Question 1

An annuity is a series of equal payments made at equal intervals in the future.

Accepted Answer

An annuity is defined as a series of equal payments made at equal intervals in the future.

Question 2

The liability for a premium offer estimated to be redeemed is not a current liability.

Accepted Answer

The liability for a premium offer estimated to be redeemed is considered a current liability because it represents an obligation that the company expects to settle within its normal operating cycle, typically within one year.

Question 3

A contingent liability is recorded if it is probable and can be reasonably estimated.

Accepted Answer

A contingent liability is only recorded on the balance sheet if it is both probable (meaning it is likely to occur) and the amount can be reasonably estimated. If either of these criteria is not met, the contingent liability may be disclosed in the footnotes of the financial statements, but it would not be recorded on the balance sheet.

Question 4

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 statement is true. The present value of the loan, the interest rate, and the length of the loan all play a role in determining the amount of each future payment. The present value is used to calculate the initial loan amount that will need to be repaid, and the interest rate and length of the loan are used to determine the size and number of payments required to repay the loan in full.

Question 5

Advance ticket sales for a concert next month are a current liability.

Accepted Answer

Advance ticket sales represent revenue that has not yet been earned, so they are considered a current liability until the concert takes place and the revenue is earned.

Question 6

In a compound interest problem,if you know the future value,the present value,and the number of periods,then you can solve for the interest rate.

Accepted Answer

This is possible by using the formula for compound interest: FV = PV * (1 + r)^n, where FV is the future value, PV is the present value, r is the interest rate and n is the number of periods. By rearranging this formula, you can solve for r: r = (FV/PV)^(1/n) - 1.

Question 7

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 formula for calculating simple interest.

Question 8

The present value is the value today of a single amount to be paid or received at a specific date in the future.

Accepted Answer

This is the definition of present value, which is the process of finding what a specific amount of money that is due in the future is worth today.

Question 9

Compound interest is a repeated calculation of the interest only on the principal over certain periods of time.

Accepted Answer

Compound interest is calculated on the initial principal and also on the accumulated interest of previous periods, not just on the principal alone.

Question 10

If you plan to invest $10,000 and want to determine how much will be accumulated in six years if you earn interest at 7% per year,you would calculate this using the future value of an annuity.

Accepted Answer

To calculate how much will be accumulated in six years if you earn interest at 7% per year on a single investment of $10,000, you would use the future value of a single sum formula, not the future value of an annuity formula. The future value of an annuity formula is used when dealing with a series of equal, periodic payments or investments.

Question 11

When a company uses coupon or premium offers in conjunction with the sale of its products,there is no need to record any contingent liability.

Accepted Answer

When a company offers coupons or premium offers, there is a possibility that customers will redeem them, causing a reduction in revenue. This creates a contingent liability, and the company should record an estimated liability for future redemptions.

Question 12

For a given contingent liability,a company has the choice of either recording it on the balance sheet or disclosing it in the notes.

Accepted Answer

A contingent liability is only recorded on the balance sheet if it is probable and the amount can be reasonably estimated; otherwise, it is disclosed in the notes.

Question 13

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

Accepted Answer

Contingent assets are disclosed in the notes to the financial statements only if they are probable and can be reasonably estimated, but they are not recognized in the financial statements until they are virtually certain.

Question 14

Curtain Corp.stands to receive a sufficient cash settlement from a lawsuit.Curtain needs to record this on its accounting records.

Accepted Answer

Curtain Corp. should not record the settlement as an asset until it is realized or realizable and earned, according to the accounting principle of conservatism.

Question 15

$2,000 invested today at 12% with compound interest will yield $2,480 in two years.

Accepted Answer

Compounding annually at 12%, $2,000 will grow to approximately $2,518.40 in two years, not $2,480. Calculation: $2,000 * (1 + 0.12)^2 = $2,518.40.

Question 16

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

Accepted Answer

Accountants need to take into consideration the time value of money in order to accurately calculate and present financial information. This concept considers the fact that money has a different value over time due to inflation, interest rates, and other factors. Not considering the time value of money can result in inaccurate financial statements and decision-making.

Question 17

If the annual interest is 12%,but the compounding is done quarterly,then the interest rate is 4% per period.

Accepted Answer

When the annual interest rate is 12% and compounding is done quarterly, the interest rate per period is not 4% but rather 3%, because the annual rate is divided by the number of compounding periods per year (12% / 4 = 3%).

Question 18

The terms referring to contingencies differ between U.S.GAAP and IFRS.

Accepted Answer

The terminology used for contingencies in U.S.GAAP and IFRS are different. In U.S.GAAP, contingencies are referred to as "loss contingencies," while in IFRS, they are referred to as "provisions."

Question 19

International accounting standards use the term provision for those contingent items that must be recorded on the balance sheet.

Accepted Answer

International accounting standards define provisions as liabilities of uncertain timing or amount, where the timing or amount of the obligation is uncertain and requires estimation. Provisions must be recognized in the balance sheet.

Question 20

Redfern Company has current assets of $150,000 and current liabilities of $60,000.How much inventory could it purchase on account and achieve its minimum desired current ratio of 2 to 1?
A)$10,000
B)$20,000
C)$30,000
D)$40,000

Accepted Answer

The answer of Redfern Company has current assets of $150,000...

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