Deck 9: Long-Term Assets

Question 1

Bankers will often compare current assets to current liabilities to assess viability.

Answer 1

True

Question 2

Which of the following liabilities is often referred to as "free debt" because it rarely carries any interest if paid within a specified period of time?

A) line of credit
B) working capital loan
C) accounts payable
D) None of the above-all current liabilities carry an interest rate.

Answer 2

C

Question 3

Which of the following is NOT a characteristic of a liability?

A) There is a probable future sacrifice of resources.
B) There is a fixed payment amount and payment date.
C) There is little discretion to avoid the obligation.
D) The event giving rise to the liability has already occurred.

Answer 3

B

Question 4

The difference between the face value of a liability and its present value is due to the time value of money.

Question 5

Liabilities are the result of events or transactions that have already occurred.

Question 6

Accounting standards require that liabilities be recorded at their present value.

Question 7

For which of the following reasons would a user examine the current liabilities?

A) to determine how quickly accounts receivable are collected
B) to determine how much cash will be required to meet obligations in the short-term
C) to determine how much cash will be required to meet obligations in the long-term
D) to evaluate company performance

Question 8

All of the following are ways that corporations can finance current cash shortages EXCEPT a

A) line of credit.
B) current portion of long-term debt.
C) short-term loan.
D) working capital loan.

Question 9

A short-term liability used by a company to finance the purchase of current assets and that is often secured by accounts receivable or inventory is referred to as a(n)

A) accounts payable.
B) current liability.
C) line of credit.
D) overdraft protection.

Question 10

All of the following are examples of current liabilities, EXCEPT for

A) accrued expenses.
B) unearned revenues.
C) interest payable.
D) prepaid expenses.

Question 11

All current liabilities are settled with cash.

Question 12

All current liabilities have fixed due dates and fixed payment amounts.

Question 13

Accounts payable are recorded on the books at their

A) net present value.
B) net amount.
C) net realizable value.
D) face value.

Question 14

Typically acquisition costs for inventory can be financed through the use of

A) overdraft protection.
B) accounts payable.
C) working capital.
D) notes payable.

Question 15

A company has $5,000,000 in long-term debt outstanding. They expect to repay it evenly over the next four years. Which of the following represents how it will be shown on the year-end balance sheet?

A) Accounts Payable: $1,250,000, Long-Term Debt: $3,750,000
B) Current Portion of Long-Term Debt: $1,250,000, Long-Term Debt: $3,750,000
C) Current Portion of Long-Term Debt: $2,500,000, Long-Term Debt: $2,500,000
D) Long-Term Debt: $5,000,000

Question 16

Non-current liabilities are recorded in the books at their

A) net present value.
B) net amount.
C) net realizable value.
D) gross amount.

Question 17

Which of the following statements about accounts payable is NOT true?

A) They are usually due within 30 to 60 days.
B) They normally carry implicit interest charges.
C) There may be a penalty for late payment.
D) They are typically used to finance inventory purchases.

Question 18

During 2017 Albany Appliances sold 400 appliances worth $2,000,000. Each appliance comes with a one-year warranty, which Albany estimates will cost $75 each. During the year Albany spent $12,500 on warranty costs for the appliances sold in 2017. At the end of the 2017 the warranty liability and the warranty expense related to these sales would be closest to

Question 19

A line of credit helps a company deal with temporary cash shortages.

Question 20

On December 31, 2017, a company has a $500,000 15-year mortgage outstanding. Over the next year they will make 12 monthly payments of $5,000 representing $33,500 of interest and $26,500 of principal repayment. Which of the following best represents how the mortgage will be reported on the December 31, 2017 balance sheet?

Question 21

Which of the following companies would usually NOT have an unearned revenue account?

A) magazine publishing company
B) property management company
C) airline
D) hardware store

Question 22

Lokus Lofts is a rental company that requires its tenants to pay rent one month in advance. Lokus should record the cash received as

A) Prepaid Rent.
B) Rent Revenue.
C) Unearned Revenue.
D) Accounts Payable.

Question 23

The awarding of frequent flyer miles by airline companies is accounted for in a manner similar to

A) warranty expenses.
B) accounts payable.
C) contingent liabilities.
D) commitments.

Question 24

Use the following information for questions 40-42.
Melman Microscopes Inc. offers a two-year warranty against failure of its products. The estimated liability is 1.5% in the year of sale and 3% in the second year. Sales and actual warranty expense for 2016 and 2017 were:
The warranty expense for 2017 was

A) $157,500.
B) $175,500.
C) $195,000.
D) $305,000.

Question 25

Which of the following liabilities results from amounts owed by BOTH the employee and the employer?

A) employee income tax payable
B) wages payable
C) employment insurance payable
D) vacation pay payable

Question 26

An employee earns $1,500 a week and the deductions from that amount for her contributions to EI, CPP, and income taxes are $185. The company must contribute an additional $105 for EI and CPP. How much would the company record as salary expense for that week?

A) $1,420
B) $1,500
C) $1,605
D) $1,790

Question 27

The following information relates to Blink & Block payroll for the month of March: The total wage expense for Blink & Block for the month of March is closest to

A) $13,975.50.
B) $16,137.30.
C) $9,285.
D) $16,024.50.

