Exam 7: Accounting for Liabilities

How does a classified balance sheet enhance the usefulness of accounting information?

Show the effect on the accounting equation of the issuance of $100,000, 8% ten-year bonds at face value.

When a bond's issue price is greater than its face value, the bond must be reported on the balance sheet at its

If a company offers a warranty on the merchandise it sells, how should it account for the warranty?

Using the effective interest rate method to amortize bond discount will

Indicate whether each of the following statements is true or false. 1. Liquidity is the ability of a business to repay liabilities in the long run 2. The current ratio is a useful measure of liquidity 3. If a business does not plan to use any of its current assets to repay a debt, then that debt is listed as long term even if it is due within a year 4. Operating cycles for most businesses are less than one year 5. The current ratio is computed by dividing current assets by net income for the current period

Indicate whether each of the following statements is true or false: 1. Current liabilities are payable out of current assets within one year or the operating cycle, whichever is less 2. The going concern assumption says that, unless there is evidence to the contrary, accountants should assume a company will continue to operate 3. A company should report its liabilities at their net realizable value 4. The maker of a promissory note records a liability on its books 5. Issuing a promissory note is an asset source transaction

Current liabilities include

Which of the following statements is correct?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Calvert Company sold merchandise for $1,700 cash and collected from the customer sales tax at a rate of 5%. In answering, disregard the effect of cost of goods sold. Assets Liabilities Equity Revenues Expenses Net Income Cash Flow