Deck 9: Current Liabilities

Question 1

Gift cards are an example of a contingent liability.

Answer 1

False

Question 2

The accounts payable turnover ratio measures the number of times per year that a company settles their trades payable.

Answer 2

True

Question 3

A line of credit is always reflected under the current liabilities regardless of the size of the debt.

Answer 3

True

Question 4

The difference between the face value of a liability and its present value is due to the time value of money.

Question 5

Accounts receivable occur when a company buys goods or services on credit.

Question 6

A line of credit helps a company deal with temporary cash shortages.

Question 7

All current liabilities are settled with cash.

Question 8

All current liabilities have fixed due dates and fixed payment amounts.

Question 9

The balance for outstanding income taxes are reported as a current liability.

Question 10

Liabilities are the result of events or transactions that have already occurred.

Question 11

Accounting standards require that liabilities be recorded at their present value.

Question 12

Given that most current liabilities will be settled with cash,it is important to identify and record these liabilities separately because it helps users to assess

A)solvency.
B)cash position.
C)net income.
D)liquidity.

Question 13

Long-term debt that is due within one year is classified with other long-term debt.

Question 14

Unearned revenue is an example of a liability that is settled by the provision of goods or services.

Question 15

The amount owing on income taxes is recorded as deferred income taxes.

Question 16

Bankers will often compare current assets to current liabilities to assess liquidity.

Question 17

Which of the following is not a characteristic of a liability?

A)There is a probable future sacrifice of resources.
B)There is a fixed payment amount and payment date.
C)There is little discretion to avoid the obligation.
D)The event giving rise to the liability has already occurred.

Question 18

All of the following are examples of current liabilities,except for

A)accrued expenses.
B)unearned revenues.
C)interest payable.
D)prepaid expenses.

Question 19

The accounts payable turnover ratio can be converted to days by using the accounts payable payment period formula.

Question 20

Accounts payable are recorded on the books at their

A)net present value.
B)net amount.
C)net realizable value.
D)face value.

Question 21

On July 31,2020,Able Co.has a $500,000 15-year mortgage outstanding.Over the next year the company will make 12 monthly payments of $5,000 representing $33,500 of interest and $26,500 of principal repayment.Which of the following best represents how the mortgage will be reported on the July 31,2020 statement of financial position? Current Liabilities Non-Current Liabilities

A)$26,500 $473,500
B)$26,500 $440,000
C)$60,000 $440,000
D)$60,000 $473,500

Question 22

A company has $5,000,000 in long-term debt outstanding.It expects to repay the loan evenly over the next four years.Which of the following represents how it will be shown on the year-end statement of financial position?

A)Accounts Payable: $1,250,000,Long-Term Debt: $3,750,000
B)Current Portion of Long-Term Debt: $1,250,000,Long-Term Debt: $3,750,000
C)Current Portion of Long-Term Debt: $2,500,000,Long-Term Debt: $2,500,000
D)Long-Term Debt: $5,000,000

Question 23

The required year-end adjusting entry is

A)Dr.Revenues $625,Cr.Gift Card Liability $625
B)Dr.Revenues $1,875,Cr.Gift Card Liability $1,875
C)Dr.Gift Card Liability $625,Cr.Revenues $625
D)Dr.Gift Card Revenues $1,875,Cr.Revenues $1,875

Question 24

The entry to record the sale of the gift certificates is

A)Dr.Cash,Cr.Gift Card Revenue
B)Dr.Gift Card Revenue,Cr.Gift Card Liability
C)Dr.Prepaid Gift Cards,Cr.Gift Card Revenue
D)Dr.Cash,Cr.Gift Card Liability

Question 25

Which of the following companies would usually not have an unearned revenue account?

A)magazine publishing company
B)property management company
C)airline
D)hardware store

Question 26

All of the following situations contribute to the need for a company to recognize deferred revenues,except for

A)partially executed contracts between buyers and sellers.
B)the requirement by sellers for the prepayment of goods and services.
C)mutually unexecuted contracts between buyers and sellers.
D)the seller has collected a deposit but has an outstanding performance obligation under the contract.

