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Test Ban, $or Inter-e#iate A%%ountin./ T"irteent" E#ition

+ULTIPLE CHOICE)Con%e&tua 0%ont'

Ans*er No' Des%ri&tion

a 3(. #resent value and !on!ept of a liability.! 3*. Zero-interest-bearing notes payable.d 3,. %allable debt reporting.d 4. %ondition to ex!lude s'ort-term obligation.a 41. )bility to !onsummate refinan!ing of s'ort-term debt.b 42. Dis!losure of preferred dividends not de!lared.! 43. Example of unearned revenue.d 44. 'ort-term obligations expe!ted to be refinan!ed.d 4$. )bility to !onsummate refinan!ing of s'ort-term obligations.d 4&. Determine 0'at is a liability.a 4(. %lassifi!ation of sales taxes.d 4*. Dis!losure for s'ort-term debt refinan!ed.b 4,. ested rig'ts vs. a!!umulated rig'ts.d #$. Dedu!tions in !omputing net pay.d $1. Employers payroll tax expense.d $2. )!!rual of a liability for !ompensated absen!es.! $3. )!!rual of a liability for !ompensated absen!es.d $4. )!!rual of a liability for !ompensated absen!es.d $$. %ompensated absen!es.d $&. e5uirements for !ompensated absen!es a!!rual.b $(. %ondition for si!+ pay a!!rual.! $*. #ayroll tax dedu!tion.d $,. Definition of a !ontingen!y.b &. e!ording !ontingent liability.a &1. Example of !ontingent liability.d &2. e!ording !ontingent liability.

d &3. Dis!losure of a gain !ontingen!y.d &4. Dis!losure of !ontingen!ies.b &$. )!!rual of loss !ontingen!y.a &&. 6itigation and loss !ontingen!ies.! &(. )!!rual of a !ontingent liability.d &*. our!e of a !ontingent liability.b &,. )sset retirement obligation.! (. )sset retirement obligation.! (1. %lassifi!ation of 0arranty liability.! (2. 6iability a!!rual due to governmental a!tion.a (3. )!!rual of produ!t 0arranties.b #(4. Determining loss amount to report.

d ($. eporting la0suit loss and liability.d (&. )!!rual met'od for 0arranty !osts.! ((. )!!rual 0arranty met'od.d (*. %as'-basis 0arranty met'od.a (,. %'ara!teristi! of expense 0arranty approa!'.b *. )!!ounting for dis!ount !oupon.a *1. %ondition to re!ogni/e asset retirement obligation.b *2. e!ording liability for pending litigation.d *3. %omputation of a!id-test ratio.! *4. %urrent ratio information.

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+ULTIPLE CHOICE)Co-&utationa 0%ont'

Ans*er No' Des%ri&tionb 124. %al!ulate liability for premiums.d 12$. %al!ulate 0arranty liability.b 12&. %al!ulate liability for premiums.d 12(. Determine premiums expense for t'e year.d 12*. %al!ulate estimated liability for premiums.d 12,. %al!ulate estimated liability for premiums.b 13. Determine amount to a!!rue as a loss !ontingen!y.d 131. )!!rue 0arranty expense for t'e year.a 132. %al!ulate 0arranty liability.d 133. Determine amount to a!!rue as a gain !ontingen!y.b 134. %al!ulate liability for unredeemed !oupons.! 13$. %al!ulate t'e 5ui!+ :a!id-test; ratio.

+ULTIPLE CHOICE)CPA A#a&te#

Ans*er No' Des%ri&tiona 13&.

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SU++AR8 OF LEARNING OB5ECTI6ES B8 9UESTIONS

Item Type Item Type Item Type Item Type Item Type Item Type Item Type

Learnin. O!:e%tive 1

1. TF 22. ?% 2(. ?% 32. ?% 3(. ?% ,2. ?% 13*. ?%2. TF 23. ?% 2*. ?% 33. ?% 3*. ?% ,3. ?% 14(. E3. TF 24. ?% 2,. ?% 34. ?% 3,. ?% ,4. ?% 1$3. #4. TF 2$. ?% 3. ?% 3$. ?% ,. ?% 13&. ?%

21. ?% 2&. ?% 31. ?% 3&. ?% ,1. ?% 13(. ?%


$. TF 41. ?% 4$. ?% ,$. ?% ,,. ?% 13. ?%&. TF 42. ?% 4&. ?% ,&. ?% 1. ?% 14. ?%(. TF 43. ?% 4(. ?% ,(. ?% 11. ?% 13,. ?%

4. ?% 44. ?% 4*. ?% ,*. ?% 12. ?% 1$4. #


*. TF 4&. ?% $2. ?% $&. ?% 1&. ?% 11. ?% 14. ?%,. TF 4,. ?% $3. ?% $(. ?% 1(. ?% 111. ?% 141. ?%1. TF #$. ?% $4. ?% $*. ?% 1*. ?% 112. ?% 14*. E11. TF $1. ?% $$. ?% 1$. ?% 1,. ?% 113. ?% 14,. E


12. TF 4&. ?% &. ?% &2. ?% &4. ?% &&. ?% &*. ?%13. TF $,. ?% &1. ?% &3. ?% &$. ?% &(. ?% 1$. E


14. TF (2. ?% (,. ?% 11(. ?% 124. ?% 131. ?% 14$. ?%1$. TF (3. ?% *. ?% 11*. ?% 12$. ?% 132. ?% 14&. ?%1&. TF #(4. ?% *1. ?% 11,. ?% 12&. ?% 133. ?% 1$1. E

1(. TF

($. ?% *2. ?% 12. ?% 12(. ?% 134. ?% 1$2. E&,. ?% (&. ?% 114. ?% 121. ?% 12*. ?% 142. ?% 1$$. #(. ?% ((. ?% 11$. ?% 122. ?% 12,. ?% 143. ?% 1$&. #(1. ?% (*. ?% 11&. ?% 123. ?% 13. ?% 144. ?%

Learnin. O!:e%tive ;

1*. TF 2. TF *4. ?% #*&. ?% **. ?% 13$. ?% 1$4. #1,. TF *3. ?% *$. ?% *(. ?% *,. ?% 1$3. # 1$$. #

"ote@ TF A True-False E A Exer!ise?% A ?ultiple %'oi!e # A #roblem

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%urrent 6iabilities and %ontingen!ies

TRUE(FALSE)Con%e&tua

1. ) /ero-interest-bearing note payable t'at is issued at a dis!ount 0ill not result in any interestexpense being re!ogni/ed.

2. Dividends in arrears on !umulative preferred sto!+ s'ould be re!orded as a !urrent liability.

3. ?aga/ine subs!riptions and airline ti!+et sales bot' result in unearned revenues.

4. Dis!ount on "otes #ayable is a !ontra a!!ount to "otes #ayable on t'e balan!e s'eet.

$. )ll long-term debt maturing 0it'in t'e next year must be !lassified as a !urrent liability ont'e balan!e s'eet.

&. ) s'ort-term obligation !an be ex!luded from !urrent liabilities if t'e !ompany intends torefinan!e it on a long-term basis.

(. ?any !ompanies do not segregate t'e sales tax !olle!ted and t'e amount of t'e sale at t'etime of t'e sale.

*. ) !ompany must a!!rue a liability for si!+ pay t'at a!!umulates but does not vest.

,. %ompanies report t'e amount of so!ial se!urity taxes 0it''eld from employees as 0ell ast'e !ompaniesB mat!'ing portion as !urrent liabilities until t'ey are remitted.

1. )!!umulated rig'ts exist 0'en an employer 'as an obligation to ma+e payment to anemployee even after terminating 'is employment.

11. %ompanies s'ould re!ogni/e t'e expense and related liability for !ompensated absen!es in

t'e year earned by employees.

12. %ompanies s'ould a!!rue an estimated loss from a loss !ontingen!y if information availableprior to t'e issuan!e of finan!ial statements indi!ates t'at it is probable t'at a liability 'asbeen in!urred.

13. ) !ompany dis!loses gain !ontingen!ies in t'e notes only 0'en a 'ig' probability exists forreali/ing t'em.

14. T'e expe!ted profit from a sales type 0arranty t'at !overs several years s'ould all bere!ogni/ed in t'e period t'e 0arranty is sold.

1$. T'e fair value of an asset retirement obligation is re!orded as bot' an in!rease to t'erelated asset and a liability.

1&. T'e !ause for litigation must 'ave o!!urred on or before t'e date of t'e finan!ial statementsto report a liability in t'e finan!ial statements.

1(. Cnder t'e expense 0arranty approa!'> !ompanies !'arge 0arranty !osts only to t'e periodin 0'i!' t'ey !omply 0it' t'e 0arranty.

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1*. #repaid insuran!e s'ould be in!luded in t'e numerator 0'en !omputing t'e a!id-test:5ui!+; ratio.

1,. #aying a !urrent liability 0it' !as' 0ill al0ays redu!e t'e !urrent ratio.

2. %urrent liabilities are usually re!orded and reported in finan!ial statements at t'eir fullmaturity value.

True Fase Ans*ers)Con%e&tua

Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans'

1. F &. F 11. T 1&. T2. F (. T 12. F 1(. F3. T *. F 13. T 1*. F4. T ,. T 14. F 1,. F$. F 1. F 1$. T 2. T

+ULTIPLE CHOICE)Con%e&tua

21. 6iabilities area. any a!!ounts 'aving !redit balan!es after !losing entries are made.b. deferred !redits t'at are re!ogni/ed and measured in !onformity 0it' generally

a!!epted a!!ounting prin!iples.!. obligations to transfer o0ners'ip s'ares to ot'er entities in t'e future.

d. obligations arising from past transa!tions and payable in assets or servi!es in t'e future.

22. ='i!' of t'e follo0ing is a !urrent liabilitya. ) long-term debt maturing !urrently> 0'i!' is to be paid 0it' !as' in a sin+ing fundb. ) long-term debt maturing !urrently> 0'i!' is to be retired 0it' pro!eeds from a ne0

debt issue!. ) long-term debt maturing !urrently> 0'i!' is to be !onverted into !ommon sto!+d. "one of t'ese

23. ='i!' of t'e follo0ing is true about a!!ounts payable

1. )!!ounts payable s'ould not be reported at t'eir present value.2. ='en a!!ounts payable are re!orded at t'e net amount> a #ur!'ase Dis!ounts

a!!ount 0ill be used.3. ='en a!!ounts payable are re!orded at t'e gross amount> a #ur!'ase

Dis!ounts 6ost a!!ount 0ill be used.a. 1b. 2!. 3d. ot' 2 and 3 are true.

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3*. ='at is a dis!ount as it relates to /ero-interest-bearing notes payablea. T'e dis!ount represents t'e lenders !osts to under0rite t'e note.b. T'e dis!ount represents t'e !redit 5uality of t'e borro0er.!. T'e dis!ount represents t'e !ost of borro0ing.d. T'e dis!ount represents t'e allo0an!e for un!olle!tible amounts.

3,. ='ere is debt !allable by t'e !reditor reported on t'e debtors finan!ial statementsa. 6ong-term liability.b. %urrent liability if t'e !reditor intends to !all t'e debt 0it'in t'e year> ot'er0ise a long-

term liability.!. %urrent liability if it is probable t'at !reditor 0ill !all t'e debt 0it'in t'e year> ot'er0ise

a long-term liability.d. %urrent liability.

4. ='i!' of t'e follo0ing is not a !ondition ne!essary to ex!lude a s'ort-term obligation from!urrent liabilitiesa. ntend to refinan!e t'e obligation on a long-term basis.b. bligation must be due 0it' one year.!. Demonstrate t'e ability to !omplete t'e refinan!ing.d. ubse5uently refinan!e t'e obligation on a long-term basis.

41. ='i!' of t'e follo0ing does not demonstrate eviden!e regarding t'e ability to!onsummate a refinan!ing of s'ort-term debta. ?anagement indi!ated t'at t'ey are going to refinan!e t'e obligation.b. )!tually refinan!e t'e obligation.!. Have !apa!ity under existing finan!ing agreements t'at !an be used to refinan!e t'e

obligation.d. Enter into a finan!ing agreement t'at !learly permits t'e entity to refinan!e t'e

obligation.

42. ) !ompany 'as not de!lared a dividend on its !umulative preferred sto!+ for t'e pastt'ree years. ='at is t'e re5uired a!!ounting treatment or dis!losure in t'is situationa. e!ord a liability for !umulative amount of preferred sto!+ dividends not de!lared.b. Dis!lose t'e amount of t'e dividends in arrears.!. e!ord a liability for t'e !urrent years dividends only.d. "o dis!losure or re!ognition is re5uired.

43. ='i!' of t'e follo0ing situations may give rise to unearned revenuea. #roviding trade !redit to !ustomers.b. elling inventory.!. elling maga/ine subs!riptions.d. #roviding manufa!turer 0arranties.

44. ='i!' of t'e follo0ing statements is !orre!ta. ) !ompany may ex!lude a s'ort-term obligation from !urrent liabilities if t'e firm

intends to refinan!e t'e obligation on a long-term basis.b. ) !ompany may ex!lude a s'ort-term obligation from !urrent liabilities if t'e firm !an

demonstrate an ability to !onsummate a refinan!ing.!. ) !ompany may ex!lude a s'ort-term obligation from !urrent liabilities if it is paid off

after t'e balan!e s'eet date and subse5uently repla!ed by long-term debt before t'ebalan!e s'eet is issued.

d. "one of t'ese.

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4$. T'e ability to !onsummate t'e refinan!ing of a s'ort-term obligation may be demon-strated by

a. a!tually refinan!ing t'e obligation by issuing a long-term obligation after t'e date oft'e balan!e s'eet but before it is issued.

b. entering into a finan!ing agreement t'at permits t'e enterprise to refinan!e t'e debton a long-term basis.

!. a!tually refinan!ing t'e obligation by issuing e5uity se!urities after t'e date of t'ebalan!e s'eet but before it is issued.

d. all of t'ese.

4&. ='i!' of t'e follo0ing statements is false?a. ) !ompany may ex!lude a s'ort-term obligation from !urrent liabilities if t'e firm

intends to refinan!e t'e obligation on a long-term basis and demonstrates an ability to!omplete t'e refinan!ing.

b. %as' dividends s'ould be re!orded as a liability 0'en t'ey are de!lared by t'e boardof dire!tors.

!. Cnder t'e !as' basis met'od> 0arranty !osts are !'arged to expense as t'ey are paid.d. F%) taxes 0it''eld from employees payroll !'e!+s s'ould never be re!orded as a

liability sin!e t'e employer 0ill eventually remit t'e amounts 0it''eld to t'eappropriate taxing aut'ority.

4(. ='i!' of t'e follo0ing is nota !orre!t statement about sales taxesa. ales taxes are an expense of t'e seller.b. ?any !ompanies re!ord sales taxes in t'e sales a!!ount.!. f sales taxes are in!luded in t'e sales a!!ount> t'e first step to find t'e amount of

sales taxes is to divide sales by 1 plus t'e sales tax rate.d. )ll of t'ese are true.

4*. f a s'ort-term obligation is ex!luded from !urrent liabilities be!ause of refinan!ing> t'efootnote to t'e finan!ial statements des!ribing t'is event s'ould in!lude all of t'e follo0ing

information excepta. a general des!ription of t'e finan!ing arrangement.b. t'e terms of t'e ne0 obligation in!urred or to be in!urred.!. t'e terms of any e5uity se!urity issued or to be issued.d. t'e number of finan!ing institutions t'at refused to refinan!e t'e debt> if any.

4,. n a!!ounting for !ompensated absen!es> t'e differen!e bet0een vested rig'ts anda!!umulated rig'ts isa. vested rig'ts are normally for a longer period of employment t'an are a!!umulated

rig'ts.b. vested rig'ts are not !ontingent upon an employees future servi!e.!. vested rig'ts are a legal and binding obligation on t'e !ompany> 0'ereas a!!umulated

rig'ts expire at t'e end of t'e a!!ounting period in 0'i!' t'ey arose.d. vested rig'ts !arry a stipulated dollar amount t'at is o0ed to t'e employeeI

a!!umulated rig'ts do not represent monetary !ompensation.

#$. )n employees net :or ta+e-'ome; pay is determined by gross earnings minus amounts forin!ome tax 0it''oldings and t'e employeesa. portion of F%) taxes and unemployment taxes.b. and employers portion of F%) taxes> and unemployment taxes.!. portion of F%) taxes> unemployment taxes> and any voluntary dedu!tions.d. portion of F%) taxes and any voluntary dedu!tions.

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$1. ='i!' of t'ese is notin!luded in an employers payroll tax expensea. F..%.). :so!ial se!urity; taxesb. Federal unemployment taxes!. tate unemployment taxesd. Federal in!ome taxes

$2. ='i!' of t'e follo0ing is a !ondition for a!!ruing a liability for t'e !ost of !ompensation forfuture absen!esa. T'e obligation relates to t'e rig'ts t'at vest or a!!umulate.b. #ayment of t'e !ompensation is probable.!. T'e obligation is attributable to employee servi!es already performed.d. )ll of t'ese are !onditions for t'e a!!rual.

$3. ) liability for !ompensated absen!es su!' as va!ations> for 0'i!' it is expe!ted t'atemployees 0ill be paid> s'oulda. be a!!rued during t'e period 0'en t'e !ompensated time is expe!ted to be used by

employees.b. be a!!rued during t'e period follo0ing vesting.!. be a!!rued during t'e period 0'en earned.d. not be a!!rued unless a 0ritten !ontra!tual obligation exists.

$4. T'e amount of t'e liability for !ompensated absen!es s'ould be based on

1. t'e !urrent rates of pay in effe!t 0'en employees earn t'e rig't to!ompensated absen!es.

2. t'e future rates of pay expe!ted to be paid 0'en employees use!ompensated time.

3. t'e present value of t'e amount expe!ted to be paid in future periods.a. 1.b. 2.

!. 3.d. Eit'er 1 or 2 is a!!eptable.

$$. ='at are !ompensated absen!esa. Cnpaid time off.b. ) form of 'ealt'!are.!. #ayroll dedu!tions.d. #aid time off.

$&. ='i!' gives rise to t'e re5uirement to a!!rue a liability for t'e !ost of !ompensatedabsen!esa. #ayment is probable.b. Employee rig'ts vest or a!!umulate.!. )mount !an be reasonably estimated.d. )ll of t'e above.

$(. Cnder 0'at !onditions is an employer re5uired to a!!rue a liability for si!+ paya. i!+ pay benefits !an be reasonably estimated.b. i!+ pay benefits vest.!. i!+ pay benefits e5ual 1J of t'e pay.d. i!+ pay benefits a!!umulate.

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(1. )ssume t'at a manufa!turing !orporation 'as :1; good 5uality !ontrol> :2; a one-yearoperating !y!le> :3; a relatively stable pattern of annual sales> and :4; a !ontinuing poli!yof guaranteeing ne0 produ!ts against defe!ts for t'ree years t'at 'as resulted in materialbut rat'er stable 0arranty repair and repla!ement !osts. )ny liability for t'e 0arrantya. s'ould be reported as long-term.b. s'ould be reported as !urrent.!. s'ould be reported as part !urrent and part long-term.d. need not be dis!losed.

(2. rti/ %orporation> a manufa!turer of 'ouse'old paints> is preparing annual finan!ialstatements at De!ember 31> 21. e!ause of a re!ently proven 'ealt' 'a/ard in one ofits paints> t'e government 'as !learly indi!ated its intention of 'aving rti/ re!all all !ansof t'is paint sold in t'e last six mont's. T'e management of rti/ estimates t'at t'is re!all0ould !ost *>. ='at a!!ounting re!ognition> if any> s'ould be a!!orded t'issituationa. "o re!ognitionb. "ote dis!losure only!. perating expense of *> and liability of *>

d. )ppropriation of retained earnings of *>(3. nformation available prior to t'e issuan!e of t'e finan!ial statements indi!ates t'at it is

probable t'at> at t'e date of t'e finan!ial statements> a liability 'as been in!urred forobligations related to produ!t 0arranties. T'e amount of t'e loss involved !an bereasonably estimated. ased on t'e above fa!ts> an estimated loss !ontingen!y s'ould bea. a!!rued.b. dis!losed but nota!!rued.!. neithera!!rued nordis!losed.d. !lassified as an appropriation of retained earnings.

#(4. Espinosa %o. 'as a loss !ontingen!y to a!!rue. T'e loss amount !an only be reasonablyestimated 0it'in a range of out!omes. "o single amount 0it'in t'e range is a better

estimate t'an any ot'er amount. T'e amount of loss a!!rual s'ould bea. /ero.b. t'e minimum of t'e range.!. t'e mean of t'e range.d. t'e maximum of t'e range.

($. Dean %ompany be!omes a0are of a la0suit after t'e date of t'e finan!ial statements> butbefore t'ey are issued. ) loss and related liability s'ould be reported in t'e finan!ialstatements if t'e amount !an be reasonably estimated> an unfavorable out!ome is 'ig'lyprobable> anda. t'e Dean %ompany admits guilt.b. t'e !ourt 0ill de!ide t'e !ase 0it'in one year.!. t'e damages appear to be material.d. t'e !ause for a!tion o!!urred during t'e a!!ounting period !overed by t'e finan!ial

statements.

(&. Cse of t'e a!!rual met'od in a!!ounting for produ!t 0arranty !ostsa. is re5uired for federal in!ome tax purposes.b. is fre5uently 8ustified on t'e basis of expedien!y 0'en 0arranty !osts are immaterial.!. finds t'e expense a!!ount being !'arged 0'en t'e seller performs in !omplian!e 0it'

t'e 0arranty.d. represents a!!epted pra!ti!e and s'ould be used 0'enever t'e 0arranty is an integral

and inseparable part of t'e sale.

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*3. Ho0 do you determine t'e a!id-test ratioa. T'e sum of !as' and s'ort-term investments divided by s'ort-term debt.b. %urrent assets divided by !urrent liabilities.!. %urrent assets divided by s'ort-term debt.d. T'e sum of !as'> s'ort-term investments and net re!eivables divided by !urrent

liabilities.

*4. ='at does t'e !urrent ratio inform you about a !ompanya. T'e extent of slo0-moving inventories.b. T'e effi!ient use of assets.!. T'e !ompanys li5uidity.d. T'e !ompanys profitability.

*$. ='i!' of t'e follo0ing is not a!!eptable treatment for t'e presentation of !urrentliabilitiesa. 6isting !urrent liabilities in order of maturityb. 6isting !urrent liabilities a!!ording to amount!. ffsetting !urrent liabilities against assets t'at are to be applied to t'eir li5uidation

d. 'o0ing !urrent liabilities immediately belo0 !urrent assets to obtain a presentation of0or+ing !apital

#*&. T'e ratio of !urrent assets to !urrent liabilities is !alled t'ea. !urrent ratio.b. a!id-test ratio.!. !urrent asset turnover ratio.d. !urrent liability turnover ratio.

*(. )!!rued liabilities are dis!losed in finan!ial statements bya. a footnote to t'e statements.b. s'o0ing t'e amount among t'e liabilities but not extending it to t'e liability total.

!. an appropriation of retained earnings.d. appropriately !lassifying t'em as regular liabilities in t'e balan!e s'eet.

**. T'e numerator of t'e a!id-test ratio !onsists ofa. total !urrent assets.b. !as' and mar+etable se!urities.!. !as' and net re!eivables.d. !as'> mar+etable se!urities> and net re!eivables.

*,. Ea!' of t'e follo0ing are in!luded in bot' t'e !urrent ratio and t'e a!id-test ratio ex!epta. !as'.b. s'ort-term investments.

!. net re!eivables.d. inventory.

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+uti&e C"oi%e Ans*ers)Con%e&tua

Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans'

21. d 31. ! 41. a $1. d &1. a (1. ! *1. a22. d 32. d 42. b $2. d &2. d (2. ! *2. b

23. a 33. ! 43. ! $3. ! &3. d (3. a *3. d

24. a 34. d 44. d $4. d &4. d (4. b *4. !

2$. b 3$. b 4$. d $$. d &$. b ($. d *$. !

2&. d 3&. a 4&. d $&. d &&. a (&. d *&. a

2(. ! 3(. a 4(. a $(. b &(. ! ((. ! *(. d

2*. d 3*. ! 4*. d $*. ! &*. d (*. d **. d

2,. ! 3,. d 4,. b $,. d &,. b (,. a L*,. d

3. d 4. d $. d &. b (. ! *. b

olutions to t'ose ?ultiple %'oi!e 5uestions for 0'i!' t'e ans0er is Mnone of t'ese.N

22. ) long-term debt maturing !urrently to be paid 0it' !urrent assets is a !urrent liability.

32. )!!ounts #ayable> =ages #ayable> et!.> 0ould be examples of !urrent liabilities.

44. T'e !ompany must bot' intend to refinan!e t'e obligation on a long-term basis anddemonstrate t'e ability to !onsummate t'e refinan!ing to ex!lude a s'ort-term obligationfrom !urrent liabilities.

+ULTIPLE CHOICE)Co-&utationa

,. 7laus %orp. signed a t'ree-mont'> /ero-interest-bearing note on "ovember 1> 21 for

t'e pur!'ase of 1$> of inventory. T'e fa!e value of t'e note 0as 1$2>2$.)ssuming 7laus used a MDis!ount on "ote #ayableN a!!ount to initially re!ord t'e noteand t'at t'e dis!ount 0ill be amorti/ed e5ually over t'e 3-mont' period> t'e ad8ustingentry made at De!ember 31> 21 0ill in!lude aa. debit to Dis!ount on "ote #ayable for (3$.b. debit to nterest Expense for 1>4(.!. !redit to Dis!ount on "ote #ayable for (3$.d. !redit to nterest Expense for 1>4(.

,1. T'e effe!tive interest on a 12-mont'> /ero-interest-bearing note payable of 3>>dis!ounted at t'e ban+ at 1J isa. 1.*(J.

b. 1J.!. ,.,J.d. 11.11J.

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,2. n eptember 1> Hydra pur!'ased ,>$ of inventory items on !redit 0it' t'e terms191$> net 3> F destination. Freig't !'arges 0ere 2. #ayment for t'e pur!'ase 0asmade on eptember 1*. )ssuming Hydra uses t'e perpetual inventory system and t'e netmet'od of a!!ounting for pur!'ase dis!ounts> 0'at amount is re!orded as inventory fromt'is pur!'asea. ,>4$.b. ,>&$.!. ,>(.d. ,>$.

,3. odium n!. borro0ed 1($> on )pril 1. T'e note re5uires interest at 12J and prin!ipalto be paid in one year. Ho0 mu!' interest is re!ogni/ed for t'e period from )pril 1 toDe!ember 31a. .b. 21>.!. $>2$.d. 1$>($.

,4. %ollier borro0ed 1($> on !tober 1 and is re5uired to pay 1*> on ?ar!' 1.='at amount is t'e note payable re!orded at on !tober 1 and 'o0 mu!' interest isre!ogni/ed from !tober 1 to De!ember 31a. 1($> and .b. 1($> and 3>.!. 1*> and .d. 1($> and $>.

,$. #urest o0es 1 million t'at is due on February 2*. T'e !ompany borro0s *> onFebruary 2$ :$-year note; and uses t'e pro!eeds to pay do0n t'e 1 million note anduses ot'er !as' to pay t'e balan!e. Ho0 mu!' of t'e 1 million note is !lassified as long-term in t'e De!ember 31 finan!ial statements.

a. 1>>.b. .!. *>.d. 2>.

