Question 1

Assume the current ratio is 2 to 1. Payment on accrued salaries payable would cause the current ratio to

Accepted Answer

A)  decrease. 
B)  be unchanged since the effects offset one another. 
C)  increase. 
D)  be unchanged since it has no impact on any current accounts.

Question 2

A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400, then the current ratio would be

Accepted Answer

A)  1.75 to 1 
B)  3.50 to 1 
C)  2.25 to 1 
D)  3.00 to 1

Question 3

Executive, Inc. has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday. If December 31, the last day of the accounting year, falls on Thursday, Executive would make an adjustment that would

Accepted Answer

A)  decrease Wages Payable $2,000. 
B)  increase Wages Payable $2,000. 
C)  increase Wages Expense $8,000. 
D)  decrease Cash $8,000.

Question 4

If current assets amount to $150, total assets $350, current liabilities $65, and total liabilities $100, then the current ratio is

Accepted Answer

A)  3.03 to 1 
B)  2.12 to 1 
C)  2.31 to 1 
D)  3.50 to 1

Question 5

A company's balance sheet shows the account, Notes Payable. This resulted from a loan made by the company's bank. If the end-of-year balance in the notes payable account exceeds the beginning-of-year balance by $5,000, this is shown on the cash flow statement as an

Accepted Answer

A)  inflow of cash of $5,000 in the operating activities category. 
B)  inflow of cash of $5,000 in the financing activities category. 
C)  outflow of cash of $5,000 in the operating activities category. 
D)  outflow of cash of $5,000 in the financing activities category.

Question 6

To determine whether a lottery winner would prefer to receive the money in a single lump sum immediately or receive an equal amount over a period of years, you would use which type of time value of money calculation?

Accepted Answer

A)  The future value of an annuity. 
B)  The present value of an annuity. 
C)  The present value of a single amount. 
D)  The future value of a single amount.

Question 7

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

Accepted Answer

A)  interest payable, $1,050. 
B)  prepaid interest, $3,150. 
C)  notes payable, $1,050. 
D)  interest expense, $4,200.

Question 8

If a company purchases $3,000 worth of inventory with terms of 1/15, n30 and pays within 15 days, then the amount paid to the seller would be

Accepted Answer

A)  $3,030 
B)  $2,550 
C)  $2,970 
D)  $3,000

Question 9

Advance ticket sales for a concert next month are a current liability.

Accepted Answer

A) True 
 B)False

Question 10

All of the following statements are true except:

Accepted Answer

A)  under IFRS, an unclassified balance sheet based on the order of liquidity is acceptable only when it provides more reliable information than a classified one. 
B)  U.S. standards require a classified balance sheet with liabilities in order by size or by order of liquidity. 
C)  IFRS require companies to present classified balance sheets. 
D)  U.S. standards do not require a classified balance sheet.

Question 11

Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2014 balance sheet.
-Estimated warranty payable by June 30, 2015.

Accepted Answer

A) Current liability 
B) Long-term liability

Question 12

Redfearn Company has current assets of $150,000 and current liabilities of $60,000. How much inventory could it purchase on account and achieve its minimum desired current ratio of 2 to 1?

Accepted Answer

A)  $30,000 
B)  $40,000 
C)  $10,000 
D)  $20,000

Question 13

If current assets amount to $62,000, total assets $350,000, current liabilities $31,000, and total liabilities $125,000, then the current ratio is

Accepted Answer

A)  3.0 to 1 
B)  0.5 to 1 
C)  2.0 to 1 
D)  2.8 to 1

Question 14

What is the difference between simple interest and compound interest? Is the amount of interest higher or lower when the interest is simple rather than compound?

Accepted Answer

The answer of What is the difference between simple interest...

Question 15

There are some liabilities, such as income tax payable, for which the amounts must be estimated. Failure to estimate these amounts and record them would be a violation of the

Accepted Answer

A)  convention of conservation. 
B)  concept of historical cost. 
C)  practice of consistency. 
D)  matching principle.

Question 16

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 4 annual deposits at 8% is

Accepted Answer

A)  the cumulative total of the future value of $1 factors for 4 deposits at 8%. 
B)  the reciprocal of the future value of $1 factor for n = 4 and 8%. 
C)  the same as for the future value of $1 multiplied by 4. 
D)  the same as using the future value of $1 factors at 8% for 3, 2, 1 and 0 periods.

Question 17

Which of the following statements regarding the inclusion of liabilities on the statement of cash flows is true?

Accepted Answer

A)  Long-term liabilities generally affect the investing activities section. 
B)  A decrease in a current liability from the beginning to the end of the year is accompanied by an inflow of cash. 
C)  All current liabilities affect the operating activities section. 
D)  A decrease in a current liability from the beginning to the end of the year is accompanied by a decrease of cash.

Question 18

On July 1, 2015, Clayton Shop borrowed $33,000 from the bank. Clayton signed a ten-month, 6% promissory note for the entire amount. Clayton uses a calendar year-end.
REQUIRED:
1. Identify the accounting equation effects for the July 1, 2015 transaction of issuing the promissory note.
2. Identify any adjustments needed at year-end.
3. Identify the accounting equation effects for the May 1, 2016 transaction to record the payment of principal and interest.

Accepted Answer

The answer of On July 1, 2015, Clayton Shop borrowed...

Question 19

All of the following statements about current liabilities are true except:

Accepted Answer

A)  current liabilities are normally recorded at face value. 
B)  current liabilities are obligations which will be satisfied within one year. 
C)  current liabilities finance the working capital of the company. 
D)  the current liability section never contains any portion of long-term liabilities.

Question 20

On November 1, Greenfield Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. If you assume 360 days in year, the November 30 adjustment will include:

Accepted Answer

A)  an increase in Discount on Notes Payable, $1,100 and an increase in Interest Payable, $1,100. 
B)  an increase in Interest Expense, $550 and an increase in Interest Payable, $550. 
C)  an increase in Interest Expense, $550 and an increase in Notes Payable, $550. 
D)  an increase in Interest Expense, $550 and a decrease in Cash, $550.

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