income tax.

Accepted Answer

A) True 
 B)False

Question 5

A line of credit is an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and paperwork.

Accepted Answer

A) True 
 B)False

Question 6

On April 1,2012,the Electronic Superstore borrows $22 million of which $4 million is due in 2013.Show how the company would report the $22 million debt on its December 31,2012 balance sheet.

Accepted Answer

The answer of On April 1,2012,the Electronic Superstore borrows $22...

Question 7

Working capital is

Accepted Answer

A)  Current assets divided by current liabilities.
B)  Current assets minus current liabilities.
C)  Cash,short-term investments,and accounts receivable divided by current liabilities.
D)  Cash,short-term investments,and accounts receivable minus current liabilities.E) A) and D)
F) A) and C)

Question 8

Large,highly-rated firms sometimes sell commercial paper

Accepted Answer

A)  To borrow funds at a lower rate than through a bank.
B)  To borrow funds when they cannot obtain a loan from a bank.
C)  Because they can't borrow anywhere else.
D)  To improve their credit rating.E) B) and C)
F) A) and D)

Question 9

Which of the following is not a current liability?

Accepted Answer

A)  Accounts payable.
B)  A note payable due in 2 years.
C)  Current portion of long-term debt.
D)  Sales tax payable.E) All of the above
F) B) and C)

Question 10

Which of the following is not a reason why a company might prefer to report a liability as long-term rather than current?

Accepted Answer

A)  It may cause the firm to appear less risky to investors and creditors.
B)  It may increase interest rates on borrowing.
C)  It may cause the company to appear more stable commanding a higher stock price for new stock listings.
D)  It may reduce interest rates on borrowing.E) A) and B)
F) A) and C)

Question 11

Ogden Motors,Inc.is involved in a lawsuit.It is reasonably possible that the jury will find in favor of the plaintiff and Ogden will owe ten million dollars.What is the appropriate reporting of this lawsuit and what is the effect on the balance sheet?

Accepted Answer

A)  Record; decrease stockholders' equity and increase liabilities.
B)  Record; increase stockholders' equity and decrease liabilities.
C)  Disclose; no effect on the balance sheet.
D)  Disclose; decrease stockholders' equity and decrease liabilities.E) B) and D)
F) B) and C)

Question 12

Which of the following is not a characteristic of a liability?

Accepted Answer

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.E) C) and D)
F) B) and D)

Question 13

FICA taxes are paid only by the employee.

Accepted Answer

A) True 
 B)False

Question 14

A contingent liability is recorded only if a loss is at least reasonably possible and the amount can be reasonably estimated.

Accepted Answer

A) True 
 B)False

Question 15

In a classified balance sheet,we categorize all liabilities as current.

Accepted Answer

A) True 
 B)False

Exam 8: Current Liabilities

In a classified balance sheet,we categorize all liabilities as current.

Correct Answer
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All states impose a state income tax.

Correct Answer
verified

If the likelihood of a loss is reasonably possible rather than probable,we record no entry,but make full disclosure in a footnote to the financial statements to describe the contingency.

Correct Answer
verified

A contingent liability is recorded only if a loss is at least reasonably possible and the amount can be reasonably estimated.

Correct Answer
verified

Which of the following is not a characteristic of a liability?

Correct Answer
verified

Which of the following is not a reason why a company might prefer to report a liability as long-term rather than current?

Correct Answer
verified

A line of credit is an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and paperwork.

Correct Answer
verified

Ogden Motors,Inc.is involved in a lawsuit.It is reasonably possible that the jury will find in favor of the plaintiff and Ogden will owe ten million dollars.What is the appropriate reporting of this lawsuit and what is the effect on the balance sheet?

Correct Answer
verified

A gain contingency is an existing uncertain situation that might result in a gain,which often is the flip side of loss contingencies.

Correct Answer
verified

Large,highly-rated firms sometimes sell commercial paper

Correct Answer
verified

FICA taxes are paid only by the employee.

Correct Answer
verified

Correct Answer
verified

Working capital is

Correct Answer
verified

On April 1,2012,the Electronic Superstore borrows $22 million of which $4 million is due in 2013.Show how the company would report the $22 million debt on its December 31,2012 balance sheet.

Correct Answer
verified

Which of the following is not a current liability?

Correct Answer
verified

Exam 8: Current Liabilities

In a classified balance sheet,we categorize all liabilities as current.

Correct AnswerverifiedShow Answer

All states impose a state income tax.

Correct AnswerverifiedShow Answer

If the likelihood of a loss is reasonably possible rather than probable,we record no entry,but make full disclosure in a footnote to the financial statements to describe the contingency.

Correct AnswerverifiedShow Answer

A contingent liability is recorded only if a loss is at least reasonably possible and the amount can be reasonably estimated.

Correct AnswerverifiedShow Answer

Which of the following is not a characteristic of a liability?

Correct AnswerverifiedShow Answer

Which of the following is not a reason why a company might prefer to report a liability as long-term rather than current?

Correct AnswerverifiedShow Answer

A line of credit is an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and paperwork.

Correct AnswerverifiedShow Answer

Ogden Motors,Inc.is involved in a lawsuit.It is reasonably possible that the jury will find in favor of the plaintiff and Ogden will owe ten million dollars.What is the appropriate reporting of this lawsuit and what is the effect on the balance sheet?

Correct AnswerverifiedShow Answer

A gain contingency is an existing uncertain situation that might result in a gain,which often is the flip side of loss contingencies.

Correct AnswerverifiedShow Answer

Large,highly-rated firms sometimes sell commercial paper

Correct AnswerverifiedShow Answer

FICA taxes are paid only by the employee.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Working capital is

Correct AnswerverifiedShow Answer

On April 1,2012,the Electronic Superstore borrows $22 million of which $4 million is due in 2013.Show how the company would report the $22 million debt on its December 31,2012 balance sheet.

Correct AnswerverifiedShow Answer

Which of the following is not a current liability?

Correct AnswerverifiedShow Answer

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