Question 1

Nationwide Magazine sells 60,000 subscriptions in March at $15 each. The entry is made in March to record the sale of the subscriptions would include a:
A) debit to subscriptions receivable for $900,000.
B) debit to prepaid subscriptions for $900,000
C) credit to cash for $900,000.
D) credit to unearned subscription revenue for $900,000.

Accepted Answer

The sale of subscriptions in March generates unearned revenue since the company has not yet provided the service to the subscribers. Therefore, the entry would include a credit to unearned subscription revenue. The amount of revenue received is $900,000 (60,000 subscriptions x $15 each). Therefore, the entry would include a credit to unearned subscription revenue for $900,000.

Question 2

A contingency that is remote:
A) should be disclosed in the financial statements.
B) does not need to be disclosed.
C) must be accrued as a loss.
D) is recorded as a contingent liability.

Accepted Answer

A contingency that is remote does not need to be disclosed in the financial statements because there is a rare chance that it will actually occur and affect the company. However, if the contingency becomes more likely to occur, it may need to be disclosed as a potential risk or liability. Accruing a loss or recording it as a contingent liability is only necessary if the contingency is reasonably possible or probable.

Question 3

Kathy's Corner Store has total receipts for the month of $36,750 including sales taxes. If the sales tax rate is 5%, what are Kathy's sales for the month?
A) $36,750
B) $35,000
C) $34,012.50
D) $1,837.50

Accepted Answer

To find the sales amount before tax, divide the total receipts by 1 plus the sales tax rate: $36,750 / 1.05 = $35,000.

Question 4

Unearned revenue is reported on the balance sheet as:
A) a revenue account.
B) a current liability.
C) an unearned liability.
D) a long-term debt.

Accepted Answer

Unearned revenue is money that a company has received but has not yet earned. It is considered a current liability because the company has an obligation to provide goods or services in the future. As soon as the goods or services are provided, the unearned revenue is recognized as revenue on the income statement.

Question 5

Hoover Company has a long-term note payable for $300,000 on January 1, 2012. Each month the company is required to pay $75,000 on the note. How will this note be reported on January 31, 2012?
A) Long-term liability, $300,000
B) Long-term liability, $225,000
C) Current liability, $75,000; long-term liability, $225,000
D) Current liability, $225,000; long-term liability, $75,000

Accepted Answer

On January 31, 2012, the balance on the note payable would be $225,000 ($300,000 - $75,000). Since the next payment is due within the next 12 months, $75,000 would be classified as a current liability, and the remainder ($225,000) would be classified as a long-term liability. Therefore, the note payable would be reported as a current liability of $75,000 and a long-term liability of $225,000 on the balance sheet. Choice C accurately reflects this classification.

Question 6

Current liabilities fall into two categories which are referred to as:
A) contingent liabilities and contra-liabilities.
B) contingent liabilities and noncontingent liabilities.
C) unearned liabilities and contra-liabilities.
D) liabilities of a known amount and estimated liabilities.

Accepted Answer

Current liabilities are categorized into liabilities of a known amount, which are specific and quantifiable, and estimated liabilities, which are obligations that are uncertain in amount but can be reasonably estimated.

Question 7

Short-term notes payable are:
A) shown as a reduction to notes receivable on the balance sheet.
B) generally due within six to eight months.
C) shown on the balance sheet with current liabilities.
D) shown on the balance sheet after long-term liabilities.

Accepted Answer

Short-term notes payable are typically due within one year or less and are considered current liabilities on the balance sheet along with other obligations that must be paid within the same timeframe, such as accounts payable and accrued expenses. They are not shown as a reduction to notes receivable and may appear before or after long-term liabilities depending on their specific due date.

Question 8

Potential liabilities that depend on future events arising out of past events are called:
A) long-term liabilities.
B) estimated liabilities.
C) contingent liabilities.
D) current liabilities.

Accepted Answer

Contingent liabilities are potential liabilities that depend on future events arising out of past events. These liabilities are not certain and may or may not occur. Examples include potential lawsuits or warranty claims. They are disclosed in the footnotes of financial statements. Long-term liabilities are liabilities with a repayment period of more than one year, estimated liabilities are liabilities that are uncertain in amount but are likely to occur, and current liabilities are liabilities that are due within one year.

Question 9

On December 1, Goliath Corporation borrowed $10,000 on a 90-day, 6% note. Goliath Corporation's year end is December 31. Determine the balance in any current liabilities associated with the note as of December 31.

Accepted Answer

The answer of On December 1, Goliath Corporation borrowed $10,000...

Question 10

Sales taxes collected by a retailer are reported as:
A) contingent liabilities.
B) revenues.
C) current assets.
D) current liabilities.

Accepted Answer

Sales taxes collected by a retailer are reported as current liabilities because they are amounts owed to the government and must be paid in the near term.

Question 11

The total earnings of an employee for the payroll period is the:
A) withholdings.
B) net pay.
C) gross pay.
D) take home pay.

Accepted Answer

The total earnings of an employee for the payroll period is commonly referred to as their Gross Pay. This includes all wages, salaries, bonuses, and any other compensation before any deductions are taken out. Withholdings are the amount of money that is withheld from an employee's gross pay to cover taxes and other deductions, while net pay is what is left over after all deductions are taken out. Take home pay is simply another term for net pay.

Question 12

A company has a contingent loss that can be estimated and has a probable chance of occurrence. What reporting does FASB require regarding this contingency?
A) It should be reported in the notes to the financial statements.
B) It should be ignored until the actual loss occurs.
C) It should be accrued, reported on the financial statements and disclosed in the notes to the financial statements.
D) Nothing is required since there is only a probable chance of occurrence.