Question 28

When the board declares dividends, the correct journal will be

A) Dividends Expense Dividends Payable
B) Dividend Declared Cash
C) Dividends Declared Dividends Payable
D) Dividends Receivable Dividends Revenue

Question 29

Use the following information for questions 37-39.
Jems & Jewels Inc. offers a two-year warranty against failure of its products. The estimated liability is 4% of sales in the year of sale and 6% in the second year. Sales for 2016 and 2017 were: $2,500,000 and $2,800,000, respectively. They incurred no warranty costs in 2016 but in 2017 they spent $175,000 on repairs related to the warranties from 2016 and 2017.
The warranty liability as at the year-end 2016 was

A) $0.
B) $100,000.
C) $150,000.
D) $250,000.

Question 30

Use the following information for questions 40-42.
Melman Microscopes Inc. offers a two-year warranty against failure of its products. The estimated liability is 1.5% in the year of sale and 3% in the second year. Sales and actual warranty expense for 2016 and 2017 were:
The warranty liability on the December 31, 2016 balance sheet was

A) $47,500.
B) $105,000.
C) $110,000.
D) $157,500

Question 31

Use the following information for questions 34-35.
Malaya's Manicures sells $2,500 worth of gift certificates in November and December. 25% of the gift certificates are redeemed in December prior to the December 31 year end.
The entry to record the sale of the gift certificates is

A) Dr. Cash, Cr. Gift Card Revenue
B) Dr. Gift Card Revenue, Cr. Deferred Gift Card Revenue
C) Dr. Prepaid Gift Cards, Cr. Gift Card Revenue
D) Dr. Cash, Cr. Deferred Gift Card Revenue

Question 32

Use the following information for questions 34-35.
Malaya's Manicures sells $2,500 worth of gift certificates in November and December. 25% of the gift certificates are redeemed in December prior to the December 31 year end.
The required year end adjusting entry is

A) Dr. Revenues $625, Cr. Deferred Gift Card Revenues $625
B) Dr. Revenues $1,875, Cr. Deferred Gift Card Revenues $1,875
C) Dr. Deferred Gift Card Revenues $625, Cr. Revenues $625
D) Dr. Gift Card Revenues $1,875, Cr. Revenues $1,875

Question 33

All of the following situations contribute to the need for a company to recognize deferred revenues, EXCEPT for

A) partially executed contracts between buyers and sellers.
B) the requirement by sellers for the prepayment of goods and services.
C) mutually unexecuted contracts between buyers and sellers.
D) the seller has collected a deposit but not yet met the criteria for revenue recognition.

Question 34

Maynard Manufacturing has a two-week payroll of $8,200 for its eight employees. Income tax of $1,080 is deducted from the employees' cheques, as well as 4.95% for CPP and 1.88% for EI. Wages deposited in employees' bank accounts would be

A) $6,560.
B) $7,120.
C) $7,640.
D) $8,200.

Question 35

Use the following information for questions 40-42.
Melman Microscopes Inc. offers a two-year warranty against failure of its products. The estimated liability is 1.5% in the year of sale and 3% in the second year. Sales and actual warranty expense for 2016 and 2017 were:
The warranty liability on the December 31, 2017 balance sheet was

A) $0.
B) $28,000.
C) $138,000.
D) $175,500.

Question 36

Which of the following statements concerning income taxes in Canada is NOT true?

A) Income taxes must often be estimated based on prior years' tax returns.
B) Income taxes are usually paid through instalment payments throughout the year.
C) The deadline for filing a corporate tax return and payment of any outstanding taxes is six months after the company's year-end.
D) Income taxes payable is reported as a current liability.

Question 37

Use the following information for questions 37-39.
Jems & Jewels Inc. offers a two-year warranty against failure of its products. The estimated liability is 4% of sales in the year of sale and 6% in the second year. Sales for 2016 and 2017 were: $2,500,000 and $2,800,000, respectively. They incurred no warranty costs in 2016 but in 2017 they spent $175,000 on repairs related to the warranties from 2016 and 2017.
The warranty expense for 2016 was

A) $80,000.
B) $100,000.
C) $150,000.
D) $250,000.

Question 38

Which of the following companies would be MOST likely to have an unearned revenue account?

A) grocery store
B) department store
C) hotel chain
D) car dealership

Question 39

Which of the following liabilities requires the use of an estimate when it is initially recorded?

A) Wages Payable
B) Unearned Revenue
C) Warranty Obligation
D) Accounts Payable

Question 40

Use the following information for questions 37-39.
Jems & Jewels Inc. offers a two-year warranty against failure of its products. The estimated liability is 4% of sales in the year of sale and 6% in the second year. Sales for 2016 and 2017 were: $2,500,000 and $2,800,000, respectively. They incurred no warranty costs in 2016 but in 2017 they spent $175,000 on repairs related to the warranties from 2016 and 2017.
The warranty liability as at the end of the 2017 year was

A) $75,000.
B) $280,000.
C) $355,000.
D) $530,000

Question 41

Dividends Payable is the most common type of liability the corporation has to

A) the government.
B) the employees.
C) the shareholders.
D) the board of directors.

Question 42

The accounts payable turnover ratio measures

A) number of times the company settles its trade payable.
B) average accounts payable balance.
C) the average number of times the industry settles their trade payable.
D) the average balance of accounts payable to current assets.