Bakersfield College

ACG 2021

1)All of the following but one represent collections for third parties. Which one of the following is

not a collection for a third party?

1. 1. Sales tax payable.
   2. Customer deposits.
   3. Employee insurance deductions.
   4. Social security taxes deductions.

2. When a deposit on returnable containers is forfeited, the firm holding the deposit will experience:
   1. A decrease in cost of goods sold.
   2. An increase in current liabilities.
   3. An increase in accounts receivable.
   4. An increase in revenue.

3. B Corp. has an employee benefit plan for compensated absences that gives each employee 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 2016, B's unadjusted balance of liability for compensated absences was $42,000. B estimated that there were 300 total vacation days and 150 sick days available at December 31, 2016. B's employees earn an average of $200 per day. In its December 31, 2016, balance sheet, what amount of liability for compensated absences is B required to report?

a.    $ 60,000.

b.   $ 84,000.

c.     $ 90,000.

d.   $144,000.

4. On January 1, 2016, G Corporation agreed to grant all its employees two weeks paid vacation each year, with the stipulation that vacations earned each year can be taken the following year. For the year ended December 31, 2016, G’s employees each earned an average of $800 per week. A total of 500 vacation weeks earned in 2016 were not taken during 2016. Wage rates for employees rose by an average of 5 percent by the time vacations actually were taken in 2017. What is the amount of G’s 2017 wages expense related to 2016 vacation time?

a.    $             0.

b.   $ 20,000.

c.     $400,000.

d.   $420,000.

5. Revenue for gift card breakage should be recognized:
   1. When the gift card is sold.
   2. No later than the last day of the operating period in which the gift card is delivered to the customer.
   3. When the probability of gift card redemption is viewed as remote.
   4. Under no circumstances, as gift cards are not themselves a delivered product, but rather a selling technique.

6. All else equal, a large increase in deferred revenue in the current period would be expected to produce what effect on revenue in a future period?
   1. Large increase, because deferred revenue becomes revenue when the seller has satisfied its

performance obligations.

1. 2. Large decrease, because deferred revenue implies that less revenue has been earned, which reduces future revenue.
   3. No effect, because deferred revenue is a liability, so payment will use assets rather than providing revenue.
   4. Large decrease, because deferred revenue indicates collection problems that will reduce net revenues in future periods.

7. Peterson Photoshop sold $1,000 in gift cards on a special promotion on October 15, 2016, and sold $1,500 in gift cards on another special promotion on November 15, 2016. Of the cards sold in October, $100 were redeemed in October, $250 in November, and $300 in December. Of the cards sold in November, $150 were redeemed in November and $350 were redeemed in December. Peterson views the probability of redemption of a gift card as remote if the card has not been redeemed within two months. At 12/31/2016, Peterson would show an deferred revenue account for the gift cards with a balance of:

a.     $0.

b.     $1,000.

c.     $1,350.

d.     $1,500.

8. When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes:
   1. A debit to a revenue and a credit to a liability account.
   2. A debit to a revenue and a credit to an asset account.
   3. A debit to an asset and a credit to a revenue account.
   4. A debit to a liability and a credit to a revenue account.

9. Clark's Chemical Company received customer deposits on returnable containers in the amount of

$100,000 during 2016. Twelve percent of the containers were not returned. The deposits are based on the container cost marked up 20%. What is cost of goods sold relative to this forfeiture?

a.     $0.

b.     $2,000.

c.     $10,000.

d.     $14,400.

10. In May of 2016, Raymond Financial Services became involved in a penalty dispute with the EPA. At December 31, 2016, the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable. The additional penalties were estimated to be $770,000 but could be as high as $1,170,000. After the year-end, but before the 2016 financial statements were issued, Raymond accepted an EPA settlement offer of $900,000. Raymond should have reported an accrued liability on its December 31, 2016, balance sheet of:

a.     $ 770,000.

b.     $ 900,000.

c.     $ 970,000.

d.     $1,170,000.

11. Slotnick Chemical received customer deposits on returnable containers in the amount of $300,000 during 2016. Fifteen percent of the containers were not returned. The deposits are based on the container cost marked up 20%. How much profit did Slotnick realize on the forfeited deposits?

a.     $0.

b.     $7,500.

c.     $9,000.

d.     $45,000.

12. Which of the following is not a current liability?
    1. Accounts payable.
    2. A note payable due in two years.
    3. Accrued interest payable.
    4. Sales tax payable.

13. Short-term obligations can be reported as long-term liabilities if:
    1. The firm has a long-term line of credit.
    2. The firm has tentative plans to issue long-term bonds.
    3. The firm intends to and has the ability to refinance as long-term.
    4. The firm has the ability to refinance on a long-term basis.

14. Of the following, which typically would not be classified as a current liability?
    1. Estimated liability from cash rebate program.
    2. A long-term note payable maturing within the coming year.
    3. Rent revenue received in advance.
    4. A six-month bank loan to be paid with the proceeds from the sale of common stock.

15. Which of the following situations would not require that long-term liabilities be reported as current liabilities on a classified balance sheet?
    1. The long-term debt is callable by the creditor.
    2. The creditor has the right to demand payment due to a contractual violation.
    3. The long-term debt matures within the upcoming year.
    4. The company intended to refinance the debt and did so prior to issuance of the financial statements.

16. A long-term liability should be reported as a current liability in a classified balance sheet if the long-term debt:
    1. Is callable by the creditor.
    2. Is secured by adequate collateral.
    3. Will be refinanced with stock.
    4. Will be refinanced with debt.

17. On December 31, 2016, L Inc. had a $1,500,000 note payable outstanding, due July 31, 2017. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $500,000 of the note on January 23, 2017. In February 2017, L completed a $3,000,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2017. On March 13, 2017, L issued its 2016 financial statements. What amount of the note payable should L include in the current liabilities section of its December 31, 2016, balance sheet?

a.    $                 0.

b.   $ 500,000.

c.     $1,000,000.

d.   $1,500,000.

18. Liabilities payable within the coming year are classified as long-term liabilities if refinancing is completed before date of issuance of the financial statements under:
    1. U.S. GAAP.
    2. IFRS.
    3. Either U.S. GAAP and IFRS.
    4. Neither U.S. GAAP and IFRS.

19. Kline Company refinanced current debt as long-term debt on January 5, 2017. Kline’s fiscal year ended on December 31, 2016, and its financial statements will be issued sometime in early March 2017. Under IFRS, how would Kline classify the debt on its December 31, 2016, balance sheet?
    1. In the “mezzanine” between current and noncurrent liabilities.
    2. Kline would not classify the debt as current or noncurrent, but rather would write a disclosure note explaining the circumstances.
    3. As a noncurrent liability.
    4. As a current liability.

20. Branch Company, a building materials supplier, has $18,000,000 of notes payable due April 12, 2017. At December 31, 2016, Branch signed an agreement with First Bank to borrow up to

$18,000,000 to refinance the notes on a long-term basis. The agreement specified that borrowings would not exceed 75% of the value of the collateral that Branch provided. At the date of issue of the December 31, 2016, financial statements, the value of Branch's collateral was $20,000,000.

On its December 31, 2016, balance sheet, Branch should classify the notes as follows:

1. 1. $15,000,000 long-term and $3,000,000 current liabilities.
   2. $4,500,000 short-term and $13,500,000 current liabilities.
   3. $18,000,000 of current liabilities.
   4. $18,000,000 of long-term liabilities.

21. Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current. The logic behind this preference is that the long-term classification permits the company to report:
    1. Higher working capital and a higher inventory turnover.
    2. Lower working capital and a higher current ratio.
    3. Higher working capital and a higher current ratio.
    4. Higher working capital and a lower debt to equity ratio.

22. Financial statement note disclosure is required for material potential losses when the loss is at least reasonably possible:
    1. Only if the amount is known.
    2. Only if the amount is known or reasonably estimable.

1. 3. Unless the amount is not reasonably estimable.
   4. Even if the amount is not reasonably estimable.

23. Gain contingencies usually are recognized in a company's income statement when:
    1. Realized.
    2. The amount can be reasonably estimated.
    3. The gain is reasonably possible and the amount can be reasonable estimated.
    4. The gain is probable and the amount can be reasonably estimated.

24. Gray Co. estimates it is probable that it will receive a $10,000 gain contingency and pay a $4,000 loss contingency. After recording the appropriate journal entries to recognize contingent amounts, Gray Co.’s net assets will:
    1. Increase by $10,000.
    2. Increase by $6,000.
    3. Decrease by $4,000.
    4. Not change.

25. A company should accrue a loss contingency only if the likelihood that a liability has been incurred is:
    1. More likely than not and the amount of the loss is known.
    2. At least reasonably possible and the amount of the loss is known.
    3. At least reasonably possible and the amount of the loss can be reasonably estimated.
    4. Probable and the amount of the loss can be reasonably estimated.

26. A loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is:
    1. At least remotely possible and the amount of the loss is known.
    2. Reasonably possible and the amount of the loss is known.
    3. Reasonably possible and the amount of the loss can be reasonably estimated.
    4. Probable and the amount of the loss can be reasonably estimated.

27. A contingent loss should be reported in a disclosure note to the financial statements rather than being accrued if:
    1. The likelihood of a loss is remote.
    2. The incurrence of a loss is reasonably possible.
    3. The incurrence of a loss is more likely than not.
    4. The likelihood of a loss is probable.

28. Which of the following is a contingency that should be accrued?
    1. The company is being sued and a loss is reasonably possible and reasonably estimable.
    2. The company deducts life insurance premiums from employees' paychecks.
    3. The company offers a two-year warranty and the expenses can be reasonably estimated.
    4. It is probable that the company will receive $100,000 in settlement of a lawsuit.

29. Paul Company issues a product recall due to an apparently preexisting and material defect discovered after the end of its fiscal year. Financial statements have not yet been issued. The action required of Paul Company for this reasonably estimable contingency for the year just ended is:
    1. To disclose it in a note to the financial statements.
    2. To accrue a long-term liability.
    3. To accrue the liability and explain it in a note to the financial statements.
    4. To do nothing relative to the contingency.

30. Accounting for costs of incentive programs for customer purchases:
    1. Requires probability estimation.
    2. Follows the matching principle.
    3. Is a loss contingency situation.
    4. All of these answer choices are correct.

31. Providing a monetary rebate program for purchasing a product:
    1. Is accounted for similarly to product warranties.
    2. Creates an expense for the seller in the period of sale.
    3. Creates a contingent liability for the seller at the time of sale.
    4. All these answer choices are correct.