Which of the following statements regarding contingent liabilities is true?
a. If they are probable and estimable, then they must be recorded even before the
outcome of the future event.
b. If they are probable and estimable, then they should be disclosed in the notes to the
financial statements.
c. The accounting principle that determines whether a contingent liability is to be
recorded is that of Historical Cost.
d. Contingencies that are not estimable should not be recorded or disclosed in the
financial statements even if they are probable.
The employee salaries has been incurred, but not paid at the end of the accounting
period
For each transaction select the type of adjustment that would be required. (Choices
may be used more than once.)
a. Deferred (prepaid) expense
b. Deferred (unearned) revenue
c. Accrued expense
d. Accrued revenue
A company provided services to customers then sent them invoices for the amounts
owed. What effect does this transaction have on the accounting equation?
a. Assets and liabilities increase.
b. Assets and retained earnings increase.
c. Liabilities decrease and contributed capital increases.
d. Assets and liabilities decrease.
Which of the following places the steps in preparing a worksheet in the correct order: 1
– Adjusted trial balance 4 – Income statement
2 – Adjustments 5 – Retained earnings
3 – Balance sheet 6 – Unadjusted trial balance a. 6 – 2 – 1 – 3 – 4 – 5 c. 6 – 2 – 1 – 4 – 5 – 3
b. 6 – 1 – 2 – 5 – 4 – 3 d. 6 – 2 – 1 – 4 – 3 – 1
Amounts expected to be paid to repair or replace defective products. Match each of the
following current liabilities with its meaning.
a. Account payable
b. Note payable
c. Wages payable
d. Interest payable
e. Sales taxes payable
f. FICA taxes payable
g. Unemployment taxes payable
h. Unearned sales revenues
i. Estimated warranty liability
A contra-asset account.
Match each statement to the item listed below
a. Accounts receivable e. Notes receivable
b. Aging method f. Realized
c. Allowance for Doubtful Accounts g. Securitization
d. Earned
Include cash received from the sale of property, plant, and equipment and cash paid to
purchase equity securities. Match these terms with their correct definition.
a. Cash flow adequacy ratio
b. Cash flows from financing activities
c. Cash flows from investing activities
d. Cash flow from operating activities
e. Direct method
f. Free cash flow
g. Income statement
h. Indirect method
i. Noncash investing & financing activities
j. Statement of cash flows
Utility expense was incurred, but not yet paid at the end of the year
Match the following types of adjusting entries to the listed situation. (Choices may be
used more than once.)
a. a deferred (prepaid) expense
b. a deferred (unearned) revenue
c. an accrued expense
d. an accrued revenue
Prices are declining; ending inventory is lower with this method.
Identify which inventory costing method achieves the effect listed in the following items.
(Choices may be used more than once.)
a. FIFO method c. Average cost method
b. LIFO method d. Specific identification method
When a company purchases less than 50% of the equity securities of another company,
which of the following statements is true?
a. Both companies’ financial statements must be combined in consolidation.
b. The equity method of accounting will be required if the company’s investment is at
least 20%.
c. The fair value method of accounting will be used only if the securities are classified
as available-for-sale.
d. The fair value method of accounting will be used only if they are trading securities.
Measure of liquidity that excludes assets that are difficult to convert to cash.
Match these terms to their correct definition.
A company has $8,000 in cash, $9,250 in accounts receivable, and $19,500 in
inventory. If current liabilities are $14,350, then the quick ratio will be
a. 5.0.
b. 2.6.
c. 2.0.
d. 1.2.
Refer to Accutemp Heating & Air. How much total interest revenue will the company
recognize over the term of the note?
Accutemp Heating & Air
On May 1, 2013, the company sold merchandise to a customer and received a 8%,
6-month note with a principal amount of $100,000. The company’s yearend is
December 31.
Even though a trial balance reveals that the debits equal the credits, there still may be
errors in the company’s books.
Treasury stock is stock that has been issued but is no longer outstanding.
Private corporations typically issue their stock to management and employees rather
than the general public.
Liquidity relates to a company’s ability to sell its assets for amounts that exceed the
assets’ book values.