Question 27

Which of the following liabilities is often referred to as "free debt" because it rarely carries any interest if paid within a specified period of time?

A)line of credit
B)working capital loan
C)accounts payable
D)None of the above-all current liabilities carry an interest rate.

Question 28

When business owners offer programs that enable customers to accumulate points or other credit when making purchases,this results in

A)customer loyalty revenues.
B)performance obligations.
C)prepaid services.
D)an assurance warranty.

Question 29

The term breakage refers to

A)unearned gift card revenues.
B)the portion of a gift card that will never be used by its owners.
C)the amount of gift card revenue that cannot be recognized.
D)expenses related to damaged credit cards.

Question 30

All of the following are ways that corporations can finance current cash shortages except a

A)line of credit.
B)current portion of long-term debt.
C)short-term loan.
D)working capital loan.

Question 31

Typically acquisition costs for inventory can be financed through the use of

A)overdraft protection.
B)accounts payable.
C)working capital.
D)notes payable.

Question 32

A short-term liability used by a company to finance the purchase of current assets and that is often secured by accounts receivable or inventory is referred to as a(n)

A)accounts payable.
B)current liability.
C)line of credit.
D)overdraft protection.

Question 33

Bank indebtedness includes all of the following,except for

A)bank overdraft.
B)line of credit.
C)revolving credit facilities.
D)current portion of long-term debt.

Question 34

For which of the following reasons would a user examine the current liabilities?

A)to determine how quickly accounts receivable are collected
B)to determine how much cash will be required to meet obligations in the short term
C)to determine how much cash will be required to meet obligations in the long-term
D)to evaluate company performance

Question 35

Non-current liabilities are recorded in the books at their

A)present value.
B)net amount.
C)net realizable value.
D)gross amount.

Question 36

Which of the following liabilities requires the use of an estimate when it is initially recorded?

A)Wages Payable
B)Unearned Revenue
C)Warranty Provision
D)Accounts Payable

Question 37

Which of the following statements about accounts payable is not true?

A)They are usually due within 30 to 60 days.
B)They normally carry implicit interest charges.
C)There may be a penalty for late payment.
D)They are typically used to finance inventory purchases.

Question 38

Time value of money

A)is generally used for valuing all liabilities.
B)reflects the difference between the value of a dollar today versus a dollar paid in the future.
C)is not used for financial reporting purposes.
D)is immaterial.

Question 39

Which of the following companies would be most likely to have an unearned revenue account?

A)grocery store
B)department store
C)hotel chain
D)car dealership

Question 40

Lokus Lofts is a rental company that requires its tenants to pay rent one month in advance.Lokus should record the cash received as

A)Prepaid Rent.
B)Rent Revenue.
C)Unearned Revenue.
D)Accounts Payable.

Question 41

When the board declares dividends,the correct journal will be

A)Dividends Expense Dividends Payable
B)Dividend Declared Cash
C)Dividends Declared Dividends Payable
D)Dividends Receivable Dividends Revenue

Question 42

The balance in the warranty provision account at the end of the 2021 year was

A)$75,000.
B)$280,000.
C)$355,000.
D)$530,000.
Use the following information for questions 47-49.
Radio Hut Inc.offers a two-year assurance warranty against failure of its products.The estimated liability is 1.5% in the year of sale and 3% in the second year.Sales and actual warranty expense for 2020 and 2021 were:
Sales Actual Warranty Costs Incurred During Year
2020 $3,500,000 $110,000
2021 $3,900,000 $195,000

Question 43

Use the following information for questions below
Radio Hut Inc.offers a two-year assurance warranty against failure of its products.The estimated liability is 1.5% in the year of sale and 3% in the second year.Sales and actual warranty expense for 2020 and 2021 were:
$$\begin{array} { l c c } & \text { Sales } & \text { Actual Warranty Costs Incurred During Year } \\2020 & \$ 3,500,000 & \$ 110,000 \\2021 & \$ 3,900,000 & \$ 195,000\end{array}$$

-The warranty provision on the December 31,2020 statement of financial position sheet was

A)$47,500.
B)$105,000.
C)$110,000.
D)$157,500.

