Question 1

The relationship between current assets and current liabilities is
A)useful in determining profitability.
B)useful in evaluating a company's liquidity.
C)useful in evaluating a company's solvency.
D)useful in determining the amount of a company's non-current debt.

Accepted Answer

The relationship between current assets and current liabilities is useful in evaluating a company's liquidity. Current assets are those that are expected to be either consumed or converted into cash within one year, while current liabilities are debts or obligations that are due within one year. If a company has a higher amount of current assets compared to current liabilities, it is an indication that the company has sufficient liquidity to meet its short-term obligations. However, if a company has more current liabilities than current assets, it may face difficulty in meeting its short-term obligations, which could lead to insolvency. Therefore, the relationship between current assets and current liabilities is critical in evaluating a company's ability to meet its short-term obligations.

Question 2

A measure of a company's solvency is the
A)inventory turnover ratio.
B)current ratio.
C)times interest earned ratio.
D)asset turnover ratio.

Accepted Answer

The answer of A measure of a company's solvency is...

Question 3

The times interest earned ratio is calculated by dividing
A)profit by interest expense.
B)profit plus income tax expense by interest expense.
C)profit plus interest expense by interest expense.
D)profit plus interest expense plus income tax expense by interest expense.

Accepted Answer

The times interest earned ratio is calculated by dividing earnings before interest and taxes (EBIT) by interest expense, which corresponds to profit plus interest expense plus income tax expense divided by interest expense.

Question 4

Liquidity ratios measure a company's
A)operating cycle.
B)revenue-producing ability.
C)short-term debt-paying ability.
D)long-range solvency.

Accepted Answer

Liquidity ratios, such as the current ratio and quick ratio, measure a company's ability to pay off short-term debts and obligations. They reflect a company's current assets in relation to current liabilities, indicating whether the company has enough liquid assets to cover its short-term liabilities.

Question 5

Last year, Mocha's Coffee Shop Inc.'s income statement reported the following: profit, $227,500; interest expense, $45,000; and income tax expense, $78,475.The company's times interest earned ratio is
A)7.8 times.
B)6.2 times.
C)5.8 times.
D)4.5 times.

Accepted Answer

The times interest earned ratio is calculated as (Profit + Interest Expense + Income Tax Expense) / Interest Expense. Here, it is ($227,500 + $45,000 + $78,475) / $45,000 = 7.8 times.

Question 6

Interest rates on notes and loans are usually stated as a(n)
A)monthly rate.
B)daily rate.
C)semi-annual rate.
D)annual rate.

Accepted Answer

Interest rates on notes and loans are usually stated as an annual rate, commonly referred to as the Annual Percentage Rate (APR). This is a standardized way of expressing the interest rate over the course of a year. Some lenders may also provide additional information on the monthly or daily interest rates, but the APR is the most commonly used and understood measure of interest rates.

Question 7

On March 1, Brutto Corp.issues a 3 year 5%, $60,000 note payable.The terms of the note include monthly blended principal and interest payments of $1,799.The entry to record the second instalment payment will include a
A)debit to Notes Payable of $1,555.
B)debit to Cash of $1,799.
C)debit to Interest Expense of $250.
D)credit to Interest Expense of $244.

Accepted Answer

The second installment payment will include a debit to Notes Payable for the principal portion of the payment. The principal portion of the second payment is $1,555, which is the total payment of $1,799 minus the interest portion of $244.

Question 8

With fixed principal payments, the interest ___ each period as the principal ___. 
A) decreases, decreases
B) increases, increases
C) increases, decreases
D) decreases, increases

Accepted Answer

With fixed principal payments, the amount of principal being repaid each period remains constant. As the outstanding principal balance decreases each period, the amount of interest charged on that balance will also decrease. Therefore, the interest will decrease each period as the principal decreases.

Question 9

A long-term note may be secured by a document called a
A)premium.
B)debenture.
C)bond.
D)mortgage.

Accepted Answer

A mortgage is a legal document that pledges a property to secure a loan, making it the best choice for a long-term note. A premium is an additional amount paid for a product or service, a debenture is an unsecured bond not backed by any collateral, and a bond is a debt instrument that can be secured or unsecured.

Question 10

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 the accrual of the employee's portion of Canada Pension Plan (CPP) would include a
A)credit to CPP Payable of $965.
B)debit to CPP Expense of $965.
C)credit to Employee Benefits Expense of $965.
D)debit to CPP Payable of $965.

Accepted Answer

The accrual of the employee's portion of CPP involves recognizing a liability, which is recorded as a credit to CPP Payable.

Question 11

A financial liability is a
A)contractual obligation to receive cash in the future.
B)contractual obligation to pay cash in the future.
C)contractual obligation to issue common shares in the future.
D)contractual obligation to issue a mortgage payable.

Accepted Answer

A financial liability is a contractual obligation to pay cash in the future. Options A, C, and D involve receiving or issuing assets, whereas a financial liability involves a future payment or outflow of cash.

Question 12

Blended principal and interest payments are repayable in 
A) equal periodic amounts plus interest.
B) varying periodic amounts plus interest.
C) equal periodic amounts including interest.
D) varying periodic amounts including interest.

Accepted Answer

Blended principal and interest payments are structured so that each payment is the same amount, covering both principal and interest, throughout the loan term.

Question 13

On March 2, Conroy and Conrad Inc.obtained a loan for $120,000 for 5 years at 7%.Payments are $2,000.What type of loan is this considered to be? 
A) fixed principal payments
B) blended principal payments
C) floating principal payments
D) prime principal payments

Accepted Answer

This is a blended principal payment loan because the loan payments include both principal and interest, and the amount of principal paid each month increases over time while the interest paid decreases.

Question 14

A five-year, 6%, $47,000 note payable is issued on January 1.Terms include fixed annual principal payments of $9,400, plus interest on the outstanding balance.The entry to record the first instalment payment will include a
A)debit to Notes Payable of $9,400.
B)credit to Interest Expense of $2,820.
C)credit to Notes Payable of $12,220.
D)debit to Cash of $9,400.

Accepted Answer

The entry to record the first installment payment will include a debit to Notes Payable of $9,400 to reduce the principal balance.

Question 15

One example of a liability that is not a financial liability is 
A) notes payable.
B) unearned revenue.
C) bonds payable.
D) financial lease.

Accepted Answer

Unearned revenue is a liability that represents advance payments collected by a company for goods or services that have not yet been delivered or earned. It is not a financial liability because it does not involve borrowing or financing activities. The other options listed (notes payable, bonds payable, financial lease) all involve financial liabilities because they represent debts or obligations that involve interest payments or borrowing.

Question 16

Fixed principal payments and interest are repayable in 
A) equal periodic amounts plus interest.
B) varying periodic amounts plus interest.
C) equal periodic amounts including interest.
D) varying periodic amounts including interest.

Accepted Answer

Fixed principal payments and interest are usually repaid in equal periodic amounts plus interest, known as equal installment payments. This method of repayment ensures that the borrower repays both principal and interest in equal installments over the life of the loan. This is the most common method of loan repayment.

Question 17

When a long-term note payable with a fixed interest rate has fixed principal payments, it means that
A)the periodic payment amount is fixed.
B)the periodic payment increases over time.
C)the periodic payment decreases over time.
D)no conclusion can be made on the periodic payment.

Accepted Answer

With fixed principal payments, the interest portion of each payment decreases over time as the outstanding principal balance decreases, resulting in a decrease in the total periodic payment amount over time.

Question 18

Long term notes may have 
A) fixed rates of interest only.
B) floating interest rates only.
C) no interest rates.
D) fixed or floating interest rates.

Accepted Answer

Long term notes may have fixed or floating interest rates. It depends on the terms of the agreement between the borrower and the lender.

Question 19

As blended principal and interest payments are made on a long-term loan,
A)the interest portion increases and the principal portion decreases.
B)the interest and principal portions remain the same.
C)the interest portion decreases and the principal portion increases.
D)both the interest portion and the principal portion decrease.

Accepted Answer

As payments are made on a long-term loan, the interest portion decreases because it is calculated on the remaining principal balance, which is reducing. Consequently, the principal portion of each payment increases as more of the payment goes towards reducing the principal balance.

Question 20

Instalments can be paid 
A) monthly.
B) quarterly.
C) semi annually.
D) all of the above.

Accepted Answer

The best choice would be to have all three options available for the customers to choose from. This provides flexibility and convenience for customers to choose the payment frequency that works best for their budget and cash flow. Monthly instalments may be preferred by customers who receive a monthly salary or income, while quarterly instalments may be suitable for customers who receive payments on a quarterly basis. Semi-annual instalments may be preferred by customers who receive bi-annual bonuses or payouts. Providing all three options also widens the potential customer base and increases the likelihood of securing sales.

Quiz 10: Reporting and Analyzing Long-Lived Assets

The relationship between current assets and current liabilities is

A measure of a company's solvency is the

The times interest earned ratio is calculated by dividing

Liquidity ratios measure a company's

Last year, Mocha's Coffee Shop Inc.'s income statement reported the following: profit, $227,500; interest expense, $45,000; and income tax expense, $78,475.The company's times interest earned ratio is

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

On March 1, Brutto Corp.issues a 3 year 5%, $60,000 note payable.The terms of the note include monthly blended principal and interest payments of $1,799.The entry to record the second instalment payment will include a

With fixed principal payments, the interest _ each period as the principal _.

A long-term note may be secured by a document called a

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 the accrual of the employee's portion of Canada Pension Plan (CPP) would include a

A financial liability is a

Blended principal and interest payments are repayable in

On March 2, Conroy and Conrad Inc.obtained a loan for $120,000 for 5 years at 7%.Payments are $2,000.What type of loan is this considered to be?

A five-year, 6%, $47,000 note payable is issued on January 1.Terms include fixed annual principal payments of $9,400, plus interest on the outstanding balance.The entry to record the first instalment payment will include a

One example of a liability that is not a financial liability is

Fixed principal payments and interest are repayable in

When a long-term note payable with a fixed interest rate has fixed principal payments, it means that

Long term notes may have

As blended principal and interest payments are made on a long-term loan,

Instalments can be paid