,&. ista ne0spapers sold 4> of annual subs!riptions at 12$ ea!' on eptember 1. Ho0mu!' unearned revenue 0ill exist as of De!ember 31a. .b. 333>333.!. 1&&>&&(.d. $>.

,(. #ur!'ase etailer made !as' sales during t'e mont' of !tober of 132>&. T'e salesare sub8e!t to a &J sales tax t'at 0as also !olle!ted. ='i!' of t'e follo0ing 0ould bein!luded in t'e summary 8ournal entry to refle!t t'e sale transa!tionsa. Debit %as' for 132>&.b. %redit ales Tax #ayable for (>$&.!. %redit ales for 12$>,4.d. %redit ales Tax #ayable for (>,$&.

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,*. n February 1> 21> after issuan!e of its finan!ial statements for 2,> House%ompany entered into a finan!ing agreement 0it' 6ebo an+> allo0ing House %ompanyto borro0 up to 4>> at any time t'roug' 212. )mounts borro0ed under t'eagreement bear interest at 2J above t'e ban+s prime interest rate and mature t0o yearsfrom t'e date of loan. House %ompany presently 'as 1>$> of notes payable 0it'First "ational an+ maturing ?ar!' 1$> 21. T'e !ompany intends to borro0 2>$>under t'e agreement 0it' 6ebo and li5uidate t'e notes payable to First "ational. T'eagreement 0it' 6ebo also re5uires House to maintain a 0or+ing !apital level of&>> and pro'ibits t'e payment of dividends on !ommon sto!+ 0it'out priorapproval by 6ebo an+. From t'e above information only> t'e total s'ort-term debt ofHouse %ompany as of t'e De!ember 31> 21 balan!e s'eet date isa. .b. 1>$>.!. 2>>.d. 4>>.

,,. n De!ember 31> 21> rey %o. 'as 2>> of s'ort-term notes payable due onFebruary 14> 211. n Kanuary 1> 211> rey arranged a line of !redit 0it' %ounty an+0'i!' allo0s rey to borro0 up to 1>$> at one per!ent above t'e prime rate for t'reeyears. n February 2> 211> rey borro0ed 1>2> from %ounty an+ and used$> additional !as' to li5uidate 1>(> of t'e s'ort-term notes payable. T'eamount of t'e s'ort-term notes payable t'at s'ould be reported as !urrent liabilities on t'eDe!ember 31> 21 balan!e s'eet 0'i!' is issued on ?ar!' $> 211 isa. .b. 3>.!. $>.d. *>.

Cse t'e follo0ing information for 5uestions 1 and 11.

tine %o. is a retail store operating in a state 0it' a &J retail sales tax. T'e retailer may +eep 2Jof t'e sales tax !olle!ted. tine %o. re!ords t'e sales tax in t'e ales a!!ount. T'e amountre!orded in t'e ales a!!ount during ?ay 0as 14*>4.

1. T'e amount of sales taxes :to t'e nearest dollar; for ?ay isa. *>(2&.b. *>4.!. *>,4.d. ,>43*.

11. T'e amount of sales taxes payable :to t'e nearest dollar; to t'e state for t'e mont' of?ay is

a. *>$$1.b. *>232.!. *>(2&.d. ,>24,.

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12. opat> n!.> is a retail store operating in a state 0it' a $J retail sales tax. T'e state la0provides t'at t'e retail sales tax !olle!ted during t'e mont' must be remitted to t'e stateduring t'e follo0ing mont'. f t'e amount !olle!ted is remitted to t'e state on or beforet'e t0entiet' of t'e follo0ing mont'> t'e retailer may +eep 3J of t'e sales tax !olle!ted.n )pril 1> 21> opat remitted *1>4* tax to t'e state tax division for ?ar!' 21retail sales. ='at 0as opat s ?ar!' 21 retail sales sub8e!t to sales taxa. 1>&2,>&.b. 1>$,&>.!. 1>&*>.d. 1>&4$>.

13. Ken+ins %orporation 'as 2>$> of s'ort-term debt it expe!ts to retire 0it' pro!eedsfrom t'e sale of ($> s'ares of !ommon sto!+. f t'e sto!+ is sold for 2 per s'aresubse5uent to t'e balan!e s'eet date> but before t'e balan!e s'eet is issued> 0'atamount of s'ort-term debt !ould be ex!luded from !urrent liabilitiesa. 1>$>b. 2>$>!. 1>>d.

14. Ermler %orporation 'as 1>*> of s'ort-term debt it expe!ts to retire 0it' pro!eedsfrom t'e sale of &> s'ares of !ommon sto!+. f t'e sto!+ is sold for 2 per s'aresubse5uent to t'e balan!e s'eet date> but before t'e balan!e s'eet is issued> 0'atamount of s'ort-term debt !ould be ex!luded from !urrent liabilitiesa. 1>2>b. 1>*>!. &>d.

1$. #reston %o.> 0'i!' 'as a taxable payroll of $>> is sub8e!t to FCT) tax of &.2J and

a state !ontribution rate of $.4J. Ho0ever> be!ause of stable employment experien!e> t'e!ompanyBs state rate 'as been redu!ed to 2J. ='at is t'e total amount of federal andstate unemployment tax for #reston %o.a. $*>$b. 41>!. 2>d. 14>

1&. oar+ %o.> 0'i!' 'as a taxable payroll of 4>> is sub8e!t to FCT) tax of &.2J and astate !ontribution rate of $.4J. Ho0ever> be!ause of stable employment experien!e> t'e!ompanyBs state rate 'as been redu!ed to 2J. ='at is t'e total amount of federal andstate unemployment tax for oar+ %o.

a. 4&>*b. 32>*!. 1&>d. 11>2

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1(. ) !ompany gives ea!' of its $ employees :assume t'ey 0ere all employed !ontinuouslyt'roug' 21 and 211; 12 days of va!ation a year if t'ey are employed at t'e end of t'eyear. T'e va!ation a!!umulates and may be ta+en starting Kanuary 1 of t'e next year.T'e employees 0or+ * 'ours per day. n 21> t'ey made 14 per 'our and in 211 t'eymade 1& per 'our. During 211> t'ey too+ an average of , days of va!ation ea!'. T'e!ompanyBs poli!y is to re!ord t'e liability existing at t'e end of ea!' year at t'e 0age ratefor t'at year. ='at amount of va!ation liability 0ould be refle!ted on t'e 21 and 211balan!e s'eets> respe!tivelya. &(>2I ,3>&b. (&>*I ,&>!. &(>2I ,&>d. (&>*I ,3>&

1*. ) !ompany gives ea!' of its $ employees :assume t'ey 0ere all employed !ontinuouslyt'roug' 21 and 211; 12 days of va!ation a year if t'ey are employed at t'e end of t'eyear. T'e va!ation a!!umulates and may be ta+en starting Kanuary 1 of t'e next year.T'e employees 0or+ * 'ours per day. n 21> t'ey made 1(.$ per 'our and in 211t'ey made 2 per 'our. During 211> t'ey too+ an average of , days of va!ation ea!'.T'e !ompanyBs poli!y is to re!ord t'e liability existing at t'e end of ea!' year at t'e 0agerate for t'at year. ='at amount of va!ation liability 0ould be refle!ted on t'e 21 and211 balan!e s'eets> respe!tivelya. *4>I 11(>b. ,&>I 12>!. *4>I 12>d. ,&>I 11(>

1,. T'e total payroll of Teeter %ompany for t'e mont' of !tober> 21 0as 3&>> of0'i!' ,> represented amounts paid in ex!ess of 1> to !ertain employees.3> represented amounts paid to employees in ex!ess of t'e (> maximumsub8e!t to unemployment taxes. ,> of federal in!ome taxes and ,> of union

dues 0ere 0it''eld. T'e state unemployment tax is 1J> t'e federal unemployment tax is .*J> and t'e !urrent F..%.). tax is (.&$J on an employeeBs 0ages to 1> and 1.4$Jin ex!ess of ,>. ='at amount s'ould Teeter re!ord as payroll tax expensea. 11*>&2.b. 113>4.!. 23>4.d. 2*>44.

Cse t'e follo0ing information for 5uestions 11 and 111.

argas %ompany 'as 3$ employees 0'o 0or+ *-'our days and are paid 'ourly. n Kanuary 1>2,> t'e !ompany began a program of granting its employees 1 days of paid va!ation ea!'

year. a!ation days earned in 2, may first be ta+en on Kanuary 1> 21. nformation relative tot'ese employees is as follo0s@

Hourly a!ation Days Earned a!ation Days CsedOear =ages by Ea!' Employee by Ea!' Employee2, 2$.* 1 21 2(. 1 *211 2*.$ 1 1

argas 'as !'osen to a!!rue t'e liability for !ompensated absen!es at t'e !urrent rates of pay ineffe!t 0'en t'e !ompensated time is earned.

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11. ='at is t'e amount of expense relative to !ompensated absen!es t'at s'ould be reportedon argasBs in!ome statement for 2,a. .b. &*>**.!. ($>&.d. (2>24.

111. ='at is t'e amount of t'e a!!rued liability for !ompensated absen!es t'at s'ould bereported at De!ember 31> 211a. ,4>,2.b. ,>(2.!. (,>*.d. ,$>(&.

