Deck 10: Current Liabilities

Question 1

A company with an operating line of credit has been pre-authorized by the bank to borrow money, up to a certain amount.

Answer 1

True

Question 2

A refrigerator is sold in year 1 and is guaranteed for three years. A repair is made in year 2. The company's entry upon making the repair would include a debit to estimated warranty liability.

Answer 2

False

Question 3

Interest expense should not be recorded prior to maturity.

Answer 3

False

Question 4

Current maturities of long-term debt are identified on the balance sheet as current liabilities.

Question 5

Under ASPE a contingent liability is recorded if it is likely and the amount can be reasonably estimated.

Question 6

An estimated liability should not be recorded until the exact amount is known.

Question 7

When a company is overdrawn at the bank as a result of using its line of credit, the amount would be shown on the balance sheet as:

A) a current asset with a debit balance.
B) a current asset with a credit balance.
C) a contra account to Accounts Receivable.
D) a current liability.

Question 8

Recording accrued interest on a note payable would include a:

A) credit to cash.
B) debit to notes payable.
C) credit to interest payable.
D) credit to interest expense.

Question 9

Which of the following is an estimated liability?

A) Notes Payable
B) Redemption Rewards Liability
C) Provincial Sales Tax Payable
D) Unearned Revenue

Question 10

Recording estimated warranty expense in the year of the sale is best known as?

A) Consistency of accounting policies
B) Full disclosure of relevant information
C) Matching expenses with revenue
D) Recording all material items in the Financial Statements

Question 11

Bean Company has the following selected transactions:

The following adjustment data are noted at the end of the month:
1. Interest expense should be accrued on the note.
2. Some sales were made under warranty. Of the units sold under warranty this month, 250 are expected to become defective. Repair costs are estimated to be $30 per defective unit.
Instructions: Prepare month end adjusting journal entries for Bean Company.

Question 12

Provide examples of liabilities that need to be estimated.

Question 13

Provide an example of a contingent liability.