Test Bank for Survey of
Accounting
All long-term debt maturing within the next year must be classified as a current liability on the
balance sheet. - ANSWERSF
A short-term obligation can be excluded from current liabilities if the company intends to refinance
it on a long-term basis. - ANSWERSF
Many companies do not segregate the sales tax collected and the amount of the sale at the time of
the sale. - ANSWERST
Companies report the amount of social security taxes withheld from employees as well as the
companies' matching portion as current liabilities until they are remitted. - ANSWERST
Accumulated rights exist when an employer has an obligation to make payment to an employee
even after terminating his employment. - ANSWERSF
Companies should recognize the expense and related liability for compensated absences in the year
earned by employees. - ANSWERST
Companies should accrue an estimated loss from a loss contingency if information available prior to
the issuance of financial statements indicates that it is probable that a liability has been incurred. -
ANSWERSF
A company discloses gain contingencies in the notes only when a high probability exists for realizing
them. - ANSWERST
The expected profit from a sales type warranty that covers several years should all be recognized in
the period the warranty is sold. - ANSWERST
The fair value of an asset retirement obligation is recorded as both an increase to the related asset
and a liability. - ANSWERST
,Under the expense warranty approach, companies charge warranty costs only to the period in which
they comply with the warranty. - ANSWERSF
Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio. -
ANSWERSF
Paying a current liability with cash will always reduce the current ratio. - ANSWERSF
Liabilities are
a. any accounts having credit balances after closing entries are made.
b. deferred credits that are recognized and measured in conformity with generally
accepted accounting principles.
c. obligations to transfer ownership shares to other entities in the future.
d. obligations arising from past transactions and payable in assets or services in the future. -
ANSWERSD
Which of the following is a current liability?
a. A long-term debt maturing currently, which is to be paid with cash in a sinking fund
b. A long-term debt maturing currently, which is to be retired with proceeds from a new
debt issue
c. A long-term debt maturing currently, which is to be converted into common stock
d. None of these - ANSWERSD
ccounts payable should not be reported at their present value. - ANSWERS
Which of the following is not true about the discount on short-term notes payable?
a. The Discount on Notes Payable account has a debit balance.
b. The Discount on Notes Payable account should be reported as an asset on the
balance sheet.
c. When there is a discount on a note payable, the effective interest rate is higher than
the stated discount rate.
, d. All of these are true. - ANSWERSB
Which of the following items is a current liability?
a. Bonds (for which there is an adequate sinking fund properly classified as a long-term
investment) due in three months.
b. Bonds due in three years.
c. Bonds (for which there is an adequate appropriation of retained earnings) due in
eleven months.
d. Bonds to be refunded when due in eight months, there being no doubt about the
marketability of the refunding issue. - ANSWERSC
Which of the following is a current liability?
a. Preferred dividends in arrears
b. A dividend payable in the form of additional shares of stock
c. A cash dividend payable to preferred stockholders
d. All of thes - ANSWERSC
An account which would be classified as a current liability is
a. dividends payable in the company's stock.
b. accounts payable—debit balances.
c. losses expected to be incurred within the next twelve months in excess of the
company's insurance coverage.
d. none of these. - ANSWERSD
Which of the following is a characteristic of a current liability but not a long-term liability?
a. Unavoidable obligation.
b. Present obligation that entails settlement by probable future transfer or use of cash,
goods, or services.
c. Liquidation is reasonably expected to require use of existing resources classified as
current assets or create other current liabilities.
d. Transaction or other event creating the liability has already occurred. - ANSWERSB
Accounting
All long-term debt maturing within the next year must be classified as a current liability on the
balance sheet. - ANSWERSF
A short-term obligation can be excluded from current liabilities if the company intends to refinance
it on a long-term basis. - ANSWERSF
Many companies do not segregate the sales tax collected and the amount of the sale at the time of
the sale. - ANSWERST
Companies report the amount of social security taxes withheld from employees as well as the
companies' matching portion as current liabilities until they are remitted. - ANSWERST
Accumulated rights exist when an employer has an obligation to make payment to an employee
even after terminating his employment. - ANSWERSF
Companies should recognize the expense and related liability for compensated absences in the year
earned by employees. - ANSWERST
Companies should accrue an estimated loss from a loss contingency if information available prior to
the issuance of financial statements indicates that it is probable that a liability has been incurred. -
ANSWERSF
A company discloses gain contingencies in the notes only when a high probability exists for realizing
them. - ANSWERST
The expected profit from a sales type warranty that covers several years should all be recognized in
the period the warranty is sold. - ANSWERST
The fair value of an asset retirement obligation is recorded as both an increase to the related asset
and a liability. - ANSWERST
,Under the expense warranty approach, companies charge warranty costs only to the period in which
they comply with the warranty. - ANSWERSF
Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio. -
ANSWERSF
Paying a current liability with cash will always reduce the current ratio. - ANSWERSF
Liabilities are
a. any accounts having credit balances after closing entries are made.
b. deferred credits that are recognized and measured in conformity with generally
accepted accounting principles.
c. obligations to transfer ownership shares to other entities in the future.
d. obligations arising from past transactions and payable in assets or services in the future. -
ANSWERSD
Which of the following is a current liability?
a. A long-term debt maturing currently, which is to be paid with cash in a sinking fund
b. A long-term debt maturing currently, which is to be retired with proceeds from a new
debt issue
c. A long-term debt maturing currently, which is to be converted into common stock
d. None of these - ANSWERSD
ccounts payable should not be reported at their present value. - ANSWERS
Which of the following is not true about the discount on short-term notes payable?
a. The Discount on Notes Payable account has a debit balance.
b. The Discount on Notes Payable account should be reported as an asset on the
balance sheet.
c. When there is a discount on a note payable, the effective interest rate is higher than
the stated discount rate.
, d. All of these are true. - ANSWERSB
Which of the following items is a current liability?
a. Bonds (for which there is an adequate sinking fund properly classified as a long-term
investment) due in three months.
b. Bonds due in three years.
c. Bonds (for which there is an adequate appropriation of retained earnings) due in
eleven months.
d. Bonds to be refunded when due in eight months, there being no doubt about the
marketability of the refunding issue. - ANSWERSC
Which of the following is a current liability?
a. Preferred dividends in arrears
b. A dividend payable in the form of additional shares of stock
c. A cash dividend payable to preferred stockholders
d. All of thes - ANSWERSC
An account which would be classified as a current liability is
a. dividends payable in the company's stock.
b. accounts payable—debit balances.
c. losses expected to be incurred within the next twelve months in excess of the
company's insurance coverage.
d. none of these. - ANSWERSD
Which of the following is a characteristic of a current liability but not a long-term liability?
a. Unavoidable obligation.
b. Present obligation that entails settlement by probable future transfer or use of cash,
goods, or services.
c. Liquidation is reasonably expected to require use of existing resources classified as
current assets or create other current liabilities.
d. Transaction or other event creating the liability has already occurred. - ANSWERSB
