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Exam 9: Accounting for Current Liabilities and Payroll

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Question 21

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The Clarion Company provides a one-year warranty on all merchandise it sells.In Year 1,the company recorded sales of $500,000.It estimated that the warranty costs on these sales would amount to $2,000.In July of Year 2,Clarion paid $250 to satisfy a warranty claim.Indicate whether each of the following statements is true or false. ________ a)Clarion's adjusting entry recording the warranty at the end of Year 1 decreased total assets and total stockholders' equity. ________ b)Clarion's adjusting entry recording the warranties at the end of Year 1 increased Clarion's total liabilities. ________ c)The entries,dated in July of Year 2,decreased total assets and net income for Year 2. ________ d)The entries,dated in July of Year 2,decreased Clarion's total liabilities. ________ e)The adjusting entry recorded at the end of Year 1 did not affect Clarion's revenue for the year.

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a)F b)T c)F d)T e)T
a)This is false.The ...

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Question 22

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Indicate whether each of the following statements is true or false. ________ a)The extension of a warranty on goods sold normally represents a legal obligation to the seller of the goods. ________ b)The entry to recognize the warranty obligation increases the Warranties Payable account and decreases a revenue account. ________ c)The entry to record the payment of cash to settle a warranty claim increases expenses (Warranties Expense)and decreases liabilities (Warranties Payable). ________ d)Net income is not affected by the entry to record the payment of cash to settle a warranty claim. ________ e)Total assets are not affected by the adjusting entry to record the warranty obligation.

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a)T b)F c)F d)T e)T
a)This is true.Offer...

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Question 23

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The following information is taken from the balance sheet of Atlanta Company: What is Atlanta Company's current ratio?

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.

During Year 1,Bradley Corporation issued a $20,000 face value discount note to Fidelity Bank.The note had a 6% discount rate and a one-year term to maturity.On December 31,Year 1,Bradley failed to make the adjusting entry to accrue the related interest.Which of the following summarizes the effect of this error?

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

Receivables are normally reported on the balance sheet at net realizable value.In contrast,payables are carried at face value.Which accounting principle requires this treatment of payables?

Which of the following terms describes the ability to generate short-term cash flows?

Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet?

On October 1,Year 1,Harrison Company borrowed money by issuing a $24,000 face value discount note to its bank.The note had an 8% discount rate and had a one-year term to maturity.On December 31,Year 1,Harrison should accrue interest expense in the amount of $1,920.

At the end of Year 1,Durango Company recorded an adjusting entry 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.

Indicate whether each of the following statements is true or false. ________ a)Operating cycles for most businesses are less than one year. ________ b)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. ________ c)The current ratio is computed by dividing current assets by net income. ________ d)The current ratio is a useful measure of a company's liquidity. ________ e)Liquidity is the ability of a business to repay liabilities in the long run.

Flora's Flower Market sells eight potted petunias to a customer for $50.00,plus 5% sales tax.Flora's will recognize $52.50 in sales revenue.

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

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

[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?

A classified balance sheet is one that distinguishes between operating and non-operating assets.

[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 is the amount of net income (loss) that will be reported on the Year 2 income statement?

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

The following information is taken from the balance sheet of Menendez Company on January 1,Year 1: -On January 2,Year 1,the company recorded the following transaction: How will this transaction affect the current ratio?