Question 1

Working capital decreases when a company pays taxes payable.

Accepted Answer

A) True 
 B)False  False

Question 2

Straight Industries purchased a large piece of equipment from Curvy Company on January 1,2019.Straight Industries signed a note,agreeing to pay Curvy Company $400,000 for the equipment on December 31,2021.The market rate of interest for similar notes was 8%.The present value of $400,000 discounted at 8% for three years was $317,532.On January 1,2019,Straight Industries recorded the purchase with a debit to equipment for $317,532 and a credit to notes payable for $317,532.
- How much is the 2020 interest expense,assuming that the December 31,2019 adjusting entry was made?

Accepted Answer

A) $27,435. 
B) $27,962. 
C) $32,000. 
D) $29,693. 
A) $27,435. 
B) $27,962. 
C) $32,000. 
D) $29,693. A

Question 3

With regard to reporting of contingent liabilities,U.S.GAAP and International Financial Reporting Standards (IFRS)differ in defining the term "probable".Which of the following is correct with regard to defining "probable"?

Accepted Answer

A) Under U.S.GAAP,"probable" means an event is more likely than not to occur. 
B) Under IFRS,"probable" means the chance of an event occurring is slight. 
C) Under IFRS,"probable" means an event is more likely than not to occur. 
D) Under U.S.GAAP,"probable" means the chance of an event occurring is slight but less than likely. 
A) Under U.S.GAAP,"probable" means an event is more likely than not to occur. 
B) Under IFRS,"probable" means the chance of an event occurring is slight. 
C) Under IFRS,"probable" means an event is more likely than not to occur. 
D) Under U.S.GAAP,"probable" means the chance of an event occurring is slight but less than likely. C

Question 4

Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1,2019.Alden financed $37,908,000,and the note agreement will require $10 million in annual payments starting on December 31,2019 and continuing for a total of four more years (final payment December 31,2023).Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually. 
-What is the amount of the 2020 interest expense?

Accepted Answer

A) $3,169,880. 
B) $3,290,800. 
C) $4,000,000. 
D) $2,790,800. 
A) $3,169,880. 
B) $3,290,800. 
C) $4,000,000. 
D) $2,790,800.

Question 5

Straight Industries purchased a large piece of equipment from Curvy Company on January 1,2019.Straight Industries signed a note,agreeing to pay Curvy Company $400,000 for the equipment on December 31,2021.The market rate of interest for similar notes was 8%.The present value of $400,000 discounted at 8% for three years was $317,532.On January 1,2019,Straight Industries recorded the purchase with a debit to equipment for $317,532 and a credit to notes payable for $317,532.
-(FV of $1,PV of $1,FVA of $1,and PVA of $1)(Use the appropriate factor(s)from the tables provided. ) On Straight Industries' balance sheet for the year ended December 31,2019,the book value of the liability for notes payable,including accrued interest would be closest to:

Accepted Answer

A) $342,935. 
B) $349,520. 
C) $345,013. 
D) $347,213. 
A) $342,935. 
B) $349,520. 
C) $345,013. 
D) $347,213.

Question 6

An employee has an obligation to pay his payroll taxes to the employer.

Accepted Answer

A) True 
 B)False

Question 7

Darwin Corporation's attorney has provided the following summaries of three lawsuits against Darwin: • Lawsuit A: The loss is probable and the loss can be reasonably estimated.
• Lawsuit B: The loss is reasonably possible and the loss cannot be reasonably estimated.
• Lawsuit C: The loss is reasonably possible and the loss can be reasonably estimated.
-
Which of the following statements is incorrect?

Accepted Answer

A) There is a 70% chance that lawsuit A will result in a future economic sacrifice for Darwin. 
B) A disclosure note is required for lawsuit C. 
C) A disclosure note is not required for lawsuit B. 
D) Lawsuit A is reported on the balance sheet as a liability. 
A) There is a 70% chance that lawsuit A will result in a future economic sacrifice for Darwin. 
B) A disclosure note is required for lawsuit C. 
C) A disclosure note is not required for lawsuit B. 
D) Lawsuit A is reported on the balance sheet as a liability.

