Question 1

Failure to record a liability will probably

Accepted Answer

Failing to record a liability means that expenses may also be understated, leading to an overstatement of net income since expenses decrease net income when recognized.

Question 2

Under IFRS, which of the following would most likely be classified as a current liability?

Accepted Answer

Bank indebtedness is most likely to be classified as a current liability under IFRS because it typically represents short-term borrowing from a bank, which is expected to be settled within the next 12 months.

Question 3

Interest expense on a note payable, with interest due at maturity, is

Accepted Answer

Interest expense on a note payable, with interest due at maturity, is accrued over the life of the note. This means that even though the interest payment is not made until maturity, the expense is recognized periodically in the financial statements to match the expense with the period in which it is incurred, following the matching principle of accounting.

Question 4

Which of the following statements is true?

Accepted Answer

Option C is correct because it accurately reflects accounting practices. Current and non-current debts are indeed shown separately on the statement of financial position (balance sheet), but the classification does not require a specific journal entry. The classification is based on the nature and timing of the liabilities, not on individual journal entries.

Question 5

Use the following information to answer questions 
Angel Eyes Corporation operates on a calendar year basis.The company is in its first year of operations and received its annual property tax bill on March 31 for $21,000.The bill is due May 1.Even though the company records adjusting entries on a monthly basis, no entries related to property taxes have been recorded.
-The March 31 entry to record property tax should be

Accepted Answer

The property tax expense for the first quarter is $5,250 ($21,000 x 3/12). The entry to record the property tax expense and payable would be a debit to property tax expense for $5,250 and a credit to property tax payable for $5,250.

Question 6

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.

Accepted Answer

When bonds are issued at a discount, the issuing corporation still pays the full face amount of the bonds on the maturity date; the discount refers to the bonds being sold for less than their face value at issuance, not affecting the maturity value.

Question 7

Use the following information to answer questions 
Angel Eyes Corporation operates on a calendar year basis.The company is in its first year of operations and received its annual property tax bill on March 31 for $21,000.The bill is due May 1.Even though the company records adjusting entries on a monthly basis, no entries related to property taxes have been recorded.
-Assuming appropriate adjusting entries were completed for the April month end, what entry should be recorded for the payment on May 1?

Accepted Answer

The company would have recorded an adjusting entry at the end of April to recognize one month's worth of property tax expense ($7,000) and a liability for the unpaid portion ($14,000). On May 1, the payment would clear the liability and prepaid amounts.

Question 8

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.

Accepted Answer

When the market interest rate exceeds the coupon rate, the bond is issued at a discount because its fixed interest payments are less attractive compared to the prevailing market rates, making it necessary to sell the bond for less than its face value to attract buyers.

Question 9

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

Accepted Answer

The negative cash balance of $33,000 represents the amount by which Roofer's Inc. has exceeded its operating line of credit, thus creating a liability. Since this overdraft occurred within the operating line of credit, it is considered a short-term obligation and should be reported as a current liability of $33,000 on the statement of financial position.

Question 10

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.

Accepted Answer

This information is required to give users of the financial statements a clear view of the company's future financial obligations, helping in the assessment of the company's liquidity and long-term solvency.

Question 11

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

Accepted Answer

The face value of a bond is the amount of principal that is paid back to the investor at the maturity date, not including interest payments. Interest is paid separately according to the bond's terms.

Question 12

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

Accepted Answer

Bond transactions between investors do not involve the issuing corporation and are typically handled by brokers or through secondary markets, so the issuing corporation does not record these transactions.

Question 13

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

Accepted Answer

Amortization of a bond premium decreases the carrying value of the bond over time, which in turn reduces the amount of interest expense the issuer records, because the interest expense is calculated based on the carrying value of the bond.

Question 14

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

Accepted Answer

The terms of an operating line of credit and notes payable are disclosed in the notes to the financial statements to provide readers with detailed information about the company's debt obligations, including interest rates, maturity dates, and collateral requirements.

Question 15

McMichael Exhibits Inc.received its annual property tax bill for $26,200 in January.It was paid when due on March 31.McMichael Exhibits year end is Dec 31.The Dec 31 balances should be

Accepted Answer

The answer of McMichael Exhibits Inc.received its annual property tax...

Question 16

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?

Accepted Answer

The answer of Use the following information for questions 
On...

Question 17

Which of the following statements is false?

Accepted Answer

Most notes and bank loans are interest-bearing, meaning they require the borrower to pay not just the principal amount borrowed but also an interest amount over the life of the loan.

Question 18

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

Accepted Answer

The answer of Use the following information for questions 
On...

Question 19

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.

Accepted Answer

Under IFRS, the effective-interest method is required for the amortization of bond premiums and discounts, while ASPE (Accounting Standards for Private Enterprises in Canada) allows for a straight-line method or another systematic and rational method if the results do not differ materially from the effective-interest method.

Question 20

The entry to record interest expense on a bank loan payable is a

Accepted Answer

The correct entry to record interest expense on a bank loan payable involves debiting (increasing) interest expense, which represents the cost of borrowing for the period, and crediting (increasing) interest payable, which represents the liability for the interest that has accrued but has not yet been paid.

Quiz 10: Reporting and Analyzing Liabilities

Failure to record a liability will probably

Under IFRS, which of the following would most likely be classified as a current liability?

Interest expense on a note payable, with interest due at maturity, is

Which of the following statements is true?

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.

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.

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

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.

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

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

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

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

McMichael Exhibits Inc.received its annual property tax bill for $26,200 in January.It was paid when due on March 31.McMichael Exhibits year end is Dec 31.The Dec 31 balances should be

Which of the following statements is false?

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

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.

The entry to record interest expense on a bank loan payable is a