Question 1

Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

Accepted Answer

A) The obligation relates to the rights that vest or accumulate. 
B) Payment of the compensation is probable. 
C) The obligation is attributable to employee services already performed. 
D) All of these are conditions for the accrual. 
A) The obligation relates to the rights that vest or accumulate. 
B) Payment of the compensation is probable. 
C) The obligation is attributable to employee services already performed. 
D) All of these are conditions for the accrual.

Question 2

Use the following information for questions 
Kent Co.includes one coupon in each bag of dog food it sells.In return for eight coupons, customers receive a leash.The leashes cost Kent $2.00 each.Kent estimates that 40 percent of the coupons will be redeemed.Data for 2006 and 2007 are as follows: $\begin{array}{lrr}&2006&2007\
\text { Bags of dog food sold } & 500,000 & 600,000 \
\text { Leashes purchased } & 18,000 & 22,000 \
\text { Coupons redeemed } & 120,000 & 150,000
\end{array}$
-The premium expense for 2006 is

Accepted Answer

A) $25,000. 
B) $30,000. 
C) $35,000. 
D) $50,000. 
A) $25,000. 
B) $30,000. 
C) $35,000. 
D) $50,000.

Question 3

Presented below is information available for Norton Company. $$\begin{array}{l}
\text { Current Assets }\
\begin{array} { l r } 
\text { Cash } & \$ 4,000 \
\text { Short-term investments } & 75,000 \
\text { Accounts receivable } & 61,000 \
\text { Inventories } & 110,000 \
\text { Prepaid expenses } & 30,000 \
\quad \text { Total current assets } & \$ 280,000
\end{array}
\end{array}$$ Total current liabilities are $120,000.The acid-test ratio for Norton is

Accepted Answer

A) 2.33 to 1. 
B) 2.08 to 1. 
C) 1.17 to 1. 
D) .54 to 1. 
A) 2.33 to 1. 
B) 2.08 to 1. 
C) 1.17 to 1. 
D) .54 to 1.

Question 4

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 that has resulted in material but rather stable warranty repair and replacement costs.Any liability for the warranty

Accepted Answer

A) should be reported as long-term. 
B) should be reported as current. 
C) should be reported as part current and part long-term. 
D) need not be disclosed. 
A) should be reported as long-term. 
B) should be reported as current. 
C) should be reported as part current and part long-term. 
D) need not be disclosed.

Question 5

Current liabilities are usually recorded and reported in financial statements at their full maturity value.

Accepted Answer

A) True 
 B)False

Question 6

A contingency can be accrued when

Accepted Answer

A) it is certain that funds are available to settle the disputed amount. 
B) an asset may have been impaired. 
C) the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability incurred. 
D) it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated. 
A) it is certain that funds are available to settle the disputed amount. 
B) an asset may have been impaired. 
C) the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability incurred. 
D) it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated.

Question 7

Accrued liabilities are disclosed in financial statements by

Accepted Answer

A) a footnote to the statements. 
B) showing the amount among the liabilities but not extending it to the liability total. 
C) an appropriation of retained earnings. 
D) appropriately classifying them as regular liabilities in the balance sheet. 
A) a footnote to the statements. 
B) showing the amount among the liabilities but not extending it to the liability total. 
C) an appropriation of retained earnings. 
D) appropriately classifying them as regular liabilities in the balance sheet.

Question 8

Vernon Co.is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant.Vernon's lawyer states that it is probable that Vernon will lose the suit and be found liable for a judgment costing Vernon anywhere from $1,200,000 to $6,000,000.However, the lawyer states that the most probable cost is $3,600,000.As a result of the above facts, Vernon should accrue

Accepted Answer

A) a loss contingency of $1,200,000 and disclose an additional contingency of up to $4,800,000. 
B) a loss contingency of $3,600,000 and disclose an additional contingency of up to $2,400,000. 
C) a loss contingency of $3,600,000 but not disclose any additional contingency. 
D) no loss contingency but disclose a contingency of $1,200,000 to $6,000,000. 
A) a loss contingency of $1,200,000 and disclose an additional contingency of up to $4,800,000. 
B) a loss contingency of $3,600,000 and disclose an additional contingency of up to $2,400,000. 
C) a loss contingency of $3,600,000 but not disclose any additional contingency. 
D) no loss contingency but disclose a contingency of $1,200,000 to $6,000,000.

Question 9

Stock dividends distributable should be classified on the

Accepted Answer

A) income statement as an expense. 
B) balance sheet as an asset. 
C) balance sheet as a liability. 
D) balance sheet as an item of stockholders' equity. 
A) income statement as an expense. 
B) balance sheet as an asset. 
C) balance sheet as a liability. 
D) balance sheet as an item of stockholders' equity.

Question 10

To record an asset retirement obligation (ARO), the cost associated with the ARO is

Accepted Answer

A) expensed. 
B) included in the carrying amount of the related long-lived asset. 
C) included in a separate account. 
D) none of these. 
A) expensed. 
B) included in the carrying amount of the related long-lived asset. 
C) included in a separate account. 
D) none of these.

Question 11

The effective interest on a 12-month, zero-interest-bearing note payable of $300,000, discounted at the bank at 10% is

Accepted Answer

A) 10.87%. 
B) 10%. 
C) 9.09%. 
D) 11.11%. 
A) 10.87%. 
B) 10%. 
C) 9.09%. 
D) 11.11%.

Question 12

Use the following information for questions 
Raney Co.is a retail store operating in a state with a 6% retail sales tax.The retailer may keep 2% of the sales tax collected.Raney Co.records the sales tax in the Sales account.The amount recorded in the Sales account during May was $148,400.
-The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is

Accepted Answer

A) $8,551. 
B) $8,232. 
C) $8,726. 
D) $9,249. 
A) $8,551. 
B) $8,232. 
C) $8,726. 
D) $9,249.

Question 13

Which of these is not included in an employer's payroll tax expense?

Accepted Answer

A) F.I.C.A.(social security) taxes 
B) Federal unemployment taxes 
C) State unemployment taxes 
D) Federal income taxes 
A) F.I.C.A.(social security) taxes 
B) Federal unemployment taxes 
C) State unemployment taxes 
D) Federal income taxes

Question 14

Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until they are remitted.

Accepted Answer

A) True 
 B)False

Question 15

Quirk Corp.'s payroll for the pay period ended October 31, 2007 is summarized as follows: $\begin{array}{lrrrr}
&& \text { Federal }&& \text {Amount of Wages Subject  }\
 \text {Department }& \text {  Total }& \text { Income Tax }&& \text {  to Payroll Taxes}\
 \text {Payroll }& \text {Wages }& \text { Withheld}& \text {F.I.C.A. }& \text {Unemployment }\\hline
\text { Factory } & \$ 75,000 & \$ 9,000 & \$ 70,000 & \$ 22,000 \
\text { Sales } & 22,000 & 3,000 & 16,000 & 2,000 \
\text { Office } & 18,000 & 2,000 & 8,000 & -\\hline &\$115,000&\$14,000&\$84,000&\$24,000
\end{array}$

$\begin{array}{l}
\text { Assume the following payroll tax rates: }\
\begin{array}{ll}
\text { F.I.C.A. for employer and employee } & 7 \% \text { each } \
\text { Unemployment } & 3 \%
\end{array}
\end{array}$ What amount should Quirk accrue as its share of payroll taxes in its October 31, 2007 balance sheet?

Accepted Answer

A) $21,300. 
B) $14,720. 
C) $13,880. 
D) $7,300. 
A) $21,300. 
B) $14,720. 
C) $13,880. 
D) $7,300.

