Question 1

Payments of pensions and other benefits to retired workers are recognized as expense in the period payment is made.

Accepted Answer

A) True 
 B)False

Question 2

A $1,000 bond that sells for 104 has a selling price of:

Accepted Answer

A)  $1,004. 
B)  $1,040. 
C)  $1,400. 
D)  $1,000. 
A)  $1,004. 
B)  $1,040. 
C)  $1,400. 
D)  $1,000.

Question 3

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

Accepted Answer

A)  The liability is known to exist. 
B)  The precise dollar amount cannot be determined until a later date. 
C)  The liability should not be recorded in the accounting records until future events have determined the exact amount. 
D)  The liability stems from past transactions. 
A)  The liability is known to exist. 
B)  The precise dollar amount cannot be determined until a later date. 
C)  The liability should not be recorded in the accounting records until future events have determined the exact amount. 
D)  The liability stems from past transactions.

Question 4

Operating and capital leases
Berkeley Corporation wants to expand operations and is considering various leasing arrangements for additional equipment. Berkeley's management has heard the terms capital lease and operating lease mentioned by the accounting department and wants clarification of these terms before signing any lease contracts.
(a) Briefly explain the difference between a capital lease and an operating lease from a lessee's (Berkeley's) point of view. Your answer should include the financial statement impact of each type of lease.
(b) How does a lessee determine whether a specific lease contract is an operating lease or a capital lease? Include at least two of the criteria specified by the FASB in your answer.
(c) Which of the above two types of leases is sometimes referred to as "off-balance-sheet financing?" Briefly explain.

Accepted Answer

(a) A capital lease transfers most of th

Question 5

Social security taxes have a cap on employees' salaries where the tax is ended.

Accepted Answer

A) True 
 B)False

Question 6

Unearned revenue:

Accepted Answer

A)  Appears on the income statement as income. 
B)  Appears on the income statement as a reduction to income. 
C)  Appears on the income statement as a liability. 
D)  Appears on the balance sheet as a liability. 
A)  Appears on the income statement as income. 
B)  Appears on the income statement as a reduction to income. 
C)  Appears on the income statement as a liability. 
D)  Appears on the balance sheet as a liability.

Question 7

On November 1, Metro Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. The November 30 adjusting entry will be: (assume 360 days in year)

Accepted Answer

A)  Debit Interest Expense $550 and credit Notes Payable $550. 
B)  Debit Interest Expense $550 and credit Interest Payable $550. 
C)  Debit Discount on Notes Payable $1,100 and credit Interest Payable $1,100. 
D)  Debit Interest Expense $550 and credit Cash $550. 
A)  Debit Interest Expense $550 and credit Notes Payable $550. 
B)  Debit Interest Expense $550 and credit Interest Payable $550. 
C)  Debit Discount on Notes Payable $1,100 and credit Interest Payable $1,100. 
D)  Debit Interest Expense $550 and credit Cash $550.

Question 8

A liability for deferred income taxes represents:

Accepted Answer

A)  Income taxes on earnings already reported in the income statement, but that will be taxed in future periods. 
B)  Income taxes already paid on earnings which have not yet been reported in the company's income statement. 
C)  Income tax obligations being disputed with the Internal Revenue Service. 
D)  Income taxes levied in prior years which are now past due. 
A)  Income taxes on earnings already reported in the income statement, but that will be taxed in future periods. 
B)  Income taxes already paid on earnings which have not yet been reported in the company's income statement. 
C)  Income tax obligations being disputed with the Internal Revenue Service. 
D)  Income taxes levied in prior years which are now past due.

Question 9

The journal entry made by Austin Corporation to record the first semiannual interest payment on the bonds includes:

Accepted Answer

A)  A debit to Bond Interest Expense of $300,000. 
B)  A debit to Bond Interest Payable of $100,000. 
C)  A debit to Bond Interest Expense of $100,000. 
D)  A debit to Bond interest Expense of $200,000. 
A)  A debit to Bond Interest Expense of $300,000. 
B)  A debit to Bond Interest Payable of $100,000. 
C)  A debit to Bond Interest Expense of $100,000. 
D)  A debit to Bond interest Expense of $200,000.

Question 10

Which of the following is characteristic of liabilities, rather than of equity? (More than one answer may be correct.)

Accepted Answer

A)  The obligation matures. 
B)  Interest paid to the provider of the capital is deductible in the determination of taxable income. 
C)  The capital providers' claims are residual in the event of liquidation of the business. 
D)  The capital providers normally have the right to exercise control over business operations. 
A)  The obligation matures. 
B)  Interest paid to the provider of the capital is deductible in the determination of taxable income. 
C)  The capital providers' claims are residual in the event of liquidation of the business. 
D)  The capital providers normally have the right to exercise control over business operations.

Question 11

The withholding of taxes from an employee's pay is a liability to the company.

Accepted Answer

A) True 
 B)False

Question 12

The portion of the second monthly payment made on January 31, 2010, which represents interest expense is: $________

Accepted Answer

$3,999 [$3

Question 13

Off balance sheet financing may involve either:

Accepted Answer

A)  An operating lease. 
B)  A special purpose entity. 
C)  Both an operating lease and a special purpose entity. 
D)  Neither an operating lease nor a special purpose entity. 
A)  An operating lease. 
B)  A special purpose entity. 
C)  Both an operating lease and a special purpose entity. 
D)  Neither an operating lease nor a special purpose entity.

