Archive for July 2017

Barbara Muller Services (BMS) pays its employees monthly. The payroll information listed below is for January, 2011, the first month of BMS's fiscal year. The journal entry to record payroll for the January 2011 pay period will include a debit to payroll tax expense of

Naim 22:58 Add Comment

Barbara Muller Services (BMS) pays its employees monthly. The payroll information listed below is for January, 2011, the first month of BMS's fiscal year.
The journal entry to record payroll for the January 2011 pay period will include a debit to payroll tax expense of 




A. $6,120
B. $4,960
C. $11,080
D. $57,880




Answer: C

During the year, L&M Leather Goods sold 1,000,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $4.00 cash rebate. L&M estimates that 70% of the coupons will be redeemed, even though only 500,000 coupons had been processed during the year. At December 31, L&M should report a liability for unredeemed coupons of:

Naim 22:57 1 Comment

During the year, L&M Leather Goods sold 1,000,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $4.00 cash rebate. L&M estimates that 70% of the coupons will be redeemed, even though only 500,000 coupons had been processed during the year. At December 31, L&M should report a liability for unredeemed coupons of: 




A. $700,000
B. $800,000
C. $1,000,000
D. $2,800,000




Answer: B

General Product Inc. shipped 100 million coupons in products it sold in 2011. The coupons are redeemable for thirty cents each. General anticipates that 70% of the coupons will be redeemed. The coupons expire on December 31, 2012. There were 45 million coupons redeemed in 2011, and 30 million redeemed in 2012. What was General's coupon liability as of December 31, 2011?

Naim 22:56 Add Comment

General Product Inc. shipped 100 million coupons in products it sold in 2011. The coupons are redeemable for thirty cents each. General anticipates that 70% of the coupons will be redeemed. The coupons expire on December 31, 2012. There were 45 million coupons redeemed in 2011, and 30 million redeemed in 2012.
What was General's coupon liability as of December 31, 2011? 




A. $7.5 million.
B. $13.5 million.
C. $16.5 million.
D. $21.0 million.




Answer: A

Carpenter Inc. had a balance of $80,000 in its warranty liability account as of December 31, 2010. In 2011, Carpenter's warranty expenditures were $445,000. Its warranty expense is calculated as 1% of sales. Sales in 2011 were $40 million. What was the balance in the warranty liability account as of December 31, 2011?

Naim 22:56 Add Comment

Carpenter Inc. had a balance of $80,000 in its warranty liability account as of December 31, 2010. In 2011, Carpenter's warranty expenditures were $445,000. Its warranty expense is calculated as 1% of sales. Sales in 2011 were $40 million. What was the balance in the warranty liability account as of December 31, 2011? 




A. $35,000.
B. $425,000.
C. $125,000.
D. $480,000





Answer: A

Panther Co. had a warranty liability of $350,000 at the beginning of 2011, and $310,000 at end of 2011. Warranty expense is based on 4% of sales, which were $50 million for the year. What were the warranty expenditures for 2011?

Naim 22:56 Add Comment

Panther Co. had a warranty liability of $350,000 at the beginning of 2011, and $310,000 at end of 2011. Warranty expense is based on 4% of sales, which were $50 million for the year. What were the warranty expenditures for 2011? 



A. $0.
B. $1,960,000.
C. $2,000,000.
D. $2,040,000.





Answer: D

In 2011, Holyoak Inc. offers a $20 cash rebate coupon to customers who purchased one of its new line of products. Holyoak sold 10,000 of these products during the year. By year end of 2011, 7,600 of the rebates had been claimed, and 7,100 had been paid. Holyoak's historical experience with such rebates indicates that 85% of customers claim the rebates. What is the expense that Holyoak should report for its promotional rebates in its 2011 income statement?