Question 16

Moore Company estimates its annual warranty expense as 4% of annual net sales.The following data relate to the calendar year 2007: $\begin{array}{lr}
\text { Net sales } & \$ 1,500,000 \
\text { Warranty liability account } & \
\text { Balance, Dec. 31,2007 } & \$ 10,000&\text { debit before adjustment } \
\text { Balance, Dec. 31,2007 } & 50,000&\text { credit after adjustment }\
\end{array}$ Which one of the following entries was made to record the 2007 estimated warranty expense? $\begin{array} { l  }
 \text {a. Warranty Expense }&60,000\ \text {Retained Earnings (prior-period adjustment) }&&10,000\ \text { Warranty Liability}&&50,000\
 \text {b. Varranty Expense }&50,000\ \text { Retained Earnings (prior-period adjustment)}&10,000\ \text { Warranty Liability}&&60,000\
 \text { c. Warranty Expense}&40,000\ \text { Varranty Liability}&&40,000\
 \text { d. Varranty Expense}&60,000\ \text { Varranty Liability}&&60,000\
\end{array}$

Accepted Answer

The answer of Moore Company estimates its annual warranty expense...

Question 17

The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold.

Accepted Answer

A) True 
 B)False

Question 18

Use the following information for questions 
Kent Co.includes one coupon in each bag of dog food it sells.In return for eight coupons, customers receive a leash.The leashes cost Kent $2.00 each.Kent estimates that 40 percent of the coupons will be redeemed.Data for 2006 and 2007 are as follows: $\begin{array}{lrr}&2006&2007\
\text { Bags of dog food sold } & 500,000 & 600,000 \
\text { Leashes purchased } & 18,000 & 22,000 \
\text { Coupons redeemed } & 120,000 & 150,000
\end{array}$
-The estimated liability for premiums at December 31, 2006 is

Accepted Answer

A) $7,500. 
B) $10,000. 
C) $17,500. 
D) $20,000. 
A) $7,500. 
B) $10,000. 
C) $17,500. 
D) $20,000.

Question 19

Which of the following statements is false?

Accepted Answer

A) A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing. 
B) Cash dividends should be recorded as a liability when they are declared by the board of directors. 
C) Under the cash basis method, warranty costs are charged to expense as they are paid. 
D) FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority. 
A) A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing. 
B) Cash dividends should be recorded as a liability when they are declared by the board of directors. 
C) Under the cash basis method, warranty costs are charged to expense as they are paid. 
D) FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.

Question 20

Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment.

Accepted Answer

A) True 
 B)False

Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

Presented below is information available for Norton Company. Current Assets Cash \ 4,000 Short-term investments 75,000 Accounts receivable 61,000 Inventories 110,000 Prepaid expenses 30,000 Total current assets \ 280,000 Total current liabilities are $120,000.The acid-test ratio for Norton is

Current liabilities are usually recorded and reported in financial statements at their full maturity value.

A contingency can be accrued when

Accrued liabilities are disclosed in financial statements by

Stock dividends distributable should be classified on the

To record an asset retirement obligation (ARO), the cost associated with the ARO is

The effective interest on a 12-month, zero-interest-bearing note payable of $300,000, discounted at the bank at 10% is

Which of these is not included in an employer's payroll tax expense?

Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until they are remitted.

The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold.

Which of the following statements is false?

Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment.

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

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Exam 13: Current Liabilities and Contingencies

Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

Presented below is information available for Norton Company. Current Assets Cash \ 4,000 Short-term investments 75,000 Accounts receivable 61,000 Inventories 110,000 Prepaid expenses 30,000 Total current assets \ 280,000 Total current liabilities are $120,000.The acid-test ratio for Norton is

Current liabilities are usually recorded and reported in financial statements at their full maturity value.

A contingency can be accrued when

Accrued liabilities are disclosed in financial statements by

Stock dividends distributable should be classified on the

To record an asset retirement obligation (ARO), the cost associated with the ARO is

The effective interest on a 12-month, zero-interest-bearing note payable of $300,000, discounted at the bank at 10% is

Which of these is not included in an employer's payroll tax expense?

Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until they are remitted.

The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold.

Which of the following statements is false?

Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment.

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters