Question 1

Curtain Corp.stands to receive a sufficient cash settlement from a law suit.Curtain needs to record this on its accounting records.

Accepted Answer

The answer of Curtain Corp.stands to receive a sufficient cash...

Question 2

Simple interest on a loan can be calculated by multiplying the principal by the annual interest rate expressed as a percentage of the time in years or a fraction of the time in years.

Accepted Answer

This is the formula for calculating simple interest.

Question 3

Estimated liability for product warranties to be paid in the future is a current liability.

Accepted Answer

Estimated liability for product warranties is a current liability because it represents an obligation that the company is expected to fulfill within a year from the balance sheet date.

Question 4

The terms referring to contingencies differ between U.S.GAAP and IFRS.

Accepted Answer

There are differences in the terminology used for contingencies between U.S.GAAP and IFRS.

Question 5

Advance ticket sales for a concert next month are a current liability.

Accepted Answer

Advance ticket sales represent an obligation to provide goods or services in the future, making them a current liability.

Question 6

For a given contingent liability, the company has the choice of either recording it on the balance sheet or disclosing it in the notes.

Accepted Answer

The answer of For a given contingent liability, the company...

Question 7

A contingent liability is recorded if it is probable and can be reasonably estimated.

Accepted Answer

A contingent liability is only recorded in the financial statements if it is probable (meaning likely to occur) and can be reasonably estimated in terms of the amount that will need to be paid.

Question 8

Compound interest is a repeated calculation of the interest on the principal over certain periods of time.

Accepted Answer

The answer of Compound interest is a repeated calculation of...

Question 9

In the statement of cash flows, an increase in a current liability will appear as an increase in the Financing category.

Accepted Answer

An increase in a current liability will appear as a decrease in the Operating category, as it represents an increase in the company's liabilities that needs to be paid off in the near future.

Question 10

Contingent assets may be disclosed in the notes if probable and reasonably estimable.

Accepted Answer

The answer of Contingent assets may be disclosed in the...

Question 11

If the annual interest is 12%, but the compounding is done quarterly, then the interest rate is 4% per period.

Accepted Answer

When the annual interest rate is 12% and compounding is done quarterly, the interest rate per period is not 4% but rather 3%, because the annual rate is divided by the number of compounding periods per year (12% / 4 = 3%).

Question 12

International accounting standards use the term provision for those contingent items that must be recorded on the balance sheet.

Accepted Answer

This is correct. According to international accounting standards, a provision must be recorded on the balance sheet when there is a present obligation resulting from a past event, and it is probable that an outflow of economic resources will be required to settle the obligation.

Question 13

In the statement of cash flows, a decrease in accounts payable would be shown as an increase in the Operating Activities category.

Accepted Answer

A decrease in accounts payable represents cash outflow, as it indicates the company is paying off its liabilities, which would be shown as a decrease in cash flow from operating activities.

Question 14

Accountants need not worry about calculations based upon the concept of the time value of money.

Accepted Answer

Accountants need to consider the time value of money when making calculations related to future cash flows, such as discounted cash flow analysis, present value calculations, and future value calculations. This is an important concept in financial accounting and is used to make sound financial decisions. Not considering the time value of money can lead to inaccurate accounting and financial reporting.

Question 15

When a company uses coupon or premium offers in conjunction with the sale of its products, there is no need to record any contingent liability.

Accepted Answer

The use of coupon or premium offers creates a contingent liability for the company because there is a possibility that not all of the coupons or premiums will be redeemed, which would result in the company owing less than the face value of the coupons or premiums. Therefore, a contingent liability must be recorded to account for this possibility.

Question 16

Generally, an increase in a current liability results in an increase in the operating activities category of the cash flow statement.

Accepted Answer

An increase in a current liability, such as accounts payable or accrued expenses, is typically related to expenses incurred in the normal course of business operations. These expenses are reflected in the operating activities section of the cash flow statement. Therefore, an increase in current liabilities would result in an increase in the operating activities category of the cash flow statement.

Question 17

International accounting standards require companies to present classified balance sheets with liabilities classified as either current or long term.

Accepted Answer

International accounting standards, specifically IAS 1, require companies to present classified balance sheets with liabilities classified as either current or long term.

Question 18

Warranty expenses are the result of the selling company's estimate of the number of units sold during the current year that may become defective and need repair or replacement during the warranty period.

Accepted Answer

This statement is true. Warranty expenses are estimated by the selling company based on the number of units they expect to become defective and require repair or replacement during the warranty period.

Question 19

The liability for a premium offer estimated to be redeemed is not a current liability.

Accepted Answer

The liability for a premium offer estimated to be redeemed is a current liability as it is expected to be fulfilled within a short period of time, typically within one year.

Question 20

An amount that has been incurred as an expense, but has not yet been paid should be considered an accrued liability.

Accepted Answer

Accrued liabilities are expenses that have been incurred but have not yet been paid. They are recognized on the balance sheet as a current liability.

Quiz 9: Current Liabilities, Contingencies, and the Time Value of Money