Question :
101. A contingent liability should be disclosed in a note : 1255984
101. A contingent liability should be disclosed in a note to the financial statements rather than being recorded if:
a.The likelihood of a loss is remote.
b.The incurrence of a loss is reasonably possible.
c.The incurrence of a loss is probable.
d.The likelihood of a loss is eighty percent.
102. Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under a contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:
a.When the equipment is sold.
b.When the repairs are performed.
c.When payments are made to the service firm.
d.Evenly over the life of the warranty.
103. Which of the following is a contingency that should be recorded?
a.The company is being sued and a loss is reasonably possible and reasonably estimable.
b.The company deducts life insurance premiums from employees’ paychecks.
c.The company offers a two-year warranty and the expenses can be reasonably estimated.
d.It is probable that the company will receive $100,000 in settlement of a lawsuit.
104. Skypt is involved in a lawsuit and sued by Cortez for $500,000. Skypt feels it is probable that it will lose the lawsuit. What should Skypt and Cortez record or disclose concerning the lawsuit?
a.
Skypt should record a $500,000 contingent liability; Cortez should record a $500,000 contingent gain.
b.
Skypt should record a $500,000 contingent liability; Cortez should not record a contingent gain.
c.
Skypt should disclose a $500,000 contingent liability; Cortez should disclose a $500,000 contingent gain.
d.
Skypt should not record or disclose a contingent liability; Cortez should record a $500,000 contingent gain.
105. Discount Travel has the following current assets: cash, $102 million; receivables, $94 million; inventory, $182 million; and other current assets, $18 million. Discount Travel also has the following liabilities: accounts payable, $98 million; current portion of long-term debt, $35 million; and long-term debt, $23 million. Based on these amounts, what is the current ratio?
a. 2.54.
b. 2.98.
c. 4.04.
d. 2.84.
107. Which of the following statements regarding liquidity ratios is false?
a.A high current ratio generally indicates the ability to pay current liabilities on a timely basis.
b.A high acid-test ratio generally indicates the ability to pay current liabilities on a timely basis.
c.All current assets are due within one year and therefore have essentially equal liquidity.
d.As a rule of thumb, a current ratio of 1 or higher often reflects an acceptable level of liquidity.
108. Which of the following statements regarding liquidity ratios is true?
a.A low current ratio generally indicates the ability to pay current liabilities on a timely basis.
b.A low acid-test ratio generally indicates the ability to pay current liabilities on a timely basis.
c.All current assets are due within one year and therefore have essentially equal liquidity.
d.A high working capital generally indicates the ability to pay current liabilities on a timely basis.
109. Which of the following is true regarding the relationship between the current ratio and the acid-test ratio?
a. The current ratio will always be equal to or larger than the acid-test ratio for a specific company.
b. The acid-test ratio will always be equal to or larger than the current ratio for a specific company.
c. Either the current ratio or the acid-test ratio could be larger for a specific company.
d. One ratio will always exceed 1.0, while the other will always be less than 1.0.
110. A company’s liquidity refers to its:
a.
Ability to collect accounts receivable.
b.
Ability to sell inventory efficiently.
c.
Ability to generate profits from operations.
d.
Ability to pay currently maturing debts.