Naim 22:55 Add Comment

In 2011, Holyoak Inc. offers a $20 cash rebate coupon to customers who purchased one of its new line of products. Holyoak sold 10,000 of these products during the year. By year end of 2011, 7,600 of the rebates had been claimed, and 7,100 had been paid. Holyoak's historical experience with such rebates indicates that 85% of customers claim the rebates.
What is the expense that Holyoak should report for its promotional rebates in its 2011 income statement? 




A. $142,000
B. $152,000
C. $170,000
D. $200,000





Answer: C

During 2011, Deluxe Leather Goods sold 800,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $5.00 cash rebate. Deluxe estimates that 70% of the coupons will be redeemed, even though only 350,000 coupons had been processed during 2011. At December 31, 2011, Deluxe should report a liability for unredeemed coupons of:

Naim 22:55 Add Comment

During 2011, Deluxe Leather Goods sold 800,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $5.00 cash rebate. Deluxe estimates that 70% of the coupons will be redeemed, even though only 350,000 coupons had been processed during 2011. At December 31, 2011, Deluxe should report a liability for unredeemed coupons of: 



A. $560,000.
B. $1,050,000.
C. $1,225,000.
D. $1,750,000.



Answer: B

At the beginning of 2011, Angel Corporation began offering a 2-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2011 were $180 million. Fifteen percent of the units sold were returned in 2011 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2011 income statement is:

Naim 22:54 Add Comment

At the beginning of 2011, Angel Corporation began offering a 2-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2011 were $180 million. Fifteen percent of the units sold were returned in 2011 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2011 income statement is: 



A. $5.3 million.
B. $7.2 million.
C. $10.6 million.
D. $27.0 million.




Answer: B

Captain Cook Cereal includes one coupon in each package of Granola that it sells and offers a puzzle in exchange for $2.00 and 3 coupons. The puzzles cost Captain Cook $3.50 each. Experience indicates that 20% of the coupons eventually will be redeemed. During the last month of 2011, the first month of the offer, Captain Cook sold 6 million boxes of Granola and 900,000 of the coupons were redeemed. What amount should Captain Cook report as a liability for coupons on its December 31, 2011, balance sheet?

Naim 22:54 Add Comment

Captain Cook Cereal includes one coupon in each package of Granola that it sells and offers a puzzle in exchange for $2.00 and 3 coupons. The puzzles cost Captain Cook $3.50 each. Experience indicates that 20% of the coupons eventually will be redeemed. During the last month of 2011, the first month of the offer, Captain Cook sold 6 million boxes of Granola and 900,000 of the coupons were redeemed. What amount should Captain Cook report as a liability for coupons on its December 31, 2011, balance sheet? 



A. $0.
B. $150,000.
C. $300,000.
D. $450,000.




Answer: B

Funzy Cereal includes one coupon in each package of Wheatos that it sells and offers a toy car in exchange for $1.00 and 3 coupons. The cars cost Funzy $1.50 each. Experience indicates that 40% of the coupons eventually will be redeemed. During the last month of 2011, the first month of the offer, Funzy sold 12 million boxes of Wheatos and 2.4 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2011, income statement?

Naim 22:54 Add Comment

Funzy Cereal includes one coupon in each package of Wheatos that it sells and offers a toy car in exchange for $1.00 and 3 coupons. The cars cost Funzy $1.50 each. Experience indicates that 40% of the coupons eventually will be redeemed. During the last month of 2011, the first month of the offer, Funzy sold 12 million boxes of Wheatos and 2.4 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2011, income statement? 



A. $0.
B. $400,000.
C. $800,000.
D. $1,200,000.




Answer: C

Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:

Naim 22:54 Add Comment

Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs: 



A. When the equipment is sold.
B. When the repairs are performed.
C. When payments are made to the service firm.
D. Evenly over the life of the warranty.





Answer: A

A customer of Razor Sharpeners alleges that Razor's new razor sharpener had a defect that resulted in serious injury to the customer. Razor believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under IFRS, Razor should accrue a liability in the amount of:

Naim 22:54 Add Comment

A customer of Razor Sharpeners alleges that Razor's new razor sharpener had a defect that resulted in serious injury to the customer. Razor believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under IFRS, Razor should accrue a liability in the amount of: 



A. $0.
B. $1,000,000.
C. $2,000,000.
D. $3,000,000.





Answer: C

A customer of RoughEdge Sharpeners alleges that RoughEdge's new razor sharpener had a defect that resulted in serious injury to the customer. RoughEdge believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under U.S. GAAP, RoughEdge should accrue a liability in the amount of:

Naim 22:53 Add Comment

A customer of RoughEdge Sharpeners alleges that RoughEdge's new razor sharpener had a defect that resulted in serious injury to the customer. RoughEdge believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under U.S. GAAP, RoughEdge should accrue a liability in the amount of: 



A. $0.
B. $1,000,000.
C. $2,000,000.
D. $3,000,000.





Answer: A

When a material gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be:

Naim 22:52 Add Comment

When a material gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be: 




A. Reported in the income statement and disclosed.
B. Offset against shareholders' equity.
C. Disclosed, but not recognized in the income statement.
D. Neither recognized in the income statement nor disclosed.




Answer: C

Z Co. filed suit against W, Inc. in 2011 seeking damages for patent infringement. At December 31, 2011, legal counsel for Z believed that it was probable that Z would be successful against W for an estimated amount in the range of $30 million to $60 million, with each amount in that range considered equally likely. Z was awarded $40 million in April 2012. Z should report this award in its 2011 financial statements, issued in March, 2012 as

Naim 22:52 Add Comment

Z Co. filed suit against W, Inc. in 2011 seeking damages for patent infringement. At December 31, 2011, legal counsel for Z believed that it was probable that Z would be successful against W for an estimated amount in the range of $30 million to $60 million, with each amount in that range considered equally likely. Z was awarded $40 million in April 2012. Z should report this award in its 2011 financial statements, issued in March, 2012 as 




A. A receivable and unearned revenue of $40 million.
B. A receivable and revenue of $40 million.
C. A disclosure of a gain contingency of $40 million.
D. A disclosure of a gain contingency of an undetermined amount in the range of $30 million to $60 million.




Answer: D

Red Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If expropriation is probable, a loss contingency should be

Naim 22:51 Add Comment

Red Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If expropriation is probable, a loss contingency should be 



A. Disclosed but not accrued as a liability.
B. Disclosed and accrued as a liability.
C. Accrued as liability but not disclosed.
D. Neither accrued as a liability nor disclosed.




Answer: B

Orange Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's asset in that country. If expropriation is reasonably possible, a loss contingency should be

Naim 22:51 Add Comment

Orange Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's asset in that country. If expropriation is reasonably possible, a loss contingency should be 




A. Disclosed but not accrued as a liability.
B. Disclosed and accrued as a liability.
C. Accrued as liability but not disclosed.
D. Neither accrued as a liability nor disclosed.



Answer: A

Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If the likelihood of expropriation is remote, a loss contingency should be

Naim 22:51 Add Comment

Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If the likelihood of expropriation is remote, a loss contingency should be 



A. Disclosed but not accrued as a liability.
B. Disclosed and accrued as a liability.
C. Accrued as liability but not disclosed.
D. Neither accrued as a liability nor disclosed.




Answer: D

The main difference between accounting for rebate and cash discount coupons is:

Naim 22:50 Add Comment

The main difference between accounting for rebate and cash discount coupons is: 




A. The latter is not treated as an expense.
B. Only the former creates a contingent liability when issued.
C. The expense for the latter is usually deferred until redemption of the coupon.
D. There are no significant differences in accounting between the two.




Answer: C

Providing a monetary rebate program for purchasing a product:

Naim 22:50 Add Comment

Providing a monetary rebate program for purchasing a product: 




A. Is accounted for similarly to product warranties.
B. Creates an expense for the seller in the period of sale.
C. Creates a contingent liability for the seller at the time of sale.
D. All of the above are correct.





Answer: D

Paul Company issues a product recall due to an apparently pre-existing and material defect discovered after the end of its fiscal year. Financial statements have not yet been issued. The action required of Paul Company for this reasonably estimable contingency for the year just ended is:

Naim 22:49 Add Comment

Paul Company issues a product recall due to an apparently pre-existing and material defect discovered after the end of its fiscal year. Financial statements have not yet been issued. The action required of Paul Company for this reasonably estimable contingency for the year just ended is: 




A. To disclose it in a footnote.
B. To accrue a long-term liability.
C. To accrue the liability and explain it in a footnote.
D. To do nothing relative to the contingency.






Answer: C

A loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is:

Naim 22:49 Add Comment

A loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is: 





A. at least remotely possible and the amount of the loss is known.
B. reasonably possible and the amount of the loss is known.
C. reasonably possible and the amount of the loss can be reasonably estimated.
D. probable and the amount of the loss can be reasonably estimated.



Answer: D

Which of the following is a contingency that should be accrued?

Naim 22:49 Add Comment

Which of the following is a contingency that should be accrued? 





A. The company is being sued and a loss is reasonably possible and reasonably estimable.
B. The company deducts life insurance premiums from employees' paychecks.
C. The company offers a two-year warranty and the expenses can be reasonably estimated.
D. It is probable that the company will receive $100,000 in settlement of a lawsuit.




Answer: C

A company should accrue a loss contingency only if the likelihood that a liability has been incurred is:

Naim 22:48 Add Comment

A company should accrue a loss contingency only if the likelihood that a liability has been incurred is: 




A. More likely than not and the amount of the loss is known.
B. At least reasonably possible and the amount of the loss is known.
C. At least reasonably possible and the amount of the loss can be reasonably estimated.
D. Probable and the amount of the loss can be reasonably estimated.




Answer: D

Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current. The logic behind this preference is that the long-term classification permits the company to report:

Naim 22:47 Add Comment

Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current. The logic behind this preference is that the long-term classification permits the company to report: 



A. Higher working capital and a higher inventory turnover.
B. Lower working capital and a higher current ratio.
C. Higher working capital and a higher current ratio.
D. Higher working capital and a lower debt to equity ratio.




Answer: C

Branch Company, a building materials supplier, has $18,000,000 of notes payable due April 12, 2012. At December 31, 2011, Branch signed an agreement with First Bank to borrow up to $18,000,000 to refinance the notes on a long-term basis. The agreement specified that borrowings would not exceed 75% of the value of the collateral that Branch provided. At the date of issue of the December 31, 2011, financial statements, the value of Branch's collateral was $20,000,000. On its December 31, 2011, balance sheet, Branch should classify the notes as follows:

Naim 08:36 Add Comment

Branch Company, a building materials supplier, has $18,000,000 of notes payable due April 12, 2012. At December 31, 2011, Branch signed an agreement with First Bank to borrow up to $18,000,000 to refinance the notes on a long-term basis. The agreement specified that borrowings would not exceed 75% of the value of the collateral that Branch provided. At the date of issue of the December 31, 2011, financial statements, the value of Branch's collateral was $20,000,000. On its December 31, 2011, balance sheet, Branch should classify the notes as follows: 




A. $15,000,000 long-term and $3,000,000 current liabilities.
B. $4,500,000 short-term and $13,500,000 current liabilities.
C. $18,000,000 of current liabilities.
D. $18,000,000 of long-term liabilities.



Answer: A

Kline Company refinanced current debt as long-term debt on January 5, 2012. Kline's fiscal year ended on December 31, 2011, and its financial statements will be issued sometime in early March, 2012. Under IFRS, how would Kline classify the debt on its December 31, 2011 balance sheet?

