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Exam 8: Current Liabilities

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Question 21

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The current portion of long-term debt should be

A) Reported as a current liability on the balance sheet.
B) Reported as a long-term liability on the balance sheet.
C) Combined with the rest of the long-term debt on the balance sheet.
D) Paid immediately.

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Question 22

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The journal entry to record a contingent liability requires a debit to a loss (or expense) account and a credit to a liability.

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Question 23

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Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals are faulty and will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the Warranty Liability at the end of the year?

Amplify, Inc. was sued by Sound City for $50,000. Sound City feels very confident that it will win the case and will be awarded the full amount. Amplify, Inc. feels it is probable that it will lose the case and pay Sound City the full amount. Which of the following is correct?

Differences between financial accounting and tax accounting result in a company being permitted to defer paying some of its income tax expense, in which case it will report a deferred tax liability.

Gain contingencies usually are recognized in a company's income statement when:

During January, Deluxe Printing pays employee salaries of $1 million. Withholdings in January are $76,500 for the employee portion of FICA, $210,000 for federal and state income tax, and $40,000 for the employee portion of health insurance (payable to Blue Cross/Blue Shield). The company incurs an additional $38,000 for federal and state unemployment tax and $30,000 for the employer portion of health insurance. 1. Record the employee salary expense, withholdings, and salaries payable. 2. Record the employer-provided fringe benefits. 3. Record the employer payroll taxes.

Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation?

The Pita Pit borrowed $100,000 on November 1, 2012, and signed a six-month note bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2013. In connection with this note, The Pita Pit should report interest expense at December 31, 2012, in the amount of:

Commonly, current liabilities are payable within one year, and long-term liabilities are payable more than one year from now.

Quick assets include only cash, short-term investments, and accounts receivable.

A company's liquidity refers to its:

Given a choice, most companies would prefer to report a liability as long-term rather than current because:

Which of the following statements regarding liquidity ratios is false?

A gain contingency is an existing uncertain situation that might result in a gain, which often is the flip side of loss contingencies.

In a classified balance sheet, we categorize all liabilities as current.

The following selected transactions relate to liabilities of Deco Emporium whose fiscal year ends on December 31.

If the likelihood of loss is remote, disclosure usually is not required.

Bears Inc. sells football helmets to local schools and warrants all of its products for one year. While no helmets sold in 2012 have been returned to them yet, based upon previous years, Bears Inc. estimates that 3% of its products will need repairs or be replaced within the next year. What effect would this warranty have on assets, liabilities, and stockholders' equity in 2012?

Working capital is