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

According to the text, almost all current liabilities appear in the Operating Activities category of the statement of cash flows, but there are exceptions. Explain the exceptions and give an example.

Tyson Trucking won a settlement in a lawsuit and was offered four different payment alternatives by the defendant's insurance company. The interest rate is 6%. Ignoring tax considerations, which of the following four alternatives has the highest present value? Support your answer with the appropriate calculations. I $150,000 now II $45,000 per year for the next 4 years payment made at the end of the year $5,000 now and then $20,000 per year for the next 10 years payment made at the end of III the year IV $5,000 now and then $5,000 per year for the next 10 years payment made at the end of the year plus a lump-sum payment of $200,000 at the end of the eleventh year

Assume that you want to accumulate $20,000 as a down payment on a home. You believe that you can save $2,000 per semiannual period, and your bank will pay interest of 6% per year, or 3% per semiannual period. How long will it take you to accumulate the desired amount?

Terms of 2/10, n30 mean that if the discount is not taken, full payment is due within ___________________________ days.

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Pablos wants to save some money so that he can make a down payment of $3,000 on a car when he graduates from college 4 years from now. If he opens a savings account and earns 3% on his money, compounded annually, how much will he have to invest now?

On September 1, 2015, Ensign Inc. borrowed $21,000 from Emerald City National Bank by issuing a 12-month note. The bank discounted the note at 7.5%. REQUIRED: 1. Identify the accounting equation effects to record the issuance of the note. 2. Identify the accounting equation effects needed at December 31, 2015, to accrue interest. 3. Identify the accounting equation effects to record the payment of the note on September 1, 2016. 4. What effective rate of interest did Ensign pay?

Warranty expenses are the result of the selling company's estimate of the number of units sold during the current year that may become defective and need repair or replacement during the warranty period.

You have received an email from a new accounting client, Jamal Parker, who has just started a new business. Jamal would like you to explain whether it is really that beneficial for him to take advantage of a 2/10, net 30 discount offered by one of his suppliers, given his limited cash flow. In a memo, explain to him why this is or is not a sound financial move for his new company. Most firms attempt to pay their accounts payable within the discount period to take advantage of the discount. Why is that normally a sound financial move?

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. The future value of equal semi-annual payments of $500 at 8% compounded semiannually for 4 years is

You just purchased an automobile for $19,450 and must decide how to pay for it. Your local bank has granted you a five-year loan. Annual payments on the loan will be made at the end of each year and the amount of the loan payments, which include principal and interest, is $5,000 per year. What is the interest rate that is being charged on the loan?

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

The landlord records the security deposit she collects from the tenant as an

The current maturity of long-term debt is a current liability.

Match each of the following terms related to interest and time value of money calculations to their appropriate definition. -Interest calculated on the principal plus previous amounts of interest accumulated.

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.

Income taxes payable is a current liability.

What is meant by the term "current maturities of long-term debt" in the current liabilities section of the balance sheet?

Accrued wages is not a current liability.

What type of interest is calculated on the balance of the principal only?

What is the purpose of the current ratio? How does the quick ratio differ from the current ratio?