Question 1

Notes payable usually require the borrower to pay interest.

Accepted Answer

Notes payable typically require the borrower to pay interest to the lender as a form of compensation for borrowing money.

Question 2

When a company increases trade payables from one year to the next, what is the effect on cash flows?
A) An increase in cash because we have not paid cash for all the inventory and services purchased on credit during the period.
B) A decrease to cash because we will have to pay these liabilities in the future.
C) A decrease in cash caused by paying down our debt to vendors.
D) An increase to cash because we have received cash from vendors.

Accepted Answer

An increase in trade payables means the company has delayed cash payments for inventory or services, thus conserving cash and increasing cash flow.

Question 3

The "trade payables" account should generally be used only for trade payables (obligations owed to suppliers in the normal course of business) which relate to the purchase of goods and services.

Accepted Answer

The "trade payables" account should only contain obligations owed to suppliers for goods and services purchased in the normal course of business. It should not include other types of payables such as taxes, interest, or salaries.

Question 4

An employee receives a bi-weekly gross salary of $2,000. Income tax is $218, CPP is $99, EI is $36, and union dues are $50. What is the amount of the employee's take home pay (net pay) on a bi-weekly basis?
A) $2,000
B) $1,732
C) $1,782
D) $1,597

Accepted Answer

The answer of An employee receives a bi-weekly gross salary...

Question 5

Match the liabilities with their usual classification on the statement of financial position by entering the appropriate letters in the spaces.
Usual Classification
A. Current liability
B. Long-term liability
C. Current or long-term liability
D. None of the above Liabilities

Accepted Answer

The answer of Match the liabilities with their usual classification...

Question 6

An accrued expense arises because an expense item has been prepaid, but the related expense has not been incurred as yet.

Accepted Answer

An accrued expense arises when an expense has been incurred but has not yet been paid. It is the opposite of a prepaid expense.

Question 7

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

Accepted Answer

The quick ratio is calculated by dividing liquid assets (excluding inventory) by current liabilities. Since the current ratio includes all current assets, the quick ratio can never be larger than the current ratio.

Question 8

The following is a partial list of account balances from the books of Ellsworth Enterprise at the end of 20B:
  Based solely upon these balances, what amount of current liabilities should appear on Ellsworth's 20B year-end statement of financial position? 
A) $5,400
B) $4,800
C) $4,300
D) $3,900

Accepted Answer

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

Question 9

Bison Corp. issues a 5 year 8%, $60,000 note payable on March 1. The terms of the note include monthly blended principal and interest payments of $1,217. The entry to record the second instalment payment will show a:
A) debit to Interest Expense for $400.
B) credit to Interest Expense for $395.
C) debit to Notes Payable of $822.
D) debit to Cash for $1,217.

Accepted Answer

The second installment payment will include a debit to Notes Payable for the principal portion of the payment. The interest portion of the first payment was $400 (8% annual interest on $60,000, divided by 12 months), so the principal portion was $817 ($1,217 - $400). For the second payment, the interest will be calculated on the reduced principal balance, resulting in a slightly lower interest expense and a higher principal reduction. Therefore, the debit to Notes Payable will be approximately $822.

Question 10

Jake Company is involved in a lawsuit. The liability which could arise as a result of this lawsuit should be recorded on the books if the probability of Jake owing money as a result of the lawsuit is which of the following?
A) Probable and the amount can be reasonably estimated.
B) Reasonably possible and the amount can be reasonably estimated.
C) Probable and the amount cannot be reasonably estimated.
D) Remote and the amount can be reasonably estimated.

Accepted Answer

According to accounting standards, a liability should be recorded on the books if it is probable (i.e., more likely than not) that an outflow of resources will be required to settle the obligation and the amount can be reasonably estimated. Option B is incorrect because a liability is not recorded when the probability is only reasonably possible. Option C is incorrect because the amount must be reasonably estimated. Option D is incorrect because a liability is not recorded when the probability is remote.

Question 11

In 2013, P Co reported an increase in trade receivables of $303 million, and an increase in inventory of $284 million. They also experienced an increase in short-term borrowings of $3,921 million and an increase in trade payables of $253 million. Calculate the net cash effect of these changes.
A) $4,761 million decrease
B) $4,761 million increase
C) $3,587 million increase
D) $3,587 million decrease

Accepted Answer

The answer of In 2013, P Co reported an increase...

Question 12

Future Income taxes are caused by which of the following?
A) Differences in IFRS and ITA rules pertaining to when revenue and expenses should be recognized.
B) Accounting errors.
C) The fact that the value of one country's currency relative to that of another can change over time.
D) A company's inability to pay income tax due in a particular tax year.

Accepted Answer

Future income taxes arise due to differences in the timing of recognition of revenue and expenses between IFRS and ITA, which can lead to deferred tax liabilities or assets. Accounting errors may lead to adjustments in current or prior periods, but do not create future income taxes. Currency fluctuations may impact financial statements, but do not create future income taxes. Inability to pay income tax due in a particular year may lead to penalties or interest charges, but does not create future income taxes.

Question 13

Current liabilities are short-term obligations that will be paid within the current operating cycle of the business or within two years of the statement of financial position date, whichever is longer.

Accepted Answer

Current liabilities are typically obligations that are expected to be settled within one year or the operating cycle, whichever is longer, not two years.

