(Multiple Choice)
1. Which of the following is classified as an accrued payroll liability?
Federal Income Employee€™s Share
Tax Withheld of F.I.C.A. Taxes
a. No ............Yes
b. No ............ No
c. Yes ........... No
d. Yes ........... Yes

2. During 2007 Lawton Company introduced a new line of machines that carry a three-year warranty against manufacturer€™s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:

What amount should Lawton report as a liability at December 31, 2009?
a. $0
b. $5,000
c. $68,000
d. $105,000

3. How should a loss contingency that is reasonably possible and for which the amount can be reasonably estimated be reported?
Accrued Disclosed
a. Yes ......... No
b. No ......... Yes
c. Yes ......... Yes
d. No ......... No

4. All of Rolf Co.€™s employees are entitled to two weeks of paid vacation for each full year in Rolf€™s employ. Unused vacation time can be accumulated and carried forward to succeeding years and will be compensated at the salary in effect when the vacation is taken. Mary Beal started her employment with Rolf on January 1, 2001. As of December 31, 2007, when Beal€™s salary was $500 per week, Beal had used 10 weeks of her accumulated vacation time. In December 2007 Beal notified Rolf of her intention to use her accumulated vacation weeks in June 2008. Rolf regularly scheduled salary adjustments in July of each year. Rolf properly did not deduct compensation for unused vacations in Rolf €™s 2007 income tax return. How much should Rolf report as a liability at December 31, 2007 for Beal€™s accumulated vacation time?
a. $0
b. $500
c. $1,000
d. $2,000

5. Bronson Apparel, Inc., operates a retail store and must determine the proper December 31, 2007 year-end accrual for the following expenses:
The store lease calls for fixed rent of $1,000 per month, payable at the beginning of the month, and additional rent equal to 6% of net sales over $200,000 per calendar year, payable on January 31 of the following year. Net sales for 2007 are $800,000.
Bronson has personal property subject to a city property tax. The city€™s fiscal year runs from July 1 to June 30 and the tax, assessed at 3% of personal property on hand at April 30, is payable on June 30. Bronson estimates that its personal property tax will amount to $6,000 for the city€™s fiscal year ending June 30, 2008.
In its December 31, 2007 balance sheet, Bronson should report accrued expenses of
a. $39,000
b. $39,600
c. $51,000
d. $51,600

6. When a company receives a deposit from a customer to protect itself against nonpayment for future services, the deposit should be classified by the company as
a. Revenue
b. A liability
c. Part of the allowance for doubtful accounts
d. A deferred credit deducted from accounts receivable

7. The balance in Ashwood Company€™s Accounts Payable account at December 31, 2007 was $900,000 before any necessary year-end adjustment relating to the following:
Goods were in transit from a vendor to Ashwood on December 31, 2007. The invoice cost was $50,000, and the goods were shipped FOB shipping point on December 29, 2007. The goods were received on January 2, 2008.
Goods shipped FOB shipping point on December 19, 2007 from a vendor to Ashwood was lost in transit. The invoice cost was $25,000. On January 5, 2008 Ashwood filed a $25,000 claim against the common carrier. Goods shipped FOB destination on December 22, 2007 from a vendor to Ashwood was received on January 6, 2008. The invoice cost was $15,000.
What amount should Ashwood report as accounts payable on its December 31, 2007 balance sheet?
a. $925,000
b. $940,000
c. $950,000
d. $975,000

8. On September 1, 2007 a company borrowed cash and signed a one-year, interest-bearing note on which both the principal and interest are payable on September 1, 2008. How will the note payable and the related interest be classified in the December 31, 2007 balance sheet?
Note Payable Accrued Interest
a. Current liability ..... Noncurrent liability
b. Noncurrent liability ..... Current liability
c. Current liability..... Current liability
d. Noncurrent liability ..... No entry

9. Morgan Company determined that
(1) It has a material obligation relating to employees€™ rights to receive compensation for future absences attributable to employees€™ services already rendered,
(2) The obligation relates to rights that vest, and
(3) Payment of the compensation is probable. The amount of Morgan€™s obligation as of December 31, 2007 is reasonably estimated for the following employee benefits:
Vacation pay ... $100,000
Holiday pay ..... 25,000
What total amount should Morgan report as its liability for compensated absences in its December 31, 2007 balance sheet?
a. $0
b. $25,000
c. $100,000
d. $125,000
M13-10 Gain contingencies are usually recognized in the income statement when
a. Realized
b. Occurrence is reasonably possible and the amount can be reasonably estimated
c. Occurrence is probable and the amount can be reasonably estimated
d. The amount can be reasonablyestimated

Transcribed Image Text:

Actual Warranty Expenditures $3,000 15,000 45,000 $63,000 Sales 200,000 2007 2008 2009 500,000 700,000 $1,400,000