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| 1 | |
Which of the following is true about current liabilities? |
| | A) | They are also called short-term liabilities |
| | B) | They are obligations due within a year or the company's operating cycle, whichever is longer. |
| | C) | They are expected to be paid with current assets or by creating other liabilities. |
| | D) | All of the above. |
| | E) | None of the above. |
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| 2 | |
Which of the following is not one of the crucial factors included in the definition of a liability? |
| | A) | A past transaction or event |
| | B) | A present obligation |
| | C) | An obligation of a known amount |
| | D) | A future payment of assets or services |
| | E) | All of the above |
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| 3 | |
Which of the following questions must be addressed when accounting for liabilities? |
| | A) | When to pay? |
| | B) | How much to pay? |
| | C) | Whom to pay? |
| | D) | All of the above. |
| | E) | None of the above. |
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| 4 | |
Which of the following is not an example of a known current liability? |
| | A) | Accounts payable |
| | B) | Sales tax payable |
| | C) | Unearned revenues |
| | D) | Payroll liabilities |
| | E) | Vacation Benefits |
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| 5 | |
When should a contingent liability be recorded in the face of the financial statements? |
| | A) | When the future event is probable and can be reasonably estimated |
| | B) | When the future event is remote |
| | C) | When the future event is reasonably possible and can be reasonably estimated |
| | D) | All of the above. |
| | E) | None of the above. |
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| 6 | |
Which of the following is not a contingent liability? |
| | A) | Product warranty |
| | B) | Debt guarantee |
| | C) | Potential legal claim arising from a lawsuit claiming slander |
| | D) | Potential legal claim arising from a lawsuit claiming property damage |
| | E) | None of the above |
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| 7 | |
The following information is available from the company's financial statements: cash $40,000, net income $450,000, interest expenses $40,000, depreciation expense $30,000, and income tax expense $20,000. What is the times interest earned? |
| | A) | 11.25 |
| | B) | 12.25 |
| | C) | 13.00 |
| | D) | 14.50 |
| | E) | None of the above |
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| 8 | |
At the end of the year, accrued but unpaid interest on a note payable equals $10,000. Which of the following adjusting entry would be recorded as a result? |
| | A) | Debit the Prepaid Interest account, credit the Interest Expense account for $10,000. |
| | B) | Debit the Interest Expense account, credit the Prepaid Interest account for $10,000. |
| | C) | Debit the Interest Payable account, credit the Interest Expense account for $10,000. |
| | D) | Debit the Interest Expense account, credit the Interest Payable account for $10,000. |
| | E) | No adjusting entry is required; the related interest is not yet due. |
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| 9 | |
A $10,000, 9% 90-day note payable is signed on December 1, 2010. What is the amount of accrued, but unpaid interest relating to this note at December 31? |
| | A) | $75 |
| | B) | $225 |
| | C) | $750 |
| | D) | $2,250 |
| | E) | $10,000 |
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| 10 | |
A $40,000 note is signed on December 26, 2010 and is due in 120 days. What is the maturity date of this note? |
| | A) | March 24 |
| | B) | March 25 |
| | C) | March 26 |
| | D) | April 25 |
| | E) | April 26 |
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| 11 | |
Which of the following statements is false? |
| | A) | IFRS defines probable as "more likely than not," while U.S. GAAP defines it as "likely to occur." |
| | B) | Both U.S. GAAP and IFRS account for restructuring costs in a manner similar to accounting for warranties. |
| | C) | The definitions and characteristics of current liabilities are vastly different between U.S. GAAP and IFRS. |
| | D) | When there is a known current obligation that involves an uncertain amount, but one that can be reasonably estimated, both U.S. GAAP and IFRS require similar treatment. |
| | E) | All of the above. |
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| 12 | |
Which of the following taxes would not be included in payroll tax expense of an employer? |
| | A) | Federal unemployment taxes |
| | B) | Employer FICA taxes |
| | C) | Federal and state income tax |
| | D) | State unemployment taxes |
| | E) | None of the above |
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| 13 | |
The recording of a product warranty expense in the year the merchandise under warranty is sold is supported by which principle(s) or concept? |
| | A) | Recognition principle |
| | B) | Full disclosure and matching principles |
| | C) | Realization principle |
| | D) | Business entity concept |
| | E) | Materiality principle |
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| 14 | |
A television manufacturer offers a warranty on its sales of new televisions. During December, new television sales totaled $205,000. Past experience shows that warranty expense averages about 4% of the annual sales. What adjusting journal entry should be recorded on December 31 relating to the warranty? |
| | A) | Debit Warranty Expense for $8,200; Credit Estimated Warranty Liability for $8,200. |
| | B) | Debit Estimated Warranty Liability for $8,200; Credit Warranty Expense for $8,200. |
| | C) | Debit Warranty Expense for $8,200; Credit Television Parts Inventory for $8,200. |
| | D) | Debit Warranty Expense for $8,200; Credit Accounts Payable for $8,200. |
| | E) | No entry is required. |
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| 15 | |
An employer offers a bonus to its employees equal to 4% of the company's annual net income (to be equally shared by all). The company's expected annual net income is $700,000. What is the amount of the company's bonus expense? |
| | A) | $26,923 |
| | B) | $28,000 |
| | C) | $29,077 |
| | D) | Cannot be determined |
| | E) | None of the above |
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