Chapter 10 Current Liabilities

Question 0

Define collateral.

Answer 0

Security over a company’s assets in the event that they company cannot repay the loan

Question 1

What are determinable (certain) liabilities?

Answer 1

CL that have a known amount, payee and due date.

Question 2

Define bank overdraft

Answer 2

Negative/overdrawn balance at year end;

credit balance in cash is recorded as current liability

Question 3

Define uncertain liabilities

Answer 3

Liabilities that have a lower degree of certainty but are still likely to occur

Question 4

Define estimated liability

Answer 4

Liabilities known to exist but amount and timing are unknown;
We owe someone, but do not how for how much and when

Question 5

The expense approach for warranty

Answer 5

Accrue est. warranty costs…
# units sold X est. rate of defective units
= total est. defective units
total est. defective units X average repair cost
= estimated product warranty liability

Question 6

Entry to record estimated warranty liability & warranty contracts honored

Answer 6

Warranty Expense
Warranty Liability

Contracts honored…
Warranty Liability
Repair Parts Inventory

Question 7

Are customer rewards points contra revenues or expenses? Are they recorded when the points are issued or redeemed?

Answer 7

Contra revenue; should be recorded when issued