Question 1

Which of the following may be a current liability?
A)Withheld Income Taxes
B)Deposits Received from Customers
C)Deferred Revenue
D)All of these

Accepted Answer

Withheld Income Taxes (A) are a current liability because the company has collected and owes this money to the government on behalf of its employees, and it will be due within one year. Deposits Received from Customers (B) may be a current liability if the customer has paid in advance for goods or services that have not yet been delivered. Deferred Revenue (C) is a current liability if the company has received payment for goods or services that have not yet been delivered or earned. Therefore, all of these options (D) could be current liabilities.

Question 2

The ability to consummate the refinancing of a short-term obligation may be demon- strated by
A)actually refinancing the obligation by issuing a long-term obligation after the date of the balance sheet but before it is issued.
B)entering into a financing agreement that permits the enterprise to refinance the debt on a long-term basis.
C)actually refinancing the obligation by issuing equity securities after the date of the balance sheet but before it is issued.
D)all of these.

Accepted Answer

All the options listed demonstrate the ability to refinance a short-term obligation, either through issuing long-term debt, entering a financing agreement, or issuing equity securities.

Question 3

Which of the following is not a correct statement about sales taxes?
A)Sales taxes are an expense of the seller.
B)Many companies record sales taxes in the sales account.
C)If sales taxes are included in the sales account, the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate.
D)All of these are true.

Accepted Answer

Sales taxes are typically collected by the seller from the customer and are a liability to be remitted to the government, not an expense of the seller.

Question 4

In accounting for compensated absences, the difference between vested rights and accumulated rights is
A)vested rights are normally for a longer period of employment than are accumu?lated rights.
B)vested rights are not contingent upon an employee's future service.
C)vested rights are a legal and binding obligation on the company, whereas accumulated rights expire at the end of the accounting period in which they arose.
D)vested rights carry a stipulated dollar amount that is owed to the employee; accumulated rights do not represent monetary compensation.

Accepted Answer

Vested rights are the employee's legally binding right to receive compensation for future absences, regardless of whether the employee continues to work for the company. Accumulated rights, on the other hand, accumulate over time based on an employee's length of service and expire at the end of the accounting period in which they arose.

Question 5

Liabilities are
A)any accounts having credit balances after closing entries are made.
B)deferred credits that are recognized and measured in conformity with generally accepted accounting principles.
C)obligations to transfer ownership shares to other entities in the future.
D)obligations arising from past transactions and payable in assets or services in the future.

Accepted Answer

Liabilities are obligations arising from past transactions that require a future transfer of assets, such as money or services. Liabilities can include things like accounts payable, loans, mortgages, and accrued expenses. Option A is incorrect because accounts with credit balances are typically assets, not liabilities. Option B is incorrect because deferred credits are not always liabilities - they can also be assets. Option C is incorrect because it describes a specific type of liability (ownership shares), but doesn't encompass the full definition of liabilities.

Question 6

Which of the following statements is false?
A)A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing.
B)Cash dividends should be recorded as a liability when they are declared by the board of directors.
C)Under the cash basis method, warranty costs are charged to expense as they are paid.
D)FICA taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.

Accepted Answer

FICA taxes withheld from employees' payroll checks should be recorded as a liability since the employer has a legal obligation to remit the amounts withheld to the appropriate taxing authority. Failure to do so can result in penalties and legal consequences.

Question 7

Which of the following should not be included in the current liabilities section of the balance sheet?
A)Trade notes payable
B)Short-term zero-interest-bearing notes payable
C)The discount on short-term notes payable
D)All of these are included

Accepted Answer

The answer of Which of the following should not be...

Question 8

Which of the following items is a current liability?
A)Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months.
B)Bonds due in three years.
C)Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months.
D)Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.

Accepted Answer

The answer of Which of the following items is a...

Question 9

Which of the following is a condition for accruing a liability for the cost of compensation for future absences?
A)The obligation relates to the rights that vest or accumulate.
B)Payment of the compensation is probable.
C)The obligation is attributable to employee services already performed.
D)All of these are conditions for the accrual.

Accepted Answer

All of these conditions are necessary for accruing a liability for the cost of compensation for future absences. The obligation must relate to the rights that vest or accumulate, payment of the compensation must be probable, and the obligation must be attributable to employee services already performed.

Question 10

Which of these is not included in an employer's payroll tax expense?
A)F.I.C.A.(social security) taxes
B)Federal unemployment taxes
C)State unemployment taxes
D)Federal income taxes

Accepted Answer

Federal income taxes are not included in an employer's payroll tax expense. Federal income taxes are the responsibility of the individual employee and are withheld from their paycheck by the employer. However, F.I.C.A. (social security) taxes, federal and state unemployment taxes, and other state payroll taxes are all included in an employer's payroll tax expense.

Question 11

Of the following items, the only one which should not be classified as a current liability is
A)current maturities of long-term debt.
B)sales taxes payable.
C)short-term obligations expected to be refinanced.
D)unearned revenues.