Question 8

Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1,2019.Alden financed $37,908,000,and the note agreement will require $10 million in annual payments starting on December 31,2019 and continuing for a total of four more years (final payment December 31,2023).Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually.
- On January 1,2019,Alden will record a note payable in the amount of:

Accepted Answer

A) $40,000,000 
B) $37,908,000. 
C) $41,698,000. 
D) $50,000,000. 
A) $40,000,000 
B) $37,908,000. 
C) $41,698,000. 
D) $50,000,000.

Question 9

A company borrowed $100,000 at 6% interest on September 1,2019.Assuming adjusting entries have not been made during the year,the entry to record interest accrued on December 31,2019 would include a debit to interest expense and a credit to interest payable for $2,000.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following best describes the accrual of interest?

Accepted Answer

A) Assets and stockholders' equity decrease. 
B) Assets and liabilities decrease. 
C) Net income and expenses decrease. 
D) Expenses and liabilities increase. 
A) Assets and stockholders' equity decrease. 
B) Assets and liabilities decrease. 
C) Net income and expenses decrease. 
D) Expenses and liabilities increase.

Question 11

A current liability is created when a customer pays cash for services to be provided in the future.

Accepted Answer

A) True 
 B)False

Question 12

You have been asked to compute the cash equivalent price of a machine assuming the cost (including principal and interest)is to be paid in two unequal payments after the acquisition date.Which of the following table values would be used to find the cost of the machine?

Accepted Answer

A) Present value of a single amount. 
B) Present value of an annuity. 
C) Future value of a single amount. 
D) Future value of an annuity. 
A) Present value of a single amount. 
B) Present value of an annuity. 
C) Future value of a single amount. 
D) Future value of an annuity.

Question 13

Short Company purchased land by paying $10,000 cash on the purchase date and agreeing to pay $10,000 for each of the next ten years beginning one-year from the purchase date.Short's incremental borrowing rate is 10%.(FV of $1,PV of $1,FVA of $1,and PVA of $1)(Use the appropriate factor(s)from the tables provided. )
- On the balance sheet as of the purchase date,after the initial $10,000 payment was made,the liability reported is closest to:

Accepted Answer

A) $100,000. 
B) $38,550. 
C) $61,446. 
D) $71,446. 
A) $100,000. 
B) $38,550. 
C) $61,446. 
D) $71,446.

Question 14

Deferred revenues can be classified as either current or long term liabilities.

Accepted Answer

A) True 
 B)False

Question 15

The choice of inventory method has an impact on the accounts payable turnover ratio.

Accepted Answer

A) True 
 B)False

Question 16

A company's income statement reported net income of $40,000 during 2019.The income tax return excluded a revenue item of $3,000 (reported on the income statement)because under the tax laws the $3,000 would not be reported for tax purposes until 2020.Which of the following statements is correct assuming a 21% tax rate?

Accepted Answer

A) A $3,000 deferred tax liability is reported as of December 31,2019. 
B) A $3,000 deferred tax asset is reported as of December 31,2019. 
C) A $630 deferred tax liability is reported as of December 31,2019. 
D) A $630 deferred tax asset is reported as of December 31,2019. 
A) A $3,000 deferred tax liability is reported as of December 31,2019. 
B) A $3,000 deferred tax asset is reported as of December 31,2019. 
C) A $630 deferred tax liability is reported as of December 31,2019. 
D) A $630 deferred tax asset is reported as of December 31,2019.

Question 17

Husky Corporation is looking to purchase a building costing $500,000 by agreeing to make payments every three months for the next five years.The first payment is due three months after the purchase date.Husky's incremental borrowing rate is 12%.Each of the payments is closest to: (FV of $1,PV of $1,FVA of $1,and PVA of $1)(Use the appropriate factor(s)from the tables provided. )

Accepted Answer

A) $28,000. 
B) $66,940. 
C) $37,981. 
D) $33,608. 
A) $28,000. 
B) $66,940. 
C) $37,981. 
D) $33,608.

