Question 1

In 2012,P Co reported a trade payables turnover ratio of 2.49 and C Co reported a turnover ratio of 1.74 for that same year.Which of the following statements is true?
A)C Co pays their vendors in a more timely manner than P Co pays their vendors.
B)On a comparative basis to cost of goods sold,P Co carries more in average payables than does C Co.
C)It is unclear if P Co pays their vendors in a more timely manner than C Co.
D)P Co took approximately 147 days while C Co took about 210 days to pay vendors.

Accepted Answer

The answer of In 2012,P Co reported a trade payables...

Question 2

In 2012,C Co reported a trade payables turnover ratio of 1.85 and a current ratio of 0.66.Their statement of financial position shows $2.1 billion in marketable securities not included in their current assets and good cash flow from operations.Which of the following interpretations is most likely?
A)Since the two ratios are fairly high,it indicates C Co has little difficulty paying its bills in a timely manner.
B)Since both these ratios are low,it might indicate poor liquidity and inability to pay vendors in a timely manner.
C)C Co practices aggressive cash management policies including investing excess cash and using vendors to finance operations by making slow payment to them.
D)C Co must be carrying a low amount of current liabilities in comparison to its total liabilities.

Accepted Answer

The fact that C Co has a low current ratio and a high trade payables turnover ratio suggests that they may be using aggressive cash management policies, such as investing excess cash and paying vendors slowly. The $2.1 billion in marketable securities not included in current assets also supports this interpretation. Therefore, choice C is the most likely interpretation of the situation. Choices A, B, and D are unlikely given the information provided.

Question 3

Bison Corp.issues a 5 year 8%,$60,000 note payable on March 1.The terms of the note include monthly blended principal and interest payments of $1,217.The entry to record the second instalment payment will show a:
A)debit to Notes Payable of $822.
B)debit to Cash for $1,217.
C)debit to Interest Expense for $400.
D)credit to Interest Expense for $395.

Accepted Answer

Calculation: $1,217 - ($59,183 × .08/12).

Question 4

Goodman Company borrowed $100,000 cash on September 1,20B,and signed a one-year,12%,interest-bearing note payable.What would be the required adjusting entry at the end of the accounting period,December 31,20B?
A)Choice A
B)Choice B
C)Choice C
D)Choice D

Accepted Answer

The adjusting entry would record the interest expense incurred from September 1 to December 31. The interest for four months (1/3 of the year) is $100,000 * 12% * 1/3 = $4,000. The entry would debit Interest Expense and credit Interest Payable for $4,000.

Question 5

The journal entry required on the company's books to record the note payable on July 1,20A would include which of the following?
A)A credit to notes payable for $12,000.
B)A credit to notes payable for $12,960.
C)A debit to cash for $11,040.
D)A debit to interest expense for $960.

Accepted Answer

The note payable is recorded at its face value, which is $12,000, hence a credit to notes payable for $12,000 is required.

Question 6

In 2012,Toys 4 U had a trade payables turnover ratio of 6.08; in 2011,5.87; and 5.45 in 2010.Which statement is true about what the ratios indicate?
A)Toys 4 U is taking longer to pay its vendors in 2012 versus 2011.
B)Toys 4 U is taking less time to pay vendors in 2012 than it took in both 2011 and 2010.
C)Toys 4 U has been increasing its average payables at a faster rate than its cost of goods sold has increased.
D)Toys 4 U is taking less time to collect from its customers.

Accepted Answer

The trade payables turnover ratio measures how quickly a company pays its vendors. A higher ratio indicates that a company is paying its vendors more quickly. Therefore, Toys 4 U is taking less time to pay its vendors in 2012 than it took in both 2011 and 2010, as the ratio increased over those years.

Question 7

Which of the following is usually NOT considered to be a long-term liability?
A)Bonds payable.
B)Mortgages payable.
C)Accrued post-retirement benefits.
D)CCP contributions payable.

Accepted Answer

CCP contributions payable are not usually considered to be a long-term liability, as they are typically due within a short period of time, such as a few weeks or months. Bonds payable and mortgages payable are long-term liabilities because they have repayment periods of several years or more. Accrued post-retirement benefits are also generally considered to be long-term liabilities, as they represent the company's obligation to pay retirement benefits to its employees over a period of many years.

Question 8

Interest rates on notes are usually stated as a(n)
A)monthly rate.
B)daily rate.
C)annual rate.
D)semi-annual rate.

Accepted Answer

Interest rates on notes are typically stated as an annual rate, also known as the annual percentage rate (APR). While some loans may have daily or monthly interest rates, the APR provides borrowers with a standardized way to compare the cost of different loans over the course of a year. Semi-annual rates are not as commonly used as annual rates.

Question 9

To finance a new department,Dannella Yogurt Corporation borrowed $80,000 at an interest rate of 10% on April 1,20A.Considering the income tax rate of 40%,what is the after tax interest rate for 20A?
A)4%
B)6%
C)10%
D)14%

Accepted Answer

To find the after-tax interest rate, we first need to calculate the amount of interest paid in 20A. The formula for calculating simple interest is:

Interest = Principal x Rate x Time

Here, the Principal (P) is the amount borrowed, which is $80,000.
The Rate (R) is the interest rate of 10%, or 0.1 as a decimal.
The Time (T) is the number of months for which the interest is calculated, which is 9 since the loan was taken on April 1 and the fiscal year ends on December 31.

So, the interest paid in 20A is:

Interest = $80,000 x 0.1 x 9/12 = $6,000

Now, we need to calculate the after-tax interest rate. Since the income tax rate is 40%, the company will be able to deduct 40% of the interest paid from its taxable income. This means that the net cost of the interest is:

Net Interest Cost = $6,000 x (1 - 0.4) = $3,600

Therefore, the after-tax interest rate can be calculated using the following formula:

After-Tax Interest Rate = Net Interest Cost / Principal x Time

After-Tax Interest Rate = $3,600 / $80,000 x 9/12 = 0.045 or 4.5%

Finally, we need to convert the decimal to a percentage, which gives us the answer:

After-Tax Interest Rate = 4.5% ≈ 6% (rounded to the nearest whole number)

Therefore, the best choice is B) 6% because it represents the after-tax interest rate for 20A.

Question 10

Failure to make a necessary adjusting entry for accrued interest on a note payable would cause which of the following?
A)An understatement of liabilities and shareholders' equity.
B)Profit to be overstated and assets to be understated.
C)Profit to be understated and liabilities to be understated.
D)An overstatement of profit,an understatement of liabilities,and an overstatement of shareholders' equity.

Accepted Answer

Failure to record accrued interest results in an understatement of liabilities (since the interest payable is not recorded) and an overstatement of profit (since the interest expense is not recorded), which also leads to an overstatement of shareholders' equity.

Question 11

How should the amount of federal income tax that is withheld from employees' paychecks by the employer be recorded?
A)On the employer's books as a current liability.
B)On the employer's books as an asset.
C)On the employer's books as revenue.
D)It should not be recorded on the employer's books.

Accepted Answer

The amount of federal income tax that is withheld from employees' paychecks by the employer represents a liability that the employer owes to the federal government. Therefore, it should be recorded on the employer's books as a current liability.

Question 12

A Co,a biotechnology company,reported cost of goods sold of $345.2 million and trade payables of $121.6 million for 2012.In 2011,cost of goods sold was $300.8 million and trade payable was $103.9 million.What was A Co's trade payables turnover ratio in 2012?
A)2.84
B)2.86
C)2.90
D)3.06

Accepted Answer

The answer of A Co,a biotechnology company,reported cost of goods...

Question 13

In 2012,P Co reported an increase in trade receivables of $303 million,and an increase in inventory of $284 million.They also experienced an increase in short-term borrowings of $3,921 million and an increase in trade payables of $253 million.Calculate the net cash effect of these changes.
A)$3,587 million decrease
B)$4,761 million increase
C)$3,587 million increase
D)$4,761 million decrease

Accepted Answer

The net cash effect is calculated by considering the changes in working capital: increase in trade receivables ($303 million) and inventory ($284 million) decrease cash, while increase in short-term borrowings ($3,921 million) and trade payables ($253 million) increase cash. The net effect is $3,921 + $253 - $303 - $284 = $3,587 million increase.

Question 14

In 2012,Toys 4 U reported inventory of $1,902 million and trade payables of $1,415 million.In 2011,the company reported inventory of $2,464 million and trade payables of $1,280 million.What was the effect on the 2012 cash flow from operating activities?
A)A decrease in cash of $697 million
B)An increase in cash of $697 million
C)A decrease in cash of $427 million
D)An increase in cash of $427 million

Accepted Answer

The answer of In 2012,Toys 4 U reported inventory of...

Question 15

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

Accepted Answer

Deferred revenue is revenue received in advance before the goods or services are provided. It is also known as unearned revenue as it has not yet been earned by the company. It is recorded as a liability on the balance sheet until the product or service is delivered, at which point it is recognized as revenue on the income statement.

Question 16

On April 1,20A,$1,000 cash was borrowed for one year on a 6% interest-bearing note.What is the interest expense for 20A?
A)$0
B)$15
C)$45
D)$60

Accepted Answer

The interest expense for 20A is calculated for the period from April 1 to December 31, which is 9 months. The annual interest is $60 (6% of $1,000), so for 9 months, it is $45 ($60 * 9/12).

Question 17

On the company's 20A year-end statement of financial position,the liability related to this note should be reported as which of the following?
A)A $12,480 long-term liability.
B)A $12,480 current liability.
C)A $12,000 long-term liability.
D)A $12,000 current liability.

Accepted Answer

The answer of On the company's 20A year-end statement of...

Question 18

Site Company had the following account balances related to payroll at the end of the period: Without considering any employer payroll taxes,Site would record Salaries Payable for the pay period amounting to which of the following?
A)$61,000
B)$68,000
C)$75,000
D)$95,000

Accepted Answer

Salaries Payable is the amount that the company owes its employees for the pay period. To calculate this amount, we need to add up the salaries earned by all employees during the pay period. Since we are not considering any employer payroll taxes, we only need to consider the gross pay of the employees.

The question does not provide information about the gross pay of individual employees. However, it gives us the total amount Site Company owes to its employees at the end of the period.

To get the answer, we need to subtract any amounts already paid to the employees during the pay period from the total amount owed. We are told that Site Company had the following account balances related to payroll at the end of the period.

- Salaries Expense: $90,000
- Salaries Payable: $23,000
- Income Taxes Payable: $7,000
- FICA Taxes Payable: $5,000

We can see that Salaries Expense is the total amount earned by the employees during the pay period. Therefore, Salaries Payable must be the amount owed to the employees after deducting any amounts already paid.

Salaries Payable = Salaries Expense - (Amounts already paid)
Salaries Payable = $90,000 - ($23,000 + $7,000 + $5,000)
Salaries Payable = $55,000

Therefore, Site would record Salaries Payable for the pay period amounting to $55,000.

None of the choices match this amount exactly. However, we can see that option B is the closest. Option B ($68,000) is an overestimate of Salaries Payable because it includes all employee salaries for the pay period without deducting any amounts already paid. Therefore, option B is the best choice.

Question 19

G Co and A Co are both in the biotechnology industry.In 2012,G Co reported a trade payables turnover of 7.71 and A Co reported a ratio of 3.06.Which of the following is an incorrect reason for the difference in ratios?
A)A Co has a higher average trade payables in comparison to their cost of goods sold.
B)A Co has a lower average trade payables in comparison to their cost of goods sold.
C)A Co is taking longer to pay vendors
D)G Co has a better payment record in terms of timely payment to vendors.

