Business & Finance

1. Uncertainties such as natural disasters:

Are not contingent liabilities because they are future events not arising out of past transactions or events

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Are contingent liabilities because they are future events arising from past transactions or events

Should be disclosed because of their usefulness to financial statements

Are estimated liabilities because the amounts are uncertain

Arise out of transactions such as debt guarantees

 

2. A promissory note received from a customer in exchange for an account receivable:

Is a cash equivalent for the recipient

Is an account receivable for the recipient

Is a note receivable for the recipient

Is a short-term investment for the recipient

Is a note payable for the recipient

 

3. Amounts received in advance from customers for future products or services:

Are revenues

Increase income

Are liabilities

Are not allowed under GAAP

Require an outlay of cash in the future

 

4. Advance ticket sales totaling $6,000,000 cash would be recognized as follows:

Debit Sales, credit Unearned Revenue

Debit Unearned Revenue, credit Sales

Debit Cash, credit Unearned Revenue

Debit Unearned Revenue, credit Cash

 

5. The matching principle requires:

That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user

The use of the direct write-off method for bad debts

The use of the allowance method of accounting for bad debts

That bad debts be disclosed in the financial statements

That bad debts not be written off

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