88.
Sales taxes collected by a company on behalf of the state and local government are
recorded by:
89.
When a company collects sales tax from a customer, the event is recorded by:
90.
When a company collects sales tax from a customer, the event is recorded with a(n)
_________ in Cash and a(n) _________ in Sales Tax Payable:
91.
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?
92.
The Route 66 Gift Shop, which records sales and sales tax separately, had sales on
account of $1,500 and cash sales of $1,000. The state sales tax is 8%. The journal entry to
record the sales would include a:
93.
Suppose you buy dinner for $23.75 that includes an 8% sales tax. How much did the
restaurant charge you for the dinner (excluding any tax) and how much do they owe for
sales tax?
94.
If a 6% sales tax is recorded together with sales revenue in the sales account and the
balance at the end of the month is $5,300, how much sales tax is payable?
95.
Union Apparel has sales including sales taxes for the month of $551,200. If the sales tax
rate is 6%, what are Union Apparel’s sales for the month?
96.
Union Apparel has sales including sales taxes for the month of $551,200. If the sales tax
rate is 6%, how much does Union Apparel owe for sales tax?
97.
The current portion of long-term debt should be
98.
The current portion of long-term debt is:
99.
Region Jet has a $50 million liability at December 31, 2018, of which $10 million is payable
in 2019. In its December 31, 2018 balance sheet, the company reports the $50 million debt
as a:
100.
United Supply has a $5 million liability at December 31, 2018, of which $1 million is
payable in each of the next five years. United Supply reports the liability on the balance
sheet as a:
101.
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
8-48
102.
If management can estimate the amount of loss that will occur due to litigation against the
company, and the likelihood of the loss is
probable
, a contingent liability should be
103.
Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations.
Higgins’ legal counsel believes it is probable that Higgins will settle the lawsuit for an
estimated amount in the range of $100,000 to $200,000, with all amounts in the range
considered equally likely. How should Higgins report this litigation?
8-49
104.
Away Travel filed suit against West Coast Travel seeking damages for copyright violations.
West Coast Travel’s legal counsel believes it is reasonably possible that West Coast Travel
will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with
all amounts in the range considered equally likely. How should West Coast Travel report
this litigation?
105.
Away Travel filed suit against West Coast Travel seeking damages for copyright violations.
Away Travel’s legal counsel believes it is probable (but not certain) that Away Travel will
win the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all
amounts in the range considered equally likely. How should Away Travel report this
litigation?
106.
Young Company is involved in a lawsuit. The liability that could arise as a result of this
lawsuit should be recorded on the books if the probability of Young owing money as a
result of the lawsuit is:
107.
Ogden Motors, Inc. is involved in a lawsuit. It is reasonably possible that the jury will find
in favor of the plaintiff and Ogden will owe ten million dollars. What is the appropriate
reporting of this lawsuit and what is the effect on the balance sheet?
108.
Amplify, Inc. was sued by Sound City for $50,000. Sound City feels very confident that it
will win the case and will be awarded the full amount. Amplify, Inc. feels it is probable that
it will lose the case and pay Sound City the full amount. Which of the following is correct?
109.
At the beginning of 2018, 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 2018 were $180 million. Five percent of the units sold were
returned in 2018 and repaired or replaced at a cost of $5.3 million. The amount of warranty
expense on Angel’s 2018 income statement is:
110.
The account “Warranty Liability”:
111.
Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2%
of Strikers’ goals will need repair under the warranty program. For the year, Strikers has
sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200,
what would be the warranty expense for the year?
112.
Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2%
of Strikers’ goals will need repair under the warranty program. For the year, Strikers has
sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200,
what would be the warranty liability at the end of the year?
113.
Bears Inc. sells football helmets to local schools and warrants all of its products for one
year. While no helmets sold in 2018 have been returned yet, based upon previous years,
Bears Inc. estimates that 3% of its products will need repairs or be replaced within the
next year. What effect would this warranty have on assets, liabilities, and stockholders’
equity in 2018?
114.
Patriot Paddleboards sells a paddleboard model that carries a one-year warranty on all
included accessories. Past experience indicates that 15% of those sold will have defective
accessories within a year and that average repair cost is $20 per paddleboard. If 1,000
were sold this year and 50 have already been repaired under warranty, the entry to record
warranty expense for the year would include a debit to:
115.
Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones sold will
be returned for repair under its warranty program. The average repair cost is $75 per
phone. For 2018, Talks-A-Lot has sold 750 cell phones and has repaired 30 of them as of
December 31, 2018. What amount of warranty liability should be reported at December 31,
2018?
116.
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?
117.
Footnote disclosure is required for material potential losses when the loss is at least
reasonably possible:
118.
Gain contingencies usually are recognized in a company’s income statement when:
119.
A contingent liability should be recorded on a company’s financial statements only if the
likelihood of a loss occurring is:
120.
When a gain contingency is probable and the amount of gain is reasonably estimable, the
gain should be:
121.
A contingent liability should be disclosed in a note to the financial statements rather than
being recorded if:
122.
Volt Electronics sells equipment that includes a three-year warranty. Repairs under the
warranty are performed by an independent service company under a contract with Volt.
Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt
should recognize these warranty costs:
123.
Which of the following is a contingency that should be recorded?
124.
Unified Airlines is being sued by Northeast Airlines for $5,000,000. At the end of the year,
Unified feels it is probable that it will pay $5,000,000 at some point in the following year.
What should Unified and Northeast record at the end of the year concerning the lawsuit?
125.
Unified Airlines is being sued by Northeast Airlines for $5,000,000. At the end of the year,
Unified feels it is reasonably possible that it will pay $5,000,000 at some point in the
following year. What should Unified and Northeast record at the end of the year
concerning the lawsuit?
126.
Discount Travel has the following current assets: cash, $102 million; receivables, $94
million; inventory, $182 million; and other current assets, $18 million. Discount Travel also
has the following liabilities: accounts payable, $98 million; current portion of long-term
debt, $35 million; and long-term debt, $23 million. Based on these amounts, what is the
current ratio?