Chapter 13

Question 1

Characteristics of Liabilities

Answer 1

Future sacrifices of economic benefits, arise from present obligations, return from the past transactions or events.

Question 2

Current Liabilities

Answer 2

Liabilities expected to be paid by the end of a year or operating cycle.

Question 3

Short term notes payable

Answer 3

Temporary, lower interest rates, companies have flexibility while selecting financial alternatives.

Question 4

Credit Lines

Answer 4

an agreement to provide short term financing. Borrowed only when needed.

Question 5

Comitted

Answer 5

Formal Agreement credit line

Question 6

Noncommitted

Answer 6

informal agreement for a line of credit.

Question 7

Secured Loans

Answer 7

loan made by pledging a specific asset of the borrower as collateral

Question 8

Pledging AR

Answer 8

When AR serves as collateral

Question 9

Factoring Recievables

Answer 9

ddd

Question 10

Commercial paper

Answer 10

Unsecured notes sold in minimum denomination. Quick fast money.

Question 11

Accrued Liabilities

Answer 11

Expenses already incurred but not yet paid. Recorded by adjusting entries.

Question 12

advances from customers

Answer 12

liabilities until the product or services are provided

Question 13

Loss Contingencies

Answer 13

Uncertainty on whether or not there will be a potential loss depending on future event

Question 14

Future event categorized:

Answer 14

Probable, reasonably possible, remote

Question 15

When is a liability accrued

Answer 15

Probable, known, reasonably estimable

Question 16

Disclosure only on LC

Answer 16

Reasonably possible and not reasonably estimable but probable

Question 17

No disclosure Required

Answer 17

Remote across the board

Question 18

Guarantee

Answer 18

Should be estimated and recorded as expenses in the same accounting period products are sold - Loss contingency. Must estimate total liability for the period

Question 19

Expected Cash flow Approach

Answer 19

Measures a warrant obligation to report best estimate. Ignores TVM. Incorporated specific probabilities of cash flows into the analysis

Question 20

Extended Warranty

Answer 20

Provides warranty protection beyond manufacturer’s original warranty. Recognition over period of warranty

Question 21

Disclosure of litigation contigencies

Answer 21

Do not record loss until after settlement. Outcome of litigation is highly uncertain

Question 22

Accrual of litigation contingencies

Answer 22

Subsequent events can clarify a pre-existing claims, must be made before fiscal year end

Question 23

Loss contingency after fiscal year end but before financial statements

Answer 23

Subsequent event disclosure

Question 24

Unasserted claim

Answer 24

is it probable? if yes, treat the claim as if it has been asserted

Question 25

Gain Contingency

Answer 25

uncertain situation that might result in a gain. Not accrued- conservatism.

Question 26

Pay-roll Liabilities

Answer 26

Legal required to withhold paycheck

Question 27

Employees legally required to withold

Answer 27

Federal/state taxes, SS taxes. Witholdings

Question 28

FICA

Answer 28

requires employer

Question 29

Voluntary deductions

Answer 29

include union dues contrib to retirement, insurance premiums

Question 30

Emploters payroll taxes

Answer 30

employers matching the amount of FICA taxes

Question 31

Fringe Benefits

Answer 31

PAyment of employees insurance premiums and/or contrib to retirement plans