Chapter 12 Current Liabilities and Contingencies

Question 1

balances owed to others for goods, supplies, or services purchased on open account

Answer 1

accounts payable (trade accounts payable)

Question 2

rights that can be carried forward to future periods if not used in the period in which earned

Answer 2

accumulated rights

Question 3

relates total current liabilities to cash, short-term investments, and receivables:
(cash+short-term investments+A/R)/ current liabilities

Answer 3

acid-test (quick) ratio

Question 4

warranty that the product meets agreed-upon specifications in the contract at the time the product is sold
a type of warranty that is included in the sales price of a company’s product and is often referred to as

Answer 4

assurance-type warranty

Question 5

most companies give _____ to certain/all employees in addition to their regular salaries or wages and usually depends on the company’s yearly profit

Answer 5

bonus

Question 6

revenue gained by retailers through unredeemed gift cards or other prepaid services that are never claimed

Answer 6

breakage

Question 7

paid absences from employment for such items as vacations, illness, holidays, and jury duties

Answer 7

compensated balances

Question 8

“an existing condition, situation, or set of circumstances involving uncertainty as to possible loss (loss contingency) or gain (gain contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur

Answer 8

contingency

Question 9

depends on the occurrence of one or more future events to confirm either the amount payable, the payee, the date payable, or its existence

Answer 9

contingent liabilities

Question 10

obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities

Answer 10

current liabilities

Question 11

should be classified as current liabilities

Answer 11

current maturities of long-term debt

Question 12

the ratio of total current assets to total current liabilities
current assets/ current liabilities

Answer 12

current ratio

Question 13

occurs when a government claims privately owned property against the wishes of its owners

Answer 13

expropriation

Question 14

the OASDI tax is usually referred to as FICA, Federal Insurance Contribution Act, which is probably what you see on your paycheck being withheld

Answer 14

FICA

Question 15

Federal Unemployment Tax Act
provides financial assistance to eligible workers who may have been laid off through no fault of their own

Answer 15

FUTA

Question 16

claims or rights to receive assets (or have a liability reduced) whose existence is uncertain but which may become valid eventually

Answer 16

gain contingencies

Question 17

when you owe money to another party

Answer 17

liabilities

Question 18

must consider the following:
1. the time period in which the underlying cause of action occurred
2. the probability of an unfavorable outcome
3. the ability to make a reasonable estimate of the amount of loss

Answer 18

litigation, claims, and assessments

Question 19

involve possible losses

Answer 19

loss contingencies

Question 20

written promises to pay a certain sum of money on a specified future date

Answer 20

notes payable (trade notes payable)

Question 21

Old Age, Survivor, and Disability Insurance
Social security legislation provides this federal benefit for certain individuals and their families which is funded by taxes paid from employer and employee

Answer 21

OASDI

Question 22

made to stimulate sales

Answer 22

premium

Question 23

the future event or events are likely to occur

Answer 23

probable (contingency)

Question 24

the chance of the future event or events occurring is more than remote but less than likely

Answer 24

reasonably possible (contingecy)

Question 25

cash collected from a customer that a company expects to return after a specified period or when certain conditions are satisfied

Answer 25

refundable deposit

Question 26

the chance of the future event or events occurring is slight

Answer 26

remote (contingency)

Question 27

warranty that provides an additional service beyond the assurance-type warranty
this type of warranty is not included in the sales price of the product and is referred to as a _____

Answer 27

service-type warranty

Question 28

combination of FICA and the federal Medicare tax is commonly referred to as the _____

Answer 28

social security tax

Question 29

aka accounts payable

Answer 29

trade accounts payable

Question 30

aka notes payable

Answer 30

trade notes payable

Question 31

advance payments a company receives for products or services that are to be delivered or performed in the future

Answer 31

unearned (deferred) revenues

Question 32

these exist when an employer has an obligation to make payment to an employee even after terminating his or her employment

Answer 32

vested rights

Question 33

a promise made by a seller to a buyer to make good on a deficiency of quantity, quality, or performance in a product

Answer 33

warranty

Question 34

aka current ratio, want the numerator to be greater than the denominator because working capital is the excess of current assets over current liabilities

Answer 34

working capital ratio