Deck 10: Reporting and Interpreting Bond Securities

Question 1

The following is a partial list of account balances from the books of Ellsworth Enterprise at the end of 20B: Based solely upon these balances,what amount of current liabilities should appear on Ellsworth's 20B year-end statement of financial position?

A)$3,900
B)$4,300
C)$4,800
D)$5,400

Answer 1

C

Question 2

Deferred revenue is another term for which of the following?
A.Prepaid expenses.
B.Sales revenue.
C.Trade payables.
D.Unearned revenue.

Answer 2

On July 1,20A,Wilson,Inc.,borrowed $12,000 from First Bank on a one year,8% note payable.Interest is payable on December 31,20A and on June 30,20B,the due date of the note.

Question 3

Which of the following most likely would be classified as a current liability?

A)Dividends payable
B)Bonds payable
C)Three-year notes payable
D)Mortgage payable

Answer 3

A

Question 4

Wang's Pharmacy has collected $750 in provincial sales taxes (PST)during March.If provincial sales taxes must be remitted to the provincial government monthly,what entry will Wang's Pharmacy make to show the March remittance?

A)Choice A
B)Choice B
C)Choice C
D)Choice D

Question 5

A company has a current ratio of 2.4 before paying off a large current liability with cash.Following this payment,what is the current ratio?

A)Greater than 2.4 or less than 2.4 depending upon the dollar amount involved.
B)Less than 2.4.
C)Equal to 2.4.
D)Greater than 2.4.

Question 6

Liquidity ratios measure a company's

A)operating cycle.
B)revenue-producing ability.
C)short-term debt paying ability.
D)long-range solvency.

Question 7

Fundamentally,liabilities are measured in conformity with which of the following?

A)The revenue principle.
B)The matching principle.
C)The cost principle.
D)The materiality constraint.

Question 8

In 2011,P Co reported a current ratio of 1.47 and in 2012,0.55.In examining their statement of financial position for 2012,they disclosed current assets of $4,362 million and current liabilities of $7,914 million.In 2011,they had no short-term borrowings but they disclosed $3,921 million in short-term borrowings for 2012.What would P Co's current ratio have been in 2012 if they had not borrowed those funds?

A)0.37
B)0.98
C)1.09
D)It cannot be computed without knowing the amount of current liabilities in 2011 so we can compute the average current liabilities in the denominator.

Question 9

A current liability is a debt that can reasonably be expected to be paid

A)within one year.
B)between 6 months and 18 months.
C)out of currently recognized revenues.
D)out of cash currently on hand.

Question 10

Which of the following usually is not a current liability?

A)Wages payable.
B)Pension obligations.
C)Dividends payable.
D)Rent revenue collected in advance.

Question 11

Which of the following is not a typical example of a current liability?

A)Revenue collected in advance.
B)Accrued interest payable.
C)Employee taxes withheld.
D)Mortgage payable.

Question 12

Which of the following statements is false relating to payroll taxes?

A)When recording the payroll entry,the credit to wages payable is usually more than the debit to wages expense.
B)CPP is a "matching" tax with the employer.
C)Income taxes withheld from employees' paychecks are liabilities of the employer.
D)When the salaries expense entry is recorded,the credit to cash will be for less than the debit to salaries expense.

Question 13

In 2012,The W D Company reported current assets of $10,200 million,total assets of $43,679 million,current liabilities of $7,707 million,and total liabilities of $22,704 million.What was their current ratio for 2012?

A)0.45
B)1.32
C)1.92
D)5.67

Question 14

Y Co had a current ratio of 4.44 in 2011 and 5.84 in 2012.Which of the following would not cause the ratio to increase?

A)An increase in cash and equivalents and short-term investments.
B)An increase in current assets that exceeded the increase in current liabilities.
C)Current assets as a percentage of total assets increased while current liabilities as a percentage of total liabilities and shareholders' equity decreased.
D)An increase in long-term liabilities.

Question 15

On September 1,20A,Dawn Equipment signed a one-year,7% interest-bearing note payable for $5,000.Assuming that Dawn maintains its books on a calendar year basis,what is the amount of interest expense that should be reported in the 20B income statement for this note (rounded to the nearest dollar)?

A)$233
B)$267
C)$300
D)$400

Question 16

Warner Company borrowed $25,000 cash on November 1,20A,and signed a six-month,12% interest-bearing note payable with interest payable at maturity.What is the amount of accrued interest payable that should be shown on the 20A statement of financial position?

A)$250
B)$300
C)$500
D)$750

Question 17

The relationship between current assets and current liabilities is

A)useful in evaluating a company's liquidity.
B)called the matching principle.
C)useful in determining the amount of a company's long-term debt.
D)useful in determining profit.

Question 18

Carly Design Inc.received its annual property tax bill for $8,400 in January.It was paid when due on March 31.Carly Design's year end is Dec 31.The Dec 31 account balances should be

A)$2,100 for Prepaid Property Tax,$6,300 for Property Tax Expense
B)$2,100 for Prepaid Property Tax,$2,100 for Property Tax Payable
C)$0 for Prepaid Property Tax,$0 for Property Tax Payable
D)$700 for Prepaid Property Tax,$7,700 for Property Tax Expense

Question 19

How is the current ratio computed?

A)Current assets divided by current liabilities.
B)Current assets divided by total assets.
C)Current liabilities divided by total assets.
D)Current liabilities divided by current assets.

Question 20

Gross wages of $5,000 accrued but not paid to employees at the end of 20B should be recorded by the employer in a journal entry that includes which of the following?

A)A debit of $5,000 to Wages payable.
B)A credit of $5,000 to Cash.
C)A debit of $5,000 to Wages expense.
D)A debit of $5,000 to Cash.

Question 21

In 2012,P Co reported a trade payables turnover ratio of 2.49 and C Co reported a turnover ratio of 1.74 for that same year.Which of the following statements is true?

A)C Co pays their vendors in a more timely manner than P Co pays their vendors.
B)On a comparative basis to cost of goods sold,P Co carries more in average payables than does C Co.
C)It is unclear if P Co pays their vendors in a more timely manner than C Co.
D)P Co took approximately 147 days while C Co took about 210 days to pay vendors.

Question 22

In 2012,C Co reported a trade payables turnover ratio of 1.85 and a current ratio of 0.66.Their statement of financial position shows $2.1 billion in marketable securities not included in their current assets and good cash flow from operations.Which of the following interpretations is most likely?

A)Since the two ratios are fairly high,it indicates C Co has little difficulty paying its bills in a timely manner.
B)Since both these ratios are low,it might indicate poor liquidity and inability to pay vendors in a timely manner.
C)C Co practices aggressive cash management policies including investing excess cash and using vendors to finance operations by making slow payment to them.
D)C Co must be carrying a low amount of current liabilities in comparison to its total liabilities.

Question 23

Bison Corp.issues a 5 year 8%,$60,000 note payable on March 1.The terms of the note include monthly blended principal and interest payments of $1,217.The entry to record the second instalment payment will show a:

A)debit to Notes Payable of $822.
B)debit to Cash for $1,217.
C)debit to Interest Expense for $400.
D)credit to Interest Expense for $395.

Question 24

Goodman Company borrowed $100,000 cash on September 1,20B,and signed a one-year,12%,interest-bearing note payable.What would be the required adjusting entry at the end of the accounting period,December 31,20B?

A)Choice A
B)Choice B
C)Choice C
D)Choice D

Question 25

The journal entry required on the company's books to record the note payable on July 1,20A would include which of the following?

A)A credit to notes payable for $12,000.
B)A credit to notes payable for $12,960.
C)A debit to cash for $11,040.
D)A debit to interest expense for $960.

Question 26

In 2012,Toys 4 U had a trade payables turnover ratio of 6.08; in 2011,5.87; and 5.45 in 2010.Which statement is true about what the ratios indicate?

A)Toys 4 U is taking longer to pay its vendors in 2012 versus 2011.
B)Toys 4 U is taking less time to pay vendors in 2012 than it took in both 2011 and 2010.
C)Toys 4 U has been increasing its average payables at a faster rate than its cost of goods sold has increased.
D)Toys 4 U is taking less time to collect from its customers.

Question 27

Which of the following is usually NOT considered to be a long-term liability?

A)Bonds payable.
B)Mortgages payable.
C)Accrued post-retirement benefits.
D)CCP contributions payable.

Question 28

Interest rates on notes are usually stated as a(n)

A)monthly rate.
B)daily rate.
C)annual rate.
D)semi-annual rate.

Question 29

To finance a new department,Dannella Yogurt Corporation borrowed $80,000 at an interest rate of 10% on April 1,20A.Considering the income tax rate of 40%,what is the after tax interest rate for 20A?

A)4%
B)6%
C)10%
D)14%

Question 30

Failure to make a necessary adjusting entry for accrued interest on a note payable would cause which of the following?

A)An understatement of liabilities and shareholders' equity.
B)Profit to be overstated and assets to be understated.
C)Profit to be understated and liabilities to be understated.
D)An overstatement of profit,an understatement of liabilities,and an overstatement of shareholders' equity.

Question 31

How should the amount of federal income tax that is withheld from employees' paychecks by the employer be recorded?

A)On the employer's books as a current liability.
B)On the employer's books as an asset.
C)On the employer's books as revenue.
D)It should not be recorded on the employer's books.

