FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 8: Current Liabilities

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 71

True/False

Review LaterAdd Note

Review Later

The acid-test ratio, or quick ratio, is similar to the current ratio but is based on a more conservative measure of current assets available to pay current liabilities.

A) True
B) False

Correct Answer

verified

Show Answer

Question 72

Multiple Choice

Review LaterAdd Note

Review Later

Assuming a current ratio of 1.0 and an acid-test ratio of 0.80, how will the borrowing of cash by issuing a six-month note payable affect each ratio?

A) Increase the current ratio and increase the acid-test ratio.
B) No change to the current ratio and increase the acid-test ratio.
C) Decrease the current ratio and decrease the acid-test ratio.
D) Decrease the current ratio and increase the acid-test ratio.

E) A) and D)
F) A) and C)

Correct Answer

verified

Show Answer

Question 73

True/False

Review LaterAdd Note

The current ratio is calculated by dividing current liabilities by current assets.

Carpenter Inc. estimates warranty expense at 2% of sales. Sales during the year were $4 million and warranty expenditures were $44,000. What was the balance in the Warranty Liability account at the end of the year?

Which of the following is not a reason why a company might prefer to report a liability as long-term rather than current?

Panama Shirt Designs is a defendant in litigation involving an employee accident in its manufacturing plant. For each of the following scenarios, determine the appropriate way to report the situation. Explain your reasoning and record any necessary entry. 1. The likelihood of a loss occurring is probable and the estimated loss is $650,000. 2. The likelihood of a loss occurring is probable and the loss is estimated to be in the range of $500,000 to $800,000. 3. The likelihood of a loss occurring is reasonably possible and the estimated loss is $650,000. 4. The likelihood of a loss occurring is remote, while the estimated potential loss is $650,000.

On July 8, Compusoft receives $250,000 from a customer toward a cash sale of $1 million for customized computer equipment to be completed on August 1. The remaining $750,000 payment is received upon delivery of the product on August 1. The equipment had a total production cost of $700,000. What journal entries should Compusoft record on July 8 and August 1? Assume Compusoft uses the perpetual inventory system.

Long-term obligations such as notes, mortgages, and bonds are reported as long-term liabilities when they become payable within the upcoming year.

Which of the following measures of liquidity does not control for the relative size of the company?

Liabilities are defined as:

Sales taxes collected from customers by the seller are not an expense, instead they represent current liabilities payable to the government.

If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be

Suppose you buy lunch for $8.39 that includes a 5% sales tax. How much did the restaurant charge you for the lunch (excluding any tax) and how much do they owe for sales tax?

The acid-test ratio is

Additional employee benefits paid for by the employer are often referred to as fringe benefits.

Consultants notify management of Generic Drug that a prescription medication poses a potential health risk. Legal counsel indicates that a product recall is probable and is estimated to cost the company between $5 and $8 million. How will this affect the company's income statement and balance sheet this period?

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

Why is it important to distinguish between current and long-term liabilities?

Companies are required by law to withhold federal and state income taxes from employees' paychecks and remit these taxes to the government.

At the beginning of 2012, Angel Corporation began offering a 1-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2012 were $180 million. Five percent of the units sold were returned in 2012 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2012 income statement is: