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Exam 13: Current Liabilities and Contingencies

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Question 41

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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:

A) Disclosed but not accrued as a liability.
B) Disclosed and accrued as a liability.
C) Accrued as liability but not disclosed.
D) Neither accrued as a liability nor disclosed.

E) A) and B)
F) A) and C)

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Question 42

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On October 31,2016,Simeon Builders borrowed $16 million cash and issued a 7-month,noninterest-bearing note.The loan was made by Star Finance Co.The stated discount rate is 8%.Sky's effective interest rate on this loan is:

A) More than the stated discount rate of 8%.
B) Less than the stated discount rate of 8%.
C) Equal to the stated discount rate of 8%.
D) Unrelated to the stated discount rate of 8%.

E) A) and D)
F) None of the above

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Question 43

Multiple Choice

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Accounting for costs of incentive programs for customer purchases:

A contingent loss should be reported in a disclosure note to the financial statements rather than being accrued if:

Which of the following is a contingency that would most likely require accrual?

Which of the following may create employer liabilities in connection with their payrolls?

Texon Oil is being sued for price fixing and environmental damage.The litigation started this year and is expected to last five years.There is no doubt that Texon is guilty,but the settlement cost will be between $3 billion and $22 billion.Briefly explain how Texon would address this in its current year financial statements.

A company should accrue a liability for a loss contingency if it is at least reasonably possible that assets have been impaired and the amount of potential loss can be reasonably estimated.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

Gain contingencies usually are recognized in a company's income statement when:

The rate of interest that actually is incurred on a note payable is called the:

Oklahoma Oil Corp.paid interest of $785,000 during 2016,and the interest payable account decreased by $125,000.What was interest expense for the year?

In May of 2016,Raymond Financial Services became involved in a penalty dispute with the EPA.At December 31,2016,the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable.The additional penalties were estimated to be $770,000 but could be as high as $1,170,000.After the year-end,but before the 2016 financial statements were issued,Raymond accepted an EPA settlement offer of $900,000.Raymond should have reported an accrued liability on its December 31,2016,balance sheet of:

What is the effective interest rate (rounded) on a 3-month,noninterest-bearing note with a stated rate of 12% and a maturity value of $200,000?

Current liabilities are normally recorded at the amount expected to be paid rather than at their present value.This practice can be supported by GAAP according to the concept of:

All of the following but one represent collections for third parties.Which one of the following is not a collection for a third party?

Indicate (by letter)the way each of the items listed below should be reported in a balance sheet at December 31,2016.

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

A customer advance produces a liability that is satisfied when the product or service is provided.

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: