Monetary Current Assets and Current Liabilities

Question 1

Info

Answer 1

Started on 03 September 2014 @10.00 AM
Total questions 148
To do at a time
Practice session 96

Question 2

Reserves for contingencies for general or unspecified business risks should

Answer 2

Not be accrued in the financial statements and need not be disclosed in the notes thereto.

Question 3

In accordance with ASC Topic 860, Transfers and Servicing, all of the following would be disclosed except for

Answer 3

Carrying amount and classification of pledged assets as collateral that are reclassified and separately reported on the balance sheet.
what is this?

Question 4

An expropriation of assets which is imminent and for which the amount of loss can be reasonably estimated should be

Answer 4

an estimated loss from contingencies shall be accrued and charged to income when it is probable that an asset has been impaired or a liability incurred and when the amount of the loss can be reasonably estimated. Both of these requirements are met by the expropriation of assets described in this question. Therefore, this loss contingency should be accrued. Additionally, the nature of the contingency should be disclosed in a note to the financial statements.

Question 5

Snelling Co. did not record an accrual for a contingent loss, but disclosed the nature of the contingency and the range of the possible loss. How likely is the loss?

Answer 5

Reasonably possible.
an estimated loss from a loss contingency shall be accrued if the loss is both probable and reasonably estimable. If no accrual is made for a loss contingency because one or both of the conditions above are not met (as in this case), disclosure of the contingency shall be made where it is at least reasonably possible that a loss was incurred.

Question 6

A loss contingency would not be disclosed if the likelihood of loss was only remote.

Answer 6

Remote.

Question 7

A loss that is both probable and reasonably estimable would be accrued. The ability to disclose a range of possible loss indicates that the loss is reasonably estimable.

Answer 7

Probable.

Question 8

On March 1, year 1, a suit was filed against Dean Company for patent infringement. Dean’s legal counsel believes an unfavorable outcome is probable, and estimates that Dean will have to pay between $500,000 and $900,000 in damages. However, Dean’s legal counsel is of the opinion that $600,000 is a better estimate than any other amount in the range. The situation was unchanged when the December 31, year 1 financial statements were released on February 24, year 2. How much of a liability should Dean report on its balance sheet at December 31, year 1 in connection with this suit?

Answer 8

This answer is correct. Per ASC Topic 450, an estimated loss from a loss contingency should be accrued only if it is probable that a liability exists at the balance sheet date and if the loss is reasonably estimable. The contingency meets the “probable” requirement. In addition, the best estimate of the loss is $600,000. Therefore, a contingent loss of $600,000 should be reported on December 31, year 1.

Question 9

past actual losses from uncollectible accounts to past net credit sales,

Answer 9

Matching.
estimating uncollectible accounts expense based on net credit sales is an application of the matching principle where expenses are matched to the related revenue earned.

Question 10

If loss can not be estimable can you accreu

Answer 10

No

Question 11

accrual of the lower limit of the estimate of probable loss, and disclosure of the possible amounts.

Answer 11

Bell should accrue $5,000,000.

Question 12

When to accrue contingent gain and loss.

Answer 12

contingent losses are accrued when probable and estimable. Contingent gains are recognized when realized.

Question 13

The average number of days in the operating cycle for year

Answer 13

The average number of days in the operating cycle measures the length of time from purchase of inventory to collection of cash.

Question 14

Payment of cash dividend effects working capital

Answer 14

Cash purchases of plant assets and cash dividends paid both decrease working capital because cash, a current asset, is decreasing

Question 15

Possible liability

Answer 15

As a footnote disclosing a possible liability of $300,000.

Question 16

factoring with recourse and without recourse

Answer 16

Need to understand.

Question 17

What are All four conditions for accrual from ASC Topic 450 have been met.

Answer 17

Need to understand.

Question 18

Is Dividends payable is a current liability.

Answer 18

yes

Question 19

A method of estimating bad debts that focuses on the income statement rather than the balance sheet is the allowance method based on

Answer 19

Credit sales.

Question 20

with $1,300,000 being the most likely amount.

Is the loss probable and can it be estimated?

Answer 20

If the loss is probable and reasonably estimable, the most likely amount should be recorded as a loss on the income statement, and a corresponding liability should be reported on the balance sheet. The most likely amount of the loss is $1,300,000.

Question 21

How do you account for servicing assets?

Answer 21

Specifically, servicing assets or servicing liabilities are to be accounted for separately as follows:

1. Assets are to be reported separately from liabilities. They are not netted.
2. Initially measure retained servicing assets at allocated book value based on relative fair values at date of sale or securitization.
3. Initially measure at fair value all purchased assets, assumed liabilities, and liabilities undertaken in a sale or securitization.
4. Account separately for interest-only strips (future interest income from serviced assets that exceeds servicing fees).
5. Amortize assets in proportion to and over the period of net servicing income.

Question 22

Cash equivalent penalty or restriction.

Answer 22

Any instrument involving a restriction or penalty for early withdrawal cannot be a cash equivalent.

Question 23

Reserves for contingencies for general or unspecified business risks should

Answer 23

Not be accrued in the financial statements and need not be disclosed in the notes thereto.
ASC Topic 450 states that no accrual, loss, or disclosure should be made for general or unspecified business risks and that they need not be disclosed. An estimated loss for a loss contingency shall be accrued only if the loss is probable and the amount of the loss is reasonably estimated. General or unspecified business risks do not meet these conditions.