Question 1

If a company purchases $3,000 worth of inventory with terms of 1/15, n30 and pays within 15 days, then the amount paid to the seller would be
A) $3,030
B) $2,550
C) $2,970
D) $3,000

Accepted Answer

The terms 1/15, n30 mean a 1% discount is available if paid within 15 days. Therefore, the company pays $3,000 - ($3,000 * 0.01) = $2,970.

Question 2

The landlord records the security deposit she collects from the tenant as an
A) asset
B) contra liability
C) contingent liability
D) liability

Accepted Answer

D

Question 3

All of the following are characteristics of current liabilities except:
A) they may involve estimated amounts.
B) they are due within one year or within the operating cycle, whichever is longer.
C) they may be replaced with a new short-term liability rather than being paid in cash.
D) all three of the above are characteristic of current liabilities.

Accepted Answer

All three options A, B, and C are characteristics of current liabilities.

Question 4

You just purchased an automobile for $19,450 and must decide how to pay for it. Your local bank has granted you a five-year loan. Annual payments on the loan will be made at the end of each year and the amount of the loan payments, which include principal and interest, is $5,000 per year. What is the interest rate that is being charged on the loan?

Accepted Answer

The answer of You just purchased an automobile for $19,450...

Question 5

Almost all current liabilities appear within the Activities category of the Statement of Cash Flows.

Accepted Answer

The answer of Almost all current liabilities appear within the...

Question 6

In the statement of cash flows, an increase in a current liability will appear as an increase in the Financing category.

Accepted Answer

An increase in a current liability will appear as a decrease in cash in the Operating category of the statement of cash flows, not the Financing category. Current liabilities such as accounts payable and accrued expenses are typically included in the Operating activities section of the statement of cash flows.

Question 7

On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note. If the company's fiscal year ends as of December 31, Lawrence should make an entry to increase
A) interest payable, $1,050.
B) prepaid interest, $3,150.
C) notes payable, $1,050.
D) interest expense, $4,200.

Accepted Answer

Interest payable should be increased by $1,050, which is the interest accrued from October 1 to December 31 (3 months) on the $60,000 note at a 7% annual rate.

Question 8

What is the purpose of the current ratio? How does the quick ratio differ from the current ratio?

Accepted Answer

The answer of What is the purpose of the current...

Question 9

Which of the following is an example of a contingent liability?
A) A corporate long-term employment contract with the chief executive officer.
B) A lawsuit pending against a restaurant chain for improper preparation of food.
C) A liability for notes payable with interest included in the face amount.
D) The liability for future warranty repairs on computers sold during the current period.

Accepted Answer

A contingent liability is a potential obligation that may arise depending on the outcome of a future event. A pending lawsuit is an example of a contingent liability because the obligation to pay depends on the outcome of the lawsuit.

Question 10

An obligation that involves an existing condition for which the outcome is not known with certainty and depends on some event that will occur in the future is call an .

Accepted Answer

The answer of An obligation that involves an existing condition...

Question 11

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. A company will have to pay a $50,000 liability in 4 years. How much must be deposited now into a bank account earning 8% compounded semiannually to fully fund the future payment?
A) $35,500
B) $36,550
C) $36,523
D) $34,000

Accepted Answer

The answer of The solution to this problem requires time...

Question 12

The current maturity of long-term debt is a current liability.

Accepted Answer

The current maturity of long-term debt refers to the portion of a long-term debt that is due within the next year, and it is classified as a current liability on the balance sheet because it represents an obligation that must be paid within the current operating cycle.

Question 13

Warranty expenses are the result of the selling company's estimate of the number of units sold during the current
year that may become defective and need repair or replacement during the warranty period.

Accepted Answer

Warranty expenses are estimated based on the number of units sold during the current year that are expected to require repair or replacement during the warranty period.

Question 14

The of a single sum represents the value today of a single amount to be received or paid at a future time.

Accepted Answer

The answer of The of a single sum represents the...

Question 15

What is meant by the term "current maturities of long-term debt" in the current liabilities section of the balance sheet?

Accepted Answer

The answer of What is meant by the term "current...

Question 16

A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400, then the current ratio would be
A) 1.75 to 1
B) 3.50 to 1
C) 2.25 to 1
D) 3.00 to 1

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. In this case, current assets are $200 + $500 + $700 = $1,400. Current liabilities are $400. Therefore, the current ratio is $1,400 / $400 = 3.50 to 1.

Question 17

Tyson Trucking won a settlement in a lawsuit and was offered four different payment alternatives by the defendant's insurance company. The interest rate is 6%. Ignoring tax considerations, which of the following four alternatives has the highest present value? Support your answer with the appropriate calculations.
I $150,000 now
II $45,000 per year for the next 4 years payment made at the end of the year
$5,000 now and then $20,000 per year for the next 10 years payment made at the end of
III
the year
IV $5,000 now and then $5,000 per year for the next 10 years payment made at the end of the year plus a lump-sum payment of $200,000 at the end of the eleventh year

Accepted Answer

The answer of Tyson Trucking won a settlement in a...

Question 18

At December 31, 2014, an amount due on December 31, 2015, would be classified as an
_______________________ liability.

Accepted Answer

The answer of At December 31, 2014, an amount due...

Question 19

Cole Company had the following accounts and balances on December 31, 2015:
  REQUIRED:
1. Compute Cole's working capital.
2. Compute Cole's current ratio. What does this ratio indicate about Cole's condition?

Accepted Answer

The answer of Cole Company had the following accounts and...

Question 20

The interest earned on the principal amount only is referred to as .

Accepted Answer

The answer of The interest earned on the principal amount...

Quiz 9: Current Liabilities, Contingencies, and the Time Value of Money

If a company purchases $3,000 worth of inventory with terms of 1/15, n30 and pays within 15 days, then the amount paid to the seller would be

The landlord records the security deposit she collects from the tenant as an

All of the following are characteristics of current liabilities except:

Almost all current liabilities appear within the Activities category of the Statement of Cash Flows.

In the statement of cash flows, an increase in a current liability will appear as an increase in the Financing category.

On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note. If the company's fiscal year ends as of December 31, Lawrence should make an entry to increase

What is the purpose of the current ratio? How does the quick ratio differ from the current ratio?

Which of the following is an example of a contingent liability?

An obligation that involves an existing condition for which the outcome is not known with certainty and depends on some event that will occur in the future is call an .

The current maturity of long-term debt is a current liability.

Warranty expenses are the result of the selling company's estimate of the number of units sold during the current year that may become defective and need repair or replacement during the warranty period.

The of a single sum represents the value today of a single amount to be received or paid at a future time.

What is meant by the term "current maturities of long-term debt" in the current liabilities section of the balance sheet?

A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400, then the current ratio would be

At December 31, 2014, an amount due on December 31, 2015, would be classified as an _______________________ liability.

Cole Company had the following accounts and balances on December 31, 2015: REQUIRED: 1. Compute Cole's working capital. 2. Compute Cole's current ratio. What does this ratio indicate about Cole's condition?

The interest earned on the principal amount only is referred to as .