Question 1

Accounting for costs of incentive programs for customer purchases:

Accepted Answer

A) Requires probability estimation. 
B) Follows the matching principle. 
C) Is a loss contingency situation. 
D) All of these answer choices are correct.

Question 2

What is the effective interest rate (rounded)on a 3-month,noninterest-bearing note with a stated rate of 12% and a maturity value of $200,000?

Accepted Answer

A) 12.4%. 
B) 13.6 %. 
C) 11.5%. 
D) 3.1%.

Question 3

Which of the following is a contingency that would most likely require accrual?

Accepted Answer

A) Potential claims on extended warranties. 
B) Customer premium offers. 
C) Potential liability on a product where none have yet been sold. 
D) Sales tax payable.

Question 4

Indicate (by letter)the way each of the items listed below should be reported in a balance sheet at December 31,2016.

Accepted Answer

The answer of Indicate (by letter)the way each of the...

Question 5

Texon Oil is being sued for price fixing and environmental damage.The litigation started this year and is expected to last five years.There is no doubt that Texon is guilty,but the settlement cost will be between $3 billion and $22 billion.Briefly explain how Texon would address this in its current year financial statements.

Accepted Answer

The answer of Texon Oil is being sued for price...

Question 6

All of the following but one represent collections for third parties.Which one of the following is not a collection for a third party?

Accepted Answer

A) Sales tax payable. 
B) Customer deposits. 
C) Employee insurance deductions. 
D) Social security taxes deductions.

Question 7

Red Co.can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country.If expropriation is probable,a loss contingency should be:

Accepted Answer

A) Disclosed but not accrued as a liability. 
B) Disclosed and accrued as a liability. 
C) Accrued as liability but not disclosed. 
D) Neither accrued as a liability nor disclosed.

Question 8

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:

Accepted Answer

A) Matching. 
B) Consistency. 
C) Materiality. 
D) Conservatism.

Question 9

In May of 2016,Raymond Financial Services became involved in a penalty dispute with the EPA.At December 31,2016,the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable.The additional penalties were estimated to be $770,000 but could be as high as $1,170,000.After the year-end,but before the 2016 financial statements were issued,Raymond accepted an EPA settlement offer of $900,000.Raymond should have reported an accrued liability on its December 31,2016,balance sheet of:

Accepted Answer

A) $ 770,000. 
B) $ 900,000. 
C) $ 970,000. 
D) $1,170,000.

Question 10

Gain contingencies usually are recognized in a company's income statement when:

Accepted Answer

A) Realized. 
B) The amount can be reasonably estimated. 
C) The gain is reasonably possible and the amount can be reasonable estimated. 
D) The gain is probable and the amount can be reasonably estimated.

Question 11

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

Accepted Answer

The answer of Listed below are five terms followed by...

Question 12

Oklahoma Oil Corp.paid interest of $785,000 during 2016,and the interest payable account decreased by $125,000.What was interest expense for the year?

Accepted Answer

A) $910,000. 
B) $660,000. 
C) $555,000. 
D) $785,000.

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

On October 31,2016,Simeon Builders borrowed $16 million cash and issued a 7-month,noninterest-bearing note.The loan was made by Star Finance Co.The stated discount rate is 8%.Sky's effective interest rate on this loan is:

Accepted Answer

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%.

Question 15

Which of the following may create employer liabilities in connection with their payrolls?

Accepted Answer

A) Employee withholding taxes. 
B) Employee voluntary deductions. 
C) Employee fringe benefits. 
D) All of these answer choices are correct.

Question 16

Blue Co.can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country.If the likelihood of expropriation is remote,a loss contingency should be:

Accepted Answer

A) Disclosed but not accrued as a liability. 
B) Disclosed and accrued as a liability. 
C) Accrued as liability but not disclosed. 
D) Neither accrued as a liability nor disclosed.

Question 17

A customer advance produces a liability that is satisfied when the product or service is provided.

Accepted Answer

A) True 
 B)False

Question 18

A contingent loss should be reported in a disclosure note to the financial statements rather than being accrued if:

Accepted Answer

A) The likelihood of a loss is remote. 
B) The incurrence of a loss is reasonably possible. 
C) The incurrence of a loss is more likely than not. 
D) The likelihood of a loss is probable.

Question 19

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

Accepted Answer

The answer of Listed below are five terms followed by...

Question 20

The rate of interest that actually is incurred on a note payable is called the:

Accepted Answer

A) Face rate. 
B) Contract rate. 
C) Effective rate. 
D) Stated rate.

Exam 13: Current Liabilities and Contingencies

Accounting for costs of incentive programs for customer purchases:

What is the effective interest rate (rounded) on a 3-month,noninterest-bearing note with a stated rate of 12% and a maturity value of $200,000?

Which of the following is a contingency that would most likely require accrual?

Indicate (by letter)the way each of the items listed below should be reported in a balance sheet at December 31,2016.

All of the following but one represent collections for third parties.Which one of the following is not a collection for a third party?

Red Co.can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country.If expropriation is probable,a loss contingency should be:

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:

Gain contingencies usually are recognized in a company's income statement when:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

Oklahoma Oil Corp.paid interest of $785,000 during 2016,and the interest payable account decreased by $125,000.What was interest expense for the year?

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.

On October 31,2016,Simeon Builders borrowed $16 million cash and issued a 7-month,noninterest-bearing note.The loan was made by Star Finance Co.The stated discount rate is 8%.Sky's effective interest rate on this loan is:

Which of the following may create employer liabilities in connection with their payrolls?

Blue Co.can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country.If the likelihood of expropriation is remote,a loss contingency should be:

A customer advance produces a liability that is satisfied when the product or service is provided.

A contingent loss should be reported in a disclosure note to the financial statements rather than being accrued if:

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

The rate of interest that actually is incurred on a note payable is called the: