Chapter 13 Current Liabilities and Contingencies MCQ

The rate of interest printed on the face of a note payable is called the:

a. Yield rate

b. Effective rate

c. Market rate

d. Stated rate

d. Stated rate

When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in:

a. Current liability

b. Revenue

c. Shareholders’ Equity

d. Paid-in capital

a. Current liability

On September 1, 2016 Hiker Shoes issued a $100,000, 8 month, non interest-bearing note. The loan was made by second commercial Bank where the 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%

c. 9.6% (6,000)/(100,000-6,000) x 8/12 = 0.0957 = 9.57%

When a deposit on returnable containers is forfeited, the firm holding the deposit will experience

a. A decrease in cost of goods sold

b. An increase in current liabilities

c. An increase in accounts receivable

d. An increase in revenue

d. An increase in revenue

When a product or service is delivered for which a customer advance has been previously received the appropriate journal entries 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

d. A debit to a liability and a credit to a revenue account

A contingent loss should be reported to a disclosure note to the financial statements rather than being accrued if:

a. The likelihood of a loss is remote

b. The incurrence of a loss is reasonably possible

c. The incurrence of a loss is more likely than not

d. The likelihood of a loss is probable

b. The incurrence of a loss is reasonably possible

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 possible that the company will receive $100,000 in settlement of a lawsuit

c. The company offers a two-year warranty and the expenses can be reasonably estimated.

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

a. When the equipment is sold

Carpenter Inc. had a balance of $80,000 in it’s quality-assurance warranty liability account as of December 31, 2015. In 2016, Carpenter’s warranty expenditures were $445,000. It’s warranty expense is calculated as 1% of sales. Sales in 2016 were $40 million. What was the balance in the warranty liability account as of December 31, 2016?

a. $35,000

b. $425,000

c. $125,000

d. $480,000

a. $35,000</strong></p><p></p><p>Warranty Liability ($ in 000’s)

Dr. Cr. 80 begin balance Jan 1, 2016

. 400 (40,000 × 1%) Expense

paid 445

total: 35 end. balance Dec. 31, 2016