Question 32

A Co,a biotechnology company,reported cost of goods sold of $345.2 million and trade payables of $121.6 million for 2012.In 2011,cost of goods sold was $300.8 million and trade payable was $103.9 million.What was A Co's trade payables turnover ratio in 2012?

A)2.84
B)2.86
C)2.90
D)3.06

Question 33

In 2012,P Co reported an increase in trade receivables of $303 million,and an increase in inventory of $284 million.They also experienced an increase in short-term borrowings of $3,921 million and an increase in trade payables of $253 million.Calculate the net cash effect of these changes.

A)$3,587 million decrease
B)$4,761 million increase
C)$3,587 million increase
D)$4,761 million decrease

Question 34

In 2012,Toys 4 U reported inventory of $1,902 million and trade payables of $1,415 million.In 2011,the company reported inventory of $2,464 million and trade payables of $1,280 million.What was the effect on the 2012 cash flow from operating activities?

A)A decrease in cash of $697 million
B)An increase in cash of $697 million
C)A decrease in cash of $427 million
D)An increase in cash of $427 million

Question 35

Deferred revenue is another term for which of the following?

A)Prepaid expenses.
B)Sales revenue.
C)Trade payables.
D)Unearned revenue.

Question 36

On April 1,20A,$1,000 cash was borrowed for one year on a 6% interest-bearing note.What is the interest expense for 20A?

A)$0
B)$15
C)$45
D)$60

Question 37

On the company's 20A year-end statement of financial position,the liability related to this note should be reported as which of the following?

A)A $12,480 long-term liability.
B)A $12,480 current liability.
C)A $12,000 long-term liability.
D)A $12,000 current liability.

Question 38

Site Company had the following account balances related to payroll at the end of the period: Without considering any employer payroll taxes,Site would record Salaries Payable for the pay period amounting to which of the following?

A)$61,000
B)$68,000
C)$75,000
D)$95,000

Question 39

G Co and A Co are both in the biotechnology industry.In 2012,G Co reported a trade payables turnover of 7.71 and A Co reported a ratio of 3.06.Which of the following is an incorrect reason for the difference in ratios?

A)A Co has a higher average trade payables in comparison to their cost of goods sold.
B)A Co has a lower average trade payables in comparison to their cost of goods sold.
C)A Co is taking longer to pay vendors
D)G Co has a better payment record in terms of timely payment to vendors.

Question 40

The federal government requires which of the following?

A)Only the employer to pay CPP contributions.
B)Only the employee to pay CPP contributions.
C)Neither the employer nor the employee to pay CPP contributions.
D)Both the employer and the employee to pay CPP contributions.

Question 41

Cress Company is involved in a lawsuit.Note disclosure of the contingent liability which could arise does NOT have to be presented if the probability of Cress owing money as a result of the lawsuit is which of the following?

A)Reasonably possible and the amount cannot be reasonably estimated.
B)Probable and the amount cannot be reasonably estimated.
C)Remote and the amount cannot be reasonably estimated.
D)Reasonably possible and the amount can be reasonably estimated.

Question 42

Jake Company is involved in a lawsuit.The liability which could arise as a result of this lawsuit should be recorded on the books if the probability of Jake owing money as a result of the lawsuit is which of the following?

A)Remote and the amount can be reasonably estimated.
B)Probable and the amount cannot be reasonably estimated.
C)Reasonably possible and the amount can be reasonably estimated.
D)Probable and the amount can be reasonably estimated.

Question 43

Alamo Autoworks,Inc.is involved in a lawsuit.Their lawyers state that it is probable that the jury will find in favour of the plaintiff and Alamo will owe two million dollars.Even though the lawsuit is not yet settled,Alamo should record a liability in the statement of financial position and which of the following?

A)A prepaid expense.
B)A loss.
C)Deferred revenue.
D)A contra-asset.

Question 44

If a company uses cash to pay off a current liability,the amount of working capital will decrease.

Question 45

Situations which require that future income tax be reported involve a difference that is called which of the following?

A)A permanent difference.
B)A reversing tax inverse difference.
C)A temporary difference.
D)A contingent liability.

Question 46

A liability that is classified as current by the Meadow Gold Dairy Company should always be classified as current by the McDonald Douglas Aircraft Company.

Question 47

Current liabilities are short-term obligations that will be paid within the normal operating cycle of the business or within one year of the statement of financial position date,whichever is longer.

Question 48

Income tax expense reported on the income statement is $45,000 for 20A,and the tax return for 20A (the first year)shows an income tax liability of $42,000 because of a deduction that cannot be taken until 20B.The future income tax amount on the statement of financial position at the end of 20A will be which of the following?

A)debit of $3,000
B)credit of $3,000
C)credit of $42,000
D)credit of $45,000

Question 49

When a company increases trade payables from one year to the next,what is the effect on cash flows?

A)A decrease in cash caused by paying down our debt to vendors.
B)An increase in cash because we have not paid cash for all the inventory and services purchased on credit during the period.
C)A decrease to cash because we will have to pay these liabilities in the future.
D)An increase to cash because we have received cash from vendors.

Question 50

Freeman Inc.reported a profit of $40,000 for 20A.The income tax return excluded a revenue item of $3,000 (reported on the income statement)because under the tax laws the $3,000 would not be reported for tax purposes until 20B.Assuming a 30% income tax rate,this situation would cause a 20A Future tax amount of which of the following?

A)$3,000 (debit)
B)$3,000 (credit)
C)$900 (debit)
D)$900 (credit)

Question 51

The amount of sales tax collected by a retail store when making sales is

A)a miscellaneous revenue for the store.
B)a current liability.
C)not recorded because it is a tax paid by the customer.
D)recorded as an operating expense.

Question 52

Which of the following is correct with respect to a contingent liability that is "reasonably possible" but "cannot reasonably be estimated"?

A)It must be recorded and reported as a liability.
B)It does not need to be recorded or reported as a liability.
C)It must only be disclosed as a note to the financial statements.
D)It must be reported as a liability,but not recorded.

Question 53

Fundamentally,liabilities are measured at their cash equivalent amount.

Question 54

Accountants define liabilities as obligations arising from past transactions that will be settled in the future by some transfer or use of assets or provision of services.

Question 55

Working capital is the total amount of assets needed to operate the business during the next year or operating cycle,whichever is shorter.

Question 56

Future income tax obligations should be reported on which of the following?

A)A corporation's income tax return.
B)A corporation's statement of financial position.
C)A corporation's income statement.
D)Statement of changes in equity.

Question 57

Future Income taxes are caused by which of the following?

A)A company's inability to pay income tax due in a particular tax year.
B)Accounting errors.
C)The fact that the value of one country's currency relative to that of another can change over time.
D)Differences in IFRS and ITA rules pertaining to when revenue and expenses should be recognized.

Question 58

Liabilities are defined as probable future economic benefits.

Question 59

The two primary factors management considers in determining the business's capital structure is level of risk and the rate of return.

Question 60

A contingent liability is recorded in the accounting records

A)if a reasonable estimate of the expected loss can be determined and if it is probable.
B)if the contingency has not already been disclosed in the notes to the financial statements.
C)if it will possibly become an actual liability,and the exact amount is unknown.
D)under no circumstances.

Question 61

If a company intends to refinance a liability that is due within one year,that liability should not be classified as a current liability.

Question 62

The trade payables turnover ratio shows how quickly management is paying its trade creditors and is considered to be a measure of liquidity.

Question 63

Current liabilities are short-term obligations that will be paid within the current operating cycle of the business or within two years of the statement of financial position date,whichever is longer.

Question 64

The Canada Pension Plan contribution is a matching contribution with a portion paid by both the employer and the employee.

Question 65

The "trade payables" account should generally be used only for trade payables (obligations owed to suppliers in the normal course of business)which relate to the purchase of goods and services.

Question 66

In conformity with the matching principle,interest expense is reported when incurred rather than when paid.

Question 67

A current ratio that is high according to an industry average might mean the company may have excessive inventory levels or slow moving inventory items.

Question 68

An accrued expense arises because an expense item has been prepaid,but the related expense has not been incurred as yet.

Question 69

Analysts use the current ratio to assess the profitability of a company.

Question 70

When a company generates a lower rate of return on its investment in assets than the rate it pays to borrow money,the company wants to use more borrowed funds in its capital structure.

Question 71

Simple interest is calculated as: Principal x Time.

Question 72

An unearned (deferred)revenue is reported as a liability because cash has been collected,but the related revenue has not been earned by the end of the accounting period.

Question 73

The amount of salary expense that a company records for a pay period will usually be less than the amount of salary payable that it records.

Question 74

G Co,a biotechnology company,reported current assets of $1,326.5 million and current liabilities of $484.1 million in 2012 and in 2011,current assets of $1,242.0 million and $291.3 million of current liabilities.Therefore,working capital for G Co.increased from 2011 to 2012.

Question 75

The trade payables turnover ratio can indicate if a company is experiencing cash flow problems.

Question 76

The trade payables turnover ratio tests how quickly our credit customers pay their bills.

Question 77

A company that sells primarily on a cash basis could support a lower current ratio because their cash inflow is faster than a company selling on credit.

Question 78

The current ratio is the dollar difference between total assets and total liabilities.

Question 79

A liability,to be reported on the statement of financial position,must have a fixed,known amount to be paid in the future.

Question 80

Liabilities represent an obligation to pay that the company must satisfy.