Question

11. A brewing company operating in an Ontario city experiencing water shortages received its water bill for December 2018, on December 31, 2018. The bill ($8,000) represents the cost of water used in December to make its product. The company will not publish the 2018 financial statements until February 2019. Therefore, the adjusting entry as of December 31, 2018 includes which of the following?
A. cr. utilities payable $8,000
B. cr. cash $8,000
C. cr. utilities expense $8,000
D. no adjusting entry needed because the bill will not be paid until January 2014

12. A short-term note payable may include all of the following except:
A. Trade notes payable.
B. Non trade notes payable.
C. A current portion of a long-term liability.
D. Unearned revenue.

13. A firm sold $100,000 worth of goods during 2018. The firm extends warranty coverage on these goods. Historically, warranty costs have averaged 2% of total sales. During 2018, the firm incurred $1,000 to service goods sold in 2017 and $200 to service goods sold in 2018. What is warranty expense for 2018?
A. $200
B. $1,200
C. $2,000
D. $3,200

14. On November 7, 2014 local residents sued Brimley Corporation for excess chemical emissions that caused some of them to seek medical attention. The total lawsuit is $8,000,000. Brimley Corporation's lawyers believe that the lawsuit will be successful and that the amount to be paid to the residents will be $4,000,000. On its December 31, 2014 financial statements Brimley should:
A. Accrue a provision loss of $8,000,000 with no financial statement disclosure necessary.
B. Accrue a provision loss of $4,000,000 and note disclose.
C. Do nothing as the lawsuit has not yet ended.
D. Simply disclose the details regarding the lawsuit in a note.

15. Constructive obligations may arise from:
A. Accrued Liabilities resulting from operations.
B. Warranty obligations.
C. Notes Payable.
D. Unearned Revenues.

Answer 1

Solution 11:

the adjusting entry as of December 31, 2018 includes "Credit to utilities payable for $8,000"

Hence option A is correct.

Solution 12:

A short-term note payable may include all of the following except "Unearned revenue"

Hence option D is correct.

Solution 13:

Warranty expense for 2018 = $100,000*2% = $2,000

Hence option C is correct.

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