Acct II Ch 11

Vacation benefits is an example of a known liability.

• True

• False

Payroll obligations are contingent liabilities for an employer.

• True

• False

Contingent liabilities that are reasonably possible are disclosed in the notes.

• True

• False

Liabilities that are due within one year (or the company’s operating cycle if longer) are:

• Current assets

• Current liabilities

• Long-term liabilities

• Operating cycle liabilities

• Bills

Obligations due after one year (or the company’s operating cycle if longer) are reported as:

• Current assets

• Current liabilities

• Long-term liabilities

• Operating cycle liabilities

• Bills

Accounts payable are:

• Amounts owed to suppliers for products or services purchased on credit

• Amounts received in advance from customers for future services

• Estimated liabilities

• Also referred to as unearned revenues

• Always payable within 30 days

Amounts received in advance from customers for future products or services:

• Are revenues

• Increase income

• Are liabilities

• Are not allowed under GAAP

• Require an outlay of cash in the future

Interest expense is not:

• Incurred on long-term liabilities

• Reported on the income statement

• A fixed asset

• Likely to vary due to short-term changes in sales or other operating activities

• A factor in determining a company’s borrowing risk

Times interest earned is calculated by:

• Multiplying interest expense by net income

• Dividing interest expense by net income

• Dividing income before interest expense and income taxes by interest expense

• Multiplying interest expense by income before interest expense and income taxes

• Dividing income before interest expense by interest expense and income taxes

A short-term note payable:

• Is a written promise to pay a specified amount on a stated future date within one year

• Is a contingent liability

• Is an estimated liability

• Is not a liability until the due date

• Cannot be used to replace an account payable