11.One of Tonic Corp’s employees invented a revolutionary coffee lid that cools coffee as you drink it in order to prevent burns. Two children ordered coffee and burned their mouths after failing to properly secure the lids. The children’s parents sued. TonicCorp’s. lawyers believe that it is highly probable that judgment will be rendered against TonicCorp and it is likely a payment in excess of $2 million will be incurred. The proper accounting treatment of the lawsuit will
a.decrease total liabilities.
b.increase total liabilities.
c.increase the current ratio.
d.require accountants to wait until the suit is settled to account for the event.
12.Accounts payable typically arise because
a. cash is received from a customer that will be paid back in the future.
b. cash is received from customers prior to the rendering of services or delivery of products.
c. the firm temporarily borrows cash for operations.
d. amounts are owed to others for goods, supplies, and services purchased on open account.
13.Collecting sales taxes from customers
a. decreases net income.
b. increases the debt/equity ratio.
c. increases the current ratio.
d. decreases net worth.
14.If a contingent loss is accrued, this would:
a. decrease the debt/equity ratio.
b. decrease the debt/asset ratio.
c. decrease the current ratio.
d. have no change on the quick ratio.
15.Short-term notes payable typically arise because
a. the firm temporarily requires cash for operations.
b. cash is received from customers prior to the rendering of services or delivery of products.
c. the board of directors have declared a dividend that will be paid at a later date.
d. cash is received as security that will be paid back in the future.
16.Dividends payable typically arise because
a. creditors want a return on funds loaned to a company.
b. cash is paid for dividends previously declared in another accounting period.
c. the board of directors declare a dividend that will be paid at a later date.
d. bond investors demand a return.
17.If a loss contingency related to a lawsuit against a firm is deemed to have a reasonable probability of requiring ultimate payment, then the proper accounting treatment of the loss contingency will
a. require note disclosure.
b. decrease the debt/asset ratio.
c. increase the accounts payable/sales ratio.
d.decrease the debt/equity ratio.
18.Unearned revenue typically arises because
a. cash is received as security that will be paid back in the future.
b. cash is received from customers prior to the rendering of services or delivery of products.
c. a company temporarily requires cash for operations.
d. merchandise is sold to customers prior to payment.
19.Deposits payable may arise because
a. cash deposits are received from customers for layaways.
b. cash is paid to a creditor as a security deposit that will be refunded in the future.
c. the company deposits sales receipts too early.
d. merchandise is delivered to customers prior to payment.
20.Accruing warranty expense will
a.increase the debt/equity ratio.
b.increase the current ratio.
c.reduce uncollectible accounts during the period.
d.increase inventory turnover.