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Exam 9: Accounting for Current Liabilities and Payroll

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Question 61

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How is the carrying value of a discount note payable computed?

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The carrying value of the liab...

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Question 62

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Which of the following items would typically appear in the current liabilities section of a classified balance sheet?

A) Interest payable
B) Salaries payable
C) Accounts payable
D) All of these answer choices are correct.

E) A) and B)
F) A) and C)

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Question 63

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Indicate whether each of the following statements is true or false. a)The amount of warranty expense is an estimate that is based on the amount of merchandise sold.b)A warranty obligation only occurs if a buyer purchases an extended warranty.c)When a warranty claim is settled, the seller's equity decreases.d)When a warranty claim is settled, the seller's liabilities increase.e)Product warranties usually represent legal liabilities that must be reported in the financial statements.

Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA.You do not need to enter amounts.Increase = I Decrease = D Not Affected = NASierra Mining is the defendant in a $3 million lawsuit involving damage to the environment. Sierra's attorneys have advised the company that the outcome of the lawsuit is reasonably possible, but not probable.

What is the purpose of the Federal W-4 form?

All lawsuits in which a company has been named a defendant should be either disclosed in the company's notes to the financial statements, or recognized as a liability on its balance sheet.

Which of the following is a claims exchange transaction?

Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA.You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAGilliam Company repaid a note payable on September 30, Year 1. The 8-month note had been issued on February 1, Year 1. The $20,800 cash payment included a $20,000 repayment of principal and a $800 payment for interest that had not been previously accrued.

At the end of Year 1, Durango Company recorded an adjustment for its obligation under product warranties. During Year 2, it paid cash to settle warranty claims from its customers. The Year 2 warranty settlements are asset use transactions.

Yang Company paid $360 cash to settle its sales tax liability. This event will

If a company is in a region in which floods or earthquakes are deemed to be possible, the company should record a contingent liability.

Payment of interest on a note payable is considered a financing activity on the statement of cash flows.

What is liquidity? What is the primary ratio used to evaluate a company's liquidity? How is this ratio calculated?

How does a classified balance sheet enhance the usefulness of accounting information?

Jack Grimes is hired by First Associates at a salary of $4,000 per month. He is shocked when his first monthly paycheck is only $3,150. Explain to Jack some of the factors that may have contributed to the difference.

Contingent liabilities are only recognized if they arise from past events.

When calculating interest expense on a 6-month note, multiply the principal by the interest rate, and then multiply by (6 ÷ 12).

On October 1, Year 1, Hartford Company issued a $20,000 face value discount note. The note had a 6% discount rate and a one-year term to maturity. Which of the following would be included in the adjustment, dated December 31, Year 1, to recognize interest accrued since the issuance date?

Fisher Company has been named as the defendant in a class action lawsuit. In addition, the company is located in a region that normally has an active hurricane season. Indicate whether each of the following statements is true or false. a)If the likelihood of a future obligation is probable and can be reasonably estimated, a liability should be recognized on the balance sheet.b)If the outcome is probable, but cannot be reasonably estimated, the contingency should be disclosed in the notes to the financial statements.c)If the outcome is reasonably possible but not likely, the contingency should be disclosed in the notes to the financial statements.d)Every lawsuit, regardless how frivolous, should be disclosed in the notes to the financial statements.e)Since it is located in a region for which an active hurricane season has been predicted, the company must disclose the contingent liability, which is the potential for catastrophic loss, in the notes to their financial statements.