302 Ch 13 Test Bank - Test bank PDF

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CHAPTER 13 CURRENT LIABILITIES AND CONTINGENCIES IFRS questions are available at the end of this chapter.

TRUE-FALSE—Conceptual Answer

No.

F F T T F T T F T F T F T F T T F F F T

Description 1. Zero-interest-bearing note payable. 2. Dividends in arrears. 3. Examples of unearned revenues. 4. Reporting discount on Notes Payable. 5. Currently maturing long-term debt. 6. Excluding short-term debt refinanced. 7. Accounting for sales tax collected. 8. Accounting for sick pay. 9. Social security taxes as liabilities. 10. Definition of accumulated rights. 11. Recognizing compensated absences expense. 12. Accruing estimated loss contingency. 13. Disclosing gain contingencies. 14. Service-type warranty profit. 15. Fair value of asset retirement obligation. 16. Reporting a litigation liability. 17. Assurance-type warranty. 18. Acid-test ratio components. 19. Effect on current ratio. 20. Reporting current liabilities.

MULTIPLE CHOICE—Conceptual Answer d d a a b d c d c d c d c d

No.

Description 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.

Definition of a liability. Nature of current liabilities. Recording of accounts payable. Classification of notes payable. Classification of discounts on notes payable. Identify current liability. Bonds reported as current liability. Identify item which is not a current liability. Dividends reported as current liability. Classification of stock dividends distributable. Identify item which is not a current liability. Identify current liability. Characteristic of current liability. Definition of a liability.

13 - 2 Test Bank for Intermediate Accounting, Sixteenth Edition b a

35. 36.

Importance of liability section of balance sheet. Current liabilities and operating cycle.

13 - 3bt to a Current Liabilities and Contingencies

MULTIPLE CHOICE—Conceptual (cont.) Answer a c d d a b c d d d a d b d d d c d d d b c d b a d d d b a c d b c c c a b d d c d a

No.

Description 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. S 48. S 49. P 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. P 74. S 75. S 76. 77. 78. 79.

Present value and concept of a liability. Zero-interest-bearing notes payable. Callable debt reporting. Condition to exclude short-term obligation. Ability to consummate refinancing of short-term debt. Disclosure of preferred dividends not declared. Example of unearned revenue. Short-term obligations expected to be refinanced. Ability to consummate refinancing of short-term obligations. Determine what is a liability. Classification of sales taxes. Disclosure for short-term debt refinanced. Vested rights vs. accumulated rights. Deductions in computing net pay. Employer's payroll tax expense. Accrual of a liability for compensated absences. Accrual of a liability for compensated absences. Accrual of a liability for compensated absences. Compensated absences. Requirements for compensated absences accrual. Condition for sick pay accrual. Payroll tax deduction. Definition of a contingency. Recording contingent liability. Example of contingent liability. Recording contingent liability. Disclosure of a gain contingency. Disclosure of contingencies. Accrual of loss contingency. Litigation and loss contingencies. Accrual of a contingent liability. Source of a contingent liability. Asset retirement obligation. Asset retirement obligation. Classification of warranty liability. Liability accrual due to governmental action. Accrual of product warranties. Determining loss amount to report. Reporting lawsuit loss and liability. Accounting for warranty costs. Assurance-type warranty. Service-type warranty. Characteristic of assurance-type warranty.

13 - 4 Test Bank for Intermediate Accounting, Sixteenth Edition b a b d c

80. 81. 82. 83. 84.

Accounting for discount coupon. Condition to recognize asset retirement obligation. Recording liability for pending litigation. Computation of acid-test ratio. Current ratio information.

13 - 5bt to a Current Liabilities and Contingencies

MULTIPLE CHOICE—Conceptual (cont.) Answer

No.

S

c a d d d P S

Description 85. 86. 87. 88. 89.

P

Presentation of current liabilities. Current ratio formula. Disclosure of accrued liabilities. Acid-test ratio elements. Items included in current ratio and acid-test ratio.

These questions also appear in the Problem-Solving Survival Guide. These questions also appear in the Study Guide.

MULTIPLE CHOICE—Computational Answer b d a d b c b d b d b b c a a d d c c c d a balances. d a b d d c b

No.

