Question

A company should accrue a loss contingency only if the likelihood that a liability has been incurred is:

Multiple Choice

• At least reasonably possible and the amount of the loss is known.

• Probable and the amount of the loss can be reasonably estimated.

• At least reasonably possible and the amount of the loss can be reasonably estimated.

• More likely than not and the amount of the loss is known.

Which of the following is not true about deferred revenue?

Multiple Choice

• Customer prepayments typically require recognition of deferred revenue.

• Deferred revenue is a liability.

• Deferred revenue with respect to gift cards is recognized as revenue when the gift cards expire.

• Deferred revenue is recognized on credit sales when collectibility can be estimated.

Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If the likelihood of expropriation is remote, a loss contingency should be:

Multiple Choice

• Disclosed and accrued as a liability.

• Neither accrued as a liability nor disclosed.

• Disclosed but not accrued as a liability.

• Accrued as liability but not disclosed.

Large, highly rated firms sometimes sell commercial paper:

Multiple Choice

• Because the interest rate is locked in by the Federal Reserve Board.

• To borrow funds at a lower rate than through a bank.

• To earn a profit on the paper.

• To avoid paperwork.

Panther Co. had a quality-assurance warranty liability of $353,000 at the beginning of 2021 and $302,000 at the end of 2021. Warranty expense is based on 5% of sales, which were $48 million for the year. What amount of warranty costs were paid during 2021?

Multiple Choice

• $2,400,000.

• $2,349,000.

• $2,451,000.

• $0.