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Multiple Choice Topic: COSO Framework LO: 2 Level of Difficulty: EASY 1. Which of the following is not an internal control component identified in the
Multiple Choice Topic: COSO Framework LO: 2 Level of Difficulty: EASY 1. Which of the following is not an internal control component identified in the COSO framework: A) Risk assessment B) Monitoring activities C) Technology D) Control environment Topic: Internal Control LO: 2 2.Which of the following is desirable in a good system of internal accounting control? A)Responsibility and authority for a given function should be shared among several employees B)Appropriate forms, such as checks and sales invoices, should have preprinted control numbers C)All accounting personnel in a firm should be bonded D)To obtain the benefit of specialization, employees should not be rotated among similar jobs Topic: Segregation of Duties LO: 2 3.Which of the following is a poor internal accounting control feature? A)Segregation of duties. B)Combining authorization with custodianship. C)Rotation of personnel. D)Internal auditing. Topic: Internal Controls for Cash LO: 2, 4 4. Procedures requiring that the recording of asset transactions be separated from the custody of those assets: A) Will uncover collusion among employees B) Are important only in very large businesses C) Are especially important in handling cash D) Make it easy for an employee to cover up the theft of an asset Topic: Internal Control LO: 2 5.In establishing an effective internal control structure, management should: A) Establish a good control environment. B) Provide an effective accounting system. C) Integrate control procedures into the control environment and accounting system. D) All of the above. Topic: Internal Controls for Cash LO: 4 6.From the viewpoint of good internal accounting control, which of the following individuals would be the proper person to prepare bank reconciliations for a company that receives cash payments both through the mail and from customers in person? A) The individual who opens the companys mail and lists the payments received B) The individual who works in the customer service department and receives payments from customers who pay in person C) The individual who deposits the daily cash receipts in the bank D) None of the above Topic: Internal Controls for Cash LO: 4 7.Which of the following features should not be included in a good system of internal accounting control over cash? A) All receipts are deposited daily in the bank. B) All major disbursements are made by check, and an imprest fund is used for petty cash disbursements. C) Cash handling is separated from the recording of cash transactions. D) Monthly bank reconciliations are prepared by the person who makes the daily bank deposits. Topic: Internal Controls for Cash LO: 2, 4 8.Which of the following is not a feature of good internal accounting control over cash? A) All cash receipts are deposited in the bank each day. B) Most bills are paid with paper currency and coins to minimize the bank service charges. C) A bank reconciliation is prepared when each bank statement is received. D) Cash is handled separately from the recording of cash transactions. Topic: Cash Balance LO: 3, 5 9.The Cash amount properly shown on the year-end balance sheet is the A) Balance in the general ledger account before the year-end bank reconciliation B) Balance per the year-end bank statement C) Balance per the year-end bank statement less deposits in transit and plus outstanding checks D) Balance in the general ledger account after entries from the year-end bank reconciliation have been posted Topic: Reporting Cash LO: 3 10.A compensating balance refers to: A) The minimum balance established for a petty cash fund B) A minimum balance that a financial institution requires a firm to maintain in its account as part of a borrowing arrangement C) The final cash balance achieved in a bank reconciliation D) The amount of cash invested temporarily in highly marketable securities Topic: Bank Reconciliation LO: 3, 5 11.The following journal entry is necessary upon discovery of a NSF check during a bank reconciliation: A) Accounts Receivable Cash B) Not Sufficient Funds Expense Cash C) Miscellaneous Expense Cash D) No entry is necessary because the bank makes the entry. Topic: Bank Reconciliation LO: 5 12.At May 31, Michaelis Company has outstanding checks totaling $19,600. The bank reconciliation for May should show these checks as a(n): A) Deduction from balance per bank statement B) Addition to balance per bank statement C) Addition to balance per general ledger