Question 1

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?

Accepted Answer

The correct amount of current liabilities is $4,800. This is determined by summing up the balances of accounts that are classified as current liabilities, such as accounts payable, short-term debt, and other similar obligations due within one year.

Question 2

Deferred revenue is another term for which of the following?
A.Prepaid expenses.
B.Sales revenue.
C.Trade payables.
D.Unearned revenue.

Accepted Answer

On July 1,20A,Wilson,Inc.,borrowed $12,000 from First Bank on a one year,8% note payable.Interest is payable on December 31,20A and on June 30,20B,the due date of the note.

Question 3

Which of the following most likely would be classified as a current liability?

Accepted Answer

Dividends payable is a current liability since it represents a debt that is expected to be paid within the current accounting period.

Bonds payable and mortgage payable are long-term liabilities and are not expected to be paid within the current accounting period.

Three-year notes payable could be a current liability depending on the terms of the agreement. If the maturity date is within the current accounting period, it could be classified as a current liability.

Question 4

Wang's Pharmacy has collected $750 in provincial sales taxes (PST)during March.If provincial sales taxes must be remitted to the provincial government monthly,what entry will Wang's Pharmacy make to show the March remittance?

Accepted Answer

The answer of Wang's Pharmacy has collected $750 in provincial...

Question 5

A company has a current ratio of 2.4 before paying off a large current liability with cash.Following this payment,what is the current ratio?

Accepted Answer

Paying off a current liability with cash reduces both current assets and current liabilities by the same amount. Since the current ratio is current assets divided by current liabilities, reducing both by the same amount will increase the ratio if the initial ratio is greater than 1.

Question 6

Liquidity ratios measure a company's

Accepted Answer

Liquidity ratios measure a company's ability to pay off short-term debt.

Question 7

Fundamentally,liabilities are measured in conformity with which of the following?

Accepted Answer

Liabilities are measured at their cost, which is the amount of cash or other assets that were given up to acquire the liability.

Question 8

In 2011,P Co reported a current ratio of 1.47 and in 2012,0.55.In examining their statement of financial position for 2012,they disclosed current assets of $4,362 million and current liabilities of $7,914 million.In 2011,they had no short-term borrowings but they disclosed $3,921 million in short-term borrowings for 2012.What would P Co's current ratio have been in 2012 if they had not borrowed those funds?

Accepted Answer

The current ratio formula is as follows:

Current Ratio = Current Assets / Current Liabilities

Thus, we can calculate the current ratio for 2012 before borrowing the funds as:

Current Ratio = 4,362 / 7,914 = 0.55

Therefore, the current ratio in 2012 without borrowing funds would be 0.55.

However, this ratio cannot be compared directly with the 2011 ratio of 1.47 since we do not know the amount of current liabilities in 2011. Therefore, we cannot calculate the average current liabilities and use it in the denominator to compute a comparable ratio.

To answer the question, we must subtract the amount of short-term borrowings from the current liabilities for 2012 to see what the ratio would have been without the borrowing:

Current Ratio = 4,362 / (7,914 - 3,921) = 4,362 / 2,993 = 1.46 (approx.)

Therefore, the current ratio in 2012 without borrowing the funds would be approximately 1.46. The closest answer choice is C with a current ratio of 1.09, which is much lower than the actual ratio of 0.55 with borrowing.

Question 9

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

Accepted Answer

Current liabilities are debts that are expected to be paid off within one year or within the operating cycle of a business.

Question 10

Which of the following usually is not a current liability?

Accepted Answer

Pension obligations are typically long-term liabilities that do not become due within the current year. The other options listed are all examples of current liabilities.

Question 11

Which of the following is not a typical example of a current liability?

Accepted Answer

A mortgage payable is a long-term liability, not a current liability. The other options are all examples of current liabilities.

Question 12

Which of the following statements is false relating to payroll taxes?

Accepted Answer

The credit to wages payable is usually less than the debit to wages expense because wages payable is the net amount after deductions like taxes and other withholdings.

Question 13

In 2012,The W D Company reported current assets of $10,200 million,total assets of $43,679 million,current liabilities of $7,707 million,and total liabilities of $22,704 million.What was their current ratio for 2012?

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. For W D Company in 2012, the current ratio is $10,200 million / $7,707 million = 1.32.

Question 14

Y Co had a current ratio of 4.44 in 2011 and 5.84 in 2012.Which of the following would not cause the ratio to increase?

Accepted Answer

An increase in long-term liabilities would not affect the current ratio, as it only takes into account current assets and liabilities. Therefore, it would not cause the ratio to increase.

Question 15

On September 1,20A,Dawn Equipment signed a one-year,7% interest-bearing note payable for $5,000.Assuming that Dawn maintains its books on a calendar year basis,what is the amount of interest expense that should be reported in the 20B income statement for this note (rounded to the nearest dollar)?

Accepted Answer

Interest expense = Principal × Rate × Time= $5,000 × 7% × 4/12= $233.33= $233 (rounded to the nearest dollar)

Question 16

Warner Company borrowed $25,000 cash on November 1,20A,and signed a six-month,12% interest-bearing note payable with interest payable at maturity.What is the amount of accrued interest payable that should be shown on the 20A statement of financial position?

Accepted Answer

The interest for two months (November and December) needs to be accrued. The formula for interest is Principal x Rate x Time. Here, $25,000 x 12% x (2/12) = $500.

Question 17

The relationship between current assets and current liabilities is

Accepted Answer

The relationship between current assets and current liabilities is useful in evaluating a company's liquidity as it shows the company's ability to meet its short-term obligations. It helps in determining if the company has enough liquidity to pay off its short-term debts as they come due.

Question 18

Carly Design Inc.received its annual property tax bill for $8,400 in January.It was paid when due on March 31.Carly Design's year end is Dec 31.The Dec 31 account balances should be

Accepted Answer

The answer of Carly Design Inc.received its annual property tax...

Question 19

How is the current ratio computed?

Accepted Answer

The current ratio is computed by dividing current assets by current liabilities. This ratio indicates a company's ability to pay off its short-term obligations using its current assets. A higher current ratio is generally considered better, as it suggests that the company has a greater ability to meet its short-term financial obligations.

Question 20

Gross wages of $5,000 accrued but not paid to employees at the end of 20B should be recorded by the employer in a journal entry that includes which of the following?

Accepted Answer

The accrual basis of accounting requires that expenses be recognized when they are incurred, regardless of whether or not they have been paid. Since the gross wages of $5,000 have accrued but not yet been paid, they should be recorded as a debit to Wages Expense and a credit to Wages Payable. Option A is incorrect because it suggests that Wages Payable should be credited, when in fact it is a liability. Option B is incorrect because it suggests that cash has been paid, when in fact it has not. Option D is incorrect because it suggests that cash is being debited when no cash has been paid out.

Quiz 10: Reporting and Interpreting Bond Securities