1. Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company’s assets in that country. If the likelihood of expropriation is remote, a loss contingency should be A. Disclosed but not accrued as a liability.
B. Disclosed and accrued as a liability.
C. Accrued as liability but not disclosed.
D. Neither accrued as a liability nor disclosed.
2. When a material gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be: A. Reported in the income statement and disclosed
B. Offset against shareholders’ equity.
C. Disclosed, but not recognized in the income statement.
D. Neither recognized in the income statement nor disclosed.
3. The cost of customer premium offers should be charged to expense: A. When the related product is sold.
B. When the premium offer expires.
C. Over the life cycle of the product to which the premium relates. D. When the premiums are claimed.
4. The accounting concept that requires recognition of a liability for customer premium offers is: A. Periodicity.
C. Historical cost.
D. The matching principle.
5. Accounting for cost of incentive programs for frequent customer purchases involves: A. Recording an expense and a liability each period.
B. Recording a liability and a reduction of revenue each period. C. Recording an expense and an asset reduction each period.
D. Recording an expense and revenue each period.
6. A customer of RoughEdge Sharpeners alleges that RoughEdge’s new razor sharpener had a defect that resulted in serious injury to the customer. RoughEdge believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur. Under U.S. GAAP, RoughEdge shuld accrue a liability in the amount of: A. $0.
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