Question 1

Julia Used Cars offers a one-year warranty from the date of sale on all cars it sells. From historic data, Bill Julia estimates that, on average, each car will require the company to incur warranty cost of $820. The cars sold for an average of $9,500 each. The following activities occurred during 2010.
  If Julia accrued its warranty liability with a single adjusting entry at year-end, the journal entry would include: 
a. a debit to Contingent Warranty Liability for $28,700
b. a debit to Warranty Expense for $28,700
c. a credit to Parts for $17,220
d. a credit to Cash for $28,700

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Question 2

On December 31, 2008, Seminole Co. had current assets of $25,000 in cash and current liabilities of $8,000 in accounts payable, resulting in a current ratio of 3.13. The company estimates that warranty expense for 2009 is 6% of sales that totaled $200,000. Calculate Seminole's current ratio after warranty expense is recognized.

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Question 3

The following information was taken from the annual report of Jones Inc.
  Based on this information, what journal entry should Jones make in 2010 to record its income taxes?

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Question 4

Pacific Company estimates warranty expense as 10% of sales. On January 1, warranties payable was $10,000. During the year, Pacific paid $8,000 to meet its warranty obligations and recorded sales of $300,000. Calculate warranties payable on December 31.

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Question 5

On October 1, Accurate Company borrowed $2,000 in return for a nine-month note payable with a maturity value of $2,600. Calculate the amount of interest expense and the balance sheet value for the year ending December 31.

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The answer of On October 1, Accurate Company borrowed $2,000...

Question 6

For each item numbered 1 through 16 below, select the appropriate effect on liabilities listed in a through e that each transaction describes. You may use each letter more than once or not at all. In some cases, two effects are correct.
  ____ 1. Purchased supplies on account.
____ 2. Paid accounts payable.
____ 3. Issued a $1,000 short-term note payable for $970.
____ 4. Amortized the discount of the short-term note payable.
____ 5. A portion of long-term debt is due next year.
____ 6. Declared cash dividends to holders of stock.
____ 7. Paid the cash dividend previously declared.
____ 8. Received money from customers prior to delivery of the product to the customer.
____ 9. Delivered products to a customer who previously paid for that product.
____ 10. Collected sales tax on behalf of the state government.
____ 11. Accrued payroll taxes that the firm has to pay to the federal government within three months.
____ 12. Accrued a bonus amounting to 5% on reported income to the CEO.
____ 13. In a lawsuit filed against the firm, counsel indicates that the potential $10,000 loss is remote.
____ 14. In a lawsuit filed against the firm, counsel indicates that the potential $10,000 loss is reasonably possible.
____ 15. In a lawsuit filed against the firm, counsel indicates that the potential $10,000 loss is highly probable.
____ 16. Accrued warranty expense.

Accepted Answer

The answer of For each item numbered 1 through 16...

Question 7

On December 31, 2009, Roper Company had current assets of $15,000 in cash and current liabilities of $8,000 in accounts payable, resulting in a current ratio of 1.88. The company needs to increase its current ratio to 2.75 by December 31, 2010. Calculate the amount of accounts payable that needs to be paid in order to boost the current ratio to 2.75.

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Question 8

The following information was taken from the annual report of Leno Inc.
  Based on this information, what journal entry should Leno make in 2010 to record its income taxes?

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Question 9

As a security analyst for Market Masters, Inc., you have chosen to invest in one high-tech firm. You have narrowed your choice between RamTech Company or Accutrex Industries, firms of similar size and direct competitors in the industry. The following information was taken from their 2009 annual reports:

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Question 10

On July 1, Gordon Company borrowed $10,000 in return for an eight-month note payable with a maturity value of $10,600. Calculate the amount of interest expense for the current year.

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The answer of On July 1, Gordon Company borrowed $10,000...

Question 11

Julia Used Cars offers a one-year warranty from the date of sale on all cars it sells. From historic data, Bill Julia estimates that, on average, each car will require the company to incur warranty cost of $820. The following activities occurred during 2010.
  If the January 1, 2010 beginning balance in the warranty liability account was $2,500, what would be the year-end warranty liability balance? 
a. $31,200
b. $16,200
c. $11,200
d. $13,700

Accepted Answer

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Question 12

On January 1 and December 31, warranties payable were $6,000 and $4,000, respectively. During the current year, sales were $100,000, upon which 3% was estimated to be the amount required for future warranty payments. Calculate the amount paid for warranties during the current year.

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Question 13

The following information was taken from the annual report of Leno Inc.
  What is Leno's conservatism ratio? 
a. 0.63
b. 0.91
c. 0.69
d. 0.86

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Question 14

On July 1, Falcon Company borrowed $2,000 in return for a one-year note payable with a maturity value of $2,200. Calculate the balance sheet value of the note on December 31.

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The answer of On July 1, Falcon Company borrowed $2,000...

