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Accounting Chapter 8
End-of-Chapter Quiz Questions
| Question | Answer |
|---|---|
| True or False. Product warranties are an estimated liability. | True |
| True or False. Vacation pay is an estimated liability. | True |
| True or False. Income taxes is an estimated liability. | True |
| True or False. Allowance for bad debts is an estimated liability. | False |
| Recording estimated warranty expense in the current year best follows what accounting principle? | Matching |
| Crank the Volume grants a 120-day warranty on all stereos. Historically, approx. 1% of all sales prove to be defective. Sales in March are $450,000. In March, $3,800 of defective units are returned for replacement. What entry must CV make to rec. WarExpe? | Debit Warranty Expense and credit Estimated Warranty Payable, $4,500 ($450,000 x .01 = $4,500) |
| A Co. sells a single product that carries a 45-day warranty against defects. 4% of the units sold will prove defective and require repair cost of $25 per unit. During the Co.'s 1st month of oper., total sales = 900 units, 15 were defective. Liability is? | $525 [900 x .04 x $25 = warranty expense of $900; repaired $25 x 15 = $375; year-end liability = $525 ($900 - $375)] |
| True or False. A contingent liability should be recorded in the accounts if the amount can be reasonably estimated. | True |
| True or False. A contingent liability should be recorded in the accounts if the amount is due in cash within one year. | False |
| True or False. A contingent liability should be recorded in the accounts if the related future event will probably occur. | True |
| An unsecured bond is a: | Debenture Bond |
| The Discount on Bonds Payable account: | Is a contra account to Bonds Payable |
| The discount on a bond payable becomes: | Additional Interest expense over the life of the bonds |
| A bond that matures in installments is called a: | Serial Bond |
| The carrying value of Bonds Payable equals: | Bonds Payable - Discount on Bonds Payable |
| A corporation issues bonds that pay interest each May 1 and Nov. 1. The corporation's Dec. 31 adjusting entry may include a: | credit to Discount on Bonds Payable |
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