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Exam 14: Operating Liabilities and Contingencies

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Question 41

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A company gives each of its 100 employees (assume they were all employed continuously through 2016 and 2017) 12 days of vacation a year if they are employed at the end of the year.The vacation accumulates and may be taken starting January 1 of the next year.The employees work 8 hours per day.In 2016,they made $17.50 per hour and in 2017 they made $20 per hour.During 2017,they took an average of 9 days of vacation each.The company's policy is to record the liability existing at the end of each year at the wage rate for that year.What amount of vacation liability would be reflected on the 2016 and 2017 balance sheets,respectively?

A) $168,000; $234,000
B) $192,000; $234,000
C) $168,000; $240,000
D) $192,000; $240,000

E) C) and D)
F) B) and C)

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Question 42

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When an Asset Retirement Obligation is first recognized,the liability account is credited and Accretion Expense is debited.

A) True
B) False

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Question 43

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Contingent gains need not be disclosed in the financial statements or the notes thereto if they are considered ________.

A company has a probable loss that can only be reasonably estimated within a range of outcomes.No single amount within the range is a better estimate than any other amount.Under IFRS,what amount of loss contingency should be accrued?

When a company can estimate a range for the loss,but cannot identify a single most-likely outcome within that range,IFRS requires that it accrue the midpoint of the range while U.S.GAAP requires that it accrue the minimum value of the range.

What is the account that is debited when the liability is initially capitalized for an asset retirement obligation to dismantle an ocean oil rig?

A liability for a contingent loss of a known amount will be disclosed in a footnote if the occurrence of the obligation is deemed to be probable.

Which of the following is also referred to as deferred credits?

In December,2016,Shooger Candy Company began including one coupon in each package of candy and offered customers a Stuffed Shooger Bear in exchange for $5 and five coupons.The stuffed bears cost Shooger $5.30 each.Eventually,it is expected that 40% of the coupons will be redeemed.During December,Shooger sold 280,000 packages of candy and no coupons were redeemed.In its December 31,2016 balance sheet,what amount should Shooger report as estimated liability for the coupons?

Accretion expense functions in the same way as interest expense.

Which of the following is not a characteristic of a liability?

All liabilities are probable future economic sacrifices arising from present obligations.

The quick ratio is calculated as the sum of cash and short-term marketable securities divided by current liabilities.

In a service-type warranty,warranty revenue is________.

If the warranty is required by law,it is more likely to be an assurance-type warranty.

Under what conditions is an employer required to accrue a liability for sick pay?

Asset retirement obligations are ________.

Because the sale of a service-type warranty increases sales revenue,the seller should recognize the expense of providing that warranty in the year of sale.

When a company sells the service-type warranty contract,it records a liability for unearned revenue.

Accounts payable are formal,written promises to pay a certain sum of money on a specified date and typically specify a stated rate of interest.