ACCT1040 Current Liabilities Chapter 3 Quiz

Q1. Which of the following statement(s) is/are correct regarding Harmonized Sales Tax (HST)?

• All of the available choices
• The harmonized sales tax (HST) is a sales tax that combines the provincial and federal taxes into one sales tax amount
• Provinces that have the HST do not charge separate PST and GST amounts.
• HST is also a recoverable sales tax, like GST.

Q2. According to the accounting rules, which two factors determine the treatment for contingent liabilities?

• Likelihood and whether the liability is estimable
• Management’s estimate of costs and the size of the lawsuit
• Probability of the event and size of the possible liability
• Risk exposure and estimated outcome

Q3. Management may be tempted to understate current liabilities when:

• The company has excess cash
• Expenses are too low
• Transactions never took place
• The company is negotiating a bank loan

Q4. Payroll accounting involves which of the following types of payroll liabilities:

• Employer payroll contributions
• Amounts deducted from employee paychecks and owed to the government or other organizations
• Net pay owed to employees
• All of the available choices

Q5. Revenue is earned when:

• Goods are delivered or services are rendered
• An invoice is sent
• The contract is signed
• Payment is received

Q6. Rock Company entered into a contract with one of its suppliers, Marty Corporation. According to the agreement, Rock borrowed $10,000 from Marty Corporation on January 1, 2020 at an interest rate of 5%. Both interest and principal are due on March 31, 2020 . Calculate the amount Rock Company will pay on March 31, 2020:

• $10,125
• $10,500
• $10,000
• $10,375

Q7. A theatre sells tickets for upcoming plays. The cash received when the tickets are sold should be treated as:

• Refundable deposits
• Unearned revenue
• Accounts payable
• Earned revenue

Q8. Which of the following statement is incorrect?

• If the likelihood of the future event is remote (unlikely), and if the amount is not significant, the contingent liability is either recorded in the accounting records or disclosed in the notes to the financial statements.
• If the likelihood of the future event is reasonably possible, the contingent liability is disclosed in the notes to the financial statements according to the principle of full disclosure.
• If the likelihood of the future event is probable but the amount of the liability is not estimable, the contingent liability is disclosed in the notes to the financial statements according to the principle of full disclosure.
• If the likelihood of the future event is probable and the amount of the liability is estimable, the contingent liability is recorded in a journal entry and disclosed in the notes to the financial statements.

Q9. When parts and labor are actually used to honor the warranty:

• Profits increase
• Estimated warranty liability increases
• Profits decrease
• There is no change to the income statement

Q10. Every business is required to withhold amounts from an employee’s gross pay. These amounts are called:

• • Required deductions
  • Voluntary deductions
  • Statutory deductions
  • Obligatory deductions