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Exam 9: Current Liabilities, Contingencies, and the True Value of Money

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Question 81

Multiple Choice

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Which of the following statements regarding contingencies is true?

A) Contingencies that are probable and estimable must be recorded before the outcome of future events.
B) Contingent assets, if probable and estimable, are treated in much the same way as contingent liabilities.
C) The accounting principle that determines whether a contingent asset is recorded is that of materiality.
D) Contingencies that are not estimable should not be disclosed even if probable.

E) C) and D)
F) B) and D)

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Question 82

Multiple Choice

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A bank loaned Darden Company $10,000 on a 1-year, 6% note, but deducted the interest in advance.The journal entry made by Darden to record receipt of the cash would include a

A) an increase in Cash for $9,400
B) an increase in Cash for $600
C) a decrease in Notes Payable for $10,600
D) a decrease in Notes Payable for $9,400

E) None of the above
F) A) and B)

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Question 83

Multiple Choice

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Executive, Inc.has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday.If December 31, the last day of the accounting year, falls on Thursday, Executive would make an adjusting entry that would

The present value is the value today of a single amount to be paid or received at a specific date in the future.

From the following list, identify whether the change in the account balance during the year would be reported as operating (O) cash flow, investing (I) cash flow, financing (F) cash flow or not separately (N) reported on the statement of cash flows.Assume that the indirect method is used to prepare the operating activities section.Use the following response choices a-d. -Other accrued liabilities

Marsh Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date.After one month, the company's total liability for this loan amounts to:

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. ​​ If you must calculate the present value of an amount at 12% compounded quarterly for 2 years, then the interest factor used in the calculation is

On November 1, 2016, Brownsville Co.borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity.The interest on this loan is stated separately.At December 31, 2016, Brownsville Co.'s overall liability for this loan amounts to:

Which of the following accounts is not classified as a current liability?

A firm is required to estimate a liability for repairs for products sold with a warranty.If the firm's accountants later find that the estimated amount for repairs has been overstated, the correct accounting procedure is to

In 2016, Baloga Heating Company sold 400 water heaters for $350 each.The water heaters carry a 2-year warranty for repairs.Baloga estimates that repair costs will average 2% of the total selling price.How much is recorded in the warranty liability account as a result of selling the water heaters during 2016?

In the statement of cash flows, a decrease in accounts payable would be shown as an increase in the Operating Activities category.

Match each of the following terms pertaining to liabilities to their definitions. -A contra-liability account that represents interest deducted from a loan or note in advance.

If a bank discounts a note, then the borrower needs to only pay the cash received and not the face value of the note.

In 2016, Scranton, Inc.sold 2,000 carpets for $50 each.The carpets carry a 2-year warranty for repairs.Scranton estimates that repair costs will average 3% of the total selling price.What is the amount that would be recorded in the warranty liability account as a result of selling the carpets during 2016?

If the annual interest is 12%, but the compounding is done quarterly, then the interest rate is 4% per period.

What is the purpose of the current ratio? How does the quick ratio differ from the current ratio?

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2016 balance sheet. -An amount of money owed to a supplier based on the terms 2/20, n/40, for which no note was executed.

Almost all current liabilities appear within the ___________________ Activities category of the Statement of Cash Flows.

Income taxes payable are recognized as an expense once they are paid to the respective government or taxing authority.