Question 1

A liability, to be reported on the statement of financial position, must have a fixed, known amount to be paid in the future.

Accepted Answer

A liability can have an estimated or contingent amount to be paid in the future, and still be reported on the statement of financial position. Examples include estimated warranty claims and pending lawsuits with uncertain settlement amounts. However, the liability must be probable and the amount reasonably estimable for it to be reported on the statement of financial position.

Question 2

A quick ratio that is high according to an industry average might mean the company may have excessive inventory levels or slow moving inventory items.

Accepted Answer

Inventory is not a quick asset.

Question 3

The balance in the Future Income Tax Asset account always will reverse or "turn around" over a period of one or more future periods if no new differences originate.

Accepted Answer

This is because the Future Income Tax Asset account represents temporary differences between accounting and tax reporting and these differences will eventually reverse as the underlying transactions or events occur.

Question 4

Hallberg Company reported total assets of $165,000; current assets of $22,000; total shareholders' equity of $57,000; and non current liabilities of $85,000.
Required: (show computations). Compute Working Capital. $________

Accepted Answer

The answer of Hallberg Company reported total assets of $165,000;...

Question 5

The trade payables turnover ratio shows how quickly management is paying its trade creditors and is considered to be a measure of liquidity.

Accepted Answer

The trade payables turnover ratio measures how quickly a company pays its suppliers, which is related to its ability to meet its financial obligations in a timely manner. Therefore, it is considered a measure of liquidity.

Question 6

The trade payables turnover ratio can be manipulated by management through paying off more of their vendors at the end of the year, even though they have been paying late all year, so their ratio would look acceptable.

Accepted Answer

By paying off vendors at the end of the year, management can increase the numerator of the trade payables turnover ratio, which will make the ratio look better. However, this would not necessarily reflect the company's true payment patterns throughout the year.

Question 7

In the recognition of revenues and expenses, temporary and permanent differences between the financial statements and the tax return will result in a Future Income Tax Asset.

Accepted Answer

The answer of In the recognition of revenues and expenses,...

Question 8

The trade payables turnover ratio tests how quickly our credit customers pay their bills.

Accepted Answer

The trade payables turnover ratio measures how quickly a company pays its suppliers, not how quickly credit customers pay their bills.

Question 9

The quick ratio is the dollar difference between total assets and total liabilities.

Accepted Answer

The quick ratio, also known as acid-test ratio, measures a company's ability to meet short-term obligations using its most liquid assets. It is calculated by subtracting inventories and prepaid expenses from current assets, and then dividing the result by current liabilities. Therefore, the quick ratio has nothing to do with the dollar difference between total assets and total liabilities.

Question 10

Interest expense is reported under Other Expenses in the statement of earnings.

Accepted Answer

Interest expense is typically reported as a separate line item under Other Expenses in the statement of earnings.

Question 11

Mild Company borrowed $5,000 on an 8% (annual rate) interest-bearing note payable on March 1, 20C. The maturity date of the note (and payment of all interest) is September 1, 20D. The accounting period ends December 31. Give the entry for each of the following dates. Assume simple interest. Round to the nearest dollar.

Accepted Answer

The answer of Mild Company borrowed $5,000 on an 8%...

Question 12

Current liabilities are expected to be paid within one year.

Accepted Answer

Current liabilities are those that are expected to be paid within one year or the operating cycle of a business, whichever is longer.

Question 13

Contingencies are disclosed in a note if it is probable that cash of other assets will be required to settle the obligation, or if the amount of the obligation cannot be measured with sufficient reliability.

Accepted Answer

The answer of Contingencies are disclosed in a note if...

Question 14

The Canada Pension Plan contribution is a matching contribution with a portion paid by both the employer and the employee.

Accepted Answer

The Canada Pension Plan (CPP) contribution is a mandatory retirement savings plan for most working Canadians. The contribution is split between the employer and the employee, with both parties making matching contributions. Currently, the contribution rate is 5.25% of eligible earnings, up to a maximum annual contribution.

Question 15

Unearned revenues should be classified as Other Revenues on the statement of earnings.

Accepted Answer

Unearned revenues are a liability since they represent funds received for goods or services not yet provided. They should not be classified as revenues until the goods or services are actually provided. Once the goods or services are provided, the liability is converted to revenue and it is then classified as such on the statement of earnings.

Question 16

If a company's fiscal year is the same as the year used for property tax purposes, there should be no prepaid property tax on its year-end financial statements but there may be a property tax liability.

Accepted Answer

If the fiscal year and property tax year are the same, there should be no prepaid property tax on the year-end financial statements because the expense has already been incurred and recorded. However, there may still be a property tax liability that needs to be recorded on the financial statements.

Question 17

Under IFRS, a distinction is made between provisions and contingencies. Provisions are estimated liabilities that are reported on the statement of financial position whereas contingencies are not recognized as liabilities because of the uncertainty of the amount and timing of future payments.

Accepted Answer

This statement correctly describes the distinction between provisions and contingencies under IFRS.

Question 18

The trade payables turnover ratio can indicate if a company is experiencing cash flow problems.

Accepted Answer

A low trade payables turnover ratio can suggest that a company is taking longer to pay its suppliers, indicating potential cash flow issues.

Question 19

Time value of money is based on the concept that money received today is worth more than money to be received a year from today.

Accepted Answer

This is because money received today can be invested or put to work immediately, earning interest or returns over time, while money received in the future has not yet had the opportunity to generate any additional value. Additionally, factors such as inflation can reduce the purchasing power of money over time, further increasing the importance of receiving money sooner rather than later.

Question 20

If any portion of a long-term debt is to be paid in the next year, the entire debt should be classified as a current liability.

Accepted Answer

The answer of If any portion of a long-term debt...

Quiz 10: Reporting and Interpreting Bond Securities