Deck 9: Current Liabilities and Fair Value Accounting

Question 1

There is a limit to the amount of income subject to the FUTA tax.

Answer 1

True

Question 2

Commercial paper consists of secured loans that are sold to the public.

Answer 2

False

Question 3

The classification of a liability as current or long-term is important because it may affect the evaluation of a company's liquidity.

Answer 3

True

Question 4

All liabilities involve an obligation of one sort or another.

Question 5

There is no limit to the amount of income subject to the Medicare tax.

Question 6

Working capital equals current assets minus current liabilities.

Question 7

The declaration of dividends is solely the decision of the corporation's board of directors.

Question 8

The days' payable is the number of times,on average,that accounts payable are paid in an accounting period.

Question 9

The days' payable shows how long,on average,a company takes to pay its accounts payable.

Question 10

Because failure to record a liability generally leads to failure to record an expense,it usually results in an understatement of income.

Question 11

Interest on a promissory note is recognized when the note is issued.

Question 12

To determine the payables turnover,one first calculates the days' payable.

Question 13

Lines of credit from the bank must be disclosed in the financial statements or in the notes.

Question 14

Payables turnover is measured in number of days.

Question 15

Commercial paper normally is issued by companies with poor credit ratings.

Question 16

Liabilities generally arise from future transactions.

Question 17

A liability must always be classified as long-term if it is due in more than one year.

Question 18

Because accounting measures should be verifiable,liabilities should not be estimated.

Question 19

If an accrued liability for salaries is not recorded,income for the following period will be understated.

Question 20

The term wages refers to the compensation of employees who are paid at an hourly rate.

Question 21

The costs associated with coupons and rebates are usually reflected in liability accounts.

Question 22

If the amount of a liability cannot be exactly determined,it should not be recorded.

Question 23

If any portion of a long-term debt is to be paid in the next year,that portion should be classified as a current liability.

Question 24

At the time a company signs a contract to pay an employee a certain salary in the future,it records a liability.

Question 25

Current liabilities are classified as either definitely determinable liabilities or estimated liabilities.

Question 26

The federal and state unemployment tax rates are not identical.

Question 27

The entry that includes a debit to Payroll Taxes and Benefits Expense would also include credits to Social Security Tax Payable and Medicare Tax Payable.

Question 28

The entry that includes a debit to Payroll Taxes and Benefits Expense also includes credits to Federal Unemployment Tax Payable and State Unemployment Tax Payable.

Question 29

The amount of property tax payable is usually an estimated liability for a portion of the year.

Question 30

Both the employee and the employer must bear the tax burden for unemployment benefits.

Question 31

Social security and Medicare taxes are borne entirely by the employer.

Question 32

Unearned revenue arises from the acceptance of payment in advance for a service to be performed.

Question 33

Unearned revenue is an example of a definitely determinable liability.

Question 34

A liability for dividends exists only when the board of directors declares them.

Question 35

Salaries are compensation of employees at a yearly or monthly rate.

Question 36

Only the used portion of a line of credit is recognized as a liability.

Question 37

A liability is usually established for product warranties despite uncertainty as to the amount of the liability.

Question 38

For notes payable whose interest is stated separately,the adjusting entry would consist of a debit to Interest Payable and a credit to Interest Expense.

Question 39

An estimated liability is a definite obligation of the firm even though the amount cannot be definitely determined.

Question 40

Gross earnings minus deductions equals take-home pay.

Question 41

A contingent liability is recognized when the likelihood of loss is probable and the amount can be reasonably estimated.

Question 42

A contingent liability is a liability that may materialize in the future because of something that happened in the past.

Question 43

When a business sells an item and collects a state sales tax on it,a current liability to the state arises.

Question 44

The product warranty liability is an example of a definitely determinable liability.

Question 45

Accrued liabilities often arise as a result of the passage of time.

Question 46

Property Taxes Expense is recorded only in the month it is paid.

Question 47

Lawsuits against a company in connection with an industrial accident would not be disclosed in the notes to the financial statements as a contingent liability until the lawsuits have been settled.

Question 48

Potential vacation pay should be accounted for as a contingent liability.

Question 49

When a company discounts a note receivable at the bank,it has a contingent liability.

Question 50

The market approach to the measurement of fair value converts future cash flows to a single present value.

Question 51

The most common examples of commitments are leases and purchase agreements.

Question 52

Product warranties are an expense of the period in which the product is sold.

Question 53

A commitment is recognized when the amount can be reasonably estimated and the likelihood of loss is probable.

Question 54

A contingent liability is not entered into the accounting records under any circumstances.

Question 55

A contingent liability always becomes a true liability.

Question 56

The cost approach to the measurement of fair value is based on the amount that currently would be required to replace an asset with the same or a comparable asset.

Question 57

The current portion of long-term debt is classified as a current liability only if it is due within the next year and is to be paid from current assets.

Question 58

A contingent liability is a legal obligation that does not meet the technical requirements for recognition as a liability.

Question 59

Promotional costs,such as coupons and rebates,are usually not recorded as an expense with a related liability.

Question 60

Vacation pay is charged properly as an expense in the month in which the employee earns the vacation pay.

Question 61

A company wishes to make deposits at the end of each of the next four years to accumulate a fund of $60,000.The annual contributions equal $60,000 multiplied by the appropriate present value of an ordinary annuity factor.

Question 62

The higher the interest rate,the lower the future value factor.

Question 63

The annual interest earned on an amount deposited into a bank account will be the same each year when simple interest is used.

Question 64

An asset purchased according to a deferred payment plan should be recorded based on the present value of the total cash paid.

Question 65

If the net present value of a proposed investment is negative,it means that the investment should not be made.

Question 66

When compound interest is used,interest accumulates quicker than when simple interest is used.

Question 67

Decision makers rely on the future values,rather than on the present values,of future cash flows.

Question 68

The lower the interest rate,the lower the present value factor.

Question 69

The annual interest earned on an amount deposited into a bank account will increase each year when simple interest is used.

Question 70

Failure to record a liability probably will

A) result in an overstated net income.
B) result in overstated total liabilities and stockholders' equity.
C) have no effect on net income.
D) result in overstated total assets.

Question 71

All factors in a present value of a single sum table are less than 1.000.

Question 72

In a deferred payment arrangement,an implied or imputed interest rate is usually charged.

Question 73

Current liabilities are debts that are expected to be satisfied within

A) one year or the normal operating cycle,whichever is shorter.
B) one year or the normal operating cycle,whichever is longer.
C) one year.
D) the normal operating cycle.

Question 74

Days' payable is the shortest in which of the following industries?

A) Grocery stores
B) Computers
C) Machinery
D) Auto and home supply

Question 75

The theoretical value of an asset is the present value of the expected benefits.

Question 76

Assets purchased under a deferred payment plan should be recorded at the present value of the installment payments.

Question 77

All factors in a future value table must be greater than or equal to 1.000.

Question 78

An ordinary annuity is a series of equal payments made at the end of equal intervals of time.

Question 79

Future value refers to the amount of principle plus interest after one or more periods.

Question 80

All of the following are measures of liquidity and cash flow except

A) payables turnover.
B) return on assets.
C) the current ratio.
D) days' payable.