112. %al%ount pays a 0ee+ly payroll of *$> t'at in!ludes federal taxes 0it''eld of12>(> F%) taxes 0it''eld of (>*,> and 41:+; 0it''oldings of ,>. ='at is t'eeffe!t of assets and liabilities from t'is transa!tiona. )ssets de!rease *$> and liabilities do not !'ange.b. )ssets de!rease &4>41 and liabilities in!rease 2>$,.!. )ssets de!rease &4>41 and liabilities de!rease 2>$,.d. )ssets de!rease $$>41 and liabilities in!rease 2,>$,.

113. %al%ount provides its employees t0o 0ee+s of paid va!ation per year. )s of De!ember31> &$ employees 'ave earned t0o 0ee+s of va!ation time to be ta+en t'e follo0ing year.f t'e average 0ee+ly salary for t'ese employees is ,$> 0'at is t'e re5uired 8ournalentrya. Debit =ages Expense for 123>$ and !redit a!ation =ages #ayable for 123>$.b. "o 8ournal entry re5uired.!. Debit a!ation =ages #ayable for 123> and !redit =ages Expense for 123>.d. Debit =ages Expense for &1>($ and !redit a!ation =ages #ayable for &1>($.

114. Tender Foot n!. is involved in litigation regarding a faulty produ!t sold in a prior year. T'e!ompany 'as !onsulted 0it' its attorney and determined t'at it is possible t'at t'ey maylose t'e !ase. T'e attorneys estimated t'at t'ere is a 4J !'an!e of losing. f t'is is t'e!ase> t'eir attorney estimated t'at t'e amount of any payment 0ould be $>. ='atis t'e re5uired 8ournal entry as a result of t'is litigationa. Debit 6itigation Expense for $> and !redit 6itigation liability for $>.b. "o 8ournal entry is re5uired.!. Debit 6itigation Expense for 2> and !redit 6itigation 6iability for 2>.d. Debit 6itigation Expense for 3> and !redit 6itigation 6iability for 3>.

11$. e!y!le Exploration is involved 0it' innovative approa!'es to finding energy reserves.e!y!le re!ently built a fa!ility to extra!t natural gas at a !ost of 1$ million. Ho0ever>e!y!le is also legally responsible to remove t'e fa!ility at t'e end of its useful life oft0enty years. T'is !ost is estimated to be 21 million :t'e present value of 0'i!' is *million;. ='at is t'e 8ournal entry re5uired to re!ord t'e asset retirement obligationa. "o 8ournal entry re5uired.b. Debit "atural 7as Fa!ility for 21>> and !redit )sset etirement bligation for

21>>!. Debit "atural 7as Fa!ility for &>> and !redit )sset etirement bligation for

&>>.d. Debit "atural 7as Fa!ility for *>> and !redit )sset etirement bligation for

*>>.

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121. ) !ompany offers a !as' rebate of 1 on ea!' 4 pa!+age of batteries sold during 21.Histori!ally> 1J of !ustomers mail in t'e rebate form. During 21> &>> pa!+agesof batteries are sold> and 21> 1 rebates are mailed to !ustomers. ='at is t'e rebateexpense and liability> respe!tively> s'o0n on t'e 21 finan!ial statements datedDe!ember 31a. &>I &>b. &>I 3,>!. 3,>I 3,>d. 21>I 3,>

122. ) !ompany buys an oil rig for 2>> on Kanuary 1> 21. T'e life of t'e rig is 1years and t'e expe!ted !ost to dismantle t'e rig at t'e end of 1 years is 4>:present value at 1J is 1$4>22;. 1J is an appropriate interest rate for t'is !ompany.='at expense s'ould be re!orded for 21 as a result of t'ese eventsa. Depre!iation expense of 24>b. Depre!iation expense of 2> and interest expense of 1$>422!. Depre!iation expense of 2> and interest expense of 4>d. Depre!iation expense of 21$>422 and interest expense of 1$>422

123. During 2,> anpelt %o. introdu!ed a ne0 line of ma!'ines t'at !arry a t'ree-year0arranty against manufa!turerBs defe!ts. ased on industry experien!e> 0arranty !ostsare estimated at 2J of sales in t'e year of sale> 4J in t'e year after sale> and &J in t'ese!ond year after sale. ales and a!tual 0arranty expenditures for t'e first t'ree-yearperiod 0ere as follo0s@

ales )!tual =arranty Expenditures2, &> ,>21 1>$> 4$>211 2>1> 13$>

4>2> 1*,>

='at amount s'ould anpelt report as a liability at De!ember 31> 211a. b. 1$>!. 24>d. 31$>

124. #almer Frosted Fla+es %ompany offers its !ustomers a pottery !ereal bo0l if t'ey send in3 boxtops from #almer Frosted Fla+es boxes and 1.. T'e !ompany estimates t'at&J of t'e boxtops 0ill be redeemed. n 21> t'e !ompany sold &($> boxes ofFrosted Fla+es and !ustomers redeemed 33> boxtops re!eiving 11> bo0ls. f t'ebo0ls !ost #almer %ompany 2.$ ea!'> 'o0 mu!' liability for outstanding premiumss'ould be re!orded at t'e end of 21a. 2$>b. 3(>$!. &2>$d. *(>$

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12$. During 2,> tabler %o. introdu!ed a ne0 line of ma!'ines t'at !arry a t'ree-year0arranty against manufa!turerBs defe!ts. ased on industry experien!e> 0arranty !ostsare estimated at 2J of sales in t'e year of sale> 4J in t'e year after sale> and &J in t'ese!ond year after sale. ales and a!tual 0arranty expenditures for t'e first t'ree-yearperiod 0ere as follo0s@

ales )!tual =arranty Expenditures2, 4> &>21 1>> 3>211 1>4> ,>

2>*> 12&>

='at amount s'ould tabler report as a liability at De!ember 31> 211a. b. 1>!. 13&>d. 21>

12&. 6e?ay Frosted Fla+es %ompany offers its !ustomers a pottery !ereal bo0l if t'ey send in

4 boxtops from 6e?ay Frosted Fla+es boxes and 1.. T'e !ompany estimates t'at &Jof t'e boxtops 0ill be redeemed. n 21> t'e !ompany sold $> boxes of FrostedFla+es and !ustomers redeemed 22> boxtops re!eiving $$> bo0ls. f t'e bo0ls!ost 6e?ay %ompany 2.$ ea!'> 'o0 mu!' liability for outstanding premiums s'ould bere!orded at t'e end of 21a. 2>b. 3>!. $>d. (>

Cse t'e follo0ing information for 5uestions 12(> 12*> and 12,.

?ott %o. in!ludes one !oupon in ea!' bag of dog food it sells. n return for eig't !oupons>!ustomers re!eive a leas'. T'e leas'es !ost ?ott 2. ea!'. ?ott estimates t'at 4 per!ent oft'e !oupons 0ill be redeemed. Data for 21 and 211 are as follo0s@

21 211ags of dog food sold $> &>6eas'es pur!'ased 1*> 22>%oupons redeemed 12> 1$>

12(. T'e premium expense for 21 isa. 2$>.b. 3>.!. 3$>.

d. $>.

12*. T'e estimated liability for premiums at De!ember 31> 21 isa. (>$.b. 1>.!. 1(>$.d. 2>.

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='at is t'e estimated 0arranty liability at t'e end of 211a. 1,>.b. 2,>.!. 4,>.d. *>.

133. n Kanuary 3> 21> oyer %orp. o0ned a ma!'ine t'at 'ad !ost 2>. T'ea!!umulated depre!iation 0as 12>> estimated salvage value 0as 12>> and fairmar+et value 0as 32>. n Kanuary 4> 21> t'is ma!'ine 0as irreparably damagedby #ine %orp. and be!ame 0ort'less. n !tober 21> a !ourt a0arded damages of32> against #ine in favor of oyer. )t De!ember 31> 21> t'e final out!ome of t'is!ase 0as a0aiting appeal and 0as> t'erefore> un!ertain. Ho0ever> in t'e opinion ofoyerBs attorney> #ineBs appeal 0ill be denied. )t De!ember 31> 21> 0'at amounts'ould oyer a!!rue for t'is gain !ontingen!ya. 32>.b. 2&>.!. 2>.

d. .

134. Fuller Food %ompany distributes to !onsumers !oupons 0'i!' may be presented :on orbefore a stated expiration date; to gro!ers for dis!ounts on !ertain produ!ts of Fuller. T'egro!ers are reimbursed 0'en t'ey send t'e !oupons to Fuller. n Fullers experien!e> $Jof su!' !oupons are redeemed> and generally one mont' elapses bet0een t'e date agro!er re!eives a !oupon from a !onsumer and t'e date Fuller re!eives it. During 21Fuller issued t0o separate series of !oupons as follo0s@

%onsumer )mount Disbursedssued n Total alue Expiration Date as of 1293191

19191 3($> &9391 1((>(9191 $4> 1293191 22$>

T'e only 8ournal entries to date re!orded debits to !oupon expense and !redits to !as' of$3&>. T'e De!ember 31> 21 balan!e s'eet s'ould in!lude a liability forunredeemed !oupons ofa. .b. 4$>.!. ,3>.d. 2(>.

13$. #resented belo0 is information available for ?orton %ompany.

%urrent )ssets%as' 4>'ort-term investments ($>

)!!ounts re!eivable &1>nventories 11>#repaid expenses 3>

Total !urrent assets 2*>

Total !urrent liabilities are 12>. T'e a!id-test ratio for ?orton isa. 2.33 to 1.b. 2.* to 1.!. 1.1( to 1.d. .$4 to 1.

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+uti&e C"oi%e Ans*ers)Co-&utationa

Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans'

,. b ,(. d 14. a 111. a 11*. b 12$. d 132. a,1. d ,*. b 1$. d 112. d 11,. d 12&. b 133. d

,2. a ,,. d 1&. d 113. a 12. a 12(. d 134. b

,3. d 1. b 1(. ! 114. b 121. b 12*. d 13$. !

,4. b 11. b 1*. ! 11$. d 122. d 12,. d

,$. ! 12. ! 1,. ! 11&. d 123. d 13. b

,&. b 13. a 11. d 11(. ! 124. b 131. d

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+ULTIPLE CHOICE)CPA A#a&te#

13&. ='i!' of t'e follo0ing is generally asso!iated 0it' payables !lassified as a!!ountspayable

#eriodi! #ayment e!ured

of nterest by %ollaterala. "o "ob. "o Oes!. Oes "od. Oes Oes

13(. n Kanuary 1> 21> eyer %o. leased a building to Heins %orp. for a ten-year term at anannual rental of *>. )t in!eption of t'e lease> eyer re!eived 32> !overing t'efirst t0o years rent of 1&> and a se!urity deposit of 1&>. T'is deposit 0ill notbe returned to Heins upon expiration of t'e lease but 0ill be applied to payment of rent fort'e last t0o years of t'e lease. ='at portion of t'e 32> s'ould be s'o0n as a!urrent and long-term liability> respe!tively> in eyers De!ember 31> 21 balan!e s'eet

%urrent 6iability 6ong-term 6iabilitya. 32>b. *> 1&>!. 1&> 1&>d. 1&> *>

13*. n eptember 1> 21> Herman %o. issued a note payable to "ational an+ in t'eamount of 1>2>> bearing interest at 12J> and payable in t'ree e5ual annualprin!ipal payments of 4>. n t'is date> t'e ban+s prime rate 0as 11J. T'e firstpayment for interest and prin!ipal 0as made on eptember 1> 211. )t De!ember 31>211> Herman s'ould re!ord a!!rued interest payable ofa. 4*>.

b. 44>.!. 32>.d. 2,>334.

13,. n!luded in ernon %orp.s liability a!!ount balan!es at De!ember 31> 21> 0ere t'efollo0ing@

(J note payable issued !tober 1> 21> maturing eptember 3> 211 2$>*J note payable issued )pril 1> 21> payable in six e5ual annual

installments of 1$> beginning )pril 1> 211 &>

ernons De!ember 31> 21 finan!ial statements 0ere issued on ?ar!' 31> 211. nKanuary 1$> 211> t'e entire &> balan!e of t'e *J note 0as refinan!ed by issuan!e

of a long-term obligation payable in a lump sum. n addition> on ?ar!' 1> 211> ernon!onsummated a non!an!elable agreement 0it' t'e lender to refinan!e t'e (J> 2$>note on a long-term basis> on readily determinable terms t'at 'ave not yet beenimplemented. n t'e De!ember 31> 21 balan!e s'eet> t'e amount of t'e notes payablet'at ernon s'ould !lassify as s'ort-term obligations isa. 1($>.b. 12$>.!. $>.d. .

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14. Edge %ompanyBs salaried employees are paid bi0ee+ly. !!asionally> advan!es made toemployees are paid ba!+ by payroll dedu!tions. nformation relating to salaries for t'e!alendar year 211 is as follo0s@

1293191 12931911Employee advan!es 12> 1*>

)!!rued salaries payable &$> alaries expense during t'e year &$>alaries paid during t'e year :gross; &2$>

)t De!ember 31> 211> 0'at amount s'ould Edge report for a!!rued salaries payablea. ,>.b. *4>.!. (2>.d. 2$>.

141. isen %orp.s payroll for t'e pay period ended !tober 31> 21 is summari/ed as follo0s@

Federal )mount of =ages ub8e!tDepartment Total n!ome Tax to #ayroll Taxes

#ayroll =ages =it''eld F..%.). CnemploymentFa!tory ($> ,> (> 22>ales 22> 3> 1&> 2>ffi!e 1*> 2> *> G

11$> 14> ,4> 24>

)ssume t'e follo0ing payroll tax rates@F..%.). for employer and employee (J ea!'Cnemployment 3J

='at amount s'ould isen a!!rue as its s'are of payroll taxes in its !tober 31> 21balan!e s'eeta. 21>3.

b. 14>(2.!. 13>**.d. (>3.

142. Felton %o. sells ma8or 'ouse'old applian!e servi!e !ontra!ts for !as'. T'e servi!e!ontra!ts are for a one-year> t0o-year> or t'ree-year period. %as' re!eipts from !ontra!tsare !redited to unearned servi!e !ontra!t revenues. T'is a!!ount 'ad a balan!e of4*> at De!ember 31> 2, before year-end ad8ustment. ervi!e !ontra!t !osts are!'arged as in!urred to t'e servi!e !ontra!t expense a!!ount> 0'i!' 'ad a balan!e of12> at De!ember 31> 2,. utstanding servi!e !ontra!ts at De!ember 31> 2,expire as follo0s@

During 21 During 211 During 212

1> 1&> (>='at amount s'ould be reported as unearned servi!e !ontra!t revenues in FeltonsDe!ember 31> 2, balan!e s'eeta. 3&>.b. 33>.!. 24>.d. 22>.

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143. Oount Trading tamp %o. re!ords stamp servi!e revenue and provides for t'e !ost ofredemptions in t'e year stamps are sold to li!ensees. Oounts past experien!e indi!atest'at only *J of t'e stamps sold to li!ensees 0ill be redeemed. Oounts liability for stampredemptions 0as (>$> at De!ember 31> 2,. )dditional information for 21 is asfollo0s@

tamp servi!e revenue from stamps sold to li!ensees $>>%ost of redemptions 3>4>

f all t'e stamps sold in 21 0ere presented for redemption in 211> t'e redemption !ost0ould be 2>$>. ='at amount s'ould Oount report as a liability for stamp redemptionsat De!ember 31> 21a. ,>1>.b. &>&>.!. &>1>.d. 4>1>.

144. "eer %o. 'as a probable loss t'at !an only be reasonably estimated 0it'in a range ofout!omes. "o single amount 0it'in t'e range is a better estimate t'an any ot'er amount.

T'e loss a!!rual s'ould bea. /ero.b. t'e maximum of t'e range.!. t'e mean of t'e range.d. t'e minimum of t'e range.

14$. During 21> Eaton %o. introdu!ed a ne0 produ!t !arrying a t0o-year 0arranty againstdefe!ts. T'e estimated 0arranty !osts related to dollar sales are 2J 0it'in 12 mont'sfollo0ing sale and 4J in t'e se!ond 12 mont's follo0ing sale. ales and a!tual 0arrantyexpenditures for t'e years ended De!ember 31> 21 and 211 are as follo0s@

)!tual =arranty

ales Expenditures21 *> 12>211 1>> 3>

1>*> 42>

)t De!ember 31> 211> Eaton s'ould report an estimated 0arranty liability ofa. .b. 1>.!. 3>.d. &&>.

14&. n ?ar!' 211> an explosion o!!urred at !ausing damage to areaproperties. y ?ay 211> no !laims 'ad yet been asserted against > 0ould be a reasonable estimateof t'e damages. > !ompre'ensive publi! liability poli!y !ontains a4> dedu!tible !lause. n 21 finan!ial statements> for 0'i!'t'e auditors field0or+ 0as !ompleted in )pril 211> 'o0 s'ould t'is !asualty be reporteda. )s a note dis!losing a possible liability of 4>>.b. )s an a!!rued liability of 4>.!. )s a note dis!losing a possible liability of 4>.d. "o note dis!losure of a!!rual is re5uired for 21 be!ause t'e event o!!urred in 211.

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+uti&e C"oi%e Ans*ers)CPA A#a&te#

Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans' Ite- Ans'

13&. a 13*. ! 14. a 142. b 144. d 14&. !13(. b 13,. d 141. d 143. ! 14$. d

DERI6ATIONS) Co-&utationa

No' Ans*er Derivation

,. b 1$2>2$ P 1$> A 2>2$.2>2$ Q 293 A 1>4(.

,1. d 3> R :3> P 3>; A .1111 A 11.11J.

,2. a :,>$ Q .,,; A ,>4$.

,3. d 1($> Q .12 Q ,912 A 1$>($.

,4. b :1*> P 1($>; Q 39$ A 3>.

,$. ! *>.

,&. b :4> Q 12$; Q *912 A 333>333.

,(. d 132>& Q .& A (>,$&.

,*. b 1>$>.

,,. d 2>> P 1>2> A *>.

1. b S .& A 14*>4> A 14>.14*>4 P 14> A *>4.

11. b *>4 Q .,* A *>232.

12. ! .$ Q .,( A *1>4*> A 1>&*>.

13. a ($> Q 2 A 1>$>.

14. a &> Q 2 A 1>2>.

1$. d :.&2 P .$4; S .2U Q $> A 14>.

1&. d :.&2 P .$4; S .2U Q 4> A 11>2.

1(. ! $ Q 12 Q * Q 14 A &(>2I $ Q 1$ Q * Q 1& A ,&>.

