Question 1

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 2

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 adjusting entry will be:

Accepted Answer

The adjusting entry on November 30 is necessary to record the interest expense that has accrued on the note payable for one month.

To calculate the interest expense, we can use the following formula:

Interest expense = Principal x Interest rate x Time

Where:
- Principal = $55,000
- Interest rate = 12% per year
- Time = 1/12 (since one month has passed)

Plugging in the numbers, we get:

Interest expense = $55,000 x 0.12 x 1/12 = $550

Therefore, the adjusting entry on November 30 would be:

Debit Interest Expense $550
Credit Interest Payable $550

This entry increases the interest expense account (an income statement expense account) and increases the interest payable account (a balance sheet liability account).

Option A is incorrect because it only records the payment of interest and does not reflect the accrued interest for the month.

Option B is incorrect because it assumes that the note payable was issued at a discount, which is not mentioned in the problem.

Option D is incorrect because it reduces the notes payable account, which is not yet due or paid off.

Question 3

Employees earn $5,000 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 answer of Employees earn $5,000 per day,work five days...

Question 4

On November 1,2014,Chancellor 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 31,2014,the adjusting entry for this note includes a:

Accepted Answer

The adjusting entry for the note payable includes a credit to Interest Payable for the amount of interest incurred but not yet paid, which in this case is $1,600 ($80,000 x 12% x 1/2 year). The other options are not correct as they do not reflect the proper treatment of the interest expense and the notes payable account.

Question 5

If a company purchases $3,000 worth of inventory with terms of 1/15,n30 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 November 1,2014,Chancellor 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 31,2014,Chancellor Co.'s overall liability for this loan amounts to:

Accepted Answer

To calculate the overall liability for the loan, we need to take into account the principal amount borrowed ($80,000) and the interest accrued for two months (November and December).

First, we need to calculate the interest for two months:

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

Therefore, the total liability for the loan at December 31, 2014 is:

Total Liability = Principal + Interest 
Total Liability = $80,000 + $1,600 
Total Liability = $81,600

Therefore, the correct answer is choice C ($81,600).

Question 7

On October 1,Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-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 year-end, thus increasing interest payable.

Question 8

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 answer of Long-term assets are $5,000,current liabilities are $700,and...

Question 9

A company has $8,000 in cash,$9,250 in accounts receivable,and $19,500 in inventory.If current liabilities are $14,350,then the quick ratio would be

Accepted Answer

The answer of A company has $8,000 in cash,$9,250 in...

Question 10

Executive,Inc.has a weekly payroll of $10,000 for a 5-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 answer of Executive,Inc.has a weekly payroll of $10,000 for...

Question 11

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,Tuesday,March 31,2013.What amount is wages expense for April for the payday,Friday,April,3,2013?

Accepted Answer

The company's weekly payroll amount is $50,000, and payday is every Friday. This means that the payroll for the week of Friday, April 3, 2013, is included in the amount of $50,000 recorded at the end of the accounting period on Tuesday, March 31, 2013. Therefore, $50,000 is already accounted for in March's financial statements, and no additional wages expense should be recognized in April. Option C is the correct answer, as $30,000 refers to the amount of wages incurred during the month of April.

Question 12

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 if the company pays within 15 days, they can take a 1% discount off the total amount due, otherwise, they have to pay the full amount within 30 days. Therefore, the best option for the company is to pay $7,920 before January 16, taking advantage of the discount, or pay the full amount of $8,000 before the end of the month. Paying $6,800 before January 16 would be incorrect, as this amount does not take into account the discount offered by the supplier.

Question 13

On May 1,the Chris Company borrowed $30,000 from the Third Street Bank on a 1-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,the Chris Company borrowed $30,000...

Question 14

Interest payable on a loan becomes a liability:

Accepted Answer

Interest payable on a loan is a liability that accrues over time. Therefore, it becomes a liability as it accrues, which is option D. Option A is incorrect because just receiving the borrowed money does not create a liability for interest; only borrowing the money does. Option B is incorrect because issuing a note payable creates a liability for the principal amount borrowed, but interest does not become a liability until it accrues. Option C is incorrect because the maturity date is simply the date when the principal amount borrowed is due, and interest has already been accruing as a liability leading up to that point.

Question 15

Kennesaw 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

In one month, the note payable would have accrued interest for 1/6 of the year (since it is a 6-month note) which is 1/6 * 12% = 2%.

So the interest accrued in one month would be 2% of $90,000 = $1,800.

Adding this to the original loan amount of $90,000 gives a total liability of $91,800.

Therefore, the correct answer is choice B.

Question 16

An example of a current liability that must be accrued is

Accepted Answer

Income taxes payable is a current liability that must be accrued. This means that a company must estimate the amount of income tax that they will owe for the current year and record it as a liability on their balance sheet. Failure to accurately estimate and accrue income taxes payable can result in significant financial penalties and legal consequences.

Question 17

Creek Inc.has a weekly payroll of $8,000 for a 5-day workweek,Monday through Friday.If December 31,the last day of the accounting year,falls on Wednesday,Creek would make an adjusting entry that would

Accepted Answer

Creek Inc. needs to account for the wages expense incurred from Monday to Wednesday, which is 3/5 of the weekly payroll. Therefore, the adjusting entry would increase wages expense by $4,800 (3/5 of $8,000).

Question 18

All of the following statements are true except:

Accepted Answer

U.S.standards require a classified balance sheet with assets in order by liquidity and liabilities in order by size or maturity. Therefore, statement D is false.

Question 19

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 related revenues. Therefore, if income tax payable is not estimated and recorded as an expense in the same period as the related revenues, it would violate the matching principle.

Question 20

A bank loaned Shrugg Stone Company $35,000 on a 1-year,6% note,but deducted the interest in advance.The journal entry made by Shrugg Stone to record receipt of the cash would include an

Accepted Answer

The interest of $2,100 ($35,000 x 6%) is deducted in advance, so the cash received is $32,900. The $2,100 is recorded as a Discount on Notes Payable, which is a contra liability account.

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