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1.An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year. The store normally recognized a gross profit margin of 40% of the selling price on video games. How would the store account for a purchase using the discount coupon?

Group of answer choices

The difference between the cost of the video game and the cash received is recognized as premium expense.

Premium expense is not recognized.

The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense.

The reduction in sales price attributed to the coupon is recognized as premium expense.

Question 2

Which of the following statements in relation to liabilities is not valid?

Group of answer choices

Unasserted claims are never accrued because to do so would required an entity to implicitly admit liability.

Estimated liabilities shall be accrued because these are known to exist and are only uncertain as to amount.

Current liabilities shall not be offset against assets that are to be applied to their liquidation.

Commitments to make future purchases shall be accrued if losses become probable and if the amount is reasonably measurable.

Question 3

Which of the following is the proper way to report a probable contingent asset?

Group of answer choices

As a disclosure only.

As an accrued amount.

As deferred revenue.

As an account receivable with additional disclosure explaining the nature of the contingency.

Question 4

An entity operates chemical plants. Its published policies include a commitment to making good any damage caused to the environment by the operating. It has always honored this commitment. Which of the following scenarios would give rise to an environmental provision?

Group of answer choices

A chemical spill from one of the entity's plants has caused harm to the surrounding area and wildlife.

Recent research suggests there is possibility that the entity's actions may damage surrounding wildlife.

The government has outlined plans for a new law requiring all environmental damage to be rectified.

On past experience it is likely that a chemical spill which would result in having to pay fines and penalties will occur in the next year.

Question 5

If a long-term debt become callable due to the violation of a loan covenant

Group of answer choices

The debt must be reclassified as current.

Cash must be reserved to pay the debt.

The debt may continue to be classified as long term if the entity believes the covenant can be renegotiated.

Retained earnings must be restricted equal to the amount of the debt.

Question 6

Which of the following statements is false?

Group of answer choices

Social security taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.

Under the cash basis method, warranty costs are charged to expense as they are paid.

Cash dividends should be recorded as a liability when they are declared by the board of directors.

A company may exclude a short-term obligation from current liabilities if it intends to refinance the obligation on a long-term basis and have an unconditional right to defer settlement of the liability for at least 12 months.

Question 7

Which of the following does not meet the definition of a liability?

Group of answer choices

The signing of a three-year employment contract at a fixed annual salary.

A note payable with no specified maturity date.

An obligation that is estimated in amount.

An obligation to provide goods or services in the future.

Question 8

What is the relationship between present value and the concept of a liability?

Group of answer choices

Present values are used to measure certain liabilities.

Present values are not used to measure liabilities.

Present values are used to measure all liabilities.

Present values are only used to measure non-current liabilities.

Question 9

All of the following are true regarding the presentation of current liabilities in the statement of financial position except

Group of answer choices

The non-current liabilities section follows the current liabilities section.

Current liabilities may be listed in order of maturity, in descending order of magnitude or in order of liquidity preference.

Current liabilities are generally recorded at their full maturity values.

Current liabilities should not be offset against the assets that will be used to liquidate them.

Question 10

1pts

Examples of events that qualify as restructuring include all of the following, except

Group of answer choices

Fundamental reorganization of an entity that has an immaterial and insignificant impact on the operations.

Sale or termination of business.

Change in management structure such as elimination of a layer of management.

A table of answers and brief statistics regarding student answer choices. Answer Text Number of Respondents Percent of respondents selecting this answer Answer Distribution Closure of business location in a region or relocation of business from one location to another., (Incorrect answer)Closure of business location in a region or relocation of business from one location to another.