1*. ! $ Q 12 Q * Q 1(.$ A *4>I $ Q 1$ Q * Q 2 A 12>.

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DERI6ATIONS) Co-&utationa 0%ont'

No' Ans*er Derivation

1,. ! :2(> Q (.&$J; S :,> Q 1.4$J; S :&> Q 1.*J; A 23>4.

11. d 2$.* Q * Q 1 Q 3$ A (2>24.

111. a :2*.$ Q * Q 1 Q 3$; S :2(. Q * Q 2 Q 3$; A ,4>,2.

112. d 12>( S (>*, S ,> A 2,>$,I*$> P 2,>$, A $$>41.

113. a &$ Q 2 0ee+s Q ,$90ee+ A 123>$.

114. b 6i+eli'ood of loss is only possible> not probable.

11$. d #resent value of t'e removal !ost.

11&. d :21> Q *1; 3 yrs.UP 2> A 3&(>.

11(. ! &>$> S :$> Q 2; P (>$> A ,>>.

11*. b 4>> Q .1 Q 1 A 4>I 4> P 14> A 2&>.

11,. d :1.> S ((>11; R 1 A 1(>(1I ((>11 Q .1 A (>(11.

12. a

121. b &>> Q .1 Q 1 A &>I &> P 21> A 3,>.

122. d :2>> S 1$4>22; R 1 A 21$>42I 1$4>22 Q .1 A 1$>422.

123. d :4>2> Q .12; P 1*,> A 31$>.

124. b V:&($> Q .&; P 33>U R 3W Q 1.$ A 3(>$.

12$. d :2>*> .12; P 12&> A 21>.

12&. b V:$> Q .&; P 22>U R 4W Q 1.$ A 3>.

12(. d :$> Q .4; R *U Q 2 A $>.

12,. d :2> P 12>; R *U Q 2 A 2>.

12,. d V:&> Q .4; P 1$>U R *W Q 2 A 22>$.22>$ S 2> A 42>$.

13. b 3>&> and 2>4>.

131. d 1>$> Q .4 A &>.

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EERCISES

E@' 13(14

nterest Expense........................................................................ 1*>Dis!ount on "otes #ayable :,J Q 1&>;............................ 14>4

"otes #ayable................................................................ 1&>%as'.............................................................................. $2>4

:2; nterest Expense :193 Q 14>4;.............................................. 4>*Dis!ount on "otes #ayable............................................ 4>*

E@' 13(14=G#ayroll entries.

Total payroll of =atson %o. 0as ,2>> of 0'i!' 1&> represented amounts paid inex!ess of 1> to !ertain employees. T'e amount paid to employees in ex!ess of (>0as (2>. n!ome taxes 0it''eld 0ere 22$>. T'e state unemployment tax is 1.2J> t'efederal unemployment tax is .*J> and t'e F..%.). tax is (.&$J on an employeeBs 0ages to1> and 1.4$J in ex!ess of 1>.

Instru%tions:a; #repare t'e 8ournal entry for t'e 0ages and salaries paid.

:b; #repare t'e entry to re!ord t'e employer payroll taxes.

Soution 13(14=

:a; =ages and alaries Expense.................................................... ,2>=it''olding Taxes #ayable............................................ 22$>F%) Taxes #ayable....................................................... &>4&L%as'.............................................................................. &34>$4

L :,2> P 1&>; Q (.&$JU S :1&> Q 1.4$J;

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Soution 13(14= :!ont.;

:b; #ayroll Tax Expense ................................................................ &4>4&F%) Taxes #ayable

:(&> Q (.&$J; S :1&> Q 1.4$J;.............. &>4&Federal Cnemployment Tax #ayable

:,2> P (2>; Q .*JU ................................ 1>&tate Cnemployment Tax #ayable :2> Q 1.2J; . . 2>4

E@' 13(14>G%ompensated absen!es.

Oates %o. began operations on Kanuary 2> 21. t employs 1$ people 0'o 0or+ *-'our days.Ea!' employee earns 1 paid va!ation days annually. a!ation days may be ta+en after Kanuary1 of t'e year follo0ing t'e year in 0'i!' t'ey are earned. T'e average 'ourly 0age rate 0as24. in 21 and 2$.$ in 211. T'e average va!ation days used by ea!' employee in 2110as ,. Oates %o. a!!rues t'e !ost of !ompensated absen!es at rates of pay in effe!t 0'en earned.

Instru%tions#repare 8ournal entries to re!ord t'e transa!tions related to paid va!ation days during 21 and211.

Soution 13(14>

21 =ages Expense................................................................... 2*>* :1;a!ation =ages #ayable.......................................... 2*>*

:1; 1$ Q * Q 24. A 2>**I 2>** Q 1 A 2*>*.

211 =ages Expense................................................................... 1>&2a!ation =ages #ayable..................................................... 2$>,2 :2;%as'......................................................................... 2(>$4 :3;

=ages Expense................................................................... 3>& :4;a!ation =ages #ayable.......................................... 3>&

:2; 2>** Q , A 2$>,2.

:3; 1$ * 2$.$ A 3>&I 3>& , A 2(>$4.

:4; 3>& 1 A 3>&.

E@' 13(17?G%ontingent liabilities.

elo0 are t'ree independent situations.1. n )ugust> 21 a 0or+er 0as in8ured in t'e fa!tory in an a!!ident partially t'e result of 'is

o0n negligen!e. T'e 0or+er 'as sued =esley %o. for *>. %ounsel believes it isreasonably possible t'at t'e out!ome of t'e suit 0ill be unfavorable and t'at t'e settlement0ould !ost t'e !ompany from 2$> to $>.

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E@' 13(17? :!ont.;

2. ) suit for brea!' of !ontra!t see+ing damages of 2>4> 0as filed by an aut'or against7reer %o. on !tober 4> 21. 7reers legal !ounsel believes t'at an unfavorable out!ome isprobable. ) reasonable estimate of t'e a0ard to t'e plaintiff is bet0een &> and1>*>. "o amount 0it'in t'is range is a better estimate of potential damages t'an any

ot'er amount.

3. Xuinn is involved in a pending !ourt !ase. #eeteBs la0yers believe it is probable t'at Xuinn0ill be a0arded damages of 1>>.

Instru%tionsDis!uss t'e proper a!!ounting treatment> in!luding any re5uired dis!losures> for ea!' situation.7ive t'e rationale for your ans0ers.

Soution 13(17?

1. =esley %o. s'ould dis!lose in t'e notes to t'e finan!ial statements t'e existen!e of apossible !ontingent liability related to t'e la0 suit. T'e note s'ould indi!ate t'e range of t'epossible loss. T'e !ontingent liability s'ould not be a!!rued be!ause t'e loss is notprobable.

2. T'e probable a0ard s'ould be a!!rued by a !'arge to an estimated loss and a !redit to anestimated liability of &>. 7reer %o. s'ould dis!lose t'e follo0ing in t'e notes to t'efinan!ial statements@ t'e amount of t'e suit> t'e nature of t'e !ontingen!y> t'e reason for t'ea!!rual> and t'e range of t'e possible loss.

T'e a!!rual is made be!ause it is probable t'at a liability 'as been in!urred and t'e amountof t'e loss !an be reasonably estimated. T'e lo0est amount of t'e range of possible losses

is used 0'en no amount is a better estimate t'an any ot'er amount.

3. Xuinn s'ould not re!ord t'e gain !ontingen!y until itBs reali/ed. Csually> gain !ontingen!iesare neit'er a!!rued nor dis!losed. T'e 1>> gain !ontingen!y s'ould be dis!losedonly if t'e probability t'at it 0ill be reali/ed is very 'ig'.

E@' 13(171G#remiums.

rving ?usi! 'op gives its !ustomers !oupons redeemable for a poster plus a Dixie %'i!+s %D.ne !oupon is issued for ea!' dollar of sales. n t'e surrender of 1 !oupons and $. !as'>t'e poster and %D are given to t'e !ustomer. t is estimated t'at *J of t'e !oupons 0ill be

presented for redemption. ales for t'e first period 0ere (>> and t'e !oupons redeemedtotaled 34>. ales for t'e se!ond period 0ere *4>> and t'e !oupons redeemed totaled*$>. rving ?usi! 'op boug't 2> posters at 2.9poster and 2> %Ds at &.9%D.

Instru%tions#repare t'e follo0ing entries for t'e t0o periods> assuming all t'e !oupons expe!ted to beredeemed from t'e first period 0ere redeemed by t'e end of t'e se!ond period.

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PROBLE+S

Pr' 13(173G)!!ounts and "otes #ayable.

Des!ribed belo0 are !ertain transa!tions of 6arson %ompany for 21@

1. n ?ay 1> t'e !ompany pur!'ased goods from Fry %ompany for $>> terms 291> n93.#ur!'ases and a!!ounts payable are re!orded at net amounts. T'e invoi!e 0as paid on ?ay1*.

2. n Kune 1> t'e !ompany pur!'ased e5uipment for &> from aney %ompany> paying2> in !as' and giving a one-year> ,J note for t'e balan!e.

3. n eptember 3> t'e !ompany dis!ounted at 1J its 12>> one-year /ero-interest-bearing note at First tate an+.

Instru%tions

:a; #repare t'e 8ournal entries ne!essary to re!ord t'e transa!tions above using appropriatedates.