Question 14

Which of the following represents the second largest payroll related expense incurred by Girard?

Accepted Answer

A)  Group health insurance premiums. 
B)  Income taxes expense. 
C)  The employer's share of social security taxes and Medicare taxes. 
D)  Wages and salaries expense. 
A)  Group health insurance premiums. 
B)  Income taxes expense. 
C)  The employer's share of social security taxes and Medicare taxes. 
D)  Wages and salaries expense.

Question 15

The total liabilities related to this note reported in Central Food's December 31, 2010, balance sheet is:

Accepted Answer

A)  $140,000. 
B)  $148,400. 
C)  $140,700. 
D)  $141,400. 
A)  $140,000. 
B)  $148,400. 
C)  $140,700. 
D)  $141,400.

Question 16

Premium on bonds payable:

Accepted Answer

A)  Is an asset account. 
B)  Increases the carrying value of the liability. 
C)  Is a contra-asset account. 
D)  Is disclosed by a footnote. 
A)  Is an asset account. 
B)  Increases the carrying value of the liability. 
C)  Is a contra-asset account. 
D)  Is disclosed by a footnote.

Question 17

The amortization of a bond discount:

Accepted Answer

A)  Decreases the carrying value of a bond and increases interest expense. 
B)  Decreases the carrying value of a bond and decreases interest expense. 
C)  Increases the carrying value of a bond and increases interest expense. 
D)  Increases the carrying value of a bond and decreases interest expense. 
A)  Decreases the carrying value of a bond and increases interest expense. 
B)  Decreases the carrying value of a bond and decreases interest expense. 
C)  Increases the carrying value of a bond and increases interest expense. 
D)  Increases the carrying value of a bond and decreases interest expense.

Question 18

Which of the following situations require recording a liability in 2011? (More than one answer may be correct.)

Accepted Answer

A)  In 2011, a company manufactures and sells stereo equipment which carries a three-year warranty. 
B)  In 2011, a theater group receives payments in advance from season ticket holders for productions to be performed in 2012. 
C)  A company is a defendant in a legal action. At the end of 2011, the company's attorney feels it is possible the company will lose, and that the amount of the loss might be material. 
D)  During 2011, a midwest agricultural co-operative is concerned about the risk of loss if inclement weather destroys the crops. 
A)  In 2011, a company manufactures and sells stereo equipment which carries a three-year warranty. 
B)  In 2011, a theater group receives payments in advance from season ticket holders for productions to be performed in 2012. 
C)  A company is a defendant in a legal action. At the end of 2011, the company's attorney feels it is possible the company will lose, and that the amount of the loss might be material. 
D)  During 2011, a midwest agricultural co-operative is concerned about the risk of loss if inclement weather destroys the crops.

Question 19

Which of the following is not true about postretirement benefits?

Accepted Answer

A)  Postretirement costs should be recognized as expense as the workers earn the right to receive the benefits. 
B)  Most corporations have fully funded their postretirement benefits. 
C)  Unfunded postretirement costs are a non-cash expense. 
D)  A corporation's liability for postretirement benefits is equal to the present value of estimated future payments. 
A)  Postretirement costs should be recognized as expense as the workers earn the right to receive the benefits. 
B)  Most corporations have fully funded their postretirement benefits. 
C)  Unfunded postretirement costs are a non-cash expense. 
D)  A corporation's liability for postretirement benefits is equal to the present value of estimated future payments.

Question 20

Which of the following is an example of a loss contingency that should be disclosed in a footnote to a company's financial statements?

Accepted Answer

A)  The president of the company has threatened to resign if the board of directors does not vote to increase executive salaries. 
B)  A lawsuit has been brought against the company, but the company hopes to prevail in the suit and thereby avoid any liability. 
C)  The allowance for uncollectible accounts receivable is estimated at $200,000. 
D)  The company owns special-purpose machinery which, if sold, would probably bring a price less than its current book value. 
A)  The president of the company has threatened to resign if the board of directors does not vote to increase executive salaries. 
B)  A lawsuit has been brought against the company, but the company hopes to prevail in the suit and thereby avoid any liability. 
C)  The allowance for uncollectible accounts receivable is estimated at $200,000. 
D)  The company owns special-purpose machinery which, if sold, would probably bring a price less than its current book value.

Exam 10: Liabilities

Payments of pensions and other benefits to retired workers are recognized as expense in the period payment is made.

A $1,000 bond that sells for 104 has a selling price of:

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

Social security taxes have a cap on employees' salaries where the tax is ended.

Unearned revenue:

On November 1, Metro Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. The November 30 adjusting entry will be: (assume 360 days in year)

A liability for deferred income taxes represents:

The journal entry made by Austin Corporation to record the first semiannual interest payment on the bonds includes:

Which of the following is characteristic of liabilities, rather than of equity? (More than one answer may be correct.)

The withholding of taxes from an employee's pay is a liability to the company.

The portion of the second monthly payment made on January 31, 2010, which represents interest expense is: $________

Off balance sheet financing may involve either:

Which of the following represents the second largest payroll related expense incurred by Girard?

The total liabilities related to this note reported in Central Food's December 31, 2010, balance sheet is:

Premium on bonds payable:

The amortization of a bond discount:

Which of the following situations require recording a liability in 2011? (More than one answer may be correct.)

Which of the following is not true about postretirement benefits?

Which of the following is an example of a loss contingency that should be disclosed in a footnote to a company's financial statements?

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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