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Exam 9: Current Liabilities and Contingent Obligations

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Question 31

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In considering contingencies, IFRS and GAAP define the term "probable" as

A) IFRS - likely; GAAP - likely
B) IFRS - likely; GAAP - more likely than not
C) IFRS - more likely than not; GAAP - likely
D) IFRS - more likely than not; GAAP - more likely than not

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Question 32

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The uncertainty associated with a loss contingency can vary widely. GAAP requires companies to categorize the likelihood of occurrences of the loss into three categories. Name those three categories and list three common examples of loss contingencies.

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The three categories are: Prob...

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Question 33

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Conceptually, how should current liabilities be valued? In practice, how are current liabilities valued? What justification is there for allowing current practice not to follow the conceptual guidance

Mason Company makes sales on which an 6% sales tax is assessed. The following summary transactions were made during 2015: a. Cash sales of $900,000, excluding sales taxes. b. Credit sales of $2,150,000, including sales taxes. c. Sales taxes of $213,500 were paid to the state. Required: Prepare journal entries to record the preceding transactions. Round to the nearest whole number.)

The Captain Company began operations on January 1, 2016. In 2016, Captain's sales were $400,000, and payments arising out of warranty obligations were $18,000. Required: a. Assume that this is an assurance-type warranty and $0.10 of warranty cost will be incurred for each $1.00 of sales. Prepare the 2016 journal entryies) for warranty expense and payments using the modified cash basis. b. Assume that this is an assurance-type warranty and $0.10 of warranty cost will be incurred for each $1.00 of sales. Prepare the 2016 journal entryies) for warranty expense and payments using the GAAP approach which requires that warranty expense and the related liability) be accrued in the period of the sale. c. Assume that this is a service-type warranty and $0.10 of each $1.00 of sales represents warranty revenue. Prepare the 2016 journal entries related to product sales and warranty activities..

Exhibit 9-1 The Happy Cereal Company includes a premium in each box of its cereal. For four premiums plus $2.00, customers are entitled to a plastic wiggle worm that costs Happy $4.50 each. Happy expects 60% of the premiums to be redeemed. In 2016, Happy sold 500,000 boxes of cereal and distributed 25,000 wiggle worms. -Refer to Exhibit 9-1. What is Happy's estimated liability for unredeemed premiums on December 31, 2016?

Gain contingencies should

Feller, Inc. sells a certain machine for $35,000. Included in this price is an implied service-type warranty of $950. Fifty machines were sold in 2016. Warranty claims incurred during 2016 amounted to $21,000. Required: Prepare all 2016 journal entries required by the information above.

On July 1, 2016 Trolley & Train World borrowed money from their bank First Friendly National Bank by issuing a $25,000, 90 day, non-interest bearing note. The note was discounted to 14%. Compute the following: 1) How much money did Trolley and Train World receive? 2) What was the total amount of interest paid? 3) What is the effective 90 day interest rate on this note round to 4 decimals)? 4) What is the approximate annual effective interest rate on this note payable?

Short-term debt expected to be refinanced

List five examples of liabilities whose amounts are determined based upon contractual amounts.

Liabilities are defined as probable future sacrifices of economic benefits arising from present obligations. Explain what the FASB means by probable and by obligations.

Which of the following statements is true?

Discuss how current GAAP requirements concerning accounting for compensated absences vary for vacation pay and sick pay.

Analysts use the quick ratio also known as the acid test ratio) and the current ratio. The use of both ratios has become common because

Exhibit 9-5 Backhoe Company estimates its annual warranty costs to be 4% of annual net sales. Backhoe uses the GAAP approach of accruing warranty expense and the related liability) in the year of the sale. The following information relates to the calendar year 2015: -Refer to Exhibit 9-5. The amount of expenditures for warranty costs for 2015 is

Which of the following statements is true?

On March 1, 2016 Giant Jumbo Clown Costumes borrowed money from their bank Second Friendly National Bank by issuing a $125,000, 180 day, non-interest bearing note. The note was discounted to 13.5%. Compute the following: 1) How much money did Giant Jumbo receive? 2) What was the total amount of interest paid? 3) What is the effective 180 day interest rate on this note payable? Round to 4 decimals) 4) What is the approximate annual effective interest rate on this note payable? 5) Record the journal entryies)for the issuance of the note.

Liabilities whose amounts must be estimated are disclosed in financial statements by

Vanity Dog Products had the following account balances. Required: Compute the following: 1) The 2015 Quick Ratio 2) The 2015 Current Ratio 3) The 2016 Quick Ratio 4) The 2016 Current Ratio 5) What was net income for 2016, assuming no dividends were paid? 6) Did the quick ratio improve for 2016 over 2015 or did it degrade?