:b; #repare t'e ad8usting entries ne!essary at De!ember 31> 21 in order to properly reportinterest expense related to t'e above transa!tions. )ssume straig't-line amorti/ation ofdis!ounts.

:!; ndi!ate t'e manner in 0'i!' t'e above transa!tions s'ould be refle!ted in t'e %urrent6iabilities se!tion of 6arson %ompanys De!ember 31> 21 balan!e s'eet.

Soution 13(173

:a; ?ay 1> 21

#ur!'ases9nventory.................................................................. 4,>)!!ounts #ayable.......................................................... 4,>

?ay 1*> 21)!!ounts #ayable...................................................................... 4,>

%as'.............................................................................. 4,>

Kune 1> 21E5uipment................................................................................. &>

%as'.............................................................................. 2>"otes #ayable................................................................ 4>

eptember 3> 21

%as'.......................................................................................... 1*>Dis!ount on "otes #ayable....................................................... 12>

"otes #ayable................................................................ 12>

:b; nterest Expense........................................................................ 2>1nterest #ayable :4> Q ., Q (912;......................... 2>1

nterest Expense........................................................................ 3>Dis!ount on "otes #ayable :12> Q 3912;................. 3>

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:!; %urrent 6iabilitiesnterest payable 2>1"ote payableGaney %ompany 4>"ote payableGFirst tate an+ 12>6ess@ Dis!ount on note ,> 111>

1$3>1

Pr' 13(174Gefinan!ing of s'ort-term debt.

)t t'e finan!ial statement date of De!ember 31> 21> t'e liabilities outstanding of #a!+ard%orporation in!luded t'e follo0ing@

1. %as' dividends on !ommon sto!+> &>> payable on Kanuary 1$> 211.2. "ote payable to 7alena tate an+> 4(>> due Kanuary 2> 211.3. erial bonds> 1>>> of 0'i!' 2$> mature during 211.4. "ote payable to T'ird "ational an+> 3>> due Kanuary 2(> 211.

T'e follo0ing transa!tions o!!urred early in 211@

Kanuary 1$@ T'e !as' dividends on !ommon sto!+ 0ere paid.

Kanuary 2@ T'e note payable to 7alena tate an+ 0as paid.

Kanuary 2$@ T'e !orporation entered into a finan!ing agreement 0it' 7alena tate an+>enabling it to borro0 up to $> at any time t'roug' t'e end of 213.

)mounts borro0ed under t'e agreement 0ould bear interest at 1J above t'eban+s prime rate and 0ould mature 3 years from t'e date of t'e loan. T'e!orporation immediately borro0ed 4> to repla!e t'e !as' used in paying itsKanuary 2 note to t'e ban+.

Kanuary 2&@ 4> s'ares of !ommon sto!+ 0ere issued for 3$>. 3> of t'epro!eeds 0as used to li5uidate t'e note payable to T'ird "ational an+.

February 1@ T'e finan!ial statements for 21 0ere issued.

Instru%tions#repare a partial balan!e s'eet for #a!+ard %orporation> s'o0ing t'e manner in 0'i!' t'e aboveliabilities s'ould be presented at De!ember 31> 21. T'e liabilities s'ould be properly !lassifiedbet0een !urrent and long-term> and appropriate note dis!losure s'ould be in!luded.

Soution 13(174

%urrent liabilities@Dividends payable on !ommon sto!+ &>"otes payableG 7alena tate an+ 4(>

%urrently maturing portion of serial bonds 2$>Total !urrent liabilities (*>

6ong-term debt@"ote payableGT'ird "ational an+> refinan!ed in

Kanuary> 211G"ote 1 3>erial bonds not maturing !urrently ($>

Total long-term debt 1>$>Total liabilities 1>*3>

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"ote 1@ n Kanuary 2&> 211> t'e !orporation issued 4> s'ares of !ommon sto!+ andre!eived pro!eeds totaling 3$>> of 0'i!' 3> 0as used to li5uidate a note payable t'atmatured on Kanuary 2(> 211. )!!ordingly> su!' note payable 'as been !lassified as long-termdebt at De!ember 31> 21.

Pr' 13(177G#remiums.

#aige %andy %ompany offers a !offee mug as a premium for every ten $-!ent !andy bar0rappers presented by !ustomers toget'er 0it' 1.. T'e pur!'ase pri!e of ea!' mug to t'e!ompany is , !entsI in addition it !osts & !ents to mail ea!' mug. T'e results of t'e premiumplan for t'e years 21 and 211 are as follo0s :assume all pur!'ases and sales are for !as';@

21 211%offee mugs pur!'ased (2> *>%andy bars sold $>&> &>($>=rappers redeemed 2>*> 4>2>21 0rappers expe!ted to be redeemed in 211 2>>211 0rappers expe!ted to be redeemed in 212 2>(>

Instru%tions:a; #repare t'e general 8ournal entries t'at s'ould be made in 21 and 211 related to t'e

above plan by #aige %andy.

:b; ndi!ate t'e a!!ount names> amounts> and !lassifi!ations of t'e items related to t'e premiumplan t'at 0ould appear on t'e #aige %andy %ompany balan!e s'eet and in!ome statementat t'e end of 21 and 211.

Soution 13(177

:a; 21nventory of #remium ?ugs............................................................. &4*>

%as'.................................................................................... &4*>:(2> Q ., A *&4>;

%as'................................................................................................ 2>*>ales.................................................................................... 2>*>

:$>&> Q .$ A 2>*>;

%as'................................................................................................ 112>#remium Expense........................................................................... 14>

nventory of #remium ?ugs................................................. 2$2>2>*> R 1 A 2*> Q :1. P .&; A 112>2*> Q ., A 2$2>U

#remium Expense........................................................................... 1>Estimated 6iability for #remiums.......................................... 1>

:2>> R 1 A 2> Q .$ A 1>;

211nventory of #remium ?ugs............................................................. (2>

%as' ................................................................................... (2>:*> Q ., A (2>;

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%as'................................................................................................ 3>3($>ales.................................................................................... 3>3($>

:&>($> Q .$ A 3>3($>;

%as'................................................................................................ 1&*>Estimated 6iability for #remiums .................................................... 1>#remium Expense........................................................................... 11>

nventory of #remium ?ugs ................................................ 3(*>4>2> R 1 A 42> Q :1. P .&; A 1&*>42> Q ., A 3(*>U

#remium Expense........................................................................... 13$>Estimated 6iability for #remiums.......................................... 13$>

:2>(> R 1 A 2(> Q .$ A 13$>;

:b; alan!e 'eet

"ame %lass 21 211nventory of #remium ?ugs %urrent )sset 3,&> (3*>Estimated 6iability for #remiums %urrent 6iability 1> 13$>

n!ome tatement

"ame %lass 21 211#remium Expense perating Expense 24> 24$>

Pr' 13(17;G=arranties.

?iley E5uipment %ompany sells !omputers for 1>$ ea!' and also gives ea!' !ustomer a 2-

year 0arranty t'at re5uires t'e !ompany to perform periodi! servi!es and to repla!e defe!tiveparts. During 21> t'e !ompany sold ( !omputers. ased on past experien!e> t'e !ompany'as estimated t'e total 2-year 0arranty !osts as 3 for parts and & for labor. :)ssume salesall o!!ur at De!ember 31> 21.;

n 211> ?iley in!urred a!tual 0arranty !osts relative to 21 !omputer sales of 1> for partsand 1*> for labor.

Instru%tions:a; Cnder t'e expense warranty treatment> give t'e entries to refle!t t'e above transa!tions

:a!!rual met'od; for 21 and 211.

:b; Cnder t'e cash basismet'od> 0'at are t'e =arranty Expense balan!es for 21 and 211

:!; T'e transa!tions of part :a; !reate 0'at balan!e under !urrent liabilities in t'e 21 balan!es'eet

Soution 13(17;

:a; 21)!!ounts e!eivable....................................................................... 1>$>

ales.................................................................................... 1>$>

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=arranty Expense........................................................................... &3>Estimated 6iability Cnder =arranties................................... &3>

211Estimated 6iability Cnder =arranties............................................... 2*>

nventory.............................................................................. 1>)!!rued #ayroll.................................................................... 1*>

:b; 21 .211 2*>.

:!; 21 %urrent 6iabilitiesGEstimated 6iability Cnder =arranties 31>$.:T'e remainder of t'e &3> liability is a long-term liability.;

IFRS 9UESTIONS

S"ort Ans*er

1. Ho0 does t'e expense 0arranty approa!' differ from t'e sales 0arranty approa!'

1. T'e expense 0arranty approa!' and t'e sales 0arranty approa!' are bot' variations oft'e a!!rual met'od of a!!ounting for 0arranty !osts. T'e expense 0arranty approa!'!'arges t'e estimated future 0arranty !osts to operating expense in t'e year of sale ormanufa!ture. T'e sales-0arranty approa!' defers a !ertain per!entage of t'e originalsales pri!e until some future time 0'en a!tual !osts are in!urred or t'e 0arranty expires.

2. ='en must a !ompany re!ogni/e an asset retirement obligation

2. )n asset retirement obligation must be re!ogni/ed 0'en a !ompany 'as an existing legal

obligation asso!iated 0it' t'e retirement of a long-lived asset and 0'en t'e amount !anbe reasonably estimated.

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