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Accounting for Liabilities & Contingencies Chapter Exam

Exam Instructions:

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

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Question 1 1.

Frozen Enterprises specializes in frozen vegetables and ready-to-eat frozen meals. Several customers have filed a class action lawsuit against the company, alleging that they have become sick after eating a frozen meal.


Under which of the following circumstances would this lawsuit NOT have to be reported on the company's financial statements?

Question 2 2. Pensions are examples of _____ liabilities.

Question 3 3. In 2016, Absolute Motors had $4,000,000 in sales and $500,000 in warranties. If Absolute Motors has $3,800,000 in sales in 2017, how much can it estimate in warranties?

Question 4 4. Since the taxable value can change from period to period, property taxes are considered a(n) _____ liability.

Question 5 5. Which of the following is an example of a liability by law?

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Question 6 6. What is a liability by agreement?

Question 7 7. In which of the following answer choices should ABC Corporation report the gain contingency?

Question 8 8. According to the principles of conservatism in accounting, which of the following is true?

Question 9 9. A company should list salaries payable on a balance sheet as a(n) _____ liability.

Question 10 10.

A corporation issues a 5-year, $500,000 bond that pays interest of $10,000 at the end of the year. The corporation also pays $200,000 annually in employee salaries.


Which of the following should be reported as a long-term liability on the company's year-end balance sheet?

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Question 11 11. Small credit accounts where a business allows a customer to take possession of items for a monthly payment and obligations that are required to be repaid within a year are both examples of _____ liabilities.

Question 12 12. Accounts payable, sales tax, and salaries are all examples of _____ liabilities.

Question 13 13. Which of the following would be treated as an accounts payable on the balance sheet?

Question 14 14. A company debits its warranty expense by $15,000 and credits its warranty liability by $15,000. Which of the following is MOST accurate?

Use this material to answer questions #15 through #16

As of January 31, Alset Motors has accrued $45,000 of payroll expenses that must be paid to employees on February 5.

Question 15 15. What is the correct journal entry for the accrual of the payroll expenses?

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Use this material to answer questions #15 through #16

As of January 31, Alset Motors has accrued $45,000 of payroll expenses that must be paid to employees on February 5.

Question 16 16. A journal entry for Alset Motors shows a debit to payroll liability and credit to cash. Which of the following is MOST accurate?

Question 17 17. A company's accounting records show the following items. Which of the following is MOST accurate?

Question 18 18. All of the following are examples of current liabilities EXCEPT:

Question 19 19. In which of the following situations should a company debit its environmental cleanup expense and credit its environmental cleanup loss payable?

Question 20 20. A company is facing a sexual harassment lawsuit by a former employee. How should this item be classified on the balance sheet?

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Question 21 21. Bonds payable are an example of a(n) _____ liability.

Question 22 22. Which of the following should be EXCLUDED when calculating short-term liabilities?

Question 23 23. Which of these is the best example of a long term liability?

Question 24 24. How can product recalls be a contingent liability?

Question 25 25. Why are retirement liabilities considered estimated liabilities?

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Question 26 26. Which of the following statements is true regarding known liabilities by law?

Question 27 27. Which type of contingency is a lawsuit that might end up making a company have to pay money or potentially lower the value of the company?

Question 28 28. Liabilities, like assets, are categorized into either _____ or _____.

Question 29 29. Which of the following statements is true regarding current liabilities?

Question 30 30. Which of the following statements offers the BEST explanation of contingent liabilities?

Accounting for Liabilities & Contingencies Chapter Exam Instructions

Choose your answers to the questions and click 'Next' to see the next set of questions. You can skip questions if you would like and come back to them later with the yellow "Go To First Skipped Question" button. When you have completed the practice exam, a green submit button will appear. Click it to see your results. Good luck!

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