Deck 10: Reporting and Analyzing Long-Lived Assets

Question 1

"Current maturities of non-current debt" refers to the amount of interest on notes payable that must be paid in the current year.

Answer 1

False

Question 2

Account for current liabilities.

Answer 2

A current liability is a debt that will be paid (1) from existing current assets or through the creation of other current liabilities, and (2) within one year.An example of a current liability is an operating line of credit that results in bank indebtedness.Current liabilities also include sales taxes, payroll deductions, and employee benefits, all of which the company collects on behalf of third parties.Other examples include property taxes and interest on notes or loans payable, which must be accrued until paid.The portion of non-current debt that is due within the next year must be deducted from the total non-current debt and reported as a current liability.

Question 3

Most notes and bank loans are not interest bearing.

Answer 3

False

Question 4

Identify the requirements for the financial statement presentation and analysis of liabilities.In the income statement, interest expense (finance cost) is reported as "other revenues and expenses." In the statement of financial position, current liabilities are usually reported first, followed by non-current liabilities.

Question 5

If a company's fiscal year is the same as the calendar year used for property tax purposes, there should be no prepaid property tax on its year-end financial statements but there may be a property tax liability.

Question 6

Account for instalment notes payable.

Question 7

Account for bonds payable (Appendix 10A).

Question 8

Notes payable are sometimes used instead of accounts payable.

Question 9

If any portion of a non-current liability is to be paid in the next year, the entire debt should be classified as a current liability.

Question 10

Payroll liabilities include the employer's share of CPP contributions and EI premiums.

Question 11

Provisions are liabilities of uncertain timing or amount, along with some uncertainty as to whether the liability will have to be paid.

Question 12

Even though current and non-current debt must be shown separately on the statement of financial position, it is not necessary to prepare a journal entry to recognize this.

Question 13

A contingent liability may materialize in the future because of something that happened in the past.

Question 14

Interest expense on a bank loan payable is only recorded at maturity.

Question 15

Property tax payable is classified as a non-current liability because it is related to property, which is a non-current asset.

Question 16

If drawing on an operating line of credit results in a negative cash balance, a current liability known as bank indebtedness results.

Question 17

If interest is due at maturity, a $50,000, 4%, 9-month note payable requires an interest payment of $1,500.

Question 18

Notes payable usually require the borrower to pay interest.

Question 19

Amounts available to be drawn in the future from an operating line of credit improve a company's liquidity.

Question 20

When a business sells an item and collects Harmonized Sales Tax (HST) on it, a current liability arises.

Question 21

Under IFRS, contingent liabilities should be recorded in the accounts if there is a remote possibility that the contingency will actually occur.

Question 22

Unsecured notes are issued against the general credit of the borrower.

Question 23

A financial liability means there is a contractual obligation to pay cash in the future.

Question 24

With fixed principal payments on a long-term note payable, the interest portion does not change each period.

Question 25

A non- current liability is an obligation that is expected to be paid within one year.

Question 26

Instalment payments consist of a mix of interest on the unpaid balance of the loan and a reduction of the loan principal.

Question 27

With fixed principal payments on a long-term note payable, the interest portion decreases each period.

Question 28

While short-term notes are generally repayable in full at maturity, most long-term notes are repayable in a series of periodic payments called instalments.

Question 29

A mortgage payable is often secured by collateral such as a building.

Question 30

Long term notes payable can only have floating interest rates.

Question 31

All long-term notes payable must be secured.

Question 32

With fixed principal payments on a long-term note payable, the principal portion increases each period.

Question 33

Long term notes payable are a common form of debt financing.

Question 34

Instalments are always paid monthly.

Question 35

Unearned revenue is a financial liability.

Question 36

Secured notes are also known as mortgages.

Question 37

Instalment notes with fixed principal payment are repayable in equal periodic amounts which include interest.

Question 38

With blended principal and interest payments, the equal periodic payments result in the interest portion increasing each period.

Question 39

Since a portion of the principal is repaid each month, the outstanding balance will increase each month.

Question 40

With blended principal and interest payments, the equal periodic payments result in the principal portion increasing each period.

Question 41

Full disclosure of non- current debt is very important.

Question 42

All companies are prohibited to report current liabilities in reverse order of liquidity.

Question 43

The face value of a bond is the amount of principal and interest due at the maturity date.

Question 44

"Off-balance-sheet financing" refers to a situation where liabilities are recorded in the income statement instead of the statement of financial position.

Question 45

Liquidity ratios measure a company's long term ability to pay debt.

Question 46

All transactions between bondholders and other investors must be recorded by the issuing corporation.

Question 47

The classification of a liability as current or non-current is important because it may affect the evaluation of a company's liquidity.

Question 48

Detailed information such as a list showing the amounts of non current debt that is scheduled to be paid off in each of the next five years should be disclosed in the notes to the financial statements.

Question 49

A high liquidity ratio generally indicates that a company has a greater ability to meet its current obligations.

Question 50

The carrying amount of bonds issued at a discount will initially be higher than the face value.

Question 51

The terms of an operating line of credit and a notes (loans) payable are disclosed in the notes to the financial statements.

Question 52

Interest (finance) expenses are separately reported in the "other gain and revenues" section of the income statement.

Question 53

The debt to total assets ratio measures the percentage of the total assets provided by creditors.