D) Deduction from balance per general ledger Topic: Bank Reconciliation LO: 5 13.Third Montana Bank collected a note for Nicole Company. This collection, not yet recorded in Nicoles books, appears on the bank reconciliation as a(n): A) Addition to balance per general ledger B) Deduction from balance per bank statement C) Addition to balance per bank statement D) Deduction from balance per general ledger Topic: Bank Reconciliation LO: 5 14.Which of the following bank reconciliation items should not be added to or subtracted from the bank statement balance to determine the reconciled cash balance? A) Outstanding checks B) Deposits in the mail but not yet received by the bank C) Bank service charges D) None of the above Topic: Bank Reconciliation LO: 3, 5 15.Which of the following items would you add to the Flitter Companys bank statement balance to arrive at the reconciled cash balance in a bank reconciliation: A) Bank service charges B) Outstanding and NSF checks C) NSF checks Bank collection charges D) None of the above Topic: Direct Write-Off Method LO: 6 16.The entry to record the write-off of Ward Companys account under the direct write-off method is: A) Accounts Receivable--Ward Company Allowance for Doubtful Accounts B) Bad Debts Expense Allowance for Doubtful Accounts C) Allowance for Doubtful Accounts Accounts Receivable--Ward Company D) Bad Debts Expense Accounts Receivable--Ward Company Topic: Allowance Method LO: 1 17.The entry to record the write-off of Sepich, Inc.s account using the allowance method is: A) Bad Debts Expense Allowance for Doubtful Accounts B) Bad Debts Expense Accounts Receivable--Sepich, Inc. C) Allowance for Doubtful Accounts Accounts Receivable--Sepich, Inc. D) Accounts Receivable--Sepich, Inc. Allowance for Doubtful Accounts Topic: Allowance Method LO: 1 18.If a company fails to make an adjusting entry to estimate doubtful accounts, then this error: A) Understates owners equity B) Understates assets C) Overstates net income D) Overstates expenses Topic: Percentage of Net Sales Method LO: 2 19.Assume the following unadjusted account balances at the end of the accounting period for Margarete Company: Accounts Receivable, $100,000; Allowance for Doubtful Accounts, $1,400 (debit balance); and Net sales, $1,200,000. If Margaretes past experience indicates credit losses of 1% of net sales, the adjusting entry to estimate doubtful accounts is: A) Bad Debts Expense12,000 Accounts Receivable12,000 B) Bad Debts Expense10,600 Allowance for Doubtful Accounts10,600 C) Bad Debts Expense13,400 Allowance for Doubtful Accounts13,400 D) Bad Debts Expense12,000 Allowance for Doubtful Accounts12,000 Topic: Percentage of Net Sales Method LO: 2 20.Assume the following unadjusted account balances at the end of the accounting period for Emmie Company: Accounts Receivable, $300,000; Allowance for Doubtful Accounts, $4,200 (debit balance); and Net sales, $3,600,000. If Emmies past experience indicates credit losses of 1% of net sales, the adjusting entry to estimate doubtful accounts is: A) Bad Debts Expense36,000 Accounts Receivable36,000 B) Bad Debts Expense31,800 Allowance for Doubtful Accounts31,800 C) Bad Debts Expense40,200 Allowance for Doubtful Accounts40,200 D) Bad Debts Expense36,000 Allowance for Doubtful Accounts36,000 Topic: Credit Card Sales LO: 3 21.A retailer that makes credit card sales: A) Absorbs any losses on uncollectible credit card accounts B) Is charged a fee ranging from 1% to 5% of the amount of each credit card sale C) Records such sales as a debit to Cash or Accounts Receivable, a debit to Credit Card Fees Expense, and a credit to Sales Revenue D) Both (B) and (C). Topic: Accounts Receivable Aging Method LO: 2 22.River Forest, Inc.s $180,000 Accounts Receivable balance at December 31 consisted of $160,000 current balances and $20,000 past-due balances. At December 31, the Allowance for Doubtful Accounts had a credit balance of $1,600. River Forest estimated that 2% of current balances and 15% of past-due balances will prove uncollectible. The adjusting entry to record credit losses is: A) Bad Debts Expense5,800 Allowance for Doubtful Accounts5,800 B) Bad Debts Expense4,600 Allowance for Doubtful Accounts4,600 C) Bad Debts Expense4,200 Accounts Receivable4,200 D) Bad Debts Expense7,400 Allowance for Doubtful Accounts7,400 Topic: Accounts Receivable Aging Method LO: 2 23.Hockey, Inc.s $540,000 Accounts Receivable balance at December 31 consisted of $480,000 current balances and $60,000 past-due balances. At December 31, the Allowance for Doubtful Accounts had a credit balance of $4,800. Hockey, Inc. estimated that 2% of current balances