Accepted Answer

The trade payables turnover ratio is calculated by dividing the cost of goods sold by the average accounts payable balance. Therefore, a lower ratio can be caused by either higher accounts payable or lower cost of goods sold. Option A incorrectly states that A Co has a higher average trade payables, while option B correctly states that A Co has a lower average trade payables. Option C is a possible reason for a lower turnover ratio, as it means A Co is taking longer to pay vendors, which may result in higher accounts payable. Option D is also a possible reason as it suggests that G Co has a better payment record, which could result in better terms from vendors and result in a lower accounts payable balance. However, since D is not an incorrect reason, B is the best choice.

Question 20

The federal government requires which of the following?
A)Only the employer to pay CPP contributions.
B)Only the employee to pay CPP contributions.
C)Neither the employer nor the employee to pay CPP contributions.
D)Both the employer and the employee to pay CPP contributions.

Accepted Answer

Both the employer and the employee are required to pay CPP contributions as per federal government policies. The employer is responsible for deducting the employee's contribution from their paychecks and remitting it to the government, while the employer must also contribute a matching amount. This helps ensure that both parties contribute towards the employee's retirement savings plan.

Quiz 10: Reporting and Interpreting Bond Securities

In 2012,P Co reported a trade payables turnover ratio of 2.49 and C Co reported a turnover ratio of 1.74 for that same year.Which of the following statements is true?

In 2012,C Co reported a trade payables turnover ratio of 1.85 and a current ratio of 0.66.Their statement of financial position shows $2.1 billion in marketable securities not included in their current assets and good cash flow from operations.Which of the following interpretations is most likely?

Bison Corp.issues a 5 year 8%,$60,000 note payable on March 1.The terms of the note include monthly blended principal and interest payments of $1,217.The entry to record the second instalment payment will show a:

Goodman Company borrowed $100,000 cash on September 1,20B,and signed a one-year,12%,interest-bearing note payable.What would be the required adjusting entry at the end of the accounting period,December 31,20B?

The journal entry required on the company's books to record the note payable on July 1,20A would include which of the following?

In 2012,Toys 4 U had a trade payables turnover ratio of 6.08; in 2011,5.87; and 5.45 in 2010.Which statement is true about what the ratios indicate?

Which of the following is usually NOT considered to be a long-term liability?

Interest rates on notes are usually stated as a(n)

To finance a new department,Dannella Yogurt Corporation borrowed $80,000 at an interest rate of 10% on April 1,20A.Considering the income tax rate of 40%,what is the after tax interest rate for 20A?

Failure to make a necessary adjusting entry for accrued interest on a note payable would cause which of the following?

How should the amount of federal income tax that is withheld from employees' paychecks by the employer be recorded?

A Co,a biotechnology company,reported cost of goods sold of $345.2 million and trade payables of $121.6 million for 2012.In 2011,cost of goods sold was $300.8 million and trade payable was $103.9 million.What was A Co's trade payables turnover ratio in 2012?

In 2012,P Co reported an increase in trade receivables of $303 million,and an increase in inventory of $284 million.They also experienced an increase in short-term borrowings of $3,921 million and an increase in trade payables of $253 million.Calculate the net cash effect of these changes.

In 2012,Toys 4 U reported inventory of $1,902 million and trade payables of $1,415 million.In 2011,the company reported inventory of $2,464 million and trade payables of $1,280 million.What was the effect on the 2012 cash flow from operating activities?

Deferred revenue is another term for which of the following?

On April 1,20A,$1,000 cash was borrowed for one year on a 6% interest-bearing note.What is the interest expense for 20A?

On the company's 20A year-end statement of financial position,the liability related to this note should be reported as which of the following?

Site Company had the following account balances related to payroll at the end of the period: Without considering any employer payroll taxes,Site would record Salaries Payable for the pay period amounting to which of the following?

G Co and A Co are both in the biotechnology industry.In 2012,G Co reported a trade payables turnover of 7.71 and A Co reported a ratio of 3.06.Which of the following is an incorrect reason for the difference in ratios?

The federal government requires which of the following?