Question 1

Which of the following items below is recorded as an estimate when initially recognized?

Accepted Answer

A warranty obligation is recorded as an estimate when initially recognized because it represents the estimated cost of providing future warranty services for products sold or services rendered. The actual cost may vary from the estimated amount. The other options (A, B, D) are recorded at their contractual amounts and do not involve estimation.

Question 2

Explain known current liabilities.

Accepted Answer

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Question 3

Explain the difference between current and long-term liabilities.

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Question 4

Vella Physio Company is located in Ponoka,Alberta and is a retailer of physio supplies.Beginning inventory is $20,000,and Vella uses the perpetual inventory system.Complete the journal entries on the following dates,including 5% GST as applicable.

Accepted Answer

The answer of Vella Physio Company is located in Ponoka,Alberta...

Question 5

Explain the concept of interest.

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Question 6

On June 14,Multi Sports received a 90-day note payable from Single Sport,instead of cash payment of an overdue account.The amount of the note was $45,000 at an interest rate of 10%.What is the total amount of interest for the note?

Accepted Answer

The answer of On June 14,Multi Sports received a 90-day...

Question 7

Pending lawsuits

Accepted Answer

Pending lawsuits should be disclosed in the financial statements if payment for damages is probable but the amount cannot be reliably estimated. Recording the lawsuit as a liability would only be appropriate if the amount could be reasonably estimated. If the likelihood of a lawsuit is remote, disclosure may not be required. Therefore, option D is the best choice.

Question 8

On November 16,2020,Kinsmen Sports gave Source for Sports a 120-day,8%,$130,000 note payable to extend a past due account payable.What amount of interest expense should Source for Sports report for calendar 2020?

Accepted Answer

The answer of On November 16,2020,Kinsmen Sports gave Source for...

Question 9

The employer should record payroll deductions as

Accepted Answer

Payroll deductions are amounts withheld from employees' wages and are recorded as current liabilities because they represent amounts owed to third parties, such as taxes or benefits, that the employer must pay on behalf of the employees.

Question 10

West Coast Outdoor Co.sold $22,000 worth of trampolines with a one-year warranty.The company estimates that 2% of the sales will result in warranty work.West Coast Outdoor Co.should

Accepted Answer

The company should recognize both warranty expense and warranty liability at the time of sale. This is because they have sold products with a warranty and estimate that a certain percentage will result in warranty work. Therefore, they have an obligation to provide that warranty and should recognize both the expense and the liability at the time of sale.

Question 11

Gross pay is

Accepted Answer

Gross pay is the total amount of compensation earned by an employee before any deductions or withholdings are taken out. It includes salary, wages, overtime pay, bonuses, and any other forms of payment.

Question 12

On April 18,Valley Sports gave a 120-day note payable to Slick Snowboards,instead of cash payment of an overdue account.The amount of the note was $185,000 at an interest rate of 11%.Prepare the journal entry on Valley Sports books to record the note payable.

Accepted Answer

The answer of On April 18,Valley Sports gave a 120-day...

Question 13

On March 1,2020,Jaiku Industrial gave Light Co.a 180-day,8%,$78,000 note payable to extend a past due account payable.Prepare the journal entry for Jaiku Industrial to record payment of the note on August 28,2020.Jaiku Industrial recorded a April 30^th year end adjusting entry.

Accepted Answer

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Question 14

Uncertainties such as doubtful accounts

Accepted Answer

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...

Question 15

Provisions must be recorded if

Accepted Answer

Provisions are recorded when a future event is probable, meaning there is a high likelihood of it occurring, and the amount can be reliably estimated. If the event is unlikely or the amount cannot be estimated, a provision would not be recorded. If the event is unlikely but the amount can be reliably estimated, a provision may still not be recorded as the likelihood is low. Therefore, only choice A meets the criteria for recording a provision.

Question 16

Unearned revenues are

Accepted Answer

Unearned revenues are amounts received in advance from customers for future delivery of products or services. They are recorded as liabilities because the company has an obligation to provide the products or services in the future. This liability will be gradually reduced as revenue is recognized over time. Unearned revenues do not reduce assets and are not the same as accrued revenues.

Question 17

On November 16,2020,Source for Sports gave Kinsmen Sports a 90-day,12%,$120,000 note payable to extend a past due account payable.Prepare the journal entry for Source for Sports to record the note and the extension of the past due account.

Accepted Answer

The answer of On November 16,2020,Source for Sports gave Kinsmen...

Question 18

Discuss how to account for contingent liabilities.

Accepted Answer

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Question 19

Discuss the types of estimated liabilities.

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Question 20

During 2020,Hans Electronics sold 350 microwaves each at $1,050 per unit.Each microwave has one-year warranty.Hans estimates it will cost them $82 per unit,if a unit is brought in under warranty for repair.During 2020,Smith spent $17,500 on warranty costs for the appliances sold in 2020.At the end of the 2020 the warranty liability and the warranty expense related to these sales would be

Accepted Answer

The warranty expense is calculated based on the estimated cost per unit ($82) multiplied by the total units sold (350), which equals $28,700. Since Hans Electronics spent $17,500 on warranty costs during 2020, the remaining warranty liability at the end of 2020 is the difference between the total estimated warranty expense ($28,700) and the actual warranty costs incurred ($17,500), which equals $11,200. Therefore, the warranty expense for 2020 is $17,500, and the remaining warranty liability is $11,200.

Quiz 2: Current Liabilities