Question 18

Moore Company has the following partial list of account balances at year-end December 31,2019:
   Additional information: The accounts payable balance at the end of the prior year was $3,000.
(All answers are for December 31,2019. )
A.Determine the following items:
1.Current assets
2.Current liabilities
3.Working capital
4.Accounts payable turnover ratio
5.Average age of accounts payable
B.Assume that cash is used at December 31,2019,to pay the entire balance of accounts payable.Determine the revised amounts from part (A)above for the following items:
1.Current assets
2.Current liabilities
3.Working capital
4.Accounts payable turnover ratio
5.Average age of accounts payable
C.Comment on the effect of paying accounts payable at year-end with regard to working capital and accounts payable management.

Accepted Answer

A.1.Current assets = $31,900 = Cash $23,

Question 19

Which of the following operating activities is not correctly matched with the current liability that results from the activity?

Accepted Answer

A) Purchase inventory of goods to be sold » Accounts payable 
B) Employees earn wages » Accrued wages. 
C) Customers pay in advance for future purchases » Accounts receivable. 
D) Rent warehouse space to store goods » Accrued rent. 
A) Purchase inventory of goods to be sold » Accounts payable 
B) Employees earn wages » Accrued wages. 
C) Customers pay in advance for future purchases » Accounts receivable. 
D) Rent warehouse space to store goods » Accrued rent.

Question 20

Rice Corporation's attorney has provided the following summaries of three lawsuits against Rice: • Lawsuit A: The loss is probable,but the loss cannot be reasonably estimated.
• Lawsuit B: The loss is reasonably possible,but the loss cannot be reasonably estimated.
• Lawsuit C: The loss is reasonably possible and can be reasonably estimated.
-
Which of the following statements is correct?

Accepted Answer

A) A disclosure note is required for each of the three lawsuits. 
B) A disclosure note is required only for lawsuits A & C. 
C) A disclosure note is required only for lawsuit A. 
D) A disclosure note is required only for lawsuits B & C. 
A) A disclosure note is required for each of the three lawsuits. 
B) A disclosure note is required only for lawsuits A & C. 
C) A disclosure note is required only for lawsuit A. 
D) A disclosure note is required only for lawsuits B & C.

Working capital decreases when a company pays taxes payable.

With regard to reporting of contingent liabilities,U.S.GAAP and International Financial Reporting Standards (IFRS)differ in defining the term "probable".Which of the following is correct with regard to defining "probable"?

An employee has an obligation to pay his payroll taxes to the employer.

A company borrowed $100,000 at 6% interest on September 1,2019.Assuming adjusting entries have not been made during the year,the entry to record interest accrued on December 31,2019 would include a debit to interest expense and a credit to interest payable for $2,000.

Which of the following best describes the accrual of interest?

A current liability is created when a customer pays cash for services to be provided in the future.

You have been asked to compute the cash equivalent price of a machine assuming the cost (including principal and interest)is to be paid in two unequal payments after the acquisition date.Which of the following table values would be used to find the cost of the machine?

Deferred revenues can be classified as either current or long term liabilities.

The choice of inventory method has an impact on the accounts payable turnover ratio.

Which of the following operating activities is not correctly matched with the current liability that results from the activity?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments,financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue,receivables,and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources

Reporting and Interpreting Bond Securities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

Filters

Exam 9: Reporting and Interpreting Liabilities

Working capital decreases when a company pays taxes payable.

With regard to reporting of contingent liabilities,U.S.GAAP and International Financial Reporting Standards (IFRS)differ in defining the term "probable".Which of the following is correct with regard to defining "probable"?

An employee has an obligation to pay his payroll taxes to the employer.

A company borrowed $100,000 at 6% interest on September 1,2019.Assuming adjusting entries have not been made during the year,the entry to record interest accrued on December 31,2019 would include a debit to interest expense and a credit to interest payable for $2,000.

Which of the following best describes the accrual of interest?

A current liability is created when a customer pays cash for services to be provided in the future.

You have been asked to compute the cash equivalent price of a machine assuming the cost (including principal and interest)is to be paid in two unequal payments after the acquisition date.Which of the following table values would be used to find the cost of the machine?

Deferred revenues can be classified as either current or long term liabilities.

The choice of inventory method has an impact on the accounts payable turnover ratio.

Which of the following operating activities is not correctly matched with the current liability that results from the activity?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments,financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue,receivables,and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources

Reporting and Interpreting Bond Securities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

Filters