CHAPTER: 1 LIABILITIES Flashcards
At the end of the current year, an entity received an advance payment of 60% of the sales price for special order goods to be manufactured and delivered within five months. At the same time, the entity subcontracted for production of the special order goods at a price equal to 40% of the main contract price. What liabilities should be reported in the year-end statement of financial position?
Deferred revenue equal to 60% of the main contract price and no payable to subcontractor
An entity sells appliances that include a three-year warranty. Service calls under the warranty
are performed by an independent mechanic under a contract with the entity. Based on
experience, warranty costs are expected to be incurred for each machine sold. When should the
entity recognize these warranty costs?
When the machines are sold
An entity is a retailer of home appliances and offers a service contract on each appliance
sold. Collections received for service contracts should be recorded as an increase in a
Deferred revenue account
Magazine subscriptions collected in advance should be treated as
Deferred revenue in the liability section
Magazine subscriptions collected in advance should be treated as
Deferred revenue in the liability section
How would the proceeds received from the advance sale of nonrefundable tickets for a theatrical performance be reported in the statement of financial position before the
performance?
Unearned revenue for the entire proceeds
At year-end, an entity sold refundable merchandise coupon. The entity received a certain
amount for each coupon redeemable next year for merchandise with a certain retail price. At year-end, how should the entity report these coupon transactions?
Unearned revenue at the cash received
An entity received an advance payment for special order goods that are to be manufactured
and delivered within six months. How should the advance payment be reported?
Current liability
A retail store received cash and issued gift certificate that are redeemable in merchandise.
How would the deferred revenue account be affected by the redemption and nonredemption of
certificates, respectively?
Decrease and Decrease
A department store received cash and issued a gift certificate that is redeemable in merchandise. When the gift certificate was issued
Deferred revenue account should be increased
When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in
Current liability
The most common type of liability is
One to be paid in cash and for which the amount
Which is not a characteristic of a liability?
It must be payable in cash.
Classifying liabilities as either current or noncurrent helps creditors assess
The relative risk of an entity’s liabilities
Short-term obligations are reported as noncurrent if
The entity has the discretion to refinance as long-term.
The obligation to provide goods that customers have ordered and paid for during the current
year represents a?
Liability
Which does not meet the definition of a liability?
The signing of a an employment contract at fixed salary
Which of the following is not considered a characteristic of a liability?
Liquidation is reasonably expected to require use of current assets
An entity has a loan due for repayment in six months’ time, but the entity has the option to
refinance for repayment two years later. The entity plans to refinance this loan. In which section
of the statement of financial position should this loan be presented?
Noncurrent liabilities
Among the short-term obligations at year-end are 90-day notes, renewable for another
90-day period. What is the classification of the notes payable?
Current liabilities
