Question : 21.If a loss contingency related to a lawsuit against a : 1241703

 

 

21.If a loss contingency related to a lawsuit against a firm is deemed to have a remote probability of requiring ultimate payment, then the proper accounting treatment of the loss contingency will

a. increase the debt/equity ratio.

b. increase the debt/asset ratio.

c. have no effect on earnings per share.

d.increase the quick ratio.

 

 

 

22.An increase in a deferred tax liability is recognized when

a. the tax accountant omits taxable revenue from the tax returns.

b. net income measured under GAAP is greater than taxable income on tax returns because of temporary timing differences.

c. the amount of tax paid to the government is more than that calculated by the accountant on the company’s tax return.

d. a tax audit by the IRS causes an increase in taxes due from a previous year’s tax return.

 

 

 

23.Contingent liabilities whose ultimate payment is highly probable and can be reasonably estimated must be

a. ignored until actual payment is made.

b. disclosed only in the footnotes to the financial statements.

c. recorded in the body of the balance sheet.

d. disclosed in the auditor’s report.

 

 

 

24.Contingent liabilities whose ultimate payment is remote should be

a. recorded in the body of the balance sheet.

b. disclosed in the footnotes to the financial statements.

c. disclosed in the auditor’s report.

d. ignored.

 

 

 

25.Contingent liabilities whose ultimate payment is reasonably probable should be

a. recorded in the body of the balance sheet.

b. disclosed in the footnotes to the financial statements.

c. ignored.

d. disclosed in the auditor’s report.

 

 

 

26.If a loss contingency related to a lawsuit against a firm is deemed to have a high probability of requiring ultimate payment and can be reasonably estimated, then the proper accounting treatment of the loss contingency will

a. decrease the debt/equity ratio.

b. decrease the debt/asset ratio.

c. decrease earnings per share.

d.increase net income.

 

 

 

27.Sweeney, Inc. borrowed $30,000 from the bank by signing a 9-month note payable. The proper accounting treatment of recording the note will

a. increase assets and liabilities.

b.decrease assets and increase liabilities.

c.increase liabilities and owners’ equity.

d.increase assets and decrease owners’ equity.

 

 

 

28.An income tax accrual at yearend will most likely

a. decrease earnings per share.

b. decrease the debt/asset ratio.

c. decrease the debt/equity ratio.

d.be a contingency.

 

 

29.Ranch Company estimates warranty expense as 5% of sales. On January 1, warranties payable was $13,000. During the year Ranch paid $5,000 to meet its warranty obligations and recorded sales of $120,000. The December 31 liability for the warranty is

a.$10,000.

b.$12,000.

c.$6,000.

d.$14,000.

 

Solution:$13,000 + ($120,000 x 5%) ? $5,000 = $14,000

 

 

 

30.Which one of the following would increase the bonus for a CEO who is paid a bonus equal to a percentage of current GAAP net income?

a. Recording a decrease in the company’s self-insured worker’s compensation expense

b. Decreasing the estimated life of plant and equipment by an average of 8 years

c. Increasing wages for the warehouse employees

d. Collecting payments in advance from customers