Question 1

From the following list, identify whether the change in the account balance during the year would be reported as an operating O, an investing I, or a financing F activity or not separately reported on the statement of cash flows N. Assume that the indirect method is used to determine the cash flows from operating activities.
-Notes payable
A)O - Operating
B)I - Investing
C)F - Financing
D)N - Not separately reported on the Statement of Cash Flows

Accepted Answer

Notes payable represents borrowed money, which is a financing activity. The increase or decrease in notes payable during the year would be reported as a financing activity on the statement of cash flows.

Question 2

Accountants need not worry about calculations based upon the concept of the time value of money.

Accepted Answer

The concept of time value of money is a crucial aspect of accounting calculations, which considers the present value of future cash flows and the effect of inflation on money over time. Therefore, accountants must be well-versed in these concepts to accurately calculate financial figures.

Question 3

From the following list, identify whether the change in the account balance during the year would be reported as an operating O, an investing I, or a financing F activity or not separately reported on the statement of cash flows N. Assume that the indirect method is used to determine the cash flows from operating activities.
-Other accrued liabilities
A)O - Operating
B)I - Investing
C)F - Financing
D)N - Not separately reported on the Statement of Cash Flows

Accepted Answer

Other accrued liabilities are typically considered an operating activity as they represent expenses that have been recognized but have not been paid yet. Any change in the balance during the year would therefore be reported as an operating activity on the statement of cash flows.

Question 4

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet.
-An amount of money owed in 2015 to a creditor as an annual installment payment on a ten-year note, due June 30, 2020.
A)Current liability
B)Long-term liability

Accepted Answer

The installment payment due in 2015 is a current liability because it is due within one year from the balance sheet date.

Question 5

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet.
-An amount of money owed to the federal government based on the company's annual income.
A)Current liability
B)Long-term liability

Accepted Answer

The amount owed to the federal government based on the company's annual income is typically paid within a year, making it a current liability.

Question 6

A possible loss from lawsuit is not reported on the balance sheet as a current liability.

Accepted Answer

A possible loss from a lawsuit is not reported as a liability until it becomes probable and its amount can be reasonably estimated, so it should not be listed as a current liability on the balance sheet.

Question 7

From the following list, identify whether the change in the account balance during the year would be reported as an operating O, an investing I, or a financing F activity or not separately reported on the statement of cash flows N. Assume that the indirect method is used to determine the cash flows from operating activities.
-Taxes payable
A)O - Operating
B)I - Investing
C)F - Financing
D)N - Not separately reported on the Statement of Cash Flows

Accepted Answer

Taxes payable are typically considered an operating activity because they relate to taxes owed on the company's operations.

Question 8

From the following list, identify whether the change in the account balance during the year would be reported as an operating O, an investing I, or a financing F activity or not separately reported on the statement of cash flows N. Assume that the indirect method is used to determine the cash flows from operating activities.
-Salaries and wages payable
A)O - Operating
B)I - Investing
C)F - Financing
D)N - Not separately reported on the Statement of Cash Flows

Accepted Answer

Salaries and wages payable is a liability account that represents the amount of employee salaries and wages that have been earned but not yet paid as of the end of the accounting period. The change in this account balance would be reported as an operating activity on the statement of cash flows because it is related to the company's core business operations (i.e. paying employees for their work).

Question 9

From the following list, identify whether the change in the account balance during the year would be reported as an operating O, an investing I, or a financing F activity or not separately reported on the statement of cash flows N. Assume that the indirect method is used to determine the cash flows from operating activities.
-Accounts payable
A)O - Operating
B)I - Investing
C)F - Financing
D)N - Not separately reported on the Statement of Cash Flows

Accepted Answer

Accounts payable is an operating activity, as it relates to the cash outflows for expenses incurred during the year that were not yet paid to suppliers at the end of the period. This would be reported as a part of the operating activities section on the statement of cash flows using the indirect method.

Question 10

Simple interest on a loan can be calculated by multiplying the principal by the annual interest rate expressed as a percentage of the time in years or a fraction of the time in years.

Accepted Answer

This is the correct formula for calculating simple interest.

Question 11

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet.
-An amount of money owed for years 2016 to 2020 to a creditor as annual installment payments on a ten-year note, due June 30, 2020.
A)Current liability
B)Long-term liability

Accepted Answer

The amount owed for years 2016 to 2020 is a long-term liability as it is due beyond the current year (2014) and will be paid in installments over several years until 2020.

