Exam 9: Reporting and Interpreting Liabilities

Libby Company purchased equipment by paying $5,000 cash on the purchase date and agreeing to pay $5,000 every six months during the next four years; the first payment is due six months after the purchase date.Libby's incremental borrowing rate is 8%.At what amount would the liability be reported on the balance sheet as of the purchase date,after the initial $5,000 payment was made?

A company's income statement reported net income of $40,000 during 2010.The income tax return excluded a revenue item of $3,000 (reported on the income statement)because under the tax laws the $3,000 would not be reported for tax purposes until 2011.Which of the following statements is correct assuming a 35% tax rate?

How is the quick ratio calculated?

A company has a quick ratio of 1.9 before paying off a large current liability with cash.As a result,what happens to the quick ratio?

SRJ Corporation entered into the following transactions: The accrual of interest expense on a six-month note payable. Collected cash for services to be provided within the next six months. The accrual of revenue. Which of the following statements is correct with respect to determining the net cash flow from operating activities on a statement of cash flows?

Young Company is involved in a lawsuit.When would the lawsuit be recorded as a liability on the balance sheet?

An estimated liability can't be reported on the balance sheet.

The adjusting entry to record accrued interest on a note payable would not result in which of the following?

A contingent liability can't be disclosed in a note to the financial statements unless it can be estimated.

Short Company purchased land by paying $10,000 cash on the purchase date and agreeing to pay $10,000 for each of the next ten years beginning one-year from the purchase date.Short's incremental borrowing rate is 10%.What amount of liability would be reported on the balance sheet as of the purchase date,after the initial $10,000 payment was made?

Rusty Corporation purchased a rust-inhibiting machine by paying $50,000 cash on the purchase date and agreeing to pay $10,000 every three months during the next two years; the first payment is due three months after the purchase date.Rusty's incremental borrowing rate is 8%.At what amount would the liability be reported at on the balance sheet as of the purchase date,after the initial $50,000 payment was made?

Which of the following describes an accrued liability?

Rae Company purchased a new vehicle by paying $10,000 cash on the purchase date and agreeing to pay $3,000 every three months during the next five years; the first payment is due three months after the purchase date.Rae's incremental borrowing rate is 12%.At what amount would the vehicle be reported at on the balance sheet as of the purchase date?

Straight Industries purchased a large piece of equipment from Curvy Company on January 1,2010.Straight Industries signed a note,agreeing to pay Curvy Company $400,000 for the equipment on December 31,2012.The market rate of interest for similar notes was 8%.The present value of $400,000 discounted at 8% for three years was $317,520.On January 1,2010,Straight Industries recorded the purchase with a debit to equipment for $317,520 and a credit to notes payable for $317,520.On December 31,2010,Straight recorded an adjusting entry to account for interest that had accrued on the note.Assuming no adjusting entries have been made during the year,how much interest expense would have accrued at December 31,2010?

Fold and Hold Corporation purchased a machine which had a current cash equivalent cost of $38,971 on January 1,2010.Fold and Hold paid cash of $10,000 and signed an interest-bearing note for the balance,payable in six equal annual installments on each December 31 beginning with December 31,2010.The note specified a 10% interest rate on the unpaid balance. Requirements: A.Prepare the journal entry to record the purchase on January 1, 2010 (round to the nearest dollar). B.Prepare the entry to record the first installment payment on December 31, 2010 (round to the nearest dollar).Assume that no adjusting entries have been made during the year.

The following data is available for Tommy's Toys for the years 2008 through 2011: Cost of goods sold \ 7,506 \ 7,646 \ 7,799 \ 7,815 Accounts payable \ 1,023 \ 1,022 \ 878 \ 896 A. Calculate the accounts payable turnover ratio for the following years: 1. 2011 2. 2010 3. 2009 B. Calculate the number of days it is taking Tommy's Toys to pay their vendors (assume a 365 day year): 1. 2011 2. 2010 3. 2009 C. Explain whether Tommy's Toys is doing a better job of paying their vendors in a timely manner.

Income taxes payable is an example of an accrued liability.

Which of the following statements is correct?

Houston Company is involved in a lawsuit.In which of the following situations is only footnote disclosure of the contingent liability reported within the financial statements?

Working capital decreases when a company pays taxes payable.