Description 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111.

Adjusting entry involving discount on short-term note payable. Calculate effective interest on discounted note. Calculate cost of inventory purchase. Calculate interest expense. Calculate the amount of note payable and interest expense. Reporting 5-year note in financial statements. Calculate unearned revenue. Calculate amount of sales tax payable. Determine amount of short-term debt to be reported. Determine amount of short-term debt to be reported. Calculate sales taxes for the month. Calculate amount of sales taxes payable. Determine amount of sales subject to sales tax. Short-term debt to be excluded. Short-term debt to be excluded. Federal/state unemployment taxes. Federal/state unemployment taxes. Vacation liability accrual. Vacation liability accrual. Calculate payroll tax expense. Calculation of vacation expense to be recognized. Calculation of accrued liability to be recognized for compensated

112. 113. 114. 115. 116. 117. 118.

Effect of payroll taxes on assets / liabilities. Record vacation liability accrual. Record loss contingency amount. Record asset retirement obligation. Calculate extended warranty contract profit. Calculate warranty liability. Calculate rebate expense and liability.

13 - 6 Test Bank for Intermediate Accounting, Sixteenth Edition d a b d d

119. 120. 121. 122. 123.

Asset retirement obligation. Calculate insurance expense and loss. Calculate rebate expense and liability. Asset retirement obligation. Calculate warranty liability.

13 - 7bt to a Current Liabilities and Contingencies

MULTIPLE CHOICE—Computational (cont.) Answer

No.

b d b d d d b d a d b c

Description 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135.

Calculate liability for premiums. Calculate warranty liability. Calculate liability for premiums. Determine premiums expense for the year. Calculate estimated liability for premiums. Calculate estimated liability for premiums. Determine amount to accrue as a loss contingency. Accrue warranty expense for the year. Calculate warranty liability. Determine amount to accrue as a gain contingency. Calculate liability for unredeemed coupons. Calculate the quick (acid-test) ratio.

MULTIPLE CHOICE—CPA Adapted Answer a b c d a d b c d d c

No.

Description 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146.

Knowledge of accounts payable. Determine current and long-term portions of debt. Determine accrued interest payable. Determine amount of short-term debt to be reported. Calculate accrued salaries payable. Accrual of payroll taxes. Calculate unearned service contract revenue. Determine liability from unredeemed trading stamps. Determine range of loss accrual. Calculate the estimated warranty liability. Disclosure of a casualty claim.

BRIEF EXERCISES Item BE13-147 BE13-148

Description Notes payable. Payroll entries.

EXERCISES Item E13-149 E13-150 E13-151 E13-152

Description Compensated absences. Contingent liabilities. Premiums. Premiums.

PROBLEMS

13 - 8 Test Bank for Intermediate Accounting, Sixteenth Edition

Item P13-153 P13-154 P13-155 P13-156

Description Accounts and notes payable. Refinancing of short-term debt. Premiums. Warranties.

13 - 9bt to a Current Liabilities and Contingencies

CHAPTER LEARNING OBJECTIVES

5.

1.

Describe the nature, valuation, and reporting of current liabilities.

2.

Explain the classification issues of short-term debt expected to be refinanced.

3.

Explain the accounting for gain and loss contingencies.

4.

Indicate how to present and analyze liabilities and contingencies.

Compare the accounting procedures for current liabilities and contingencies under GAAP and IFRS.

13 - 10 Test Bank for Intermediate Accounting, Sixteenth Edition

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Item

LO

BT

Item

LO

BT

Item

LO

BT

Item

LO

BT

3 3 3 3

K K K K

1 1 1 1 2 2 1 1 1 1 1 1 1 1 1 3 3 3 3 3 3 3 3 3 3 3

AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP

152.

3

AP

156.

3

AP

Item

LO

BT

17. 18. 19. 20.

3 4 4 4

K C C K

125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146.

3 3 3 3 3 3 3 3 3 3 4 1 1 1 2 1 1 3 3 3 3 3

AP AP AP AP AP AP AP AP AP AP AP C AP AP AP AP AP AP AP C AP AP

TRUE-FALSE STATEMENTS 1. 2. 3. 4.

1 1 1 1

K K K K

5. 6. 7. 8.

1 1 2 1

K K K K

9. 10. 11. 12.

1 1 1 3

K K K K

13. 14. 15. 16.

MULTIPLE CHOICE QUESTIONS 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 1 1 2 2 1

K C K C K C C C C K C C K K C C C K K K C AP C C C C

47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72.

1 2 1 1 1 1 1 1 1 1 1 1 3 3 3 3 3 3 3 3 3 3 3 3 3 3

K K C K K K K K K K K K K K C K K K K AP K K K K C AP

73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98.

3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 1 1 1 1 1 1 1 1 1

C C AP K K K K AP K K K K K K K K K AP C AP AP AP AP AP AP AP

99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124.

BRIEF EXERCISES 147.

1

AP

148.

1

AP

EXERCISES 149.

1

AP

150.

3

C

151.

3

AP

PROBLEMS 153.

1

AP

154.

2

AP

155.

3 ,4

AP

13 - 11bt to a Current Liabilities and Contingencies

TRUE-FALSE—Conceptual 1. A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

2. Dividends in arrears on cumulative preferred stock should be recorded as a current liability. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

3.

Magazine subscriptions and airline ticket sales both result in unearned revenues.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

4. sheet.

Discount on Notes Payable is a contra account to Notes Payable on the balance

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

5. All long-term debt maturing within the next year must be classified as a current liability on the balance sheet. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

6. A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis and demonstrates the ability to consummate the refinancing. Ans: T, LO: 2, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

7. Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale. Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

8.

A company must accrue a liability for sick pay that accumulates but does not vest.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

9. 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. Ans: T, LO: 1, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

10. Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment. Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

13 - 12 Test Bank for Intermediate Accounting, Sixteenth Edition 11. Companies should recognize the expense and related liability for compensated absences in the year earned by employees. Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

13 - 13bt to a Current Liabilities and Contingencies 12. Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is reasonably possible that a liability has been incurred. Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

13. A company discloses gain contingencies in the notes only when a high probability exists for realizing them. Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

14. The revenue from a service-type warranty that covers several years should all be recognized in the period the warranty is sold. Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

15. The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability. Ans: T, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

16. The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements. Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

17. Under an assurance-type warranty, companies charge warranty costs only to the period in which they comply with the warranty. Ans: F, LO: 3, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

18. Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio. Ans: F, LO: 4, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

19. Paying a current liability with cash will always reduce the current ratio. Ans: F, LO: 4, Bloom: C, Difficulty: Difficult, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None

20. Current liabilities are usually recorded and reported in financial statements at their full maturity value. Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

True False Answers—Conceptual Item 1. 2. 3.

Ans. F F T

Item 6. 7. 8.

Ans. T T F

Item 11. 12. 13.

Ans. T F T

Item 16. 17. 18.

Ans. T F F

13 - 14 Test Bank for Intermediate Accounting, Sixteenth Edition 4. 5.

T F

9. 10.

T F

14. 15.

F T

19. 20.

F T

MULTIPLE CHOICE—Conceptual 21. Liabilities are a. any accounts having credit balances after closing entries are made. b. deferred credits that are recognized and measured in conformity with generally accepted accounting principles. c. obligations to transfer ownership shares to other entities in the future. d. obligations arising from past transactions and payable in assets or services in the future. Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

22. Which of the following is a current liability? a. A long-term debt maturing currently, which is to be paid with cash in a sinking fund b. A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue c. A long-term debt maturing currently, which is to be converted into common stock d. None of these answers are correct. Ans: D, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None

23. Which of the following is true about accounts payable? 1. Accounts payable are also called trade accounts payable. 2. When accounts payable are recorded at the net amount, a Purchase Discounts account will be used. 3. When accounts payable are recorded at the gross amount, a Purchase Discounts Lost account will be used. a. b. c. d.

1 2 3 Both 2 and 3 are true.

Ans: A, LO: 1, Bloom: K, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None

24. Among the short-term obligations of Larsen Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Dennison National Bank. These are 90-day notes, renewable for another 90-day period. These notes should be classified on the balance sheet of Larsen Company as a. current liabilities. b. deferred charges. c. long-term liabilities. d. int...