Question 1

Which of the following method of ordering is normally used to present current liabilities on the statement of ﬁnancial position?
A) In order of their magnitude
B) In order of their liquidity (due date)
C) In alphabetical order
D) In order of reverse liquidity

Accepted Answer

Current liabilities are typically listed in order of their due date, from the most immediate to the least, reflecting their liquidity.

Question 2

The following information is available for Lowell Company: $$\begin{array} { | l | r | } 
\hline \text { Current Assets } & \
\hline \text { Cash } & \$ 4,000 \
\hline \text { Marketable securities } & 75,000 \
\hline \text { Accounts receivable } & 61,000 \
\hline \text { Inventories } & 110,000 \
\hline \text { Prepaid expenses } & \underline { 30,000 } \
\hline \text { Total current assets } & \$ 280,000 \
\hline
\end{array}$$ Total current liabilities are $80,000. The quick ratio for Lowell is
A) 1.75
B) 2.13
C) 3.25
D) 1.3

Accepted Answer

The quick ratio is calculated as (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities. For Lowell, this is ($4,000 + $75,000 + $61,000) / $80,000 = $140,000 / $80,000 = 1.75.

Question 3

Which of the following most likely would be classiﬁed as a current liability?
A) Dividends payable
B) Bonds payable
C) Three-year notes payable
D) Mortgage payable

Accepted Answer

Dividends payable are classified as a current liability because they are typically due to be paid within the next year, reflecting the company's obligation to distribute profits to shareholders in the near term.

Question 4

GST (goods and services tax) collected by a retailer is recorded by
A) crediting GST Revenue.
B) debiting GST Expense.
C) crediting GST Payable.
D) debiting GST Payable.

Accepted Answer

GST collected by a retailer is recorded as a liability because it is money collected on behalf of the government, hence it is credited to GST Payable.

Question 5

Which of the following most likely would be classiﬁed as a current liability?
A) Bonds payable
B) Three-year notes payable
C) Mortgage payable
D) Dividends payable

Accepted Answer

Dividends payable are classified as a current liability because they represent an obligation to pay shareholders a declared amount in the near term, typically within one year of the balance sheet date.

Question 6

Gothic Architects Inc. received its annual property tax bill for $7,800 in January. It is due on February 28th. What is the journal entry that should be made in January?
A) Please see the following information: $$\begin{array} { | l | r | r | } 
\hline \text { Property Tax Expense } & 650 & \
\hline \text { Prepaid Property Tax } & 7,150 & \
\hline \text { Property Tax Payable } & & 7,800 \
\hline
\end{array}$$
B) Please see the following information: $$\begin{array} { | c | r | r | } 
\hline \text { Property Tax Expense } & 7,800 & \
\hline \text { Property Tax Payable } & & 7,800 \
\hline
\end{array}$$
C) Please see the following information: $$\begin{array} { | l | r | r | } 
\hline \text { Prepaid Property Tax } & 7,800 & \
\hline \text { Property Tax Payable } & & 7,800 \
\hline
\end{array}$$
D) Please see the following information: $$\begin{array} { | l | r | r | } 
\hline \text { Property Tax Expense } & 650 & \
\hline \text { Property Tax Payable } & & 650 \
\hline
\end{array}$$

Accepted Answer

The correct journal entry is to debit Property Tax Expense for $650 and credit Prepaid Property Tax for $7,150. This is because the company has incurred a property tax expense of $650 for the month of January, and the remaining $7,150 of the property tax bill will be prepaid for the remaining 11 months of the year.

Question 7

Accounts payable are recorded on the books at their:
A) net realizable value
B) gross amount
C) net present value
D) net amount

Accepted Answer

Accounts payable are recorded on the books at their gross amount. This reflects the total amount owed to creditors or suppliers before any deductions or discounts.

Question 8

A company receives $111, of which $11 is for PST (provincial sales tax). The journal entry to record the sale would include a
A) debit to PST Expense for $11.
B) credit to PST Payable for $11.
C) debit to Sales for $111.
D) debit to Cash for $90.

Accepted Answer

The company needs to record the PST collected as a liability, so it credits PST Payable for $11.

Question 9

The relationship between current assets and current liabilities is
A) useful in evaluating a company's liquidity.
B) called the matching principle.
C) useful in determining the amount of a company's long-term debt.
D) useful in determining proﬁt.

Accepted Answer

The relationship between current assets and current liabilities, known as the current ratio, is a key indicator of a company's liquidity. It shows a company's ability to cover its short-term obligations with its short-term assets.

Question 10

Liquidity ratios measure a company's
A) operating cycle.
B) revenue-producing ability.
C) short-term debt paying ability.
D) long-range solvency.

Accepted Answer

Liquidity ratios are financial metrics used to assess a company's ability to pay off its short-term debts and obligations, indicating its short-term financial health.

Question 11

A company's quick ratio:
A) can never be larger than its current ratio at the same date.
B) indicates the length of time the company takes to pay its short-term creditors.
C) indicates how quickly the company converts its current assets to cash.
D) is computed by dividing current assets by current liabilities, excluding accounts payable for inventory purchases.

Accepted Answer

The quick ratio excludes inventory from current assets because inventory is not as easily converted to cash compared to other current assets. Since inventory is included in the current ratio, the quick ratio will always be equal to or less than the current ratio, not larger.

Question 12

On January 1, 20X3, Osler Limited, a calendar-year company, issued $160,000 of notes payable, of which $40,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 20X3, is
A) Current Liabilities, $160,000.
B) Long-term Debt, $160,000.
C) Current Liabilities, $40,000; Long-term Debt, $120,000.
D) Current Liabilities, $120,000; Long-term Debt, $40,000.

Accepted Answer

The correct balance sheet presentation would include $40,000 under Current Liabilities, representing the portion of the notes payable due within the next year, and $120,000 under Long-term Debt, representing the portion due beyond one year.

Question 13

Haletone Corp provides the following information for 20X6 and 20X7 $$\begin{array} { | l | r | r | } 
\hline & \underline { \mathbf { 2 0 X6 } } & \underline { \mathbf { 2 0 X 7 } } \
\hline \text { Current assets } & \$ 23,000 & \$ 27,000 \
\hline \text { Accounts payable } & 9,000 & 10,000 \
\hline \text { Other current liabilities } & 5,000 & 4,000 \
\hline \text { Non-current liabilities } & 50,000 & 62,000 \
\hline \text { Sales } & 125,000 & 135,000 \
\hline \text { Cost of sales } & 75,000 & 79,600 \
\hline
\end{array}$$ Haletone's days payable outstanding for 20X7 is closest to
A) 47.2 days
B) 43.6 days
C) 48 days
D) 46.2

Accepted Answer

Days Payable Outstanding (DPO) for 20X7 is calculated as follows: $$DPO = \frac{\text{Accounts Payable}}{\text{Cost of Sales} / 365}$$ For 20X7, this is $$\frac{10,000}{79,600 / 365} \approx 45.9$$ days. The closest option provided is 43.6 days.

Question 14

Most companies pay current liabilities
A) out of current assets.
B) by issuing interest-bearing notes payable.
C) by issuing shares.
D) by creating long-term liabilities.

Accepted Answer

Most companies pay current liabilities out of current assets because current liabilities are short-term obligations typically due within a year, and it is most efficient to use assets that are also expected to be liquidated within a year to settle these obligations.

Question 15

Which of the following is not a typical current liability?
A) Sales taxes payable
B) Bonds payable
C) Deferred revenue
D) Income tax payable

Accepted Answer

Bonds payable are a long-term liability, not a current liability.

Question 16

Failure to record a liability will probably
A) have no effect on net earnings.
B) result in overstated total liabilities and shareholders' equity.
C) result in overstated total assets.
D) result in overstated net earnings.

Accepted Answer

Failing to record a liability means that expenses that should have been recorded are omitted. This omission would lead to higher net earnings than should be the case, as expenses are understated.

Question 17

The following is a partial list of account balances from the books of Ellsworth Enterprise at the end of 20X1: $$\begin{array} { | l | r | } 
\hline \text { Trade Payables } & \$ 1,200 \
\hline \text { Trade Receivables } & 1,000 \
\hline \text { Accrued Vacation Liability } & 900 \
\hline \text { Cash } & 3,000 \
\hline \text { Deferred Revenue } & 500 \
\hline \text { Income Taxes Payable } & 2,200 \
\hline \text { Notes Payable (due in 2 years) } & 600 \
\hline
\end{array}$$ Based solely upon these balances, what amount of current liabilities should appear on Ellsworth's 20X1 year-end statement of financial position?
A) $3,900
B) $4,300
C) $4,800
D) $5,400

Accepted Answer

The answer of The following is a partial list of...

Question 18

Purchase of inventory for cash will:
A) increase the current ratio.
B) decrease the current ratio.
C) increase the quick ratio.
D) decrease the quick ratio.

Accepted Answer

The answer of Purchase of inventory for cash will:
A) increase...

Question 19

A current liability is a debt that can reasonably be expected to be paid
A) within one year.
B) between 6 months and 18 months.
C) out of currently recognized revenues.
D) out of cash currently on hand.

Accepted Answer

A current liability is defined as a debt that is expected to be paid within one year or within the normal operating cycle of the business, whichever is longer.

Question 20

A customer paid a total of $84,000 for a purchase, including 5% PST (provincial sales tax). What was the PST amount?
A) $80,000
B) $84,000
C) $4,200
D) $4,000

Accepted Answer

Calculation: $84,000 × 5/105 = $4,000.

Quiz 9: Long-Lived Tangible and Intangible Assets

Which of the following method of ordering is normally used to present current liabilities on the statement of ﬁnancial position?

Which of the following most likely would be classiﬁed as a current liability?

GST (goods and services tax) collected by a retailer is recorded by

Which of the following most likely would be classiﬁed as a current liability?

Gothic Architects Inc. received its annual property tax bill for $7,800 in January. It is due on February 28th. What is the journal entry that should be made in January?

Accounts payable are recorded on the books at their:

A company receives $111, of which $11 is for PST (provincial sales tax) . The journal entry to record the sale would include a

The relationship between current assets and current liabilities is

Liquidity ratios measure a company's

A company's quick ratio:

On January 1, 20X3, Osler Limited, a calendar-year company, issued $160,000 of notes payable, of which $40,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 20X3, is

Most companies pay current liabilities

Which of the following is not a typical current liability?

Failure to record a liability will probably

Purchase of inventory for cash will:

A current liability is a debt that can reasonably be expected to be paid

A customer paid a total of $84,000 for a purchase, including 5% PST (provincial sales tax) . What was the PST amount?