Question 1

Using different accounting methods on financial statements and tax returns will create:

Accepted Answer

A) No effect on the balance sheet,only the income statement. 
B) No effect on the balance sheet or the income statement. 
C) A deferred tax liability. 
D) An illegal situation.

Question 2

The adjusting entry (if any)required on December 31,Year 1,related to this bond issue involves:

Accepted Answer

A) Recognition of interest expense of $1,000,000. 
B) Recognition of interest expense of $500,000. 
C) A credit to Interest Payable of $2,000,000. 
D) A credit to Cash of $500,000.

Question 3

Interest payable on a loan becomes a liability:

Accepted Answer

A) When the note payable is issued. 
B) As it accrues. 
C) At the maturity date. 
D) When the borrowed money is received.

Question 4

Loss contingencies stem from past events.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following does not affect the market price of an outstanding bond issue?

Accepted Answer

A) Fluctuations in the current market rate of interest. 
B) The credit rating of the issuing corporation. 
C) The price at which the bonds were originally issued. 
D) The length of time remaining until the bonds' maturity date.

Question 6

Ultimate Company is a defendant in a lawsuit alleging damages of $3 billion.The litigation is expected to continue for several years,and no reasonable estimate can be made at this time of Ultimate Company's ultimate financial responsibility.This situation is an example of:

Accepted Answer

A) Off-balance-sheet financing. 
B) A loss contingency that should be disclosed in notes to Ultimate Company's financial statements. 
C) An estimated liability that must appear in Ultimate Company's balance sheet. 
D) A loss in purchasing power caused by inflation.

Question 7

[The following information applies to the questions displayed below.]
Rockland Corporation has 22 employees and incurs total wages and salaries expense of $800,000 per year.The following table shows various payroll amounts as a percentage of this annual wage and salaries expense:
  In addition,Rockland provides group health insurance for its entire workforce.The cost of this insurance is $450 per month per employee.
-The company's annual payroll-related expenses amount to approximately:

Accepted Answer

A) $1,137,200. 
B) $1,076,000. 
C) $980,000. 
D) $800,000.

Question 8

[The following information applies to the questions displayed below.]
Salem Co.has outstanding $100 million of 7% bonds,due in 7 years,and callable at 104.The bonds were issued at par and are selling today at a market price of 94.
-If Salem Co.calls $10 million of these bonds it will report:

Accepted Answer

A) A $700,000 gain. 
B) A $400,000 loss. 
C) A $600,000 gain. 
D) Neither gains nor losses are recognized on early retirements of debt.

Question 9

In Year 2,Greenway's income statement will report interest expense arising from this bond issue of:

Accepted Answer

A) $1,000,000. 
B) $2,000,000. 
C) $500,000. 
D) $1,500,000.

Question 10

Sinking funds usually appear on the balance sheet as:

Accepted Answer

A) Current asset. 
B) Long-term investment. 
C) Current liability. 
D) Appropriation of retained earnings.

Question 11

[The following information applies to the questions displayed below.]
Stone Corporation has 25 employees and incurs total wages and salaries expense of $900,000 per year.The following table shows various payroll amounts as a percentage of this annual wage and salaries expense: In addition,Stone provides group health insurance for its entire workforce.The cost of this insurance is $350 per month per employee.
  In addition,Stone provides group health insurance for its entire workforce.The cost of this insurance is $350 per month per employee.
-The company's annual payroll-related expenses amount to approximately:

Accepted Answer

A) $1,085,600. 
B) $1,181,850. 
C) $1,250,700. 
D) $900,000.

Question 12

Which of the following statistics is of more significance to a long-term creditor than to a short-term creditor?

Accepted Answer

A) Interest coverage ratio 
B) Receivables turnover rate 
C) Working capital 
D) Quick ratio

Question 13

[The following information applies to the questions displayed below.]
The average employee of Girard Corporation earns gross pay of $75,000 per year.The following table shows the relative size of various payroll amounts by expressing each as a percentage of total wages and salaries expense (gross pay):
  In addition,Girard pays $425 per month per employee for group health insurance.
-Which of the following is the largest payroll-related expense incurred by Girard?

Accepted Answer

A) Group health insurance premiums. 
B) Income taxes expense. 
C) The employer's share of social security taxes. 
D) Wages and salaries expense.

Question 14

[The following information applies to the questions displayed below.]
Stone Corporation has 25 employees and incurs total wages and salaries expense of $900,000 per year.The following table shows various payroll amounts as a percentage of this annual wage and salaries expense: In addition,Stone provides group health insurance for its entire workforce.The cost of this insurance is $350 per month per employee.
  In addition,Stone provides group health insurance for its entire workforce.The cost of this insurance is $350 per month per employee.
-Some of the payroll-related expenses incurred by Stone Corporation are mandated by law,rather than negotiated with employees.During the current year,these mandated amounts increased Stone's payroll-related expenses by approximately:

Accepted Answer

A) $ 68,850. 
B) $200,700. 
C) $131,850. 
D) $176,850.

Question 15

Bonds secured by a pledge of specific assets are called debenture bonds.

Accepted Answer

A) True 
 B)False

Question 16

Bonds,with the same face value,issued at a premium will:

Accepted Answer

A) Have a greater maturity value than a bond issued at a discount. 
B) Have a lesser maturity value than a bond issued at a discount. 
C) Have the same maturity value as a bond issued at a discount. 
D) Have a different maturity value than a bond issued at a discount,depending upon the interest rate and maturity date.

Question 17

If a business ceases operations and liquidates,which of the following will be paid last?

Accepted Answer

A) Owners. 
B) General creditors. 
C) Employees. 
D) Creditors who have collateral for their loans.

Question 18

[The following information applies to the questions displayed below.]
On November 1,Year 1,Noble Co.borrowed $80,000 from South Bank and signed a 12%,six-month note payable,all due at maturity.The interest on this loan is stated separately.
-How much interest expense will Noble recognize on this note in Year 2?

Accepted Answer

A) $9,600. 
B) $4,800. 
C) $2,400. 
D) $3,200.

Question 19

Some of the payroll-related expenses incurred by Rockland Corporation are mandated by law,rather than negotiated with employees.During the current year,these mandated amounts increased Rockland's payroll-related expenses by approximately:

Accepted Answer

A) $101,200. 
B) $96,000. 
C) $117,200. 
D) $118,800.

Question 20

[The following information applies to the questions displayed below.]
On September 1,2018,Able Company purchased a building from Regal Corporation by paying $200,000 cash and issuing a one-year note payable for the balance of the purchase price.Interest on the note is stated at an annual rate of 9% and is paid at maturity.In its December 31,2018,balance sheet,Able correctly presented the note and interest payable as follows:
 
-How much must Able pay Regal Corporation on September 1,2019,when the note matures?

Accepted Answer

A) $600,000 
B) $618,000 
C) $654,000 
D) $636,000

Exam 10: Liabilities