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MT1 S11 Soln - A(60 points MULTIPLE CHOICE ITEMS 1 Which of...

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A. (60 points) MULTIPLE CHOICE ITEMS 1. Which of the following items is a current liability? a. Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. b. Bonds due in three years. c. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. d. Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue. C 2. Of the following items, the only one which should not be classified as a current liability is C 3. An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's D 4. When is a contingent liability recorded? B 5. Ortiz Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2010. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Ortiz recall all cans of this paint sold in the last six months. The management of Ortiz estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation? a. No recognition b. Note disclosure only c. Operating expense of $800,000 and liability of $800,000 d. Appropriation of retained earnings of $800,000 C 1
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6. If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be A Use the following information for questions 29 and 30: Fox Co. issued $100,000 of ten-year, 10% (5% per six months) bonds that pay interest semiannually. The bonds are sold to yield 8% (4% semiannually).
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