Question 1

On November 1,Greenfield Corporation borrowed $55,000 from a bank and signed a 12%,90-day note payable in the amount of $55,000.If you assume 360 days in year,the November 30 adjustment will

Accepted Answer

Since the note was signed on November 1st and has a 90-day term, it will mature on January 30th of the following year. Therefore, on November 30th (30 days after borrowing the money), an adjusting entry is required to accrue interest expense and interest payable for the 30-day period.

The calculation for the interest expense is:

$55,000 x 12% ÷ 360 days x 30 days = $550

This means that the company has accrued $550 of interest over the 30-day period.

The adjusting entry will be:

Interest Expense $550
Interest Payable     $550

This entry will increase the interest expense account by $550, which represents the cost of borrowing money for the 30-day period. It will also increase the interest payable account by $550, which represents the amount of interest owed to the bank at the end of the period.

There is no discount on notes payable or increase in notes payable in this situation. The only effect of the adjusting entry is on interest expense and interest payable accounts.

Question 2

Employees earn $6,000 per day,work five days per week,Monday through Friday,and get paid every Friday.If the previous payday was January 26 and the accounting period ends on January 31,what amount is the ending balance in the Wages Payable account?

Accepted Answer

The employees earn $6,000 per day and work three days (January 29, 30, and 31) after the last payday on January 26. Therefore, the wages payable for these three days is $6,000 x 3 = $18,000.

Question 3

A company's weekly payroll amounts to $50,000 and payday for the week is every Friday.Employees work five days per week,Monday through Friday.The appropriate journal entry was recorded at the end of the accounting period,Monday,March 31,2017.What amount is wages expense for April for the payday,Friday,April,4,2017?

Accepted Answer

The payroll for the week of March 31, 2017 was recorded as an expense in March. Therefore, it should not be included in the wages expense for the month of April. The wages expense for the payday on April 4, 2017 would be the amount that was paid on that day, which is $40,000 (assuming no adjustments or accruals). Therefore, the correct answer is B.

Question 4

On November 1,2017,Brownsville Co.borrowed $80,000 from State Bank and signed a 12%,six-month note payable,all due at maturity.The interest on this loan is stated separately.At December 31,2017,the adjustment for this note includes a(n)

Accepted Answer

The interest expense for the period is $80,000 x 12% x 6/12 = $4,800. The interest payable at December 31, 2017 is $4,800 - $1,600 = $3,200.

Question 5

If a company purchases $3,000 worth of inventory with terms of 1/15,n/30 and pays within 15 days,then the amount paid to the seller would be

Accepted Answer

The terms 1/15, n/30 mean that the buyer can take a 1% discount if the invoice is paid within 15 days. Therefore, the amount paid is $3,000 - 1% of $3,000 = $3,000 - $30 = $2,970.

Question 6

On May 1,Chris Company borrowed $30,000 from Third Street Bank on a one-year,6% note.If the company keeps its records on a calendar year,an entry is needed on December 31 to increase

Accepted Answer

The answer of On May 1,Chris Company borrowed $30,000 from...

Question 7

On November 1,2017,Brownsville Co.borrowed $80,000 from State Bank and signed a 12%,six-month note payable,all due at maturity.The interest on this loan is stated separately.At December 31,2017,Brownsville Co.'s overall liability for this loan amounts to

Accepted Answer

Using the simple interest formula, the interest accrued on the loan for two months would be calculated as follows:

Interest = Principal x Rate x Time
Interest = $80,000 x 0.12 x (2/12)
Interest = $1,600

Therefore, the total amount owed by Brownsville Co. on December 31, 2017, would be the principal amount of $80,000 plus the interest of $1,600, which equals $81,600.

Question 8

There are some liabilities,such as income tax payable,for which the amounts must be estimated.Failure to estimate these amounts and record them would be a violation of the

Accepted Answer

The matching principle requires that expenses be recognized in the same period as the revenue they help to generate. Estimating and recording income tax payable is necessary to ensure that expenses are recognized in the proper period, thereby adhering to the matching principle. Failure to estimate and record these amounts would be a violation of this principle. The convention of conservation relates to being cautious when recording uncertain events, while the practice of consistency involves using the same accounting methods year after year. The concept of historical cost refers to the original cost of an asset. None of these concepts are directly related to the estimation and recording of income tax payable.

Question 9

An invoice received from a supplier for $8,000 on January 1 with terms 1/15,n/30 means that the company should pay

Accepted Answer

The terms 1/15, n/30 mean that a 1% discount can be taken if payment is made within 15 days, otherwise the full amount is due within 30 days. So the company can either pay $7,920 (1% discount from $8,000) before January 16 or pay the full $8,000 before the end of January. Option A is incorrect because the discount is not applied if the payment is made between January 16 and the end of January. Option C is incorrect because the payment window is between January 1 and January 16, not January 2. Option D is incorrect because it does not take into account the discount option.

