Question 1

Marin Company sells 9,000 units of its product in 2021 for $500 each.The selling price includes a one-year warranty on parts.It is expected that 3% of the units will 1.and that repair costs will average $50 per unit.In the year of the sale, warranty contracts
Are honored on 180 units for a total cost of $9,000.
What amount will be reported on Marin Company's balance sheet as Warranty Liability on December 31, 2021?

A)$9,000.
B)$13,500.
C)$4,500.
D)Cannot be determined.

$4,500.

Accepted Answer

The expected warranty liability is calculated as 3% of 9,000 units, which is 270 units. At $50 per unit, the total expected cost is $13,500. Since $9,000 has already been incurred, the remaining liability is $13,500 - $9,000 = $4,500.

Question 2

Which of the following items would not be identified if a contingent liability were disclosed in a financial statement note?&#10;A)The nature of the item&#10;B)The expected outcome of the future event&#10;C)A numerical probability of the expected loss&#10;D)The amount of the contingency, if known

Accepted Answer

A numerical probability of the expected loss would not be disclosed in a financial statement note regarding a contingent liability, as it is impossible to determine the exact probability of an event occurring and the resulting loss. The other options listed, including the nature of the item, the expected outcome, and the amount of the contingency (if known) would be disclosed in the note.

Question 3

Contingent liabilities should be recorded in the accounts if there is a remote possibility that the contingency will actually occur.

Accepted Answer

Contingent liabilities should only be recorded in the accounts if it is probable that a loss has been incurred or if the amount of the loss can be reasonably estimated. If the possibility of the contingency occurring is remote, then it does not meet these criteria and should not be recorded.

Question 4

Disclosure of a contingent liability is usually made&#10;A)parenthetically, in the body of the balance sheet.&#10;B)parenthetically, in the body of the income statement.&#10;C)in a note to the financial statements.&#10;D)in the management discussion section of the financial statements.

Accepted Answer

A contingent liability is a potential liability that may or may not occur, depending on the outcome of a future event. As such, it is not recorded on the balance sheet but requires disclosure in the notes to the financial statements to provide users with relevant information about the company's financial status and prospects. Therefore, the most appropriate choice is C. Parenthetical disclosures are generally used to provide additional details about a specific item in the financial statements, while the management discussion section is a narrative section that provides insight into the company's operations and strategies but does not typically include specific financial information related to contingent liabilities.

Question 5

A contingent liability is a liability that may be incurred if some future event takes place.

Accepted Answer

A contingent liability is a potential liability that may or may not occur depending on the outcome of a future event. Examples of contingent liabilities include pending lawsuits or warranties on products sold.

Question 6

Postretirement benefits consist of payments by employers to retired employees for&#10;A)health care and life insurance only.&#10;B)health care and pensions only.&#10;C)life insurance and pensions only.&#10;D)health care, life insurance, and pensions.

Accepted Answer

Postretirement benefits include health care, life insurance, and pensions. These benefits are provided by employers to retired employees as a continuation of the benefits they received while working. Health care benefits cover medical expenses, while life insurance covers the retiree's dependents in case of death. Pensions provide ongoing income to retirees, which is usually based on the years of service and salary earned. Therefore, D is the best choice as it includes all three postretirement benefits.

Question 7

In concept, the estimating of Warranty Expense when products are sold under warranty is similar to the estimating of Bad Debts Expense based on credit sales.

Accepted Answer

Both types of expenses involve estimating the amount of future losses that will occur based on historical data and experience. For warranty expense, this involves estimating the amount of future repairs or replacements that will be required under warranty. For bad debts expense, this involves estimating the amount of future uncollectible accounts based on past experience with customers who have not paid their debts.

Question 8

The paid absence that is most commonly accrued is&#10;A)voting leave.&#10;B)vacation time.&#10;C)maternity leave.&#10;D)disability leave.

Accepted Answer

Vacation time is the most commonly accrued paid absence, as it is often offered as a benefit to employees to use for personal or recreational purposes. Voting leave is usually a short-term or one-time occurrence, while maternity and disability leave are often covered by separate policies and legal requirements.

Question 9

Repair costs incurred in honoring warranty contracts should be debited to Warranty Liability.

