Exam 9: Accounting for Current Liabilities and Payroll

On December 31, 2013, Weston Co. recognized accrued interest expense in the amount of $1,000. The interest expense was related to a discount note Weston had issued earlier.

Issuing a note payable is a(n)

Monthly remittance of sales tax due has no impact on the income statement, but reduces cash flow from operating activities.

Fern's Flower Market sells eight potted petunias to a customer for $60.00, plus 5% sales tax. Fern's will recognize $63.00 in sales revenue.

When calculating interest expense on a 6-month note, multiply the principal by the interest rate, and then multiply by 6/12.

In September of 2013, Houston Company issued a note payable to borrow money from its bank. Principal and interest on the note would come due in June 2014. The matching principle requires that interest expense on this note be accrued at the end of 2013 for the period from issuance of the note to the last day of the accounting period.

Kirk Co. sells goods to customers with a three-year warranty. During 2012, Kirk sold $500,000 of goods. On December 31, 2012, Kirk made the appropriate year-end adjustment to record the warranty expense related to the goods sold during the year. During 2013, Kirk paid $400 cash to satisfy warranty claims. Show the effects of the 2012 adjustment to record warranty expense.

When is warranty expense usually recognized?

Calvin Campbell is hired by Forest Associates at a salary of $5,000 per month. He is shocked when his first monthly paycheck is only $3,950. Explain to Calvin some of the factors that may have contributed to the difference.

On October 1, 2012, Haywood Company borrowed money by issuing a $12,000 face value discount note to its bank. The note had an 8% discount rate and had a term of 1 year. The amount of cash that Haywood received on that date was $12,000.

The amount of total liabilities that would appear on Ramon's December 31 balance sheets for 2013 and 2014 would be

Hamm Co. borrowed $10,000 from Townsend Co. on March 1, 2013. Hamm is to repay the principal and interest on March 1, 2014. The interest rate is 8%. If the year-end adjustment is properly recorded, what will be the effects of the accrual on Hamm's 2013 financial statements?

Which of the following is a claims exchange transaction?

On October 1, 2013, Tangier Company borrowed $44,000 from the bank by issuing a one year 8% interest bearing note. Required: a) Prepare the journal entry to record the issuance of the note. b) Compute the amount of interest expense that will be shown on the 2013 income statement. c) What is the total amount of cash that will be paid to the bank at the maturity of the note on October 1, 2014? d) Prepare the liabilities section of the balance sheet at December 31, 2013.

Contingent liabilities are only recognized if they arise from past events.

As a result of the recognition of interest expense on 12/31/12,

Indicate whether each of the following statements is true or false. _____ a) Operating cycles for most businesses are less than one year. _____ b) If a business does not plan to use any of its current assets to repay a debt, then that debt is listed as long term even if it is due within a year. _____ c) The current ratio is computed by dividing current assets by net income. _____ d) The current ratio is a useful measure of a company's solvency. _____ e) Liquidity is the ability of a business to repay liabilities in the long run.

Recording an adjusting entry for product warranties is a claims exchange transaction.

What type of account is Discount on Notes Payable, and is the normal balance a debit or credit?

The current ratio is a measure of: