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Exam 9: Accounting for Current Liabilities and Payroll

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Question 31

Multiple Choice

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[The following information applies to the questions displayed below.] In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer. -Which of the following reflects the effect of the year-end adjustment to record estimated warranty expense?

A) Option A
B) Option B
C) Option C
D) Option D

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

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Question 32

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Indicate whether each of the following statements is true or false.

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Responses

If a business does not plan to use any of its current assets to repay a debt,then that debt is listed as long term even if it is due within a year.

False

Liquidity is the ability of a business to repay liabilities in the long run.

True

Operating cycles for most businesses are less than one year.

The current ratio is computed by dividing current assets by net income.

The current ratio is a useful measure of a company's liquidity.

Premises

If a business does not plan to use any of its current assets to repay a debt,then that debt is listed as long term even if it is due within a year.

Liquidity is the ability of a business to repay liabilities in the long run.

Operating cycles for most businesses are less than one year.

The current ratio is computed by dividing current assets by net income.

The current ratio is a useful measure of a company's liquidity.

Responses

False

True

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Correct Answer

Premises

Responses

If a business does not plan to use any of its current assets to repay a debt,then that debt is listed as long term even if it is due within a year.

Liquidity is the ability of a business to repay liabilities in the long run.

Operating cycles for most businesses are less than one year.

The current ratio is computed by dividing current assets by net income.

The current ratio is a useful measure of a company's liquidity.

Premises

If a business does not plan to use any of its current assets to repay a debt,then that debt is listed as long term even if it is due within a year.

Liquidity is the ability of a business to repay liabilities in the long run.

Operating cycles for most businesses are less than one year.

The current ratio is computed by dividing current assets by net income.

The current ratio is a useful measure of a company's liquidity.

Responses

Question 33

Multiple Choice

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Which of the following items would most likely not be classified as a current asset?

Monthly remittance of sales tax due has no effect on the income statement,but reduces cash flow from operating activities.

The current ratio is a measure of a company's liquidity.

[The following information applies to the questions displayed below.] In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer. -Which of the following summarizes the effect of the recognition of the warranty obligation to the customer who purchased this merchandise on the elements of the Year 1 financial statements?

Franklin Company issued a $40,000 note to the Mercantile Bank on August 1,Year 1.The note carried a one-year term and a 12% rate of interest.How will the adjustment,dated December 31,Year 1,to record accrued interest expense impact the elements of the financial statements?

How is the current ratio calculated?

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.

What is (are) the term(s) used to describe the party who borrows money as evidenced by a note payable?

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

Burger Barn has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's burgers.Burger Barn's attorneys have advised them that the likelihood of a future obligation from the suit is remote.What should Burger Barn do as a result of the information that is available?

The issuer of a note payable is also known as the maker.

[The following information applies to the questions displayed below.] Riley Company borrowed $36,000 on April 1, Year 1 from Titan Bank. The note issued by Riley carried a one-year term and a 7% annual interest rate. Riley earned cash revenues of $1,700 during Year 1 and $1,400 during Year 2. Assume no other transactions. -Based on this information alone,what are the amounts of total liabilities that would appear on Riley's December 31 balance sheets for Year 1 and Year 2,respectively?

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

Independent contractors must be individuals who are employed by another company.

A classified balance sheet is necessary for calculating a company's current ratio.

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

During Year 1,its first year of operations,Benitez Co.reported sales of $800,000.At the end of Year 1,the company estimated its warranty obligation at 3% of sales.During Year 1,the company paid $13,000 cash to settle warranty claims.Which of the following statements is true?

Sales tax is reported as revenue when it is collected,and reported as an expense when it is paid.