Naim 08:34 Add Comment

Kline Company refinanced current debt as long-term debt on January 5, 2012. Kline's fiscal year ended on December 31, 2011, and its financial statements will be issued sometime in early March, 2012. Under IFRS, how would Kline classify the debt on its December 31, 2011 balance sheet? 



A. In the "mezzanine" between current and non-current liabilities.
B. Kline would not classify the debt as current or noncurrent, but rather would write a disclosure note explaining the circumstances.
C. As a noncurrent liability.
D. As a current liability.




Answer: D

Liabilities payable within the coming year are classified as long-term liabilities if refinancing is completed before date of issuance of the financial statements under

Naim 08:34 Add Comment

Liabilities payable within the coming year are classified as long-term liabilities if refinancing is completed before date of issuance of the financial statements under 



A. US GAAP.
B. IFRS.
C. Either U.S. GAAP and IFRS.
D. Neither U.S. GAAP and IFRS.




Answer: A

On December 31, 2011, L, Inc. had a $1,500,000 note payable outstanding, due July 31, 2012. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $500,000 of the note on January 23, 2012. In February 2012, L completed a $3,000,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2012. On March 13, 2012, L issued its 2011 financial statements. What amount of the note payable should L include in the current liabilities section of its December 31, 2011, balance sheet?

Naim 08:34 Add Comment

On December 31, 2011, L, Inc. had a $1,500,000 note payable outstanding, due July 31, 2012. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $500,000 of the note on January 23, 2012. In February 2012, L completed a $3,000,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2012. On March 13, 2012, L issued its 2011 financial statements. What amount of the note payable should L include in the current liabilities section of its December 31, 2011, balance sheet? 



A. $0
B. $500,000
C. $1,000,000
D. $1,500,000





Answer: B

Which of the following situations would not require that long-term liabilities be reported as current liabilities on a classified balance sheet?

Naim 08:33 Add Comment

Which of the following situations would not require that long-term liabilities be reported as current liabilities on a classified balance sheet? 




A. The long-term debt is callable by the creditor.
B. The creditor has the right to demand payment due to a contractual violation.
C. The long-term debt matures within the upcoming year.
D. All of the above require the current classification.




Answer: D

Short-term obligations can be reported as long-term liabilities if:

Naim 08:32 Add Comment

Short-term obligations can be reported as long-term liabilities if: 



A. The firm has a long-term line of credit.
B. The firm has tentative plans to issue long-term bonds.
C. The firm intends to and has the ability to refinance as long-term.
D. The firm has the ability to refinance on a long-term basis.





Answer: C

Slotnick Chemical received customer deposits on returnable containers in the amount of $300,000 during 2011. Fifteen percent of the containers were not returned. The deposits are based on the container cost marked up 20%. How much profit did Slotnick realize on the forfeited deposits?

Naim 08:32 Add Comment

Slotnick Chemical received customer deposits on returnable containers in the amount of $300,000 during 2011. Fifteen percent of the containers were not returned. The deposits are based on the container cost marked up 20%. How much profit did Slotnick realize on the forfeited deposits? 



A. $0.
B. $7,500.
C. $9,000.
D. $45,000.




Answer: B

In May of 2011, Raymond Financial Services became involved in a penalty dispute with the EPA. At December 31, 2011, the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable. The additional penalties were estimated to be $770,000 but could be as high as $1,170,000. After the year-end, but before the 2011 financial statements were issued, Raymond accepted an EPA settlement offer of $900,000. Raymond should have reported an accrued liability on its December 31, 2011, balance sheet of:

Naim 08:32 Add Comment

In May of 2011, Raymond Financial Services became involved in a penalty dispute with the EPA. At December 31, 2011, the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable. The additional penalties were estimated to be $770,000 but could be as high as $1,170,000. After the year-end, but before the 2011 financial statements were issued, Raymond accepted an EPA settlement offer of $900,000. Raymond should have reported an accrued liability on its December 31, 2011, balance sheet of: 



A. $770,000.
B. $900,000.
C. $970,000.
D. $1,170,000.





Answer: B

Clark's Chemical Company received customer deposits on returnable containers in the amount of $100,000 during 2011. Twelve percent of the containers were not returned. The deposits are based on the container cost marked up 20%. What is cost of goods sold relative to this forfeiture?