Question 44

An increase in A/P turnover year over year

A)is due to increased payments to suppliers.
B)increases the number of days accounts payable are outstanding.
C)increases expenses.
D)is meaningless without comparative data.

Question 45

Miller Manufacturing has a two-week payroll of $8,200 for its eight employees.Income tax of $1,080 is deducted from the employees' cheques,as well as 4.95% for CPP and 1.6% for EI.Wages deposited in employees' bank accounts would be

A)$6,583.
B)$7,120.
C)$7,663.
D)$8,200.

Question 46

A customer loyalty provision specifically refers to

A)points that a customer has redeemed in the past.
B)the liability related to the unused loyalty points or credits.
C)the revenues earned from the use of points.
D)the cash received from the use of points.

Question 47

Outstanding balances for service-type warranties are

A)expensed against revenues in the current period.
B)not considered separate performance obligations.
C)reported the same way as unearned revenues.
D)all of the above are true.
Use the following information for questions 44-46.
Ruby's & Rings Inc.offers a two-year assurance warranty against failure of its products.The estimated liability is 4% of sales in the year of sale and 6% in the second year.Sales for 2020 and 2021 were: $2,500,000 and $2,800,000,respectively.The company incurred no warranty costs in 2020 but in 2021 they spent $175,000 on repairs related to the warranties issued in 2020 and 2021.

Question 48

The warranty expense for 2020 was

A)$80,000.
B)$100,000.
C)$150,000.
D)$250,000.

Question 49

Use the following information for questions below
Radio Hut Inc.offers a two-year assurance warranty against failure of its products.The estimated liability is 1.5% in the year of sale and 3% in the second year.Sales and actual warranty expense for 2020 and 2021 were:
$$\begin{array} { l c c } & \text { Sales } & \text { Actual Warranty Costs Incurred During Year } \\2020 & \$ 3,500,000 & \$ 110,000 \\2021 & \$ 3,900,000 & \$ 195,000\end{array}$$

-The warranty provision on the December 31,2021 statement of financial position sheet was

A)$0.
B)$28,000.
C)$138,000.
D)$175,500.

Question 50

The accounts payable turnover ratio measures

A)number of times the company settles its trade payable.
B)average accounts payable balance.
C)the average number of times the industry settles their trade payable.
D)the average balance of accounts payable to current assets.

Question 51

The warranty provision at the 2020 year end was

A)$0.
B)$100,000.
C)$150,000.
D)$250,000.

Question 52

An employee earns $1,500 a week and the deductions from that amount for her contributions to EI,CPP,and income taxes are $185.The company must contribute an additional $105 for EI and CPP.How much would the company record as salary expense for that week?

A)$1,420
B)$1,500
C)$1,605
D)$1,790

Question 53

Which of the following liabilities results from amounts owed by both the employee and the employer?

A)employee income tax payable
B)wages payable
C)employment insurance payable
D)vacation pay payable

Question 54

Which of the following statements concerning income taxes in Canada is not true?

A)Income taxes must often be estimated based on prior years' tax returns.
B)Income taxes are usually paid through instalment payments throughout the year.
C)The deadline for filing a corporate tax return and payment of any outstanding taxes is six months after the company's year end.
D)Income taxes payable is reported as a current liability.

Question 55

Dividends Payable is the most common type of liability the corporation has to

A)the government.
B)the employees.
C)the shareholders.
D)the board of directors.

Question 56

Use the following information for questions below
Radio Hut Inc.offers a two-year assurance warranty against failure of its products.The estimated liability is 1.5% in the year of sale and 3% in the second year.Sales and actual warranty expense for 2020 and 2021 were:
$$\begin{array} { l c c } & \text { Sales } & \text { Actual Warranty Costs Incurred During Year } \\2020 & \$ 3,500,000 & \$ 110,000 \\2021 & \$ 3,900,000 & \$ 195,000\end{array}$$

-The warranty expense for 2021 was

A)$157,500.
B)$175,500.
C)$195,000.
D)$305,000.