Question 12

All of the following statements are true except:
A) under IFRS, an unclassified balance sheet based on the order of liquidity is acceptable only when it provides more reliable information than a classified one.
B) U.S. standards require a classified balance sheet with liabilities in order by size or by order of liquidity.
C) IFRS require companies to present classified balance sheets.
D) U.S. standards do not require a classified balance sheet.

Accepted Answer

The answer of All of the following statements are true...

Question 13

You just won the lottery. You can take your $2 million in a lump sum today, or you can receive $220,000 per year over the next 12 years. Assuming a 6% interest rate, which would you prefer, ignoring tax considerations?

Accepted Answer

The answer of You just won the lottery. You can...

Question 14

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet.
-Estimated warranty payable by June 30, 2015.
A)Current liability
B)Long-term liability

Accepted Answer

Estimated warranty payable by June 30, 2015 is a current liability because it is expected to be settled within one year from the balance sheet date.

Question 15

When borrowing money to be repaid in regular future payments, the payment is based on the present value of the loan, the interest rate and the length of the loan.

Accepted Answer

This is the basic principle of calculating loan payments in finance.

Question 16

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet.
-An amount of money owed to a creditor on a note due August 15, 2022.
A)Current liability
B)Long-term liability

Accepted Answer

The note is due on August 15, 2022, which is beyond one year from the balance sheet date of December 31, 2014, classifying it as a long-term liability.

Question 17

From the following list, identify whether the change in the account balance during the year would be reported as an operating O, an investing I, or a financing F activity or not separately reported on the statement of cash flows N. Assume that the indirect method is used to determine the cash flows from operating activities.
-Current maturities of long-term debt
A)O - Operating
B)I - Investing
C)F - Financing
D)N - Not separately reported on the Statement of Cash Flows

Accepted Answer

Current maturities of long-term debt are reported as a financing activity on the statement of cash flows.

Question 18

Contingent assets may be disclosed in the notes if probable and reasonably estimable.

Accepted Answer

The answer of Contingent assets may be disclosed in the...

Question 19

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet.
-An amount of money owed to a supplier based on the terms 2/20, n/40, for which no note was executed.
A)Current liability
B)Long-term liability

Accepted Answer

The account is a current liability because it is expected to be paid within 40 days, which is within the normal operating cycle of the business. The 2/20, n/40 refers to a discount offered if paid within 20 days, indicating that the business intends to pay it off in the short-term.

Question 20

Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion. It is probable that Boston Trombley will lose the suit. The litigation is anticipated to continue for several years, but no reasonable estimate can be made at this time regarding ultimate financial responsibility. This situation is an example of:
A) an estimated liability that must appear in Boston Trombley Company's balance sheet.
B) a loss contingency that should be disclosed in the notes to Boston's financial statements.
C) an $3 billion expense to be recorded in the income statement during the year of the suit.
D) none of these. No accrual or disclosure is required in Boston's financial statements.

Accepted Answer

Since it is probable that Boston Trombley will lose the lawsuit but no reasonable estimate of the financial responsibility can be made, it should be disclosed as a loss contingency in the notes to the financial statements.

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

Accountants need not worry about calculations based upon the concept of the time value of money.

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet. -An amount of money owed in 2015 to a creditor as an annual installment payment on a ten-year note, due June 30, 2020.

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet. -An amount of money owed to the federal government based on the company's annual income.

A possible loss from lawsuit is not reported on the balance sheet as a current liability.

Simple interest on a loan can be calculated by multiplying the principal by the annual interest rate expressed as a percentage of the time in years or a fraction of the time in years.

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet. -An amount of money owed for years 2016 to 2020 to a creditor as annual installment payments on a ten-year note, due June 30, 2020.

All of the following statements are true except:

You just won the lottery. You can take your $2 million in a lump sum today, or you can receive $220,000 per year over the next 12 years. Assuming a 6% interest rate, which would you prefer, ignoring tax considerations?

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet. -Estimated warranty payable by June 30, 2015.

When borrowing money to be repaid in regular future payments, the payment is based on the present value of the loan, the interest rate and the length of the loan.

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet. -An amount of money owed to a creditor on a note due August 15, 2022.

Contingent assets may be disclosed in the notes if probable and reasonably estimable.

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet. -An amount of money owed to a supplier based on the terms 2/20, n/40, for which no note was executed.