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

When a bank deducts the interest on a note in advance, the note has been .

Employees earn $5,000 per day, work five days per week, Monday through Friday, and get paid every Friday. If the previous payday was January 26 and the accounting period ends on January 31, what amount is the ending balance in the wages payable account?

The of a single sum represents the value today of a single amount to be received or paid at a future time.

What is the meaning of the word annuity? Can the present value of an annuity be calculated as a series of single amounts? If so, how?

An example of a current liability that must be accrued is

A firm is required to estimate a liability for repairs for products sold with a warranty. If the firm's accountants later find that the estimated amount for repairs has been overstated, the correct accounting procedure is to

You just won the lottery. You can take your $2 million in a lump sum today, or you can receive $220,000 per year over the next 12 years. Assuming a 6% interest rate, which would you prefer, ignoring tax considerations?

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.

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

In 2015, Morton Co. sold 100 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects. Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $42,000. $11,000 in claims was actually incurred during the year to honor their warranty. What was the balance in the ending estimated warranty liability at the end of the year?

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

You friend, Edwin Slotkin, has started a new business, but has recently encountered a slight cash flow problem. He obtains a $1,000 loan at 10% per year from a local bank, but would like to ask you about the terms. The bank has deducted the interest in advance and he wants to know if 10% is his effective interest rate. How would you respond in an email?

A company has $8,000 in cash, $9,250 in accounts receivable, and $19,500 in inventory. If current liabilities are $14,350, then the quick ratio would be

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.

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

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. Kingston inherited $140,000 from an aunt. If Kingston decides not to spend his inheritance but to leave the money in his savings account until he retires in 15 years, how much money will he have assuming an annual interest rate of 8%, compounded semiannually to the closest answer given?

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. If a company wishes to accumulate $500,000 in 20 years at 5% by making equal yearly deposits into an account, calculation of the deposits is an application of the

The present value and future value concepts are applied to measure the amount of several accounts common in accounting. What are some accounts that are valued in this manner?

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 to a supplier based on the terms 2/20, n/40, for which no note was executed.

Review the Note Disclosure of Legal Matters. REQUIRED: 1 If you were to make an entry for the lawsuit against Company, what monetary amount should be recorded? On what did you base your decision with regard to the amount? 2 Does the disclosure imply that the Company is involved in only this litigation at this time? 3 Why did this lawsuit arise? Do you believe it to be a reasonable one or do you think that the plaintiff, has little grounds for this lawsuit?