and 15% of past-due balances will prove uncollectible. The adjusting entry to record credit losses is: A) Bad Debts Expense17,400 Allowance for Doubtful Accounts17,400 B) Bad Debts Expense13,800 Allowance for Doubtful Accounts13,800 C) Bad Debts Expense12,600 Accounts Receivable12,600 D) Bad Debts Expense22,200 Allowance for Doubtful Accounts22,200 Topic: Percentage of Net Sales Method LO: 2 24.Princess Companys Accounts Receivable balance at December 31 was $300,000 and there was a credit balance of $1,400 in the Allowance for Doubtful Accounts. The years sales were $1,800,000. Princess estimates credit losses for the year at 1.5% of sales. After the appropriate adjusting entry is made for credit losses, what is the net amount of accounts receivable included in the current assets at year-end? A) $300,000 B) $271,600 C) $325,400 D) $277,400 25.Mario Companys Accounts Receivable balance at December 31 was $900,000 and there was a credit balance of $4,200 in the Allowance for Doubtful Accounts. The years sales were $5,400,000. Mario estimates credit losses for the year at 1.5% of sales. After the appropriate adjusting entry is made for credit losses, what is the net amount of accounts receivable included in the current assets at year-end? A) $900,000 B) $814,800 C) $976,305 D) $832,200 Topic: Contingent Liabilities LO: 3 26.Which of the following is not a contingent liability? A) Environmental cleanup costs B)Lawsuits C) Discount on notes payable D) Credit guarantees Topic: Income Tax Payable LO: 1 27.Which of the following liabilities is most likely an estimated amount rather than an amount known with certainty? A) Wages payable B) FICA taxes payable C) Accounts payable D) Income tax payable Topic: Contingent Liabilities LO: 3 28.A contingent liability is an obligation that depends on the occurrence of a future event and that should be recorded in the accounts: A) If the related future event will probably occur B) If the amount is due in cash within one year C) If the amount is reasonably estimated D) The related future event will probably occur and the amount is reasonably estimated. Topic: Current Liabilities Definition LO: 1 29.A current liability is an obligation that requires the use of an existing asset or the creation of another current liability: A) Within the coming year or the operating cycle, whichever is shorter B) Within the coming year or the operating cycle, whichever is longer C) Within the coming year D) Within the next operating cycle Topic: Contingent Liabilities LO: 3 30.A contingent liability is an obligation that should be: A) Disclosed in a footnote to the balance sheet when the contingency is remote B) Recorded in the accounts if the amount may be reasonably estimated and it is probable that the future event creating the obligation will occur C) Classified in the owners equity section of the balance sheet when the future event creating the liability is not likely to occur D) Recorded in the accounts and classified in a contingent liabilities section of the balance sheet between current liabilities and long-term liabilities Topic: Warranty Liabilities LO: 1, 3 31.Oak Park Appliances, Inc. sells food processors for $300 with a 120-day warranty against defects. Past experience indicates that 5% of the processors will have some defect during the warranty period and that the necessary repairs and adjustments will cost $50 per defective unit. Sales for August were $438,000. 30 of the units sold in August were reported defective and repaired in August. What is the August 31 journal entry for the estimated liability for product warranties for units sold in August? A) Product Warranty Expense21,900 Estimated Liability for Product Warranty21,900 B) Product Warranty Expense3,650 Estimated Liability for Product Warranty3,650 C) Estimated Liability for Product Warranty3,650 Product Warranty Expense3,650 D) Product Warranty Expense2,150 Estimated Liability for Product Warranty2,150 Topic: Warranty Liabilities LO: 1, 3 32.Forest Grove Appliances, Inc. sells food processors for $900 with a 120-day warranty against defects. Past experience indicates that 5% of the processors will have some defect during the warranty period and that the necessary repairs and adjustments will cost $150 per defective unit. Sales for August were $1,404,000. 