Accepted Answer

Short-term obligations expected to be refinanced do not need to be classified as current liabilities if the entity intends to refinance the obligation on a long-term basis and demonstrates the ability to do so. This contrasts with the other options, which are typically classified as current liabilities because they are due within one year or within the operating cycle, whichever is longer, and do not depend on a refinancing plan.

Question 12

Among the short-term obligations of Lance Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Madison National Bank.These are 90-day notes, renewable for another 90-day period.These notes should be classified on the balance sheet of Lance Company as
A)current liabilities.
B)deferred charges.
C)long-term liabilities.
D)intermediate debt.

Accepted Answer

The notes payable totaling $250,000 with the Madison National Bank are short-term obligations that are due within the next 90 days. Therefore, they should be classified as current liabilities on the balance sheet of Lance Company.

Question 13

Stock dividends distributable should be classified on the
A)income statement as an expense.
B)balance sheet as an asset.
C)balance sheet as a liability.
D)balance sheet as an item of stockholders' equity.

Accepted Answer

Stock dividends distributable are classified on the balance sheet as an item of stockholders' equity, reflecting the company's obligation to issue additional shares to shareholders.

Question 14

Which of the following is not true about the discount on short-term notes payable?
A)The Discount on Notes Payable account has a debit balance.
B)The Discount on Notes Payable account should be reported as an asset on the balance sheet.
C)When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate.
D)All of these are true.

Accepted Answer

The Discount on Notes Payable account should not be reported as an asset on the balance sheet. This account represents the amount of interest that has already been deducted from the face value of the note, so it should be reported as a contra-liability account instead.

Question 15

An account which would be classified as a current liability is
A)dividends payable in the company's stock.
B)accounts payable-debit balances.
C)losses expected to be incurred within the next twelve months in excess of the company's insurance coverage.
D)none of these.

Accepted Answer

None of the options listed are classified as a current liability. Dividends payable in stock are not a liability, accounts payable should have credit balances, and expected losses are not liabilities but potential future expenses.

Question 16

If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except
A)a general description of the financing arrangement.
B)the terms of the new obligation incurred or to be incurred.
C)the terms of any equity security issued or to be issued.
D)the number of financing institutions that refused to refinance the debt, if any.

Accepted Answer

The number of financing institutions that refused to refinance the debt is not relevant information to include in the footnote. The footnote should focus on the details of the refinancing arrangement and the terms of the new obligation or equity security issued.

Question 17

An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's
A)portion of FICA taxes, and unemployment taxes.
B)and employer's portion of FICA taxes, and unemployment taxes.
C)portion of FICA taxes, unemployment taxes, and any voluntary deductions.
D)portion of FICA taxes, and any voluntary deductions.

Accepted Answer

Net pay is calculated by subtracting income tax withholdings, the employee's portion of FICA taxes, and any voluntary deductions from gross earnings. Unemployment taxes are typically paid by the employer, not the employee.

Question 18

Which of the following is a current liability?
A)Preferred dividends in arrears
B)A dividend payable in the form of additional shares of stock
C)A cash dividend payable to preferred stockholders
D)All of these

Accepted Answer

A current liability is a debt or obligation that is expected to be settled within one year or within the company's normal operating cycle. Preferred dividends in arrears are not currently due and are not considered a current liability. A dividend payable in the form of additional shares of stock is not a liability, but rather a stock-based compensation. However, a cash dividend payable to preferred stockholders is a current liability because it represents an obligation to pay out a certain amount of cash within a year.

Question 19

Which of the following statements is correct?
A)A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis.
B)A company may exclude a short-term obligation from current liabilities if the firm can demonstrate an ability to consummate a refinancing.
C)A company may exclude a short-term obligation from current liabilities if it is paid off after the balance sheet date and subsequently replaced by long-term debt before the balance sheet is issued.
D)None of these.

Accepted Answer

The answer of Which of the following statements is correct?
A)A...

Question 20

Which of the following is a current liability?
A)A long-term debt maturing currently, which is to be paid with cash in a sinking fund
B)A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue
C)A long-term debt maturing currently, which is to be converted into common stock
D)None of these

Accepted Answer

None of the options represents a current liability. A current liability is an obligation that is expected to be settled within one year or within the company's normal operating cycle. None of the options given meet this criteria, therefore D is the correct answer.

Quiz 13: Current Liabilities and Contingencies

Which of the following may be a current liability?

The ability to consummate the refinancing of a short-term obligation may be demon- strated by

Which of the following is not a correct statement about sales taxes?

In accounting for compensated absences, the difference between vested rights and accumulated rights is

Liabilities are

Which of the following statements is false?

Which of the following should not be included in the current liabilities section of the balance sheet?

Which of the following items is a current liability?

Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

Which of these is not included in an employer's payroll tax expense?

Of the following items, the only one which should not be classified as a current liability is

Among the short-term obligations of Lance Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Madison National Bank.These are 90-day notes, renewable for another 90-day period.These notes should be classified on the balance sheet of Lance Company as

Stock dividends distributable should be classified on the

Which of the following is not true about the discount on short-term notes payable?

An account which would be classified as a current liability is

If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except

An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's

Which of the following is a current liability?

Which of the following statements is correct?

Which of the following is a current liability?