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Unformatted text preview: 1. A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized. False 2. Dividends in arrears on cumulative preferred stock should be recorded as a current liability. False 3. Magazine subscriptions and airline ticket sales both result in unearned revenues. True 4. Discount on Notes Payable is a contra account to Notes Payable on the balance sheet. True 5. All long-term debt maturing within the next year must be classified as a current liability on the balance sheet. False 6. A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis. False 7. Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale. True 8. A company must accrue a liability for sick pay that accumulates but does not vest. False 9. Companies report the amount of social security taxes withheld from employees as well as the companies’ matching portion as current liabilities until they are remitted. True 10. Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment. False 11. Companies should recognize the expense and related liability for compensated absences in the year earned by employees. True 12. Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is probable that a liability has been incurred. False 13. A company discloses gain contingencies in the notes only when a high probability exists for realizing them. True 14. The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold. False 15. The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability. True 16. The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements. True 17. Under the expense warranty approach, companies charge warranty costs only to the period in which they comply with the warranty. False Test Bank for Intermediate Accounting, Twelfth Edition 18. Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio. False 19. Paying a current liability with cash will always reduce the current ratio. False 20. Current liabilities are usually recorded and reported in financial statements at their full maturity value. True 21. Liabilities are a. any accounts having credit balances after closing entries are made. b. deferred credits that are recognized and measured in conformity with generally accepted accounting principles....
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