Bakersfield College

ACG 2021

1)Which of the following is true about the initial journal entry used to record extended warranties?

 

Recognize a                                   Recognize contingent liability                                            deferred revenue

1. 1. No                                                    No
   2. No                                                    Yes
   3. Yes                                                    No
   4. Yes                                                    Yes

 

 

 

 

2. Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company’s assets in that country. If the likelihood of expropriation is remote, a loss contingency should be:
   1. Disclosed but not accrued as a liability.
   2. Disclosed and accrued as a liability.
   3. Accrued as liability but not disclosed.
   4. Neither accrued as a liability nor disclosed.

 

 

 

 

3. Orange Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company’s assets in that country. If expropriation is reasonably possible, a loss contingency should be:
   1. Disclosed but not accrued as a liability.
   2. Disclosed and accrued as a liability.
   3. Accrued as liability but not disclosed.
   4. Neither accrued as a liability nor disclosed.

 

 

 

4. Red Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company’s assets in that country. If expropriation is probable, a loss contingency should be:
   1. Disclosed but not accrued as a liability.
   2. Disclosed and accrued as a liability.
   3. Accrued as liability but not disclosed.
   4. Neither accrued as a liability nor disclosed.

 

 

 

 

5. Z Co. filed suit against W Inc. in 2016 seeking damages for patent infringement. At December 31, 2016, legal counsel for Z believed that it was probable that Z would be successful against W for an estimated amount in the range of $30 million to $60 million, with each amount in that range considered equally likely. Z was awarded $40 million in April 2017. Z should report this award in its 2016 financial statements, issued in March 2017 as:
   1. A receivable and deferred revenue of $40 million.
   2. A receivable and revenue of $40 million.
   3. A disclosure of a gain contingency of $40 million.
   4. A disclosure of a gain contingency of an undetermined amount in the range of $30 million to

$60 million.

 

 

 

 

6. When a material gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be:
   1. Reported in the income statement and disclosed.
   2. Offset against shareholders' equity.
   3. Disclosed but not recognized in the income statement.
   4. Neither recognized in the income statement nor disclosed.

 

 

 

 

7. Which of the following is a contingency that would most likely require accrual?
   1. Potential claims on extended warranties.
   2. Customer premium offers.
   3. Potential liability on a product where none have yet been sold.
   4. Sales tax payable.

 

 

 

 

8. A customer of RoughEdge Sharpeners alleges that RoughEdge’s new razor sharpener had a defect that resulted in serious injury to the customer. RoughEdge believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under U.S. GAAP, RoughEdge should accrue a liability in the amount of:

a.     $0.

b.     $1,000,000.

c.     $2,000,000.

d.     $3,000,000.

 

 

 

 

9. A customer of Razor Sharpeners alleges that Razor’s new razor sharpener had a defect that resulted in serious injury to the customer. Razor believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between

$1,000,000 and $3,000,000 in which any number is equally likely to occur. Under IFRS, Razor should accrue a liability in the amount of:

a.     $0.

b.     $1,000,000.

c.     $2,000,000.

d.     $3,000,000.

 

 

 

 

10. Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:
    1. When the equipment is sold.
    2. When the repairs are performed.
    3. When payments are made to the service firm.
    4. Evenly over the life of the warranty.

 

 

 

 

11. As part of a promotion campaign, Funzy Cereal includes one coupon in each issue of various national magazines and offers a toy car in exchange for $1.00 and three coupons. The cars cost Funzy $1.50 each. Experience indicates that 4% of the coupons eventually will be redeemed. During the last month of 2013, the first month of the offer, 12 million coupons were distributed and 240,000 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2013, income statement?

a.     $ 0.

b.     $ 40,000.

c.     $ 80,000.

d.     $120,000.

 

 

12. At the beginning of 2016, Angel Corporation began offering a two-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2016 were $180 million. Fifteen percent of the units sold were returned in 2016 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2016 income statement is:
    1. $ 5.3 million.
    2. $ 7.2 million.
    3. $10.6 million.
    4. $27.0 million.

 

 

 

 

13. During 2016, Deluxe Leather Goods sold 800,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $5.00 cash rebate. Deluxe estimates that 70% of the coupons will be redeemed, even though only 350,000 coupons had been processed during 2016. At December 31, 2016, Deluxe should report a liability for unredeemed rebates of:

a.     $ 560,000.

b.     $1,050,000.

c.     $1,225,000.

d.     $1,750,000.

 

 

 

 

Use the following to answer questions:

 

In 2016, Holyoak Inc. offers a $20 cash rebate coupon to customers who purchased one of its new line of products. Holyoak sold 10,000 of these products during the year. By year-end of 2016, 7,600 of the rebates had been claimed, and 7,100 had been paid. Holyoak's historical experience with such rebates indicates that 85% of customers claim the rebates.

 

14. What is the expense that Holyoak should report for its promotional rebates in its 2016 income statement?

a.     $142,000.

b.     $152,000.

c.     $170,000.

d.     $200,000.

 

 

 

 

15. What is the rebate promotion liability that Holyoak should report in its December 31, 2016, balance sheet?

a.     $20,000.

b.     $28,000.

c.     $18,000.

d.     $19,000.

 

 

 

 

16. In the current year, Hanna Company reported quality-assurance warranty expense of $190,000 and the warranty liability account increased by $20,000. What were warranty expenditures during the year?

a.     $190,000.

b.     $170,000.

c.     $210,000

d.     $            0.

 

 

 

 

 

17. Panther Co. had a quality-assurance warranty liability of $350,000 at the beginning of 2016 and

$310,000 at the end of 2016. Warranty expense is based on 4% of sales, which were $50 million for the year. What were the warranty expenditures for 2016?

a.     $0.

b.     $1,960,000.

c.     $2,000,000.

d.     $2,040,000.

 

 

 

 

18. Carpenter Inc. had a balance of $80,000 in its quality-assurance warranty liability account as of December 31, 2015. In 2016, Carpenter's warranty expenditures were $445,000. Its warranty expense is calculated as 1% of sales. Sales in 2016 were $40 million. What was the balance in the warranty liability account as of December 31, 2016?

a.     $ 35,000.

b.     $425,000.

c.     $125,000.

d.     $480,000.

 

 

 

 

Use the following to answer questions:

 

General Product Inc. distributed 100 million coupons in 2016. The coupons are redeemable for 30 cents each. General anticipates that 70% of the coupons will be redeemed. The coupons expire on December 31, 2017. There were 45 million coupons redeemed in 2016 and 30 million redeemed in 2017.

 

19. What was General's coupon promotion expense in 2016?
    1. $30.0 million.
    2. $21.0 million.
    3. $13.5 million.
    4. $7.5 million.

 

 

 

 

20. What was General's coupon liability as of December 31, 2016?
    1. $7.5 million.
    2. $13.5 million.
    3. $16.5 million.
    4. $21.0 million.

 

 

 

 

21. What was General's coupon promotional expense in 2017?
    1. Zero, since all the expense should be reflected in 2016.
    2. $1.5 million.
    3. $7.5 million.
    4. $9.0 million.

 

 

                                                                                9.0

 

 

22. During the year, L&M Leather Goods sold 1,000,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $4.00 cash rebate. L&M estimates that 70% of the coupons will be redeemed, even though only 500,000 coupons had been processed during the year. At December 31, L&M should report a liability for unredeemed coupons of:

a.               $ 700,000.

b.              $ 800,000.

c.                        $1,000,000.

d.                       $2,800,000.

 

 

 

 

23. Which of the following may create employer liabilities in connection with their payrolls?
    1. Employee withholding taxes.
    2. Employee voluntary deductions.
    3. Employee fringe benefits.
    4. All of these answer choices are correct.