Naim 08:31 Add Comment

Clark's Chemical Company received customer deposits on returnable containers in the amount of $100,000 during 2011. Twelve percent of the containers were not returned. The deposits are based on the container cost marked up 20%. What is cost of goods sold relative to this forfeiture? 



A. $0.
B. $2,000.
C. $10,000.
D. $14,400.





Answer: C

When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes:

Naim 08:31 Add Comment

When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes: 




A. A debit to a revenue and a credit to a liability account.
B. A debit to a revenue and a credit to an asset account.
C. A debit to an asset and a credit to a revenue account.
D. A debit to a liability and a credit to a revenue account.




Answer: D

Peterson Photoshop sold $1000 of gift cards on a special promotion on October 15, 2011, and sold $1500 of gift cards on another special promotion on November 15, 2011. Of the cards sold in October, $100 were redeemed in October, $250 in November, and $300 in December. Of the cards sold in November, $150 were redeemed in November and $350 were redeemed in December. Peterson views the probability of redemption of a gift card as remote if the card has not been redeemed within two months. At 12/31/2011, Peterson would show an unearned revenue account for their gift cards with a balance of:

Naim 08:31 Add Comment

Peterson Photoshop sold $1000 of gift cards on a special promotion on October 15, 2011, and sold $1500 of gift cards on another special promotion on November 15, 2011. Of the cards sold in October, $100 were redeemed in October, $250 in November, and $300 in December. Of the cards sold in November, $150 were redeemed in November and $350 were redeemed in December. Peterson views the probability of redemption of a gift card as remote if the card has not been redeemed within two months. At 12/31/2011, Peterson would show an unearned revenue account for their gift cards with a balance of: 



A. $0.
B. $1000.
C. $1350.
D. $1500.





Answer: B

All else equal, a large increase in unearned revenue in the current period would be expected to produce what effect on revenue in a future period?

Naim 08:31 Add Comment

All else equal, a large increase in unearned revenue in the current period would be expected to produce what effect on revenue in a future period? 




A. Large increase, because unearned revenue becomes revenue when revenue is earned.
B. Large decrease, because unearned revenue implies that less revenue has been earned, which reduces future revenue.
C. No effect, because unearned revenue is a liability, so payment will use assets rather than providing revenue.
D. Large decrease, because unearned revenue indicates collection problems that will reduce net revenues in future periods.




Answer: A

Revenue associated with gift card sales should be recognized:

Naim 08:30 Add Comment

Revenue associated with gift card sales should be recognized: 




A. When the gift card is sold.
B. No later than the last day of the operating period in which the gift card is delivered to the customer.
C. When the probability of gift card redemption is viewed as remote.
D. Under no circumstances, as gift cards are not themselves a delivered product, but rather a selling technique




Answer: C

On January 1, 2011, G Corporation agreed to grant its employees two weeks vacation each year, with the stipulation that vacations earned each year can be taken the following year. For the year ended December 31, 2011, G's employees each earned an average of $800 per week. 500 vacation weeks earned in 2011 were not taken during 2011. Wage rates for employees rose by an average of 5 percent by the time vacations actually were taken in 2012. What is the amount of G's 2012 wages expense related to 2011 vacation time?

Naim 08:30 Add Comment

On January 1, 2011, G Corporation agreed to grant its employees two weeks vacation each year, with the stipulation that vacations earned each year can be taken the following year. For the year ended December 31, 2011, G's employees each earned an average of $800 per week. 500 vacation weeks earned in 2011 were not taken during 2011. Wage rates for employees rose by an average of 5 percent by the time vacations actually were taken in 2012. What is the amount of G's 2012 wages expense related to 2011 vacation time? 