Question 14

On September 1, Hauser Corp. borrowed $70,000 from the Metro Bank for five months at 9%. Interest is payable at maturity. The entry Hauser must make on December 31, its year-end, assuming no prior accruals is:
A) 
B)

C) 
D)

Accepted Answer

The interest for 5 months at 9% would be (70,000 x 0.09 x 5/12) = $2,625.

Since interest is payable at maturity, no prior accruals would have been made.

Therefore, the entry Hauser Corp. must make on December 31 is to record the payment of the loan and the interest due.

The entry would be:

Debit: Notes Payable - $70,000
Debit: Interest Expense - $2,625
Credit: Cash - $72,625

Question 15

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

Accepted Answer

A current liability is a debt that is expected to be paid within one year or one operating cycle, whichever is longer. This includes debts that are due in a few months or even a few days, as long as they will be paid off within the next year. Choices A, C, and D are incorrect because they do not accurately define a current liability.

Question 16

Changes in trade payables and accrued liabilities affect cash flows from operating activities.

Accepted Answer

Changes in trade payables and accrued liabilities affect the cash flows from operating activities, as they represent cash payments that will need to be made in the future. An increase in trade payables or accrued liabilities indicates that more cash will be paid out in the future, thus reducing cash flows from operating activities. Conversely, a decrease in trade payables or accrued liabilities indicates that less cash will be paid out in the future, thus increasing cash flows from operating activities.

Question 17

Property tax payable is classified as a long-term liability because it is related to property, a noncurrent asset.

Accepted Answer

Property tax payable is a current liability because it is expected to be paid within a year. While property itself may be a noncurrent asset, the tax related to it is not classified as a long-term liability.

Question 18

If a company intends to refinance a liability that is due within one year, that liability should not be classified as a current liability.

Accepted Answer

A current liability is a liability that is due within one year. If a company intends to refinance a liability that is due within one year, that liability should not be classified as a current liability because it is not expected to be paid within one year.

Question 19

In 2013, P Co reported a trade payables turnover ratio of 2.49 and C Co reported a turnover ratio of 1.74 for that same year. Which of the following statements is true?
A) On a comparative basis to cost of goods sold, P Co carries more in average payables than does C Co.
B) C Co pays their vendors in a more timely manner than P Co pays their vendors.
C) It is unclear if P Co pays their vendors in a more timely manner than C Co.
D) P Co took approximately 147 days while C Co took about 210 days to pay vendors.

Accepted Answer

The answer of In 2013, P Co reported a trade...

Question 20

A note payable must always be paid before an account payable.

Accepted Answer

A note payable and an account payable have different terms and due dates depending on the agreement made between the parties involved. There is no rule that a note payable must always be paid before an account payable.

Quiz 10: Reporting and Interpreting Bond Securities

Notes payable usually require the borrower to pay interest.

When a company increases trade payables from one year to the next, what is the effect on cash flows?

The "trade payables" account should generally be used only for trade payables (obligations owed to suppliers in the normal course of business) which relate to the purchase of goods and services.

An employee receives a bi-weekly gross salary of $2,000. Income tax is $218, CPP is $99, EI is $36, and union dues are $50. What is the amount of the employee's take home pay (net pay) on a bi-weekly basis?

Match the liabilities with their usual classification on the statement of financial position by entering the appropriate letters in the spaces. Usual Classification A. Current liability B. Long-term liability C. Current or long-term liability D. None of the above Liabilities

An accrued expense arises because an expense item has been prepaid, but the related expense has not been incurred as yet.

A company's quick ratio:

The following is a partial list of account balances from the books of Ellsworth Enterprise at the end of 20B: Based solely upon these balances, what amount of current liabilities should appear on Ellsworth's 20B year-end statement of financial position? A) $5,400 B) $4,800 C) $4,300 D) $3,900

Bison Corp. issues a 5 year 8%, $60,000 note payable on March 1. The terms of the note include monthly blended principal and interest payments of $1,217. The entry to record the second instalment payment will show a:

Jake Company is involved in a lawsuit. The liability which could arise as a result of this lawsuit should be recorded on the books if the probability of Jake owing money as a result of the lawsuit is which of the following?

In 2013, P Co reported an increase in trade receivables of $303 million, and an increase in inventory of $284 million. They also experienced an increase in short-term borrowings of $3,921 million and an increase in trade payables of $253 million. Calculate the net cash effect of these changes.

Future Income taxes are caused by which of the following?

Current liabilities are short-term obligations that will be paid within the current operating cycle of the business or within two years of the statement of financial position date, whichever is longer.

On September 1, Hauser Corp. borrowed $70,000 from the Metro Bank for five months at 9%. Interest is payable at maturity. The entry Hauser must make on December 31, its year-end, assuming no prior accruals is:

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

Changes in trade payables and accrued liabilities affect cash flows from operating activities.

Property tax payable is classified as a long-term liability because it is related to property, a noncurrent asset.

If a company intends to refinance a liability that is due within one year, that liability should not be classified as a current liability.

In 2013, P Co reported a trade payables turnover ratio of 2.49 and C Co reported a turnover ratio of 1.74 for that same year. Which of the following statements is true?

A note payable must always be paid before an account payable.