30 of the units sold in August were reported defective and repaired in August. What is the August 31 journal entry for the estimated liability for product warranties for units sold in August? A) Product Warranty Expense70,200 Estimated Liability for Product Warranty70,200 B) Product Warranty Expense11,700 Estimated Liability for Product Warranty11,700 C) Estimated Liability for Product Warranty11,700 Product Warranty Expense11,700 D) Product Warranty Expense7,200 Estimated Liability for Product Warranty7,200 Topic: Warranty Liabilities LO: 1, 3 33.Boris, Inc. sells a single product for $900 per unit, including a 90-day warranty against defects. It is estimated that 3% of the units sold will prove defective and require an average repair cost of $70 per unit. During July, 800 units were sold. Five of them were reported defective and repaired in July. What amount should be added to the Estimated Liability for Product Warranties for July? A) $ 4,500 B) $ 1,680 C) $18,900 D) $ 1,330 Topic: Warranty Liabilities LO: 1, 3 34.Crescent City, Inc. sells a single product for $2,700 per unit, including a 90-day warranty against defects. It is estimated that 3% of the units sold will prove defective and require an average repair cost of $210 per unit. During July, 800 units were sold. Five of them were reported defective and repaired in July. What amount should be added to the Estimated Liability for Product Warranties for July? A) $13,500 B) $44,100 C) $56,700 D) $ 3,990 Topic: Warranty Liabilities LO: 1, 3 35.Pedal Power Products Company sells bicycles for $240, with a 30-day warranty against defects. Past experience indicates that 6% of the bicycles will have a defect and that the necessary repairs will cost $32 per bicycle. Sales for May were $216,000; 20 units sold in May were found defective and repaired that month. What is the May 31 journal entry for the estimated liability for product warranties? A) Product Warranty Expense1,088 Estimated Liability for Product Warranty1,088 B) Product Warranty Expense640 Estimated Liability for Product Warranty640 C) Estimated Liability for Product Warranty1,728 Product Warranty Expense1,728 D) Estimated Liability for Product Warranty1,088 Product Warranty Expense1,088
Multiple Choice
Topic: COSO Framework
LO: 2
Level of Difficulty: EASY
1. Which of the following is not an internal control component identified in the COSO framework:
A) Risk assessment
B) Monitoring activities
C) Technology
D) Control environment
Topic: Internal Control
LO: 2
2.Which of the following is desirable in a good system of internal accounting control?
A)Responsibility and authority for a given function should be shared among several employees
B)Appropriate forms, such as checks and sales invoices, should have preprinted control numbers
C)All accounting personnel in a firm should be bonded
D)To obtain the benefit of specialization, employees should not be rotated among similar jobs
Topic: Segregation of Duties
LO: 2
3.Which of the following is a poor internal accounting control feature?
A)Segregation of duties.
B)Combining authorization with custodianship.
C)Rotation of personnel.
D)Internal auditing.
Topic: Internal Controls for Cash
LO: 2, 4
4. Procedures requiring that the recording of asset transactions be separated from the custody of those assets:
A) Will uncover collusion among employees
B) Are important only in very large businesses
C) Are especially important in handling cash
D) Make it easy for an employee to cover up the theft of an asset
Topic: Internal Control
LO: 2
5.In establishing an effective internal control structure, management should:
A) Establish a good control environment.
B) Provide an effective accounting system.
C) Integrate control procedures into the control environment and accounting system.
D) All of the above.
Topic: Internal Controls for Cash
LO: 4
6.From the viewpoint of good internal accounting control, which of the following individuals would be the proper person to prepare bank reconciliations for a company that receives cash payments both through the mail and from customers in person?
A) The individual who opens the companys mail and lists the payments received
B) The individual who works in the customer service department and receives payments from customers who pay in person
C) The individual who deposits the daily cash receipts in the bank
D) None of the above
Topic: Internal Controls for Cash
LO: 4
7.Which of the following features should not be included in a good system of internal accounting control over cash?
A) All receipts are deposited daily in the bank.
B) All major disbursements are made by check, and an imprest fund is used for petty cash disbursements.
C) Cash handling is separated from the recording of cash transactions.
D) Monthly bank reconciliations are prepared by the person who makes the daily bank deposits.
Topic: Internal Controls for Cash
LO: 2, 4
8.Which of the following is not a feature of good internal accounting control over cash?