Accepted Answer

FASB requires that contingent losses that can be estimated and have a probable chance of occurrence should be accrued and reported on the financial statements. These losses should also be disclosed in the notes to the financial statements. Ignoring the contingency until the actual loss occurs or not reporting it is not allowed by FASB.

Question 13

Ironwood Company's sales for May 24 were $29,000. Ironwood is required to collect 6% state sales tax. The total cash received from customers was:
A) $1,740.
B) $27,260.
C) $29,000.
D) $30,740.

Accepted Answer

Since Ironwood collects a 6% state sales tax, the total cash received from customers should be the sum of the sales and tax collected. 
Tax collected = 6% of $29,000 = $1,740 
Therefore, the total cash received = sales + tax collected = $29,000 + $1,740 = $30,740. Hence, option D is the correct answer.

Question 14

Bertha's Pharmacy shows cash sales of $2,500 and sales taxes of $150 for the day. The journal entry to record this information would include a:
A) debit to cash of $2,650.
B) debit to sales tax expense $150.
C) credit to sales $2,650.
D) credit to sales tax payable $2,650.

Accepted Answer

The total cash received is $2,650, which includes both the sales and the sales tax. Therefore, the journal entry would debit cash for the total amount received.

Question 15

Which of the following items would not be included if a contingent liability were disclosed in the financial statements?
A) The nature of the item
B) Management's expected outcome
C) The amount of the contingency, if known
D) A numerical probability of the expected loss

Accepted Answer

A numerical probability of the expected loss is not required or expected to be disclosed when a contingent liability is reported in the financial statements. The other options are typically included in the disclosure of a contingent liability.

Question 16

Davies Accessories Company entered into the following transactions relating to notes payable:
  a. Prepare journal entries to record the above transactions.
b. Assuming Davies Accessories Company has a December 31 year-end, prepare any adjusting entries needed for the accrual of interest.

Accepted Answer

The answer of Davies Accessories Company entered into the following...

Question 17

The current portion of long-term debt should:
A) be reclassified as a current liability.
B) be paid immediately.
C) be classified as a long-term liability.
D) not be separated from the long-term debt.

Accepted Answer

The current portion of long-term debt refers to the portion of the long-term debt that is due within the current year. Therefore, it should be reclassified as a current liability as it will need to be paid within the short-term.

Question 18

On December 1, Goliath Corporation borrowed $10,000 on a 90-day, 6% note. Goliath Corporation's year end is December 31. Prepare the journal entries to record the issuance of the note, the accrual of interest at year end, and the payment of the note.

Accepted Answer

The answer of On December 1, Goliath Corporation borrowed $10,000...

Question 19

Raleigh Company billed its customers a total of $1,155,000 for the month of November. The total includes a 5% state sales tax.
Required:
a. Prepare the journal entry to record the revenue and related liabilities for the month.
b. Prepare the journal entry to record the sales tax remittance to the state.

Accepted Answer

The answer of Raleigh Company billed its customers a total...

Question 20

A company has a probable contingent gain that can be reasonably estimated. What reporting does the FASB require regarding this contingency?
A) It should be reported in the notes to the financial statements.
B) It should be ignored until the actual gain materializes.
C) It should either be reported in the notes to the financial statements or recorded on the financial statements.
D) It should be accrued and reported in the financial statements.

Accepted Answer

The FASB requires that probable contingent gains should not be recognized in the financial statements until they are realized. They may be disclosed in the notes if they are material, but they should not be accrued or reported as gains.

Quiz 9: Liabilities

Nationwide Magazine sells 60,000 subscriptions in March at $15 each. The entry is made in March to record the sale of the subscriptions would include a:

A contingency that is remote:

Kathy's Corner Store has total receipts for the month of $36,750 including sales taxes. If the sales tax rate is 5%, what are Kathy's sales for the month?

Unearned revenue is reported on the balance sheet as:

Hoover Company has a long-term note payable for $300,000 on January 1, 2012. Each month the company is required to pay $75,000 on the note. How will this note be reported on January 31, 2012?

Current liabilities fall into two categories which are referred to as:

Short-term notes payable are:

Potential liabilities that depend on future events arising out of past events are called:

On December 1, Goliath Corporation borrowed $10,000 on a 90-day, 6% note. Goliath Corporation's year end is December 31. Determine the balance in any current liabilities associated with the note as of December 31.

Sales taxes collected by a retailer are reported as:

The total earnings of an employee for the payroll period is the:

A company has a contingent loss that can be estimated and has a probable chance of occurrence. What reporting does FASB require regarding this contingency?

Ironwood Company's sales for May 24 were $29,000. Ironwood is required to collect 6% state sales tax. The total cash received from customers was:

Bertha's Pharmacy shows cash sales of $2,500 and sales taxes of $150 for the day. The journal entry to record this information would include a:

Which of the following items would not be included if a contingent liability were disclosed in the financial statements?

Davies Accessories Company entered into the following transactions relating to notes payable: a. Prepare journal entries to record the above transactions. b. Assuming Davies Accessories Company has a December 31 year-end, prepare any adjusting entries needed for the accrual of interest.

The current portion of long-term debt should:

On December 1, Goliath Corporation borrowed $10,000 on a 90-day, 6% note. Goliath Corporation's year end is December 31. Prepare the journal entries to record the issuance of the note, the accrual of interest at year end, and the payment of the note.

A company has a probable contingent gain that can be reasonably estimated. What reporting does the FASB require regarding this contingency?