A. $0
B. $20,000
C. $400,000
D. $420,000





Answer: B

B Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 2011, B's unadjusted balance of liability for compensated absences was $42,000. B estimated that there were 300 vacation days and 150 sick days available at December 31, 2011. B's employees earn an average of $200 per day. In its December 31, 2011, balance sheet, what amount of liability for compensated absences is B required to report?

Naim 08:30 Add Comment

B Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 2011, B's unadjusted balance of liability for compensated absences was $42,000. B estimated that there were 300 vacation days and 150 sick days available at December 31, 2011. B's employees earn an average of $200 per day. In its December 31, 2011, balance sheet, what amount of liability for compensated absences is B required to report? 



A. $60,000.
B. $84,000.
C. $90,000.
D. $144,000.





Answer: A

Lake Co. receives nonrefundable advance payments with special orders for containers constructed to customer specifications. Related information for 2011 is as follows ($ in millions): What amount should Lake report as a current liability for advances from customers in its Dec. 31, 2011, balance sheet?

Naim 08:29 Add Comment

Lake Co. receives nonrefundable advance payments with special orders for containers constructed to customer specifications. Related information for 2011 is as follows ($ in millions):
What amount should Lake report as a current liability for advances from customers in its Dec. 31, 2011, balance sheet? 




A. $0.
B. $80.
C. $125.
D. $170




Answer: B

M Corp. has an employee benefit plan for compensated absences that gives employees 15 paid vacation days. Vacation days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days. At December 31, 2011, M's unadjusted balance of liability for compensated absences was $30,000. M estimated that there were 200 vacation days available at December 31, 2011. M's employees earn an average of $150 per day. In its December 31, 2011, balance sheet, what amount of liability for compensated absences is M required to report?

Naim 08:29 Add Comment

M Corp. has an employee benefit plan for compensated absences that gives employees 15 paid vacation days. Vacation days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days. At December 31, 2011, M's unadjusted balance of liability for compensated absences was $30,000. M estimated that there were 200 vacation days available at December 31, 2011. M's employees earn an average of $150 per day. In its December 31, 2011, balance sheet, what amount of liability for compensated absences is M required to report? 




A. $0.
B. $30,000.
C. $225,000.
D. $450,000.




Answer: B

At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent:

Naim 08:28 Add Comment

At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent: 



A. Liabilities until the product or service is provided.
B. A component of shareholders' equity.
C. Long-term assets until the product or service is provided.
D. Revenue upon receipt of the advance payment.




Answer: A

On June 1, 2011, Dirty Harry Co. borrowed cash by issuing a 6-month noninterest-bearing note with a maturity value of $500,000 and a discount rate of 6%. What is the carrying value of the note as of September 30, 2011?

Naim 08:28 Add Comment

On June 1, 2011, Dirty Harry Co. borrowed cash by issuing a 6-month noninterest-bearing note with a maturity value of $500,000 and a discount rate of 6%. What is the carrying value of the note as of September 30, 2011? 




A. $525,000.
B. $300,000.
C. $495,000.
D. $475,000.




Answer: C

Knique Shoes issued a $100,000, 8-month, "noninterest-bearing note." The loan was made by Second Commercial Bank whose stated "discount rate" is 9%. The effective interest rate on this loan (rounded) is:

Naim 08:28 Add Comment

Knique Shoes issued a $100,000, 8-month, "noninterest-bearing note." The loan was made by Second Commercial Bank whose stated "discount rate" is 9%. The effective interest rate on this loan (rounded) is: 



