Question 1

Which of the following questions is incorrect with respect to determining the accounting for leases?
A)Is the lease term greater than 75% of the asset's expected economic life?
B)Is the present value of the payments greater than 75% of the asset's fair market value?
C)Does the lease provide for an opportunity for the lessee to purchase the leased asset for a price less than fair market value?
D)Does the lease provide for a transfer of title of the leased asset at the end of the lease term to the lessee?

Accepted Answer

The correct threshold for the present value of lease payments in determining lease classification is 90%, not 75%.

Question 2

The following data is available for Tommy's Toys for the years 2014 through 2017:  Required: 
A.Calculate the accounts payable turnover ratio for the following years:
  
B.Calculate the number of days it is taking Tommy's Toys to pay its vendors (assume a 365-day year):
  
C.Explain whether Tommy's Toys is doing a better job over the years of paying its vendors in a timely manner.

Accepted Answer

The answer of The following data is available for Tommy's...

Question 3

You have a goal of having $100,000 five years from today. The return on the investment is expected to be 10% and will be compounded semi-annually. The amount that needs to be invested today is closest to:
A)$61,390.
B)$62,090.
C)$78,350.
D)$38,550.

Accepted Answer

To find the present value, use the formula for compound interest: $ PV = \frac{FV}{(1 + r/n)^{nt}} $. Here, $ FV = 100,000 $, $ r = 0.10 $, $ n = 2 $, and $ t = 5 $. Plugging in these values gives $ PV = \frac{100,000}{(1 + 0.10/2)^{2*5}} \approx 61,390 $.

Question 4

A company's 2016 income tax return reported a $75,000 tax liability. During 2016, the deferred income tax liability account increased $9,000. Which of the following statements is correct?
A)Income tax expense on the 2016 income statement was $75,000.
B)Income tax expense on the 2016 income statement was $66,000.
C)Income tax expense on the 2016 income statement was $9,000.
D)Income tax expense on the 2016 income statement was $84,000.

Accepted Answer

Deferred tax liability account increased by $9,000, meaning that $9,000 of income was recognized for tax purposes during 2016 but not yet recognized for financial accounting purposes. Therefore, the income tax expense reported on the 2016 income statement would be computed as follows: 
Income Tax Expense = Current tax liability + Change in deferred tax liability
Income Tax Expense = $75,000 + $9,000
Income Tax Expense = $84,000

Question 5

The following data were provided by the detailed payroll records of Mountain Corporation for the last week of March 2017, which will not be paid until April 5, 2017:  FICA taxes at a 7.65% rate (no employee had reached the maximum).
Required: 
A.Prepare the March 31, 2017 journal entry to record the payroll and the related employee deductions.
B.Prepare the March 31, 2017 journal entry to record the employer's FICA payroll tax expense.
C.Calculate the total payroll-related liabilities at March 31, 2017 using the results of requirements (A) and (B).

Accepted Answer

The answer of The following data were provided by the...

Question 6

Which of the following questions is asked with respect to determining the accounting for leases?
A)Is the lease term greater than 90% of the asset's estimated life?
B)Is the present value of the payments greater than 75% of the asset's fair market value?
C)Does the lease provide for an opportunity for the lessee to purchase the leased asset during the lease term at fair market value?
D)Does the lease provide for a transfer of title of the leased asset at the end of the lease term to the lessee?

Accepted Answer

The question regarding the transfer of title at the end of the lease term is relevant for determining if a lease is a finance lease under accounting standards.

Question 7

If income tax expense reported on the income statement is $45,000 for 2016, and the tax return for 2016 (the first year) shows an income tax liability of $42,000, the deferred income tax on the balance sheet at the end of 2016 will be which of the following? Assume a 40% tax rate.
A)A $3,000 liability.
B)A $3,000 asset.
C)A $7,500 liability.
D)A $7,500 asset.

Accepted Answer

The deferred income tax is the difference between the income tax expense and the income tax liability. Here, $45,000 (expense) - $42,000 (liability) = $3,000, which represents a deferred tax liability.

Question 8

With regard to reporting contingent liabilities on a balance sheet, financial statements prepared under International Financial Reporting Standards (IFRS) will:
A)Have fewer contingent liabilities accrued than under U.S.GAAP because the IFRS guideline for "probable" is a higher percentage than the U.S.GAAP guideline for "probable".
B)Have more contingent liabilities accrued than under U.S.GAAP because the IFRS guideline for "probable" is a lower percentage than the U.S.GAAP guideline for "probable".
C)Have more contingent liabilities accrued than under U.S.GAAP because IFRS requires all lawsuits, environmental problems, and product warranties that are reasonably estimable to be accrued while U.S.GAAP requires accrual only if losses are reasonably possible of being incurred.
D)Have fewer contingent liabilities accrued than under U.S.GAAP because IFRS requires a more subjective evaluation of the probability of occurrence than does U.S.GAAP.

Accepted Answer

The answer of With regard to reporting contingent liabilities on...

Question 9

Your goal is to be able to withdraw $10,000 for each of the next nine years beginning one year from today and also to withdraw $50,000 ten years from today. The return on the investment is expected to be 6%. The amount that needs to be invested today is closest to:
A)$68,017.
B)$95,937.
C)$78,176.
D)$132,075.

Accepted Answer

To find the present value of the withdrawals, calculate the present value of the annuity of $10,000 for 9 years and the present value of the $50,000 lump sum in year 10, both discounted at 6%. The sum of these present values is closest to $95,937.

Question 10

Moore Company has the following partial list of account balances at year-end December 31, 2016:  Additional information: The accounts payable balance at the end of the prior year was $3,000.
Required:
(All answers are for December 31, 2016.) 
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, 2016, 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

The answer of Moore Company has the following partial list...

Question 11

When a company has debt coming due and wants to refinance and classify the debt as a long-term liability rather than paying for it currently with cash:
A)U.S.GAAP requires the debt be refinanced by the balance sheet date and IFRS requires that the company have intent to refinance on a long-term basis.
B)U.S.GAAP requires that the company have intent to refinance the debt on a long-term basis and IFRS requires the debt be refinanced by the balance sheet date.
C)U.S.GAAP requires that the company have intent and ability to refinance the debt on a long-term basis and IFRS requires the debt be refinanced by the balance sheet date.
D)U.S.GAAP requires the debt be refinanced within 60 days of the balance sheet date and IFRS requires the debt be refinanced by within 30 days of the balance sheet date.

Accepted Answer

According to U.S.GAAP, in order to classify debt as a long-term liability, the company must have both the intent and ability to refinance the debt on a long-term basis. Under IFRS, the debt must be refinanced by the balance sheet date. Option A, B, and D are incorrect as they provide incorrect information.

Question 12

Which of the following correctly describes the accounting for leases?
A)A capital lease is not reported on the balance sheet as a liability.
B)A capital lease reports an asset on the balance sheet.
C)An operating lease reports an operating asset on the balance sheet.
D)An operating lease reports a liability on the balance sheet.

Accepted Answer

A capital lease is reported on the balance sheet as both an asset (the leased item) and a liability (the obligation to make lease payments). An operating lease, on the other hand, is not reported as a liability on the balance sheet but rather as a rent expense in the income statement.

Question 13

Halbur Company reported total assets of $150,000, current assets of $60,000, total stockholders' equity of $60,000, and noncurrent liabilities of $65,000.
Required:
(show computations):
1. Determine the current liabilities.
2. Compute working capital.

Accepted Answer

The answer of Halbur Company reported total assets of $150,000,...

Question 14

On April 1, 2016, Wolf Company borrowed $5,000 on an 8% note payable. The maturity date of the note (and payment of all interest) is July 1, 2017. The accounting period ends December 31. Assume no adjusting entries are made during the year.
Required:
Prepare the journal entry for each of the following dates:
A.April 1, 2016.
B.December 31, 2016.
C.July 1, 2017.

Accepted Answer

The answer of On April 1, 2016, Wolf Company borrowed...

Question 15

Sharp Company borrowed $500,000 on a 6% one-year, interest-bearing note dated November 1, 2016 with interest payable at maturity. The annual accounting period ends on December 31. Assume that adjusting entries are only made at December 31, the company's fiscal year-end.
Required:
Prepare journal entries for each of the following dates:
A.November 1, 2016.
B.December 31, 2016.
C.October 31, 2017.

Accepted Answer

The answer of Sharp Company borrowed $500,000 on a 6%...

Question 16

A company's income statement reported net income of $80,000 during 2016. The income tax return excluded a revenue item of $6,000 (reported on the income statement) because under the tax laws the $6,000 would not be reported for tax purposes until 2017. Which of the following statements is incorrect assuming a 35% tax rate?
A)Income tax expense on the income statement exceeds the tax liability to the IRS.
B)The $6,000 of revenue creates a deferred tax liability.
C)A $2,100 deferred tax liability is reported as of December 31, 2016.
D)Income tax expense on the income statement is $25,900.

Accepted Answer

The income tax expense on the income statement should be calculated as follows: $80,000 net income plus $6,000 deferred revenue equals $86,000 taxable income for the income statement. At a 35% tax rate, the income tax expense would be $30,100, not $25,900.

Question 17

The following is a partial list of account balances for Coen, Inc. as of December 31, 2016  Required:
Prepare the liabilities section of Coen Inc.'s classified balance sheet for December 31, 2016.

Accepted Answer

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

Question 18

A loan supported by an agreement to transfer ownership of assets if the loan is not repaid is called a:
A)Private placement of debt
B)Publicly traded debt
C)Secured debt
D)Capital lease

Accepted Answer

A loan supported by an agreement to transfer ownership of assets if the loan is not repaid is called a secured debt. A secured debt is a type of loan where the borrower pledges an asset as collateral for the loan. If the borrower defaults on the loan, the lender can seize the collateral to recoup some or all of their losses. This is also known as a collateralized loan. Private placement of debt, publicly traded debt, and capital lease do not necessarily involve the transfer of ownership of assets in case of default.

Question 19

Answer the following four questions.
A.What is a contingent liability?
B.When must a contingent liability be recorded through a journal entry?
C.When should a contingent liability be disclosed in the footnotes to the financial statements?
D.When is disclosure of a contingent liability not required?

Accepted Answer

The answer of Answer the following four questions.
A.What is a...

Question 20

Your goal is to be able to withdraw $5,000 for each of the next ten years beginning one year from today. The return on the investment is expected to be 12%. The amount that needs to be invested today is closest to:
A)$44,645.
B)$36,291.
C)$28,251.
D)$50,000.

Accepted Answer

The answer of Your goal is to be able to...

Quiz 9: Reporting and Interpreting Liabilities

Which of the following questions is incorrect with respect to determining the accounting for leases?

You have a goal of having $100,000 five years from today. The return on the investment is expected to be 10% and will be compounded semi-annually. The amount that needs to be invested today is closest to:

A company's 2016 income tax return reported a $75,000 tax liability. During 2016, the deferred income tax liability account increased $9,000. Which of the following statements is correct?

Which of the following questions is asked with respect to determining the accounting for leases?

If income tax expense reported on the income statement is $45,000 for 2016, and the tax return for 2016 (the first year) shows an income tax liability of $42,000, the deferred income tax on the balance sheet at the end of 2016 will be which of the following? Assume a 40% tax rate.

With regard to reporting contingent liabilities on a balance sheet, financial statements prepared under International Financial Reporting Standards (IFRS) will:

Your goal is to be able to withdraw $10,000 for each of the next nine years beginning one year from today and also to withdraw $50,000 ten years from today. The return on the investment is expected to be 6%. The amount that needs to be invested today is closest to:

When a company has debt coming due and wants to refinance and classify the debt as a long-term liability rather than paying for it currently with cash:

Which of the following correctly describes the accounting for leases?

Halbur Company reported total assets of $150,000, current assets of $60,000, total stockholders' equity of $60,000, and noncurrent liabilities of $65,000. Required: (show computations): 1. Determine the current liabilities. 2. Compute working capital.

The following is a partial list of account balances for Coen, Inc. as of December 31, 2016 Required: Prepare the liabilities section of Coen Inc.'s classified balance sheet for December 31, 2016.

A loan supported by an agreement to transfer ownership of assets if the loan is not repaid is called a:

Answer the following four questions. A.What is a contingent liability? B.When must a contingent liability be recorded through a journal entry? C.When should a contingent liability be disclosed in the footnotes to the financial statements? D.When is disclosure of a contingent liability not required?

Your goal is to be able to withdraw $5,000 for each of the next ten years beginning one year from today. The return on the investment is expected to be 12%. The amount that needs to be invested today is closest to: