Question 1

If a bank discounts a note, then the borrower needs to only pay the cash received and not the face value of the note.

Accepted Answer

The answer of If a bank discounts a note, then...

Question 2

Match each of the following terms pertaining to liabilities to their definitions.
-A liability that has been incurred but has not been paid as of the balance sheet date.
A)Current liability
B)Accounts payable
C)Notes payable
D)Discount on notes payable
E)Current maturities of long-term liabilities
F)Accrued liabilities
G)Contingent liability
H)Estimated liability

Accepted Answer

Accrued liabilities are obligations that have been incurred but have not been paid as of the balance sheet date. These may include things like wages or interest expense that have been earned but not yet paid.

Other options:

-Current liability: This refers to any debt that must be paid within one year from the balance sheet date.
- Accounts payable: This is a specific type of current liability that refers to amounts owed to suppliers for goods or services received but not yet paid for.
- Notes payable: This refers to any debt that is evidenced by a formal note or contract.
- Discount on notes payable: This is a contra liability account that is used to track any discounts taken by the borrower on the face value of a note payable.
- Current maturities of long-term liabilities: This refers to the portion of long-term debt that must be paid within the next year.
- Contingent liability: This refers to a potential obligation that arises from a past event (such as a lawsuit) that is uncertain as to timing or amount.
- Estimated liability: This refers to a liability that is recognized based on the best estimate of the amount and timing of future cash outflows.

Question 3

Match each of the following terms pertaining to liabilities to their definitions.
-Accounts that will be satisfied within one year or the next operating cycle.
A)Current liability
B)Accounts payable
C)Notes payable
D)Discount on notes payable
E)Current maturities of long-term liabilities
F)Accrued liabilities
G)Contingent liability
H)Estimated liability

Accepted Answer

This term specifically refers to liabilities that are expected to be satisfied within one year or the next operating cycle.

B) Accounts payable
 This term refers to amounts owed to suppliers or vendors for goods and services received and not yet paid for.

C) Notes payable
 This term refers to a written promise to pay back a specific amount of money at a future date.

E) Current maturities of long-term liabilities
 This term refers to the portion of long-term debt that is due within the next year.

F) Accrued liabilities
 This term refers to expenses that have been incurred but not yet paid or recorded as a liability, such as salaries or taxes.

G) Contingent liability
 This term refers to a potential liability that may or may not occur based on the outcome of a future event.

H) Estimated liability
 This term refers to a liability that is known to exist but the exact amount or timing is uncertain, such as a legal settlement that has not yet been determined.

Question 4

Compound interest is a repeated calculation of the interest on the principal over certain periods of time.

Accepted Answer

The answer of Compound interest is a repeated calculation of...

Question 5

Match each of the following terms pertaining to liabilities to their definitions.
-The portion of a long-term liability that will be paid within one year of the balance sheet date.
A)Current liability
B)Accounts payable
C)Notes payable
D)Discount on notes payable
E)Current maturities of long-term liabilities
F)Accrued liabilities
G)Contingent liability
H)Estimated liability

Accepted Answer

Current maturities of long-term liabilities refers to the portion of a long-term liability that must be paid within one year of the balance sheet date.

Answer: A
 Current liability refers to any debt that needs to be repaid within one year of the balance sheet date.

Answer: C
 Notes payable refers to any formal written promise to pay a specified amount of money that is due at a specific future date.

Answer: D
 Discount on notes payable refers to the difference between the face value of a note and the amount received when it is issued.

Answer: F
 Accrued liabilities refer to any expenses that have been incurred but not yet paid or recorded, such as unpaid wages, taxes, or interest.

Answer: G
 Contingent liability refers to a potential obligation that may arise depending on the outcome of a future event, such as a lawsuit, environmental cleanup, or product warranty claim.

Answer: H
 Estimated liability refers to a debt or obligation for which the exact amount is uncertain, and must be estimated using available information, such as a provision for employees' retirement benefits.

Question 6

When a company uses coupon or premium offers in conjunction with the sale of its products, there is no need to record any contingent liability.

