Tools Libraries Resources Readability Contents True or False Contingent gains should only be recorded if they are probable and can be reasonably estimated. Restatement of financial statements should occur if a company attempts to mislead investors by understating its liabilities. Embedded and extended warranties should be accounted for in the same way. 1. 2. 3. A long-term note payable is an example of a current liability. A current ratio of less than one means that a company has more current assets than current liabilities. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. When estimating its warranty liability, a company should consider things like the state of the economy. Contingent liabilities should be reported on the balance sheet if they are both probable and can be reasonably estimated. Unearned revenue and accounts receivable are examples of current liabilities. Liabilities for gift cards and similar items must be kept on the balance sheet until they are redeemed, regardless of how long that takes. One advantage of debt financing is that interest is tax deductible. A company's creditors can force it into bankruptcy if it can't pay its debts. Banks typically charge stronger companies higher interest rates than weaker ones because the strong companies can better afford it. Financial leverage refers to a company's ability to pay its debts off early, avoiding interest payments. Debt covenants exist to product the creditor. When a company issues a bond between interest dates, the first interest payment will be lower. A debenture is a debt that is not secured. The maturity value of a bond is amount that the company will need to repay at the end of the bond term. Accounting for a finance lease and an installment loan is not similar at all. Each payment on an installment loan must be separated into interest expense and principal.