Away Travel filed suit against West Coast Travel seeking damages for copyright violations. Away Travel's legal counsel believes it is probable

Away Travel filed suit against West Coast Travel seeking damages for copyright violations. Away Travel's legal counsel believes it is probable (but not certain) that Away Travel will win the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Away Travel report this litigation?

A) As a receivable for $100,000 with disclosure of the range.

B) As a receivable for $150,000 with disclosure of the range.

C) As a receivable for $200,000 with disclosure of the range.

D) As a disclosure only. No receivable is reported.

Answer: D

Away Travel filed suit against West Coast Travel seeking damages for copyright violations. West Coast Travel's legal counsel believes it is reasonably possible that West Coast Travel will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should West Coast Travel report this litigation?

A) As a liability for $100,000 with disclosure of the range.

B) As a liability for $150,000 with disclosure of the range.

C) As a liability for $200,000 with disclosure of the range.

D) As a disclosure only. No liability is reported.

Answer: D

Young Company is involved in a lawsuit. The liability that could arise as a result of this lawsuit should be recorded on the books if the probability of Young owing money as a result of the lawsuit is:

A) Remote and the amount is reasonably estimable.

B) Probable and the amount is reasonably estimable.

C) Reasonably possible and the amount is reasonably estimable.

D) Probable and the amount is not reasonably estimable.

Answer: B

Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins

Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation?

A) As a liability for $100,000 with disclosure of the range.

B) As a liability for $150,000 with disclosure of the range.

C) As a liability for $200,000 with disclosure of the range.

D) As a disclosure only. No liability is reported.

Answer: A

If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is probable, a contingent liability should be

A) Disclosed, but not reported as a liability.

B) Disclosed and reported as a liability.

C) Neither disclosed nor reported as a liability.

D) Reported as a liability, but not disclosed.

Answer: B

If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be

A) Disclosed, but not reported as a liability.

B) Disclosed and reported as a liability.

C) Neither disclosed nor reported as a liability.

D) Reported as a liability, but not disclosed.

Answer: A

Region Jet has a $50 million liability at December 31, 2021, of which $10 million is payable in 2022. In its December 31, 2021 balance sheet,

Region Jet has a $50 million liability at December 31, 2021, of which $10 million is payable in 2022. In its December 31, 2021 balance sheet, the company reports the $50 million debt as a:

A) $50 million current liability in the balance sheet.

B) $50 million long-term liability in the balance sheet.

C) $10 million current liability and a $40 million long-term liability in the balance sheet.

D) $40 million current liability and a $10 million long-term liability in the balance sheet.

Answer: C

United Supply has a $5 million liability at December 31, 2021, of which $1 million is payable in each of the next five years. United Supply reports the liability in the balance sheet as a:

A) $5 million current liability.

B) $5 million long-term liability.

C) $1 million current liability and a $4 million long-term liability.

D) $4 million current liability and a $1 million long-term liability.

Answer: C

The current portion of long-term debt is:

A) The amount that will be paid within one year of the balance sheet date.

B) Reported as an asset.

C) Reported as a long-term liability.

D) None of the other answer choices is correct.

Answer: A

Union Apparel has sales including sales taxes for the month of $551,200. If the sales tax rate is 6%, how much does Union Apparel owe for sales tax?

A) $51,200.

B) $33,272.

C) $31,200.

D) $551,200.

Answer: C

Union Apparel has sales including sales taxes for the month of $551,200. If the sales tax rate is 6%, what are Union Apparel's sales for the month?

A) $500,000.

B) $518,128.

C) $520,000.

D) $551,200.

Answer: C

The current portion of long-term debt should be

A) Reported as a current liability in the balance sheet.

B) Reported as a long-term liability in the balance sheet.

C) Combined with the rest of the long-term debt in the balance sheet.

D) Paid immediately.

Answer: A

The Route 66 Gift Shop, which records sales and sales tax separately, had sales on account of $1,500 and cash sales of $1,000. The state sales tax is 8%. The journal entry to record the sales would include a:

A) Debit to Sales Tax Payable for $75.

B) Debit to Cash of $1,000.

C) Credit to Sales Revenue of $2,700.

D) Debit to Accounts Receivable of $1,620 and a debit to Cash of $1,080.

Answer: D

Suppose you buy dinner for $23.75 that includes an 8% sales tax. How much did the restaurant charge you for the dinner (excluding any tax) and how much does the restaurant owe for sales tax?

A) $23.75 for dinner and $1.90 for sales tax.

B) $23.75 for dinner and no sales tax.

C) $21.85 for dinner and $1.90 for sales tax.

D) $21.99 for dinner and $1.76 for sales tax.

Answer: D

If a 6% sales tax is recorded together with sales revenue in the sales account and the balance at the end of the month is $5,300, how much sales tax is payable?

A) $600

B) $280

C) $318

D) $300

Answer: D

Suppose you buy lunch for $8.39 that includes a 5% sales tax. How much did the restaurant charge you

Suppose you buy lunch for $8.39 that includes a 5% sales tax. How much did the restaurant charge you for the lunch (excluding any tax) and how much does the restaurant owe for sales tax? (Do not round intermediate calculations. Round the answers to 2 decimal places.)

A) $8.39 for lunch and $0.42 for sales tax.

B) $8.39 for lunch and no sales tax.

C) $8.81 for lunch and $0.42 for sales tax.

D) $7.99 for lunch and $0.40 for sales tax.

Answer: D

When a company collects sales tax from a customer, the event results in a(n) ________ in Cash and a(n) ________ in Sales Tax Payable:

A) increase decrease

B) increase increase

C) decrease increase

D) decrease decrease

Answer: B

When a company collects sales tax from a customer, the event is recorded by:

A) A debit to Sales Tax Expense and a credit to Sales Tax Payable.

B) A debit to Cash and a credit to Sales Tax Payable.

C) A debit to Sales Tax Payable and a credit to Sales Tax Expense.

D) A debit to Sales Tax Payable and a credit to Cash.

Answer: B

On July 1, 2021, a company sells $2,000 of gift cards to customers. The gift cards expire one year from the date of sale

On July 1, 2021, a company sells $2,000 of gift cards to customers. The gift cards expire one year from the date of sale. By December 31, 2021, $1,600 of the gift cards have been redeemed. What is the appropriate balance in the Deferred Revenue account on December 31, 2021?

A) $2,000.

B) $1,800.

C) $1,600.

D) $400.

Answer: D

On October 1, 2021, a company sells $800 of gift cards to customers. The gift cards expire one year from the date of sale. By October 1, 2022, $750 of the gift cards have been redeemed and the sales recorded at the time of redemption. What entry, if any, should the company record on October 1, 2022?

A) Debit Deferred Revenue, $50 credit Sales Revenue, $50.

B) Debit Sales Revenue, $50 credit Cash, $50.

C) Debit Cash, $750 credit Sales Revenue, $750.

D) No journal entry is necessary.

Answer: A

Sales taxes collected by a company on behalf of the state and local governments are recorded by:

A) A debit to an expense account.

B) A credit to a revenue account.

C) A debit to a revenue account.

D) A credit to a liability account.

Answer: D