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

Valance & Company Use the selected data from the balance sheet and cash flow statements for Valance & Company to answer the questions that follow -Refer to the data for Valance & Company. Required (1)Give a possible explanation for each change in the liabilities listed in the cash flow statement.Do you think these changes are beneficial for Valance? Why or why not? (2)If there were a balance in the Dividends Payable account at the end of the year,would this appear in the Operating Activities category of the cash flow statement? Why or why not?

Your friend,Sal Dunn,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?

Interest payable on a loan becomes a liability

An example of a current liability that must be accrued is

A bank loaned York Construction Company $35,000 on a one-year,6% note,but deducted the interest in advance.The journal entry made by York to record receipt of the cash would include a(n)

On October 1,Lawrence Company borrowed $60,000 from Fourth National Bank on a one-year,7% note.If the company's fiscal year ends as of December 31,Lawrence should make an entry to increase

All of the following statements are true except

Which of the following would appear on the balance sheet as a current liability?

All of the following are characteristics of current liabilities except

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 $6,000 at 12% compounded quarterly for five years is

Define the term annuity.Can the present value of an annuity be calculated as a series of single amounts? If so,how?

Contingent assets may be disclosed in the notes if probable and reasonably estimable.

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. - Winston wins the lottery.He wins $20,000 per year to be paid to him for ten years.The state offers him the choice of a cash settlement now instead of the annual payments for ten years.If the interest rate is 6%,what is the amount the state will offer for a settlement today?

International accounting standards require companies to present classified balance sheets with liabilities classified as either current or long term.

Note Disclosure of Legal Matters Use the note disclosure of legal matters below to answer the questions that follow. Note 13—Legal Matters On December 14, 2017, the Company was served with a class action complaint filed in federal court in Burlington, Vermont. The complaint, captioned John Doe vs. The Company was filed by a Company’s shareholder on behalf of himself and purportedly on behalf of all other Company’s shareholders who purchased the common stock of the Company during the period from March 25, 2016, through December 19, 2016. Plaintiff alleges that the Company violated the federal securities laws by making, in 2016, untrue statements of material facts and omitting to state material facts primarily concerning the Company's construction and start-up of its new manufacturing facility. Also named as defendants in the Complaint are certain present and former officers and directors of the Company. Plaintiff is seeking an unspecified amount of monetary damages. While this action is in its preliminary stages, management believes, based on an initial review, the allegations made in the lawsuit are without merit and the Company intends to defend the lawsuit vigorously. -Review the note disclosure of legal matters. Required (1)If you were to make an entry for the lawsuit against the 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?

Hanover,Inc. Use the selected data from the comparative financial statements for Hanover,Inc.to answer the questions that follow. Hanover, Inc. Balance Sheet Accounts (all accounts have normal balances) (in millions) Dec. 30,2018 Dec. 31,2017 Inventories \ 1,780 \ 1,649 Total current assets \ 9,428 \ 8,625 Liabilities in order of significance: Long-term debt \ 14,465 \ 15,001 Other noncurrent liabilities 4,421 3,148 Deferred income taxes 3,504 3,543 Accounts payable 2,556 2,468 Other current liabilities 2,066 1,738 Accrued sal aries and wages 1,538 1,082 Short-term borrowings 1,200 1,126 Accrued advertising expense 793 928 Income taxes payable 658 1,142 -Refer to the account information for Hanover,Inc. ? Required (1)Calculate percentage changes in accounts payable and income taxes payable.Give a possible explanation for the changes in these accounts. (2)By how much did Hanover's long- and short-term borrowings change from 2017 to 2018? Give a possible explanation for the change in debt.What other financial statement would be useful in analyzing the change in borrowings? Why?

Riley Corporation manufactures and sells weedeaters.Riley provides all customers with a three-year warranty guaranteeing to repair,free of charge,any defects reported during this time period.During the year,it sold 85,000 weedeaters for $225 each.Analysis of past warranty records indicates that 8% of all sales will be returned for repair within the warranty period.Riley expects to incur expenditures of $15 to repair each weedeater.The account Estimated Liability for Warranties had a balance of $115,000 on January 1.Riley incurred $90,000 in actual expenditures during the year. ? Required ?Analyze the impact of all journal entries necessary to record the events related to the warranty transactions during the year.Determine the adjusted ending balance in the Estimated Liability for Warranties account.

Below are three notes payable: Note Face Value (Principal) Rate Term 1. \ 30,000 4\% 6 years 2. 30,000 6\% 4 years 3. 30,000 8\% 3 years Required Part 1.For each of the notes,calculate the simple interest due at the end of the term. Part 2.Now assume that the interest on the notes is compounded annually.Calculate the amount of interest due at the end of the term for each note. Part 3.Finally,assume that the interest on the notes is compounded semiannually.Calculate the amount of interest due at the end of the term for each note. Part 4.What conclusion can you draw from a comparison of your results of each of the three scenarios?

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 Vito has $5,000 per year to invest for ten years and wants to accumulate $87,745 at the end of that time,he must find an investment that is earning at a rate of

If the interest factor used to calculate the future value of $1 at 6% for 5 periods is 1.338,then the present value of $1 at 6% for 5 periods is