Accepted Answer

When a company uses coupon or premium offers, the customers have the right to redeem them in the future. Therefore, there is a contingent liability that needs to be recorded.

Question 7

Apply the time value of money in the following independent situations:
1. Jason Marx deposited $29,500 in the bank on January 1, 1998, at an interest rate of 12% compounded annually. How much has accumulated in the account by January1, 2015?
2. June Cunningham deposited $54,200 in the bank on January 1, 2005. On January 2, 2015, this deposit has accumulated to $106,611. Interest is compounded annually on the account. What rate of interest did June earn on the deposit?

Accepted Answer

The answer of Apply the time value of money in...

Question 8

In 2015, Boone, Inc. sold 1,000 carpets for $50 each. The carpets carry a 2-year warranty for repairs. Boone estimates that repair costs will average 2% of the total selling price. What is the amount that would be recorded in the warranty liability account as a result of selling the carpets during 2015?
A) No liability should be recorded until the carpets are returned for repairs.
B) $ 20 
C) $1,000
D $500

Accepted Answer

The warranty liability is calculated as 2% of the total selling price of the carpets. The total selling price is 1,000 carpets x $50 = $50,000. Therefore, the warranty liability is 2% of $50,000, which is $1,000.

Question 9

What type of interest is calculated on the balance of the principal only?
A) Equivalent interest
B) Simple interest
C) Future interest
D) Compounded interest

Accepted Answer

Simple interest is calculated on the balance of the principal only.

Question 10

In 2015, Baloga Heating Company sold 400 water heaters for $350 each. The water heaters carry a 2-year warranty for repairs. Baloga estimates that repair costs will average 2% of the total selling price. How much is recorded in the warranty liability account as a result of selling the water heaters during 2015?
A) $4,200
B) $1,400
C) $2,800
D) no liability should be recorded until the water heaters are brought back for repairs.

Accepted Answer

The warranty liability is calculated as 2% of the total selling price. Total selling price = 400 heaters * $350 = $140,000. Warranty liability = 2% of $140,000 = $2,800.

Question 11

In 2015, Morton Co.sold 150 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects. Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $14,000. $20,000 in claims was actually incurred during the year to honor their warranty. What was the warranty expense for 2015?
A) $20,000
B) $10,000
C) $24,000
D) $18,000

Accepted Answer

The warranty expense is calculated as 4% of the total selling price of the balloons. Total sales are 150 balloons x $4,000 = $600,000. Therefore, the warranty expense is 4% of $600,000, which equals $24,000.

Question 12

Match each of the following terms pertaining to liabilities to their definitions.
-A liability that involves an existing condition for which the outcome is not known with certainty and depends on some future event.
A)Current liability
B)Accounts payable
C)Notes payable
D)Discount on notes payable
E)Current maturities of long-term liabilities
F)Accrued liabilities
G)Contingent liability
H)Estimated liability

Accepted Answer

A contingent liability involves a condition that may or may not occur in the future and its outcome is uncertain.

Question 13

A note payable that is due in six months is a current liability.

Accepted Answer

A note payable due in six months is due within one year, and any liability due within one year is considered a current liability.

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

Match each of the following terms pertaining to liabilities to their definitions.
-Amounts owed for the purchase of inventory, goods, or services acquired in the normal course of business.
A)Current liability
B)Accounts payable
C)Notes payable
D)Discount on notes payable
E)Current maturities of long-term liabilities
F)Accrued liabilities
G)Contingent liability
H)Estimated liability

Accepted Answer

Accounts payable refers specifically to amounts owed for the purchase of inventory, goods, or services acquired in the normal course of business.

Answer: C
 Notes payable refer to amounts owed as a result of borrowing money, typically via a promissory note.

Answer: D
 Discount on notes payable represents the difference between the face value of the note and the amount received by the borrower, effectively reducing the amount of interest that will be paid over time.

Answer: E
 Current maturities of long-term liabilities represent the portion of long-term debts that are due within the current accounting period.

Answer: F
 Accrued liabilities represent expenses that have been incurred but have not yet been paid, such as wages or taxes.

Answer: G
 Contingent liabilities are potential obligations that may or may not result from future events, such as a lawsuit against the company.

