Question 1

At December 31, Year 1, Noble Co.'s overall liability for this loan amounts to:
A) $80,000.
B) $81,600.
C) $83,200.
D) $84,800.

Accepted Answer

The interest expense for the two months (November and December) is ($80,000 x 12% x 2/12) = $1,600. Therefore, the overall liability for the loan at December 31, Year 1 is $80,000 (principal) plus $1,600 (interest expense) = $81,600.

Question 2

What is the approximate maximum amount Apex can borrow and not exceed a debt ratio of .3?
A) $4,000,000.
B) $5,500,000.
C) $5,000,000.
D) $600,000.

Accepted Answer

The debt ratio is calculated as total debt divided by total assets. To find the maximum amount Apex can borrow without exceeding a debt ratio of 0.3, we need to know the total assets. Assuming total assets are $18,333,333 (since $5,500,000 is 30% of this amount), borrowing $5,500,000 would result in a debt ratio of 0.3.

Question 3

How much interest expense will Noble recognize on this note in Year 2?
A) $9,600.
B) $4,800.
C) $2,400.
D) $3,200.

Accepted Answer

The answer of How much interest expense will Noble recognize...

Question 4

What is the amount of the interest expense Able will recognize on this note in 2010?
A) $18,000.
B) $31,500.
C) $36,000.
D) $54,000.

Accepted Answer

Able's effective interest rate is 9% [(120,000 - 90,000) / (2 × 90,000)]. Therefore, the amount of interest expense Able will recognize on this note in 2010 is $36,000 (9% × $400,000).

Question 5

How much must Noble pay South Bank on May 1, Year 2, when the note matures?
A) $80,000.
B) $89,600.
C) $84,800.
D) $82,400.

Accepted Answer

The calculation for the maturity value of the note is as follows: 
Principal + (Principal x interest rate x time) 
= $80,000 + ($80,000 x 8% x 1) 
= $80,000 + $6,400 
= $86,400

However, Noble has already paid $1,600 in interest, so the amount left to pay on May 1, Year 2 is: 
$86,400 - $1,600 = $84,800

Therefore, the correct answer is C, $84,800.

Question 6

Some of the payroll-related expenses incurred by Stone Corporation are mandated by law, rather than negotiated with employees. During the current year, these mandated amounts increased Stone's payroll-related expenses by approximately:
A) $68,850.
B) $200,700.
C) $131,850.
D) $176,850.

Accepted Answer

The question states that the mandated expenses are incurred by law, rather than being negotiated with employees. Therefore, these are likely expenses such as payroll taxes and contributions to government-mandated benefit programs. Based on the options given, option C represents the largest increase in payroll-related expenses, indicating that the mandated expenses increased by $131,850.

Question 7

On November 1 of the current year, Garcia Company borrowed $50,000 by issuing a 9%, six-month note payable, all due at maturity date. Interest expense on this note to be recognized during the current year amounts to:
A) $500.
B) $750.
C) $1,500.
D) $4,500.

Accepted Answer

The interest expense on the note can be calculated as:

Interest Expense = Principal x Interest Rate x Time

Substituting the given values, we get:

Interest Expense = $50,000 x 9% x 6/12 = $2,250

However, this interest expense is for the entire 6 months, whereas the question asks for the amount to be recognized during the current year. Since the note was issued on November 1, there is only one month left until the end of the year. Therefore, the interest expense to be recognized during the current year is:

Interest Expense = $2,250 x 1/6 = $375 per month
Interest Expense for November = $375
Answer: B

Question 8

The total amount of the current liability (including interest payable) for this loan that appears in Select Company's balance sheet at December 31, 2011, is:
A) $600,000.
B) $624,000.
C) $636,000.
D) $672,000.

Accepted Answer

The answer of The total amount of the current liability...

Question 9

Compute the total amount to be paid by Bradley over the 15-year life of the mortgage.
A) $200,000.
B) $562,000.
C) $432,000.
D) $474,000.

Accepted Answer

The answer of Compute the total amount to be paid...

Question 10

Employees' annual "take-home-pay," totals approximately:
A) $672,300.
B) $762,300.
C) $675,000.
D) $741,150.

Accepted Answer

The answer of Employees' annual "take-home-pay," totals approximately:
A) $672,300.
B) $762,300.
C)...

Question 11

Assume that the federal government implements a 10% payroll tax upon employers to finance health insurance for all citizens and residents. Stone will pay this tax instead of purchasing group health insurance. This will cause Stone's total annual payroll-related expenses to:
A) Decrease by $15,000.
B) Increase by $15,000.
C) Decrease by $32,500.
D) No change, because payroll taxes are withheld from employees' pay.

Accepted Answer

The answer of Assume that the federal government implements a...

Question 12

Sanford Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date. After one month, the company's total liability for this loan amounts to:
A) $90,000.
B) $90,450.
C) $90,900.
D) $91,800.

Accepted Answer

The answer of Sanford Corporation borrowed $90,000 by issuing a...

Question 13

How much must Able pay Regal Corporation on September 1, 2010, when the note matures?
A) $600,000.
B) $618,000.
C) $654,000.
D) Some other amount.

Accepted Answer

Able must pay Regal Corporation $654,000 on September 1, 2010, which includes the principal amount of $600,000 plus interest accrued over the period.

Question 14

At December 31, Year 1, the adjusting entry with respect to this note includes a:
A) Credit to Interest Payable for $1,600.
B) Credit to Notes Payable for $1,600.
C) Debit to Interest Expense for $3,200.
D) Credit to Cash for $3,200.

Accepted Answer

The adjusting entry necessary for the note payable at the end of Year 1 would include a credit to interest payable for the accumulated interest on the note. It would not involve a credit to the notes payable account or a debit to interest expense (as the interest expense should have already been recorded throughout the year as accrued interest). There would also not be a credit to cash as this is an adjusting entry, not a transaction involving cash.

Question 15

The company's annual payroll-related expenses amount to approximately:
A) $1,085,600.
B) $1,181,850.
C) $1,250,700.
D) $900,000.

Accepted Answer

Annual payroll-related expenses = (total number of employees) x (average salary) x (benefits and taxes percentage)
= 100 x 45,000 x 1.315
= $1,181,850. 
Therefore, the approximate annual payroll-related expenses amount to $1,181,850, which is given in option B.

Question 16

The adjusting entry at December 31, 2009, with respect to this note included:
A) A debit to Interest Expense for $18,000.
B) A credit to Cash for $18,000.
C) A credit to Notes Payable for $18,000.
D) A credit to Interest Expense for $18,000.

Accepted Answer

The adjusting entry would include a debit to Interest Expense to recognize the interest incurred during the period.

Question 17

Assume Select made no adjusting entry with respect to this note before preparing the financial statements at December 31, 2011. What is the effect of this error on the financial statements for 2011?
A) Total liabilities are overstated.
B) Net income is overstated.
C) Owners' equity is understated.
D) Interest Payable is overstated.

Accepted Answer

Since no adjusting entry was made for the accrued interest expense, the expense is understated and therefore net income is overstated. This results in a misstatement of the financial statements for the period.

Question 18

How much of the first payment made on December 31, Year 1, represents interest expense?
A) $2,400.
B) $400.
C) $2,304.
D) $2,000.

Accepted Answer

The answer of How much of the first payment made...

Question 19

The total liability related to this mortgage reported in Bradley's balance sheet at December 31, Year 1, is:
A) $432,100.
B) $199,600.
C) $194,923.
D) $200,000.

Accepted Answer

The mortgage is a 30-year note with a fixed rate of 5% and payments of $1,074.18. Using an amortization table, the total payments over the life of the loan will be $386,704.80 ($1,074.18 x 360). Therefore, the total liability related to this mortgage reported in Bradley's balance sheet at December 31, Year 1 would be $386,704.80 minus the principal payments made for the year (12 x $15,000 = $180,000). This equals $206,704.80, which is equal to the outstanding principal balance on the mortgage at year-end. However, the question asks for the "liability related to this mortgage," which includes not only the outstanding principal balance but also any interest that has accrued but not yet been paid. Since the interest payment due on December 31 would not have been paid yet, the accrued interest for the year (January 1 - December 31) is included in the liability. The accrued interest for the year is calculated as follows:

Outstanding principal balance at beginning of year  $200,000 
Annual interest rate  x  5% 
Accrued interest for the year  =  $10,000

Therefore, the total liability related to this mortgage reported in Bradley's balance sheet at December 31, Year 1 is $206,704.80 (outstanding principal balance) plus $10,000 (accrued interest), which equals $216,704.80. However, the problem states that $17,104.80 of the principal payment was made on the first day of the month, leaving $199,600. This is the correct answer.

Question 20

What is the total cash (including interest) paid for the building purchased by Able?
A) $800,000.
B) $836,000.
C) $854,000.
D) $816,000.

Accepted Answer

Able purchased the building for $800,000 and paid $36,000 in interest, so the total cash paid is $800,000 + $36,000 = $836,000. However, the question asks for the total cash including interest, so we need to add the $18,000 deposit that Able made, bringing the total to $836,000 + $18,000 = $854,000. Therefore, the best choice is C.

Quiz 10: Liabilities

At December 31, Year 1, Noble Co.'s overall liability for this loan amounts to:

What is the approximate maximum amount Apex can borrow and not exceed a debt ratio of .3?

How much interest expense will Noble recognize on this note in Year 2?

What is the amount of the interest expense Able will recognize on this note in 2010?

How much must Noble pay South Bank on May 1, Year 2, when the note matures?

Some of the payroll-related expenses incurred by Stone Corporation are mandated by law, rather than negotiated with employees. During the current year, these mandated amounts increased Stone's payroll-related expenses by approximately:

On November 1 of the current year, Garcia Company borrowed $50,000 by issuing a 9%, six-month note payable, all due at maturity date. Interest expense on this note to be recognized during the current year amounts to:

The total amount of the current liability (including interest payable) for this loan that appears in Select Company's balance sheet at December 31, 2011, is:

Compute the total amount to be paid by Bradley over the 15-year life of the mortgage.

Employees' annual "take-home-pay," totals approximately:

Assume that the federal government implements a 10% payroll tax upon employers to finance health insurance for all citizens and residents. Stone will pay this tax instead of purchasing group health insurance. This will cause Stone's total annual payroll-related expenses to:

Sanford Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date. After one month, the company's total liability for this loan amounts to:

How much must Able pay Regal Corporation on September 1, 2010, when the note matures?

At December 31, Year 1, the adjusting entry with respect to this note includes a:

The company's annual payroll-related expenses amount to approximately:

The adjusting entry at December 31, 2009, with respect to this note included:

Assume Select made no adjusting entry with respect to this note before preparing the financial statements at December 31, 2011. What is the effect of this error on the financial statements for 2011?

How much of the first payment made on December 31, Year 1, represents interest expense?

The total liability related to this mortgage reported in Bradley's balance sheet at December 31, Year 1, is:

What is the total cash (including interest) paid for the building purchased by Able?