Question 15

Select the letter of the effect on the ratios (a through c) as a result of each transaction listed in items 1 through 16.
  ____ 1. Purchased supplies on account to be used next month.
____ 2. Paid accounts payable.
____ 3. Issued a $1,000 short-term note payable for $970.
____ 4. Amortized the discount of the short-term note payable.
____ 5. A portion of long-term debt is due next year.
____ 6. Declared cash dividends to holders of stock.
____ 7. Paid the cash dividend previously declared.
____ 8. Received money from customer prior to delivery of the product to the customer.
____ 9. Delivered product to a customer who previously paid for that product.
____ 10. Collected sales tax on behalf of the state government.
____ 11. Accrued payroll taxes the firm has to pay to the federal government within three months.
____ 12. Paid a bonus (not previously accrued) amounting to 5% on reported income to the CEO for the current year.
____ 13. A large payment is remotely probable resulting from a lawsuit filed against the firm.
____ 14. A large payment is reasonably probable resulting from a lawsuit filed against the firm.
____ 15. A $10,000 payment is highly probable resulting from a lawsuit filed against the firm.
____ 16. Bondholder converted bond into stock through conversion feature.

Accepted Answer

The answer of Select the letter of the effect on...

Question 16

Bradley Incorporated owns a chain of retail stores. During December of 2009, a customer slipped in a doorway of its Missouri store and broke his ribs. He is suing Bradley for $200,000 for negligence. Bradley's legal counsel believes that it is only reasonably probable that Bradley will lose its defense of the lawsuit because, although the doorway was icy due to an ice storm that was occurring at the time of the fall, a sign on the door warned customers that the doorway was slippery when icy. On December 30, 2009, before considering the effects of this lawsuit, Bradley's current assets, total assets, current liabilities, and total liabilities were $420,000, $840,000, $100,000, and $300,000, respectively. After this event is properly accounted for, calculate Bradley's debt/equity ratio on December 31, 2009.

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Question 17

Beacon Incorporated owns a chain of retail stores. During December of 2009, a customer slipped in a doorway of its Virginia store and broke his ribs. He is suing Beacon for $200,000 for negligence. Beacon's legal counsel believes that it is remote that Beacon will lose its defense of the lawsuit because the doorway recently was rebuilt with all-weather traction stripping and a sign on the door warned customers that the doorway was slippery when icy. On December 30, 2009, before considering the effects of this lawsuit, Beacon's current assets, total assets, current liabilities, and total liabilities were $420,000, $840,000, $100,000, and $300,000, respectively. After this event is properly accounted for, calculate Beacon's debt/asset ratio on December 31, 2009.

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Question 18

Julia Used Cars offers a one-year warranty from the date of sale on all cars it sells. From historic data, Bill Julia estimates that, on average, each car will require the company to incur warranty cost of $820. The cars sold for an average of $9,500 each. The following activities occurred during 2010.  Assume that the breakdown of warranty costs is 40% parts and 60% wages (paid in cash). Based on this information, which of the following journal entries would be made on September 1?

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Question 19

On October 1, 2009, Brooks Company borrowed $6,000 in return for a nine-month note payable with a maturity value of $6,600. Fill in the partial balance sheet that appears below as of December 31, 2009.

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The answer of On October 1, 2009, Brooks Company borrowed...

Question 20

Pitts Incorporated owns a chain of retail stores. During December of 2009, a customer slipped in a doorway of its Nebraska store and broke his ribs. He is suing Pitts for $200,000 for negligence. The legal counsel of Pitts believes that it is remote that Pitts will lose its defense of the lawsuit because the doorway recently was rebuilt with all-weather traction stripping and a sign on the door warned customers that the doorway was slippery when icy. On December 30, 2009, before considering the effects of this lawsuit, The company's current assets, total assets, current liabilities, and total liabilities were $420,000, $840,000, $100,000, and $300,000, respectively. After this event is properly accounted for, calculate the company's debt/equity ratio on December 31, 2009.

Accepted Answer

The answer of Pitts Incorporated owns a chain of retail...

Quiz 10: Introduction to Liabilities: Economic Consequences, Current Liabilities, and Contingencies

The following information was taken from the annual report of Jones Inc. Based on this information, what journal entry should Jones make in 2010 to record its income taxes?

Pacific Company estimates warranty expense as 10% of sales. On January 1, warranties payable was $10,000. During the year, Pacific paid $8,000 to meet its warranty obligations and recorded sales of $300,000. Calculate warranties payable on December 31.

On October 1, Accurate Company borrowed $2,000 in return for a nine-month note payable with a maturity value of $2,600. Calculate the amount of interest expense and the balance sheet value for the year ending December 31.

The following information was taken from the annual report of Leno Inc. Based on this information, what journal entry should Leno make in 2010 to record its income taxes?

On July 1, Gordon Company borrowed $10,000 in return for an eight-month note payable with a maturity value of $10,600. Calculate the amount of interest expense for the current year.

On January 1 and December 31, warranties payable were $6,000 and $4,000, respectively. During the current year, sales were $100,000, upon which 3% was estimated to be the amount required for future warranty payments. Calculate the amount paid for warranties during the current year.

The following information was taken from the annual report of Leno Inc. What is Leno's conservatism ratio? a. 0.63 b. 0.91 c. 0.69 d. 0.86

On July 1, Falcon Company borrowed $2,000 in return for a one-year note payable with a maturity value of $2,200. Calculate the balance sheet value of the note on December 31.

On October 1, 2009, Brooks Company borrowed $6,000 in return for a nine-month note payable with a maturity value of $6,600. Fill in the partial balance sheet that appears below as of December 31, 2009.