1. When a piece of equipment is sold and a warranty is included as part of the sale, all the warranty costs (actual for the period and estimated for the future) are recognized in the period when the sales occurs. This practice of accounting is due to matching principle. a) True b) False 2. When some portion of long-term debt is due within a current period, the whole amount of long-term debt should be listed as non-current liabilities if the current portion of long-term debt is less than half of the whole long-term debt amount. a) True b) False 3. Accounts payable is a typical current liability account, but income taxes payable is not a) True b) False 4. Notes payable can be classified as current liabilities or non- current liabilities depending on whether the notes payable are due within a current period or not. a) True b) False s. When probable and reasonably estimable, contingent gains are recognized in the financial statements. a) True b) False Conservatism in accounting is the criterion on whether to recognize gain contingencies or not. a) True b) False Loss contingencies are recognized in the financial statements when they are reasonably estimable or probable. a) True b) False When the chances of contingent liabilities are reasonably possible, the contingent liabilities are recognized if the amounts involved are reasonably estimable. a) The b) False s. If the chances of contingent liabilities are remote, it is required to disclose the information in the notes to the financial statements. a) True b) False 10. A typical example of recognizable contingent liabilities is a litigation (lawsuit). When a litigation is recognized as contingent liabilities, the time period in which the cause of the litigation occurred is not considered. a) True b) False 11. It is desirable to have current ratio and quick (or acid-test) ratio greater than 1. a) True b) False 12. It is likely acid-test ratio is greater than current ratio for the same company a) True b) False 13 Bonds payable is one kind of long-term notes payable. a) True b) False 1 EPS (earnings per share) is not required to be reported in the income statement but is optional a) True b) False 15. Companies report camnings per share for preferred stock, too. a) True b) False Once a lease is classified as a capital lease, the lessee lists the leased equipment as an asset and depreciates the leased equipment over the service life of the equipment a) True b) False 17. Leases similar to installment purchases are capitalized. a) True b) False