Question 54

If a bond has a face value of $10,000 and a 6% coupon interest rate, then the semi-annual interest payment will be $600.

Question 55

Current liabilities are generally presented on the statement of financial position in order or liquidity, but IFRS allows presentation in reverse order of liquidity as well.

Question 56

The times interest earned ratio is calculated by dividing net profit by interest expense.

Question 57

Current liabilities are listed in order of descending dollar value.

Question 58

Solvency ratios measure a company's ability to repay current debt.

Question 59

Bonds are often traded on an organized exchange, such as the Toronto Stock Exchange (TSX).

Question 60

If bonds are redeemable, they can be retired by the issuer before they mature.

Question 61

Interest expense on a note payable, with interest due at maturity, is
(a)always equal to zero.
(b)accrued over the life of the note.
(c)only recorded at the time the note is issued.
(d)only recorded at maturity when the note is paid.

Question 62

Roofer's Inc.had an operating line of credit of $100,000 and overdrew its bank balance to result in a negative cash balance of $33,000 at year-end.This would be reported in the statement of financial position as
(a)a current liability of $33,000.
(b)a non-current liability of $67,000.
(c)a current asset of $67,000.
(d)a current asset of $(33,000).

Question 63

Harmonized Sales Tax (HST) collected by a retailer are expenses
(a)of the retailer.
(b)of the customers.
(c)of the government.
(d)that are not recognized by the retailer until they are submitted to the government.

Question 64

Use the following information for questions
On October 1, 2015, Mekhi's Golf Service Limited borrows $80,000 from Rigor Bank by signing a 3-month, $80,000, 4% bank loan.Interest is due the first of each month.
The entry by Mekhi's Golf Service to record payment of the loan and accrued interest on January 1, 2016 is

Question 65

Use the following information to answer questions
The following totals for the month of April were taken from the payroll register of Yandeau Corp.:

The journal entry to record payment of the net payroll would include a
(a)debit to Salaries Payable for $12,989.
(b)debit to Salaries Payable for $15,300.
(c)debit to Salaries Payable for $19,500.
(d)credit to Cash for $19,500.

Question 66

The carrying amount of a bond is its face value less any unamortized premium or plus any unamortized discount.

Question 67

If $150,000 face value bonds are issued at 102.5, the proceeds received will be $102,500.

Question 68

If bonds are issued at a discount, the issuing corporation will pay a principal amount that is less than the face amount of the bonds on the maturity date.

Question 69

Use the following information for questions
On October 1, 2015, Mekhi's Golf Service Limited borrows $80,000 from Rigor Bank by signing a 3-month, $80,000, 4% bank loan.Interest is due the first of each month.
What adjusting entry is required at December 31, 2015?

Question 70

Use the following information for questions
On January 1 of this year, Gertoni Lenders agrees to lend Ester Corp.$150,000.Ester Corp.signs a $150,000, 6%, 9-month loan.Interest is due at maturity.
What entry will Ester Corp.make to repay the loan on September 30, assuming no further adjusting entries have been made since June 30?

Question 71

The calculation of interest to be paid each interest period for a bond payable is not influenced by any premium or discount upon issue.

Question 72

If the market interest rate at the date of a bond issue is greater than the coupon interest rate, the bond will be issued at a premium.

Question 73

Use the following information for questions
On January 1 of this year, Gertoni Lenders agrees to lend Ester Corp.$150,000.Ester Corp.signs a $150,000, 6%, 9-month loan.Interest is due at maturity.
The entry made by Ester Corp.on January 1 to record the receipt of the loan is

Question 74

A customer paid a total of $8,960 for a purchase, including 13% HST (Harmonized Sales Tax).How much was the HST?
(a)$8,960
(b)$8,000
(c)$1,075
(d)$1,031

Question 75

On January 1, 2015, Junction Limited, a calendar-year company, issued $160,000 of notes payable, of which $65,000 is due on January 1 for each of the next four years.The proper statement of financial position presentation on December 31, 2015, is
(a)Current Liabilities, $160,000.
(b)Non-current Liabilities, $160,000.
(c)Current Liabilities, $65,000; Non-current Liabilities, $95,000.
(d)Current Liabilities, $95,000; Non-current Liabilities, $65,000.

Question 76

Amortization of a bond premium decreases interest expense recorded by the issuer.

Question 77

Failure to record a liability will probably
(a)result in overstated profit.
(b)result in overstated total liabilities and shareholders' equity.
(c)have no effect on profit.
(d)result in overstated total assets.

Question 78

Under IFRS, which of the following would most likely be classified as a current liability?
(a)mortgage payable
(b)bonds payable
(c)bank indebtedness
(d)contingent liability

Question 79

The effective-interest method is required for companies reporting under IFRS, but optional for companies using ASPE if other methods do not result in material differences.

Question 80

Killarney Exhibits Inc.received its annual property tax bill for $21,500 in January.It was paid when due on March 31.Killarney Exhibits year end is Dec 31.The Dec 31 balances should be
(a)$5,375 for Prepaid Property Tax; $16,125 for Property Tax Expense.
(b)$5,375 for Prepaid Property Tax; $5,375 for Property Tax Payable.
(c)$0 for Prepaid Property Tax; $0 for Property Tax Payable.
(d)$1,792 for Prepaid Property Tax; $19,708 for Property Tax Expense.