Question 1

An obligation resulting from an event that has not yet occurred is an example of a(n) __________.

Accepted Answer

contingent liability

Question 2

Accrued liabilities, such as interest payable, would be considered a(n) __________.

Accepted Answer

known liability

Question 3

A liability, such as warranties payable, would be an example of a(n) __________.

Accepted Answer

estimated liability

Question 4

Which of the following would be considered a known liability?

Accepted Answer

Known liabilities are obligations that can be quantified and are certain. Federal income tax payable and notes payable are examples of such liabilities because their amounts are determinable and there is a clear obligation to pay.

Question 5

The majority of a company's liabilities are estimated liabilities.

Accepted Answer

The majority of a company's liabilities can include a wide range of obligations such as loans, accounts payable, and bonds payable, not just estimated liabilities like warranties or litigation reserves.

Question 6

A company receives a note payable for $3,500 at 9% for 45 days. How much interest (to the nearest cent) will the customer owe using a 360-day year?

Accepted Answer

The answer of A company receives a note payable for...

Question 7

Accounts payable would be an example of a(n) __________.

Accepted Answer

The answer of Accounts payable would be an example of...

Question 8

A company receives a note payable for $5,000 at 10% for 50 days. How much interest (to the nearest cent) will the customer owe?

Accepted Answer

To calculate the interest owed, we use the formula: 
Interest = Principal x Rate x Time

The principal in this case is $5,000, the rate is 10% (or 0.1 as a decimal), and the time is 50 days divided by 365 (to get the fraction of a year).

So: 
Interest = $5,000 x 0.1 x (50/365) 
Interest = $68.49

Therefore, the customer will owe $68.49 in interest. The correct answer is C.

Question 9

A contingent liability arises because of a past event, but is dependent upon a future event.

Accepted Answer

A contingent liability is a potential liability that depends on the outcome of a future event. It arises from a past event (such as a lawsuit or warranty claim) but the amount and timing of the liability is uncertain because it depends on a future event (such as a court ruling or the outcome of negotiations).

Question 10

Journalize the following transactions for Alpha Company:
May 13 Purchased inventory on account from ABC for $4,000.
May 22 Purchased inventory on account from Sara for $2,500.
May 27 Paid off the account from ABC.

Accepted Answer

The answer of Journalize the following transactions for Alpha Company:
May...

Question 11

Which of the following would be considered an estimated liability?

Accepted Answer

Warranties payable are considered an estimated liability because the exact amount and timing of the liability are uncertain and must be estimated based on historical data and other factors.

Question 12

Which of the following would be considered a contingent liability?

Accepted Answer

Pending litigation is considered a contingent liability because it depends on the outcome of a future event, such as a court decision.

Question 13

Unearned revenues are typically classified as current liabilities.

Accepted Answer

Unearned revenues are payments received by a company for goods or services that have not yet been delivered or provided. Since they are expected to be earned within a year, they are classified as current liabilities on the company's balance sheet.

Question 14

The largest portion of accounts payable for most merchandising companies is related to the purchase of inventory on account.

Accepted Answer

Accounts payable is the amount owed to suppliers for purchased goods or services on credit. For a merchandising company, the majority of its expenses and liabilities are related to purchasing inventory on credit, which leads to a large portion of accounts payable. Therefore, the statement is true.

Question 15

If a liability is not properly classified, it will have an effect on the:

Accepted Answer

Both the quick and current ratio will be affected if a liability is not properly classified, as it can impact the calculation of current liabilities and, therefore, the ratios that include them. The total dollars of liabilities and current assets may also be affected, but this is not as directly linked to the misclassification of a liability.

Question 16

Does the amount of an obligation need to be known in order for a liability to exist? Explain.

Accepted Answer

The answer of Does the amount of an obligation need...

Question 17

A past transaction or event must have occurred for a __________ to exist.

Accepted Answer

The answer of A past transaction or event must have...

Question 18

Identify the general ledger accounts that would be debited and credited when making a payment on account, such as a telephone bill.

Accepted Answer

The answer of Identify the general ledger accounts that would...

Question 19

What is a major difference between an account payable and a note payable?

Accepted Answer

The answer of What is a major difference between an...

Question 20

Notes payable would be an example of a known liability.

Accepted Answer

Notes payable is a liability that is documented and known, therefore it is an example of a known liability.

Quiz 9: Current Liabilities and Long-Term Debt