MGMT 200 Chapter 8 Exam Questions
and Answers
What are the two criteria used to determine whether a contingent liability is reported in
the financial statements? - Answer-The likelihood of payment
The ability to estimate the amount of payment
Abbott Corp.'s attorney estimates that the company will ultimately have to pay $400,000
related to current litigation. Abbot's journal entry should include a: - Answer-credit to
contingent liability debit to loss
The feature that distinguishes loss ___ from other liabilities is the uncertain outcome. -
Answer-contingent
Product warranties, effects of environmental problems, and lawsuits are examples of
transactions or events that give rise to ___ liabilities. - Answer-contingent
Which of the following is a guarantee that protects a customer from product defects for
a specified period of time? - Answer-warranty
The flipside of a contingent gain is a contingent - Answer-loss.
Lark Corporation believes it is probable the company will lose a lawsuit for $10,000. The
journal entry to record the contingent loss will include a - Answer-credit to contingent
liability for lawsuit $10,000.
Additional benefits such as health insurance, retirement benefits, or life insurance that
are paid by the employer are called benefits. - Answer-fringe or employee
The term referring to a company having a sufficient amount of cash to pay its current
debts is - Answer-liquidity.
The mathematical formula for working capital is current assets ______ current liabilities.
- Answer-minus
The ____ portion of long-term debt is the amount that will be paid within the next year. -
Answer-current
, Which of the following terms are used to categorize the likelihood of the occurrence of a
future loss? - Answer-Probable
Remote
Reasonably possible
What will be the effect of paying off an accounts payable balance on the current and the
acid-test ratios? Assume that both ratios are greater than 1. - Answer-Current ratio will
increase
Acid-test ratio will increase
When a contingent event that may give rise to a future loss is likely to occur, it is said to
be - Answer-probable
Payroll withholdings ______. - Answer-are amounts subtracted from employees' gross
earnings to determine their net pay
decrease the amount of cash an employee receives
Taxes collected for taxing authorities are recognized as - Answer-current liabilities.
Which of the following represents a characteristic of a liability? - Answer-A probable
future sacrifice of economic benefits.
Arising from present obligations to other entities.
Resulting from past transactions or events.
In most cases, current liabilities are payable within ____ year(s), and long-term liabilities
are payable more than ____ year(s) from now. - Answer-one; one
Which of the following is not a current liability?
Notes payable due in six months.
Current portion of long-term debt.
An unused line of credit.
Deferred revenue to be earned in nine months. - Answer-An unused line of credit.
Which of the following is not a characteristic of a liability?
It represents a probable, future sacrifice of economic benefits.
It must be payable in cash.
It arises from present obligations to other entities.
It results from past transactions or events. - Answer-It must be payable in cash.
If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest,
how much interest expense does it record for the year ended December 31, 20X1? -
Answer-$450,000
On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable
with the amount borrowed plus accrued interest due six months later on May 1, 20X2.
The company should report the following adjusting entry at December 31, 20X1: -
Answer-Debit interest expense and credit interest payable, $4,000.
and Answers
What are the two criteria used to determine whether a contingent liability is reported in
the financial statements? - Answer-The likelihood of payment
The ability to estimate the amount of payment
Abbott Corp.'s attorney estimates that the company will ultimately have to pay $400,000
related to current litigation. Abbot's journal entry should include a: - Answer-credit to
contingent liability debit to loss
The feature that distinguishes loss ___ from other liabilities is the uncertain outcome. -
Answer-contingent
Product warranties, effects of environmental problems, and lawsuits are examples of
transactions or events that give rise to ___ liabilities. - Answer-contingent
Which of the following is a guarantee that protects a customer from product defects for
a specified period of time? - Answer-warranty
The flipside of a contingent gain is a contingent - Answer-loss.
Lark Corporation believes it is probable the company will lose a lawsuit for $10,000. The
journal entry to record the contingent loss will include a - Answer-credit to contingent
liability for lawsuit $10,000.
Additional benefits such as health insurance, retirement benefits, or life insurance that
are paid by the employer are called benefits. - Answer-fringe or employee
The term referring to a company having a sufficient amount of cash to pay its current
debts is - Answer-liquidity.
The mathematical formula for working capital is current assets ______ current liabilities.
- Answer-minus
The ____ portion of long-term debt is the amount that will be paid within the next year. -
Answer-current
, Which of the following terms are used to categorize the likelihood of the occurrence of a
future loss? - Answer-Probable
Remote
Reasonably possible
What will be the effect of paying off an accounts payable balance on the current and the
acid-test ratios? Assume that both ratios are greater than 1. - Answer-Current ratio will
increase
Acid-test ratio will increase
When a contingent event that may give rise to a future loss is likely to occur, it is said to
be - Answer-probable
Payroll withholdings ______. - Answer-are amounts subtracted from employees' gross
earnings to determine their net pay
decrease the amount of cash an employee receives
Taxes collected for taxing authorities are recognized as - Answer-current liabilities.
Which of the following represents a characteristic of a liability? - Answer-A probable
future sacrifice of economic benefits.
Arising from present obligations to other entities.
Resulting from past transactions or events.
In most cases, current liabilities are payable within ____ year(s), and long-term liabilities
are payable more than ____ year(s) from now. - Answer-one; one
Which of the following is not a current liability?
Notes payable due in six months.
Current portion of long-term debt.
An unused line of credit.
Deferred revenue to be earned in nine months. - Answer-An unused line of credit.
Which of the following is not a characteristic of a liability?
It represents a probable, future sacrifice of economic benefits.
It must be payable in cash.
It arises from present obligations to other entities.
It results from past transactions or events. - Answer-It must be payable in cash.
If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest,
how much interest expense does it record for the year ended December 31, 20X1? -
Answer-$450,000
On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable
with the amount borrowed plus accrued interest due six months later on May 1, 20X2.
The company should report the following adjusting entry at December 31, 20X1: -
Answer-Debit interest expense and credit interest payable, $4,000.
