Question

Question 7. Answer if the following are True or False ?

a) A company must usually estimate the amount of the product warranty expense.

b) Most contingent liabilities are recorded in the accounts at the best estimate of their amounts.

c) The sale of goods to a customer who charged them using a credit card usually leads to the recording of an expense on the seller's books.

d) At the end of an accounting period, a company that has a noninterest-bearing note payable outstanding will need to make an adjusting entry debiting Interest Expense and crediting Interest Payable.

Answer 1

Contingent liability is a probable liability of which the amount cannot be determined with substantial accuracy. Thus is not recorded in the books of accounts but shown as a foot note in the Balance Sheet. Sale of goods on credit card leads to an accounts receivable which is a current asset. Non-interest bearing note payable does not involve any interest payments. Rather is issued at a discount for the benefit. Product warranty is a contingent liability. The amount of such liability cannot be determined with substantial accuracy but it must be determined on an estimated basis to show as a foot note on the balance sheet.

Answer: a