A. 9.28%
B. 9.49%
C. 9.50%
D. 9.57%




Answer: D

Universal Travel Inc. borrowed $500,000 on November 1, 2011, and signed a 12-month note bearing interest at 6%. Interest is payable in full at maturity on October 31, 2012. In connection with this note, Universal Travel Inc. should report interest payable at December 31, 2011, in the amount of:

Naim 08:16 Add Comment

Universal Travel Inc. borrowed $500,000 on November 1, 2011, and signed a 12-month note bearing interest at 6%. Interest is payable in full at maturity on October 31, 2012. In connection with this note, Universal Travel Inc. should report interest payable at December 31, 2011, in the amount of: 



A. $8,000.
B. $30,000.
C. $5,000.
D. $25,000.





Answer: C

On September 1, 2011, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank whose stated discount rate is 9%. Hiker's effective interest rate on this loan (rounded) is:

Naim 08:15 Add Comment

On September 1, 2011, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank whose stated discount rate is 9%. Hiker's effective interest rate on this loan (rounded) is: 



A. 9.0%.
B. 9.5%.
C. 9.6%.
D. 9.7%.





Answer: C

Jane's Donut Co. borrowed $200,000 on January 1, 2011, and signed a two-year note bearing interest at 12%. Interest is payable in full at maturity on January 1, 2013. In connection with this note, Jane's should report interest expense at December 31, 2011, in the amount of:

Naim 08:15 Add Comment

Jane's Donut Co. borrowed $200,000 on January 1, 2011, and signed a two-year note bearing interest at 12%. Interest is payable in full at maturity on January 1, 2013. In connection with this note, Jane's should report interest expense at December 31, 2011, in the amount of: 



A. $0.
B. $24,000.
C. $48,000.
D. $50,880.




Answer: B

On October 31, 2011, Simeon Builders borrowed $16 million cash and issued a 7-month, noninterest-bearing note. The loan was made by Star Finance Co. whose stated discount rate is 8%. Sky's effective interest rate on this loan is:

Naim 08:15 Add Comment

On October 31, 2011, Simeon Builders borrowed $16 million cash and issued a 7-month, noninterest-bearing note. The loan was made by Star Finance Co. whose stated discount rate is 8%. Sky's effective interest rate on this loan is: 



A. More than the stated discount rate of 8%.
B. Less than the stated discount rate of 8%.
C. Equal to the stated discount rate of 8%.
D. Unrelated to the stated discount rate of 8%.




Answer: A

The key accounting considerations relating to accounts payable are:

Naim 08:13 Add Comment

The key accounting considerations relating to accounts payable are: 



A. Determining their existence and ensuring that they are recorded in the appropriate accounting period.
B. Determining their present value and ensuring that they are recorded in the appropriate accounting period.
C. Determining their existence and determining the correct amount.
D. Determining the present value of the principal and the amount of the interest.




Answer: A

Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of:

Naim 08:13 Add Comment

Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of: 



A. Matching.
B. Consistency.
C. Materiality.
D. Conservatism.





Answer: C

Which of the following is the best definition of a current liability?

Naim 08:13 Add Comment

Which of the following is the best definition of a current liability? 



A. An obligation payable within one year.
B. An obligation payable within one year of the balance sheet date.
C. An obligation payable within one year or within the normal operating cycle, whichever is longer.
D. An obligation expected to be satisfied with current assets or by the creation of other current liabilities.





Answer: D

Which of the following is not a characteristic of a liability?

Naim 08:12 Add Comment

Which of the following is not a characteristic of a liability? 



A. It represents a probable, future sacrifice of economic benefits.
B. It must be payable in cash.
C. It arises from present obligations to other entities.
D. It results from past transactions or events.




Answer: B

The most common type of liability is:

Naim 08:12 Add Comment

The most common type of liability is: 




A. One that comes into existence due to a loss contingency.
B. One that must be estimated.
C. One that comes into existence due to a gain contingency.
D. One to be paid in cash and for which the amount and timing are known.




Answer: D
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