Exam 7: Accounting for Liabilities

On March 17,Ransom Company repaid the principal on a note payable.

If a company has a contingent liability where the likelihood of a future obligation is remote,the company need not record or disclose the liability.

On January 1,2012,Muller Co.borrowed cash from Washington Valley Bank by issuing a $100,000 face value 3-year installment note payable that carried a 7% interest rate.The note is to be repaid by making annual cash payments of $38,105,which includes both principal and interest.The payments are to be made on December 31 of each year. Required: a)Prepare an amortization schedule for the term of the loan,showing the amounts to be paid on principal and interest for 2012,2013,and 2014 and the loan balance at the end of each year. b)What amount of interest expense will be shown on the 2013 income statement? c)What amount of liability for the note will be shown on the balance sheet on December 31,2013?

Accruing product warranty expense at the end of an accounting period is a/an ________ transaction.

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

On March 1,2012,Cross Corporation borrowed $10,000 by issuing a note payable.How did this transaction affect Cross's financial statements?

Which of the following statements is correct?

If a company determines that the likelihood of a future obligation arising from a contingent liability is possible,the company must record a liability on its balance sheet.

Barrett Company obtained a $80,000 line of credit from the Garden State Bank on January 1,2012.The company agreed to accept a variable interest rate that was set at 2% above the bank's prime lending rate.The bank's prime rate of interest and the amounts borrowed or repaid during the first three months of 2012 are shown in the following table.Assume that Barrett borrows or repays on the first day of each month.Borrowing is shown as a positive amount and repayments are shown as negative amounts indicated by parentheses. The amount of interest expense recognized in March,rounded to the nearest dollar,would be

Garza Corporation sold merchandise to a customer for $4,000 subject to sales tax at 8%.The effects on the financial statements were:

For a long-term note payable,repaying a portion of principal along with interest payments is called loan amortization.

On a classified balance sheet,the financial statement user will be able to distinguish between:

On January 1,2012,Pedroia Co.issued $100,000 of bonds.Interest is paid in cash on December 31 of each year.Indicate the effects of payment of interest on December 31,2012.

Calvert Company remitted to the state government $4,581 in sales taxes that it had collected from its customers.

When should warranty expense be recognized?

Current liabilities as of December 31,2012 are the

When does warranty cost appear on the statement of cash flows?

Company T's operating cycle is approximately 2 years long.Company T's note payable maturing in 15 months should be classified as a long-term liability.

Terrace Company examined its contingent liabilities and determined that for one of the liabilities,the likelihood of a future obligation was probable and that the amount could be estimated.

Juneau Company issued 5-year $200,000 face value bonds at 95 on January 1,2012.The stated interest rate on these bonds is 9%.If the effective interest rate is 10.33%,interest expense in 2012 is equal to