A) All cash receipts are deposited in the bank each day.
B) Most bills are paid with paper currency and coins to minimize the bank service charges.
C) A bank reconciliation is prepared when each bank statement is received.
D) Cash is handled separately from the recording of cash transactions.
Topic: Cash Balance
LO: 3, 5
9.The Cash amount properly shown on the year-end balance sheet is the
A) Balance in the general ledger account before the year-end bank reconciliation
B) Balance per the year-end bank statement
C) Balance per the year-end bank statement less deposits in transit and plus outstanding checks
D) Balance in the general ledger account after entries from the year-end bank reconciliation have been posted
Topic: Reporting Cash
LO: 3
10.A compensating balance refers to:
A) The minimum balance established for a petty cash fund
B) A minimum balance that a financial institution requires a firm to maintain in its account as part of a borrowing arrangement
C) The final cash balance achieved in a bank reconciliation
D) The amount of cash invested temporarily in highly marketable securities
Topic: Bank Reconciliation
LO: 3, 5
11.The following journal entry is necessary upon discovery of a NSF check during a bank reconciliation:
A) Accounts Receivable
Cash
B) Not Sufficient Funds Expense
Cash
C) Miscellaneous Expense
Cash
D) No entry is necessary because the bank makes the entry.
Topic: Bank Reconciliation
LO: 5
12.At May 31, Michaelis Company has outstanding checks totaling $19,600. The bank reconciliation for May should show these checks as a(n):
A) Deduction from balance per bank statement
B) Addition to balance per bank statement
C) Addition to balance per general ledger
D) Deduction from balance per general ledger
Topic: Bank Reconciliation
LO: 5
13.Third Montana Bank collected a note for Nicole Company. This collection, not yet recorded in Nicoles books, appears on the bank reconciliation as a(n):
A) Addition to balance per general ledger
B) Deduction from balance per bank statement
C) Addition to balance per bank statement
D) Deduction from balance per general ledger
Topic: Bank Reconciliation
LO: 5
14.Which of the following bank reconciliation items should not be added to or subtracted from the bank statement balance to determine the reconciled cash balance?
A) Outstanding checks
B) Deposits in the mail but not yet received by the bank
C) Bank service charges
D) None of the above
Topic: Bank Reconciliation
LO: 3, 5
15.Which of the following items would you add to the Flitter Companys bank statement balance to arrive at the reconciled cash balance in a bank reconciliation:
A) Bank service charges
B) Outstanding and NSF checks
C) NSF checks Bank collection charges
D) None of the above
Topic: Direct Write-Off Method
LO: 6
16.The entry to record the write-off of Ward Companys account under the direct write-off method is:
A) Accounts Receivable--Ward Company
Allowance for Doubtful Accounts
B) Bad Debts Expense
Allowance for Doubtful Accounts
C) Allowance for Doubtful Accounts
Accounts Receivable--Ward Company
D) Bad Debts Expense
Accounts Receivable--Ward Company
Topic: Allowance Method
LO: 1
17.The entry to record the write-off of Sepich, Inc.s account using the allowance method is:
A) Bad Debts Expense
Allowance for Doubtful Accounts
B) Bad Debts Expense
Accounts Receivable--Sepich, Inc.
C) Allowance for Doubtful Accounts
Accounts Receivable--Sepich, Inc.
D) Accounts Receivable--Sepich, Inc.
Allowance for Doubtful Accounts
Topic: Allowance Method
LO: 1
18.If a company fails to make an adjusting entry to estimate doubtful accounts, then this error:
A) Understates owners equity
B) Understates assets
C) Overstates net income
D) Overstates expenses
Topic: Percentage of Net Sales Method
LO: 2
19.Assume the following unadjusted account balances at the end of the accounting period for Margarete Company: Accounts Receivable, $100,000; Allowance for Doubtful Accounts, $1,400 (debit balance); and Net sales, $1,200,000.
If Margaretes past experience indicates credit losses of 1% of net sales, the adjusting entry to estimate doubtful accounts is:
A) Bad Debts Expense12,000
Accounts Receivable12,000
B) Bad Debts Expense10,600
Allowance for Doubtful Accounts10,600
C) Bad Debts Expense13,400
Allowance for Doubtful Accounts13,400
D) Bad Debts Expense12,000
Allowance for Doubtful Accounts12,000
Topic: Percentage of Net Sales Method
LO: 2
20.Assume the following unadjusted account balances at the end of the accounting period for Emmie Company: Accounts Receivable, $300,000; Allowance for Doubtful Accounts, $4,200 (debit balance); and Net sales, $3,600,000.
If Emmies past experience indicates credit losses of 1% of net sales, the adjusting entry to estimate doubtful accounts is:
A) Bad Debts Expense36,000
Accounts Receivable36,000
B) Bad Debts Expense31,800
Allowance for Doubtful Accounts31,800
C) Bad Debts Expense40,200
Allowance for Doubtful Accounts40,200
D) Bad Debts Expense36,000
Allowance for Doubtful Accounts36,000
Topic: Credit Card Sales
LO: 3
21.A retailer that makes credit card sales:
A) Absorbs any losses on uncollectible credit card accounts
B) Is charged a fee ranging from 1% to 5% of the amount of each credit card sale
C) Records such sales as a debit to Cash or Accounts Receivable, a debit to Credit Card Fees Expense, and a credit to Sales Revenue
D) Both (B) and (C).
Topic: Accounts Receivable Aging Method
LO: 2
22.River Forest, Inc.s $180,000 Accounts Receivable balance at December 31 consisted of $160,000 current balances and $20,000 past-due balances. At December 31, the Allowance for Doubtful Accounts had a credit balance of $1,600. River Forest estimated that 2% of current balances and 15% of past-due balances will prove uncollectible.
The adjusting entry to record credit losses is:
A) Bad Debts Expense5,800
Allowance for Doubtful Accounts5,800
B) Bad Debts Expense4,600
Allowance for Doubtful Accounts4,600
C) Bad Debts Expense4,200
Accounts Receivable4,200
D) Bad Debts Expense7,400
Allowance for Doubtful Accounts7,400
Topic: Accounts Receivable Aging Method
LO: 2
23.Hockey, Inc.s $540,000 Accounts Receivable balance at December 31 consisted of $480,000 current balances and $60,000 past-due balances. At December 31, the Allowance for Doubtful Accounts had a credit balance of $4,800. Hockey, Inc. estimated that 2% of current balances and 15% of past-due balances will prove uncollectible.
The adjusting entry to record credit losses is:
A) Bad Debts Expense17,400
Allowance for Doubtful Accounts17,400
B) Bad Debts Expense13,800
Allowance for Doubtful Accounts13,800
C) Bad Debts Expense12,600
Accounts Receivable12,600
D) Bad Debts Expense22,200
Allowance for Doubtful Accounts22,200
Topic: Percentage of Net Sales Method
LO: 2
24.Princess Companys Accounts Receivable balance at December 31 was $300,000 and there was a credit balance of $1,400 in the Allowance for Doubtful Accounts. The years sales were $1,800,000. Princess estimates credit losses for the year at 1.5% of sales.
After the appropriate adjusting entry is made for credit losses, what is the net amount of accounts receivable included in the current assets at year-end?
A) $300,000
B) $271,600
C) $325,400
D) $277,400
25.Mario Companys Accounts Receivable balance at December 31 was $900,000 and there was a credit balance of $4,200 in the Allowance for Doubtful Accounts. The years sales were $5,400,000. Mario estimates credit losses for the year at 1.5% of sales.
After the appropriate adjusting entry is made for credit losses, what is the net amount of accounts receivable included in the current assets at year-end?
A) $900,000
B) $814,800
C) $976,305
D) $832,200
Topic: Contingent Liabilities
LO: 3
26.Which of the following is not a contingent liability?
A) Environmental cleanup costs
B)Lawsuits
C) Discount on notes payable
D) Credit guarantees
Topic: Income Tax Payable
LO: 1
27.Which of the following liabilities is most likely an estimated amount rather than an amount known with certainty?
A) Wages payable
B) FICA taxes payable
C) Accounts payable
D) Income tax payable
Topic: Contingent Liabilities
LO: 3
28.A contingent liability is an obligation that depends on the occurrence of a future event and that should be recorded in the accounts:
A) If the related future event will probably occur
B) If the amount is due in cash within one year
C) If the amount is reasonably estimated
D) The related future event will probably occur and the amount is reasonably estimated.
