Question 1

On September 1, 2009, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank whose stated discount rate is 9%. Hiker's effective interest rate on this loan is:

Accepted Answer

A)  9.00%.
B)  9.49%.
C)  9.50%.
D)  9.57%.$100,000 9% 8/12 = $6,000 [$6,000/($100,000 $6,000) ] 12/8 = 9.57%E) None of the above
F) A) and B)

Question 2

Swift Drug Company is being sued this year for a wrongful death due to violation of FDA rules. There is no doubt that Swift is guilty and the settlement is reasonably estimable at $10 billion payable evenly over 10 years starting next year. Briefly explain how Swift would address this in its current year financial statements.

Accepted Answer

In the Swift case, the loss co...

Question 3

Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:

Accepted Answer

A)  When the equipment is sold.
B)  When the repairs are performed.
C)  When payments are made to the service firm.
D)  Evenly over the life of the warranty.E) A) and D)
F) A) and B)

Question 4

At the beginning of 2009, Scarlet Industries began offering a 3-year warranty on its products. The warranty program was expected to cost Scarlet 2% of net sales, approximately equally over the three-year warranty period. Net sales made under warranty in 2009 were $270 million. Thirteen percent of the units sold were returned in 2009 and repaired or replaced at a cost of $2 million. This amount was debited to warranty expense as incurred.
Required:
Prepare the appropriate adjusting entry to adjust warranty expense on December 31, 2009. Show calculations.

Accepted Answer

The answer of At the beginning of 2009, Scarlet Industries...

Question 5

All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party?

Accepted Answer

A)  Sales tax payable.
B)  Customer deposits.
C)  Employee insurance deductions.
D)  Social security taxes deductions.E) A) and D)
F) A) and B)

Question 6

The accounting concept that requires recognition of a liability for customer premium offers is

Accepted Answer

A)  Periodicity.
B)  Conservatism.
C)  Historical cost.
D)  The matching principle.E) B) and C)
F) A) and B)

Question 7

When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes:

Accepted Answer

A)  A debit to a revenue and a credit to a liability account.
B)  A debit to a revenue and a credit to an asset account.
C)  A debit to an asset and a credit to a revenue account.
D)  A debit to a liability and a credit to a revenue account.E) A) and B)
F) B) and D)

Question 8

Required:
What is the point of the last paragraph of the Goodday disclosure? Explain in terms of authoritative GAAP.

Accepted Answer

SFAS #5 indicates that outcomes of conti...

Question 9

Some liabilities are not contractual obligations and may not be payable in cash.

Accepted Answer

A) True 
 B)False

Question 10

Accounting for costs of incentive programs for frequent customer purchases involves:

Accepted Answer

A)  Recording an expense and a liability each period.
B)  Recording a liability and a reduction of revenue each period.
C)  Recording an expense and an asset reduction each period.
D)  Recording an expense and revenue each period.E) A) and B)
F) All of the above

Question 11

When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in:

Accepted Answer

A)  A current liability.
B)  Revenue.
C)  Shareholders' equity.
D)  Paid-in capital.E) B) and C)
F) B) and D)

Question 12

Classifying liabilities as either current or long-term helps creditors assess:

Accepted Answer

A)  Profitability.
B)  The relative risk of a firm's liabilities.
C)  The degree of a firm's liabilities.
D)  The amount of a firm's liabilities.E) None of the above
F) B) and D)

Question 13

Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If the likelihood of expropriation is remote, a loss contingency should be

Accepted Answer

A)  Disclosed but not accrued as a liability.
B)  Disclosed and accrued as a liability
C)  Accrued as liability but not disclosed.
D)  Neither accrued as a liability nor disclosed.E) A) and D)
F) B) and C)

Exam 13: Current Liabilities and Contingencies

On September 1, 2009, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank whose stated discount rate is 9%. Hiker's effective interest rate on this loan is:

Correct Answer
verified

Required: What is the point of the last paragraph of the Goodday disclosure? Explain in terms of authoritative GAAP.

Correct Answer
verified
SFAS #5 indicates that outcomes of conti...
View Answer

Some liabilities are not contractual obligations and may not be payable in cash.

Correct Answer
verified

Correct Answer
verified

When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes:

Correct Answer
verified

Classifying liabilities as either current or long-term helps creditors assess:

Correct Answer
verified

Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If the likelihood of expropriation is remote, a loss contingency should be

Correct Answer
verified

Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:

Correct Answer
verified

When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in:

Correct Answer
verified

All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party?

Correct Answer
verified

The accounting concept that requires recognition of a liability for customer premium offers is

Correct Answer
verified

Correct Answer
verified
In the Swift case, the loss co...
View Answer

Accounting for costs of incentive programs for frequent customer purchases involves:

Correct Answer
verified

Exam 13: Current Liabilities and Contingencies

On September 1, 2009, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank whose stated discount rate is 9%. Hiker's effective interest rate on this loan is:

Correct AnswerverifiedShow Answer

Required: What is the point of the last paragraph of the Goodday disclosure? Explain in terms of authoritative GAAP.

Correct AnswerverifiedSFAS #5 indicates that outcomes of conti...View AnswerShow Answer

Some liabilities are not contractual obligations and may not be payable in cash.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes:

Correct AnswerverifiedShow Answer

Classifying liabilities as either current or long-term helps creditors assess:

Correct AnswerverifiedShow Answer

Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If the likelihood of expropriation is remote, a loss contingency should be

Correct AnswerverifiedShow Answer

Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:

Correct AnswerverifiedShow Answer

When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in:

Correct AnswerverifiedShow Answer

All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party?

Correct AnswerverifiedShow Answer

The accounting concept that requires recognition of a liability for customer premium offers is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIn the Swift case, the loss co...View AnswerShow Answer

Accounting for costs of incentive programs for frequent customer purchases involves:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
SFAS #5 indicates that outcomes of conti...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
In the Swift case, the loss co...
View Answer

Correct Answer
verified