Professional Documents
Culture Documents
Financial Accounting 2
Chapters 1-3
July 4, 2016
6:00-8:00 PM
THEORIES
1. Which of the following is not essential for recognition as a liability:
a) There should be a present obligation to transfer economic benefit
b) The obligating event triggering the obligation should have already happened
c) The obligation to transfer economic benefit should be certain
d) None of these
2. An electronics store is running a promotion where for every video game purchased, the customer receives
a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year.
The store normally recognized a gross profit margin of 40% of the selling price on video games. How
would the store account for a purchase using the discount coupon?
a. The reduction in sales price attributed to the coupon is recognized as premium expense.
b. The difference between the cost of the video game and the cash received is recognized as premium
expense.
c. Premium expense is not recognized.
d. The difference between the cost of the video game and the selling price prior to the coupon is
recognized as premium expense.
3. Liabilities payable within one year can be excluded from current liabilities only if:
a) The business intends to refinance the obligations on a long-term basis.
b) The business has the demonstrated ability to refinance the obligations on a long-term basis.
c) Both a and b.
d) Liabilities payable within one year always must be classified as current liabilities.
4. The essential characteristics of a liability do not include:
a) The existence of a past causal transaction or event.
b) Present obligation.
c) The existence of a legal obligation.
d) A future sacrifice of economic benefits.
5. 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
6. Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing
of short-term debt?
a. Management indicated that they are going to refinance the obligation.
b. Actually refinance the obligation.
c. Have capacity under existing financing agreements that can be used to refinance the obligation.
d. None of these
7. Which of the following best describes the cash-basis method of accounting for warranty costs?
a. None of these
b. Expensed when liability is accrued.
c. Expensed when warranty claims are certain.
d. Expensed when incurred.
8. 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 these
9. Which of the following are not factors that are considered when evaluating whether or not to record a
liability for pending litigation?
a. Time period in which the underlying cause of action occurred.
b. The type of litigation involved.
c. The probability of an unfavorable outcome.
d. None of these
10. April Company becomes aware of a lawsuit after the date of the financial statements, but before they are
issued. A loss and related liability should be reported in the financial statements if the amount can be
reasonably estimated, an unfavorable outcome is highly probable, and
a. the Dean Company admits guilt.
b. the court will decide the case within one year.
c. None of these
d. the cause for action occurred during the accounting period covered by the financial statements.
c.
P42,500.
d.
P50,000.
d.
P50,000.
d.
P50,000.
d.
P10,714
8. Bonus based on income after deducting taxes but before deducting the bonus.
a. P 35,714
b.
P 16,667
c.
P13,043
d.
P10,714
9. Bonus based on income after deducting taxes and after deducting the bonus.
a. P 35,714
b.
P 16,667
c.
P13,043
d.
P10,714
10. Tax if bonus is based on income after deducting taxes and after deducting the bonus.
a. P 35,714
b.
P 16,667
c.
P13,043
d.
P10,714
2016
180,000
2017
280,000
190,000
2016
180,000
2017
280,000
190,000