Question 1

Assuming a 360-day year,when a $40,000,90-day,9% interest-bearing note payable matures,total payment will amount to:

Accepted Answer

The answer of Assuming a 360-day year,when a $40,000,90-day,9% interest-bearing...

Question 2

During the first year of operations,a company granted warranties on its products.The estimated cost of the product warranty liability at the end of the year is $8,500.The product warranty expense of $8,500 should be recorded in the years of the expenditures to repair the products covered by the warranty payments.

Accepted Answer

The answer of During the first year of operations,a company...

Question 3

On June 8,Alton Co.issued an $80,000,6%,120-day note payable on an overdue account payable to Seller Co.Assume that the fiscal year of Alton Co.ends June 30.Which of the following relationships is true?

Accepted Answer

Alton Co. is the borrower and therefore must debit the Notes Payable account, which is a liability. The 6% interest expense will be recorded separately as an adjusting entry at the end of the fiscal year on June 30. The transaction has no impact on the Accounts Receivable or Accounts Payable accounts.

Question 4

A business borrowed $40,000 on March 1 of the current year by signing a 60-day,9% interest bearing note.Assuming a 360-day year,when the note is paid on April 30,the entry to record the payment should include a

Accepted Answer

The interest on the note can be calculated as follows:

Interest = Principal x Rate x Time
          = $40,000 x 9% x 60/360
          = $600

Therefore, when the note is paid on April 30, the entry to record the payment should include a debit to Interest Expense for $600 to record the interest expense incurred over the 60-day period. The other options are not correct because Interest Payable would have been debited when the note was issued, Cash would be credited for the amount of the note ($40,000), and Cash would not be credited for any additional amount.

Question 5

Obligations that depend on past events and that are based on future possible events are contingent liabilities.

Accepted Answer

The answer of Obligations that depend on past events and...

Question 6

In order to be a recorded contingent liability,the liability must be possible and easily estimated.

Accepted Answer

For a liability to be recorded as a contingent liability, it must be both probable and the amount can be reasonably estimated. "Possible" does not meet the threshold for recording; the standard is "probable."

Question 7

On June 8,Alton Co.issued an $90,000,6%,120-day note payable to Seller Co.Assuming a 360-day year for your calculations,what is the maturity value of the note?

Accepted Answer

The answer of On June 8,Alton Co.issued an $90,000,6%,120-day note...

Question 8

Notes may be issued

Accepted Answer

Notes may be issued for various reasons, such as when assets are purchased, to temporarily satisfy an account payable created earlier or when borrowing money. Therefore, all of the above choices are correct.

Question 9

On July 8,Alton Co.issued an $80,000,6%,120-day note payable to Seller Co.Assume that the fiscal year of Alton Co.ends July 31.Using the 360-day year in your calculations,what is the amount of interest expense recognized by Alton in the current fiscal year?

Accepted Answer

First, we need to calculate the interest on the note payable.

Interest = Principal x Rate x Time

Using a 360-day year, the time period is 120/360 = 1/3 year.

Interest = $80,000 x 6% x 1/3 = $1,600

However, since the fiscal year ends on July 31st and the note was issued on July 8th, we need to prorate the interest expense for the current fiscal year.

There are 24 days left in July (31 - 8 - 120), which is 24/360 of the year.

Prorated interest expense = $1,600 x 24/360 = $106.67

Therefore, the amount of interest expense recognized by Alton in the current fiscal year is $306.67 ($200.00 from August through November plus $106.67 for July prorated).

The best choice is C.

Question 10

Current liabilities are

Accepted Answer

Current liabilities are debts or obligations that are expected to be paid within one year or within the normal operating cycle of a business. Choice D, due and payable within one year, is the only option that accurately reflects this definition.

Question 11

A defined contribution plan promises employees a fixed annual pension benefit.

Accepted Answer

A defined contribution plan does not promise a fixed annual pension benefit. Instead, the employer and/or employee contribute a set amount of money to the plan, and the employee's retirement benefits depend on the performance of the investments made with that money.

Question 12

One of the more popular defined contribution plans is the 401k plan.

Accepted Answer

The 401k plan is indeed one of the most common types of defined contribution plans, offered by many employers as a retirement savings option for their employees.

Question 13

When a borrower receives the face amount of a discounted note less discount,this amount is known as:

Accepted Answer

The face amount of a discounted note less the discount is referred to as the note proceeds.

Question 14

On June 8,Alton Co.issued an $95,000,6%,120-day note payable to Seller Co.What is the due date of the note?

Accepted Answer

The due date of the note is calculated by adding the number of days in the term of the note to the issue date. June 8 + 120 days = October 6. Therefore, the best choice is C.

Question 15

During the first year of operations,employees earned vacation pay of $35,000.The vacations will be taken during the second year.The vacation pay expense should be recorded in the second year as the vacations are taken by the employees.

Accepted Answer

The vacation pay expense should be recorded in the first year when the employees earned it, according to the matching principle of accounting, which states that expenses should be recorded in the period in which they are incurred to generate revenues.

Question 16

The journal entry to record the cost of warranty repairs that were incurred during the current period,but related to sales made in prior years,includes a debit to Warranty Expense.

Accepted Answer

The correct journal entry to record the cost of warranty repairs incurred during the current period for sales made in prior years would include a debit to a liability account (such as Warranty Liability or Accrued Warranty Cost) rather than a debit to Warranty Expense, as the expense was recognized in the period the sale was made, in accordance with the matching principle.

Question 17

On June 8,Alton Co.issued an $80,000,6%,120-day note payable to Seller Co.Assume that the fiscal year of Seller Co.ends June 30.Using the 360-day year in your calculations,what is the amount of interest revenue recognized by Seller in the following year?

Accepted Answer

The first step is to calculate the maturity date of the note: 
120 days from June 8 is October 6.

Next, we need to calculate the interest revenue that Seller Co. will earn from June 8 (the date the note was issued) to June 30 (the end of their fiscal year): 
22 days / 360 days * $80,000 * 6% = $792.89

Therefore, the total interest revenue recognized by Seller in the following year (after June 30) will be: 
98 days / 360 days * $80,000 * 6% = $513.78

Adding these two amounts together gives us: 
$792.89 + $513.78 = $1,306.67

Therefore, the best choice is C, $1,306.67.

Question 18

In a defined benefits plan,the employer bears the investment risks in funding a future retirement income benefit.

Accepted Answer

In a defined benefits plan, the employer is responsible for funding a specific retirement income benefit for the employee, regardless of the investment performance. Therefore, the employer bears the investment risks associated with meeting the promised benefit.

Question 19

The accounting for defined benefit plans is usually very easy and straight forward.

Accepted Answer

The accounting for defined benefit plans involves complex calculations and assumptions such as discount rates, future salary increases, mortality rates, and more. It requires careful consideration of actuarial data and professional judgment to determine the amount of pension expense and liability that should be recognized in the financial statements.

Question 20

Assuming a 360-day year,the interest charged by the bank,at the rate of 9%,on a 90-day,discounted note payable of $100,000 is

Accepted Answer

The first step is to calculate the discount on the note payable:

Discount = Face Value × Rate × Time
Time = 90/360 = 0.25
Discount = $100,000 × 9% × 0.25 = $2,250

The interest charged by the bank is simply the difference between the face value and the amount received by the borrower:

Interest = Face Value - Discount = $100,000 - $2,250 = $97,750

Therefore, the interest charged by the bank is $2,250. Answer choice (B) is correct.

Quiz 10: Current Liabilities and Payroll