Accepted Answer

Repair costs incurred in honoring warranty contracts represent an expense under the warranty liability, which is the liability account that records the amount a company expects to pay for future warranty claims. Therefore, those costs should be debited to the warranty liability account.

Question 10

Larson Company has 20 employees who each earn $120 per day.If they accumulate vacation time at the rate of 1.5 vacation days for each month worked, the amount of vacation benefits that should be accrued at the end of the month is

A)$240.
B)$2,400.
C)$3,600.
D)$360.

Accepted Answer

Each employee earns 1.5 vacation days for each month worked, which translates to 18 vacation days per year (1.5 x 12).

The cost of each vacation day is the daily wage of $120 per employee.

Therefore, the vacation benefits accrued for 20 employees in one month is:

20 employees x 18 vacation days x $120 per day = $43,200

So the amount of vacation benefits that should be accrued at the end of the month is $3,600 (which is 1/12 of $43,200). Therefore, the answer is C.

Question 11

When vacation benefits are paid, Vacation Benefits Expense is debited.

Accepted Answer

The answer of When vacation benefits are paid, Vacation Benefits...

Question 12

An employer's estimated cost for postretirement benefits for its employees should be&#10;A)recognized as an expense when paid.&#10;B)recognized as an expense during the employees' work years.&#10;C)recognized as an expense during the employees' retirement years.&#10;D)charged to the goodwill account because providing employees with benefits generates employee goodwill.

Accepted Answer

The answer of An employer's estimated cost for postretirement benefits...

Question 13

Postretirement benefits are accounted for on a cash basis.

Accepted Answer

The answer of Postretirement benefits are accounted for on a...

Question 14

In a defined-contribution plan, an employer only recognizes pension expense for the amount that the employer is required to contribute under the plan.

Accepted Answer

The answer of In a defined-contribution plan, an employer only...

Question 15

If a contingent liability is reasonably estimable and it is reasonably possible that the contingency will occur, the contingent liability&#10;A)should be recorded in the accounts.&#10;B)should be disclosed in the notes accompanying the financial statements.&#10;C)should not be recorded or disclosed in the notes until the contingency actually happens.&#10;D)must be paid for the amount estimated.

Accepted Answer

The answer of If a contingent liability is reasonably estimable...

Question 16

The accounting for warranty cost is based on the expense recognition principle, which requires that the estimated cost of honoring warranty contracts should be recognized as an expense&#10;A)when the product is brought in for repairs.&#10;B)in the period in which the product was sold.&#10;C)at the end of the warranty period.&#10;D)only if the repairs are expected to be made within one year.

Accepted Answer

The answer of The accounting for warranty cost is based...

Question 17

If a liability is dependent on a future event, it is called a&#10;A)potential liability.&#10;B)hypothetical liability.&#10;C)probabilistic liability.&#10;D)contingent liability.

Accepted Answer

The answer of If a liability is dependent on a...

Question 18

A contingency that is remote&#10;A)should be disclosed in the financial statements.&#10;B)must be accrued as a loss.&#10;C)does not need to be disclosed.&#10;D)is recorded as a contingent liability.

Accepted Answer

The answer of A contingency that is remote&#10;A)should be disclosed...

Question 19

The accounting for warranty costs is based on the&#10;A)going concern principle.&#10;B)expense recognition principle.&#10;C)conservatism principle.&#10;D)full disclosure principle.

Accepted Answer

The answer of The accounting for warranty costs is based...

Question 20

Warranty expenses are reported on the income statement as&#10;A)administrative expenses.&#10;B)part of cost of goods sold.&#10;C)contra-revenues.&#10;D)selling expenses.

Accepted Answer

The answer of Warranty expenses are reported on the income...

Question 21

Marin Company sells 9,000 units of its product in 2021 for $500 each.The selling price includes a one-year warranty on parts.It is expected that 3% of the units will 1.and that repair costs will average $50 per unit.In the year of the sale, warranty contracts
Are honored on 180 units for a total cost of $9,000.
What amount will be reported on Marin Company's balance sheet as Warranty Liability on December 31, 2021?

A)$9,000.
B)$13,500.
C)$4,500.
D)Cannot be determined.

$4,500.

Accepted Answer

The answer of Marin Company sells 9,000 units of its...

Deck 16: Other Significant Liabilities