Answer: H
 Estimated liabilities represent expenses that the company expects to incur in the future, but for which the exact amount is uncertain.

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. Winston wins the lottery. He wins $20,000 per year to be paid to him for 10 years. The state offers him the choice of a cash settlement now instead of the annual payments for 10 years. If the interest rate is 6%, what is the amount the state will offer for a settlement today?
A) $147,200
B) $200,000
C) $154,440
D) $175,000

Accepted Answer

The present value of the annuity is $147,200.

Question 17

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

Accepted Answer

The answer of Which of the following statements regarding the...

Question 18

Match each of the following terms pertaining to liabilities to their definitions.
-A contra-liability account that represents interest deducted from a loan or note in advance.
A)Current liability
B)Accounts payable
C)Notes payable
D)Discount on notes payable
E)Current maturities of long-term liabilities
F)Accrued liabilities
G)Contingent liability
H)Estimated liability

Accepted Answer

Discount on notes payable is a contra-liability account that represents interest deducted from a loan or note in advance.

Answer: C
 Notes payable are long-term or short-term borrowed funds that a company must repay with interest.

Answer: F
 Accrued liabilities are expenses incurred but not yet paid or recorded. Examples include salaries, taxes, and interest.

Answer: D
 Current maturities of long-term liabilities are the portion of long-term debts that are due within the current year.

Answer: H
 Estimated liabilities are potential obligations that a company may have to pay in the future, but the amount is not yet known. Examples include warranties or lawsuits.

Answer: G
 Contingent liabilities are potential liabilities that may arise from previous or existing events, but the probability of the obligation being realized is uncertain. Examples include lawsuits or product warranties.

Answer: B
 Accounts payable are short-term debts that a company must pay off to suppliers or vendors. Examples include utility bills or inventory purchases.

Answer: A
 Current liabilities are obligations that a company expects to fulfill within one year from the balance sheet date. Examples include accounts payable or accrued expenses.

Question 19

Match each of the following terms pertaining to liabilities to their definitions.
-Amounts owed that are represented by a formal contractual agreement. These amounts usually require the payment of interest.
A)Current liability
B)Accounts payable
C)Notes payable
D)Discount on notes payable
E)Current maturities of long-term liabilities
F)Accrued liabilities
G)Contingent liability
H)Estimated liability

Accepted Answer

Notes payable are liabilities that are created through formal legal documents that typically stipulate interest payments.

Question 20

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. Josh and Sara want to buy a house in 4 years. If the house will cost $180,000, how much must they deposit at the end of every year for the next 4 years at 5% compounded annually in order to buy the house?
A) $41,763
B) $32,040
C) $36,990
D) $45,000

Accepted Answer

The correct answer is A because $41,763 is the future value of an annuity due of $1 for 4 years at 5% compounded annually.

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

If a bank discounts a note, then the borrower needs to only pay the cash received and not the face value of the note.

Match each of the following terms pertaining to liabilities to their definitions. -A liability that has been incurred but has not been paid as of the balance sheet date.

Match each of the following terms pertaining to liabilities to their definitions. -Accounts that will be satisfied within one year or the next operating cycle.

Compound interest is a repeated calculation of the interest on the principal over certain periods of time.

Match each of the following terms pertaining to liabilities to their definitions. -The portion of a long-term liability that will be paid within one year of the balance sheet date.

When a company uses coupon or premium offers in conjunction with the sale of its products, there is no need to record any contingent liability.

What type of interest is calculated on the balance of the principal only?

Match each of the following terms pertaining to liabilities to their definitions. -A liability that involves an existing condition for which the outcome is not known with certainty and depends on some future event.

A note payable that is due in six months is a current liability.

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?

Match each of the following terms pertaining to liabilities to their definitions. -Amounts owed for the purchase of inventory, goods, or services acquired in the normal course of business.

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

Match each of the following terms pertaining to liabilities to their definitions. -A contra-liability account that represents interest deducted from a loan or note in advance.

Match each of the following terms pertaining to liabilities to their definitions. -Amounts owed that are represented by a formal contractual agreement. These amounts usually require the payment of interest.