Question 10

Marsh Corporation borrowed $90,000 by issuing a 12%,six-month note payable,all due at the maturity date.After one month,the company's total liability for this loan amounts to

Accepted Answer

The interest for one month can be calculated as follows:

Interest = Principal x Rate x Time 
= $90,000 x 0.12 x (1/12) 
= $900

Therefore, after one month, the total liability for the loan is:

Total Liability = Principal + Interest 
= $90,000 + $900 
= $90,900

Hence, the correct answer is B.

Question 11

Proctor Inc.has a weekly payroll of $8,000 for a five-day workweek,Monday through Friday.If December 31,the last day of the accounting year,falls on Wednesday,Proctor would make an adjustment that would

Accepted Answer

December has 31 days, and since the payday is on Friday, December 26, there are two more days of work before the end of the accounting year. Therefore, the employees will have worked two days (December 29 and 30) without being paid, which means the wages expense needs to be adjusted upward by the amount of two days' wages, which is $8,000/5 x 2 = $3,200. Since this adjustment is made at the end of the accounting year, it is a "decrease" in wages payable since the company owes less money to its employees, but the effect on the income statement is an "increase" in wages expense by the same amount. Therefore, the correct answer is A.

Question 12

Long-term assets are $5,000,current liabilities are $700,and long-term liabilities are $3,000.If the current ratio is 3 to 1,then current assets are

Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. Given a current ratio of 3 to 1 and current liabilities of $700, current assets must be 3 times $700, which equals $2,100.

Question 13

A bank loaned York Construction Company $35,000 on a one-year,6% note,but deducted the interest in advance.The journal entry made by York to record receipt of the cash would include a(n)

Accepted Answer

When a bank deducts interest in advance on a loan, the borrower records the interest as a "Discount on Notes Payable," which effectively reduces the carrying amount of the note. The interest for one year at 6% on $35,000 is $2,100 ($35,000 * 6%), which is deducted upfront, so the company receives less cash and records this $2,100 as an increase in "Discount on Notes Payable."

Question 14

On October 1,Lawrence Company borrowed $60,000 from Fourth National Bank on a one-year,7% note.If the company's fiscal year ends as of December 31,Lawrence should make an entry to increase

Accepted Answer

Interest for three months (October to December) is calculated as $60,000 * 7% * (3/12) = $1,050. This amount represents the interest expense incurred but not yet paid by the end of the fiscal year, hence it is recorded as interest payable.

Question 15

Executive,Inc.has a weekly payroll of $10,000 for a five-day workweek,Monday through Friday.If December 31,the last day of the accounting year,falls on Thursday,Executive would make an adjusting entry that would

Accepted Answer

The adjusting entry would increase wages expense by $8,000 because four days of wages (Monday to Thursday) need to be recognized as an expense for the current year.

Question 16

Interest payable on a loan becomes a liability

Accepted Answer

Interest payable on a loan becomes a liability as it accrues, meaning it is recognized as a liability over time as it continues to accumulate until it is paid. Therefore, the correct answer is D, as the other options do not accurately reflect the timing of when the liability is recognized.

Question 17

Almost all current liabilities affect the Operating category of the statement of cash flows,but one that does not affect cash provided by operating activities is

Accepted Answer

Notes payable typically affects the financing category of the statement of cash flows, not the operating category. This is because notes payable are often related to borrowing or repaying long-term debt, which is considered a financing activity.

Question 18

All of the following statements are true except

Accepted Answer

U.S. standards (GAAP) do require a classified balance sheet, but liabilities are typically ordered by liquidity, not by size.

Question 19

If current assets amount to $62,000,total assets $350,000,current liabilities $31,000,and total liabilities $125,000,then the current ratio is

Accepted Answer

The current ratio is calculated as current assets divided by current liabilities, which is $62,000 / $31,000 = 2.0 to 1.

Question 20

An example of a current liability that must be accrued is

Accepted Answer

Income taxes payable is a current liability that must be accrued as it represents the amount of income taxes owed to the government but not yet paid. Accrual of income taxes payable ensures that the expense is recognized in the period in which it's incurred and the liability is reflected in the financial statements. Other options such as accounts payable, current maturity of long-term debt, and revenue received in advance are also current liabilities, but they don't necessarily require accrual. Accounts payable and current maturity of long-term debt are recorded when payment is due, and revenue received in advance is recognized as a liability in the period it's received, without additional accrual.

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