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

Dallas Company uses the indirect method of preparing the statement of cash flows and has the following current liabilities at the beginning of the period: Accounts Payable,$35,000;Taxes Payable,$15,000.At the end of the period,the balances of the account are as follows: Accounts Payable,$25,000;Taxes Payable,$20,000.What amounts will appear in the cash flow statement? In what category of the statement will they appear?

If the annual interest is 12%,but the compounding is done quarterly,then the interest rate is 4% per period.

Which of the following statements is true of liabilities?

The terms referring to contingencies differ between U.S.GAAP and IFRS.

Grain Company sells a product for $760. When the customer buys it, Grain provides a one-year warranty. Grain sold 1,500 products during 2017. Based on analysis of past warranty records, Grain estimates that repairs will average 6% of total sales. Required 1. Analyze the impact of the journal entry to record the estimated liability. 2. Assume that during 2017 products under warranty must be repaired using repair parts from inventory costing $49,600. Analyze the impact of the journal entry to record the repair of products. 3. Assume that the balance of the Estimated Liabilities for Warranties account as of the beginning of 2017 was $1,700. Calculate the balance of the account as of the end of 2017.

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. - David,a high school math teacher,wants to set up an IRA account into which he will deposit $2,000 per year.He plans to teach for 20 more years and then retire.If the interest on his account is 7% compounded annually,how much will be in his account when he retires?

$2,000 invested today at 12% with compound interest will yield $2,480 in two 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. - The table factor for the future value of an annuity for four annual deposits at 8% is

Income taxes payable are recognized as an expense once they are paid to the respective government or taxing authority.

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 four 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?

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.

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

The liability for a premium offer estimated to be redeemed is not a current liability.

Long-term assets are $5,000,current liabilities are $700,and long-term liabilities are $3,000.If the current ratio is 3 to 1,then current assets are

If you plan to invest $10,000 and want to determine how much will be accumulated in six years if you earn interest at 7% per year,you would calculate this using the future value of an annuity.

Which of the following statements regarding contingencies is true?

In 2017,Morton Co.sold 150 hot air balloons at $4,000 each.The balloons carry a five-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 $14,000.$20,000 in claims was actually incurred during the year to honor their warranty.What was the warranty expense for 2017?

Compound interest is a repeated calculation of the interest only on the principal over certain periods of time.

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 present value of $7,000 to be received in seven years at 7% compounded annually is

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?