Topic: Current Liabilities Definition
LO: 1
29.A current liability is an obligation that requires the use of an existing asset or the creation of another current liability:
A) Within the coming year or the operating cycle, whichever is shorter
B) Within the coming year or the operating cycle, whichever is longer
C) Within the coming year
D) Within the next operating cycle
Topic: Contingent Liabilities
LO: 3
30.A contingent liability is an obligation that should be:
A) Disclosed in a footnote to the balance sheet when the contingency is remote
B) Recorded in the accounts if the amount may be reasonably estimated and it is probable that the future event creating the obligation will occur
C) Classified in the owners equity section of the balance sheet when the future event creating the liability is not likely to occur
D) Recorded in the accounts and classified in a contingent liabilities section of the balance sheet between current liabilities and long-term liabilities
Topic: Warranty Liabilities
LO: 1, 3
31.Oak Park Appliances, Inc. sells food processors for $300 with a 120-day warranty against defects. Past experience indicates that 5% of the processors will have some defect during the warranty period and that the necessary repairs and adjustments will cost $50 per defective unit. Sales for August were $438,000. 30 of the units sold in August were reported defective and repaired in August.
What is the August 31 journal entry for the estimated liability for product warranties for units sold in August?
A) Product Warranty Expense21,900
Estimated Liability for Product Warranty21,900
B) Product Warranty Expense3,650
Estimated Liability for Product Warranty3,650
C) Estimated Liability for Product Warranty3,650
Product Warranty Expense3,650
D) Product Warranty Expense2,150
Estimated Liability for Product Warranty2,150
Topic: Warranty Liabilities
LO: 1, 3
32.Forest Grove Appliances, Inc. sells food processors for $900 with a 120-day warranty against defects. Past experience indicates that 5% of the processors will have some defect during the warranty period and that the necessary repairs and adjustments will cost $150 per defective unit. Sales for August were $1,404,000. 30 of the units sold in August were reported defective and repaired in August.
What is the August 31 journal entry for the estimated liability for product warranties for units sold in August?
A) Product Warranty Expense70,200
Estimated Liability for Product Warranty70,200
B) Product Warranty Expense11,700
Estimated Liability for Product Warranty11,700
C) Estimated Liability for Product Warranty11,700
Product Warranty Expense11,700
D) Product Warranty Expense7,200
Estimated Liability for Product Warranty7,200
Topic: Warranty Liabilities
LO: 1, 3
33.Boris, Inc. sells a single product for $900 per unit, including a 90-day warranty against defects. It is estimated that 3% of the units sold will prove defective and require an average repair cost of $70 per unit. During July, 800 units were sold. Five of them were reported defective and repaired in July.
What amount should be added to the Estimated Liability for Product Warranties for July?
A) $ 4,500
B) $ 1,680
C) $18,900
D) $ 1,330
Topic: Warranty Liabilities
LO: 1, 3
34.Crescent City, Inc. sells a single product for $2,700 per unit, including a 90-day warranty against defects. It is estimated that 3% of the units sold will prove defective and require an average repair cost of $210 per unit. During July, 800 units were sold. Five of them were reported defective and repaired in July.
What amount should be added to the Estimated Liability for Product Warranties for July?
A) $13,500
B) $44,100
C) $56,700
D) $ 3,990
Topic: Warranty Liabilities
LO: 1, 3
35.Pedal Power Products Company sells bicycles for $240, with a 30-day warranty against defects. Past experience indicates that 6% of the bicycles will have a defect and that the necessary repairs will cost $32 per bicycle. Sales for May were $216,000; 20 units sold in May were found defective and repaired that month.
What is the May 31 journal entry for the estimated liability for product warranties?
A) Product Warranty Expense1,088
Estimated Liability for Product Warranty1,088
B) Product Warranty Expense640
Estimated Liability for Product Warranty640
C) Estimated Liability for Product Warranty1,728
Product Warranty Expense1,728
D) Estimated Liability for Product Warranty1,088
Product Warranty Expense1,088
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