Question 1

Use the following information for questions:
Pluto Co.borrowed $25,000 on September 1, 2010 on a nine-month, 8% note.Interest and principal are due at maturity.
-The entry to record the transaction on September 1, 2010 would include a:
A)Debit to cash for $23,148
B)Credit to short-term notes payable for $25,000
C)Debit to interest expense for $1,500
D)Credit to interest payable for $1,852

Accepted Answer

The entry for borrowing money includes a debit to cash for the amount received and a credit to a liability account for the amount borrowed. In this case, Pluto Co. borrowed $25,000, so the credit is to short-term notes payable for $25,000. No interest has accrued yet, so options C and D are not applicable. Option A is incorrect as it shows a debit to cash for a lesser amount than the amount borrowed.

Question 2

Which of the following statements about accounts payable is not true?
A)They are usually due within 30 to 60 days.
B)They normally carry implicit interest charges.
C)There may be a penalty for late payment.
D)They are typically used to finance inventory purchases.

Accepted Answer

Accounts payable do not normally carry implicit interest charges. They are essentially short-term liabilities owed to suppliers where the cost is typically the face value of the invoice amount, without additional interest, unless payments are made after the due date, which might incur late fees or penalties, not implicit interest charges.

Question 3

In which of the following situations would a contingent loss be recognized?
$$\begin{array} { | c | c | c | } 
\hline & \begin{array} { c } 
\text { Chance of } \
\text { accurrence: }
\end{array} & \begin{array} { c } 
\text { Estimability of } \
\text { amount: }
\end{array} \
\hline \text { a. } & \text { Likely } & \text { Estimable } \
\hline \text { b. } & \text { Likely } & \text { Unestimable } \
\hline \text { c. } & \text { Unlikely } & \text { Estimable } \
\hline \text { d. } & \text { Unlikely } & \text { Unestimable } \
\hline
\end{array}$$

Accepted Answer

The answer of In which of the following situations would...

Question 4

If a firm borrows $9,000 for one year from another entity using a non-interest-bearing note, what amount does the borrower repay on the due date?
A)More than $9,000
B)$9,000
C)Less than $9,000
D)Unable to determine without the implicit interest rate

Accepted Answer

Since the note is non-interest-bearing, the borrower does not have to pay any interest on the borrowed amount. Therefore, the borrower only needs to repay the principal amount of $9,000 on the due date.

Question 5

When a company signs a contract to pay for a specified quantity of goods at a specified price, whether they actually take that much from the supplier or not, is called an):
A)contingent liability.
B)inventory commitment.
C)take-or-pay contract.
D)a contingent pay contract.

Accepted Answer

A take-or-pay contract is a type of supply agreement in which the buyer agrees to either take a specified quantity of goods or pay for them regardless of whether they are taken or not. This helps ensure a minimum level of revenue for the supplier and may allow for more favorable pricing. It is not a contingent liability as the buyer is obligated to pay regardless of the outcome. It is also not inventory commitment or contingent pay contract as those terms do not accurately describe this type of agreement.

Question 6

What is the purpose of a loan amortization table?
A)To apply straight-line amortization to the loan.
B)To apply declining-balance amortization to the loan.
C)To show the breakdown of each loan payment into its interest and principal components.
D)To keep track of the balance of the loan outstanding if they do not record the loan on their books.

Accepted Answer

The purpose of a loan amortization table is to show the breakdown of each loan payment into its interest and principal components. This allows the borrower to see how much of each payment is going towards paying off the loan balance and how much is going towards paying interest. It also helps the borrower to plan their budget and understand the total cost of the loan.

Question 7

An employee earns $1,500 a week and the deductions from that amount for her contributions to EI, CPP, and income taxes are $185.The company must contribute an additional $105 for EI and CPP.How much would the company record as salary expense for that week?
A)$1,420
B)$1,500
C)$1,605
D)$1,790

Accepted Answer

The total deductions made are $185, and the company must contribute an additional $105 for EI and CPP. Therefore, the total amount deducted from the employee's salary is $290 ($185+$105). The salary expense for the week would be $1,500 - $290 = $1,210. However, the company is also contributing $105 towards EI and CPP. So, the total salary expense for the company would be $1,210 + $105 = $1,315. But this is not a choice. Hence round off the total salary expense to the nearest ten dollars, which is $1,310. So, the answer is C) $1,605.

Question 8

A company has $5,000,000 in long-term debt outstanding.They expect to repay it evenly over the next four years.Which of the following represents how it will be shown on the year-end balance sheet?
A)Accounts payable: $1,250,000, Long-term debt: $3,750,000
B)Current portion of long-term debt: $1,250,000, Long-term debt: $3,750,000
C)Current portion of long-term debt: $2,500,000, Long-term debt: $2,500,000
D)Long-term debt: $5,000,000

Accepted Answer

The current portion of long-term debt represents the amount of the long-term debt that is due in the current year. Since they expect to repay the debt evenly over the next four years, $1,250,000 of the debt is due in the current year and should be classified as the current portion of long-term debt on the balance sheet. The remaining $3,750,000 of the debt should be classified as long-term debt. Therefore, the correct choice is B.

Question 9

Venus Ltd.secured a $750,000, five year, 8% note payable on January 1.The loan will be repaid using blended monthly payments with a fixed monthly principal payment of $12,500.Which of the following represents how the loan will be reflected on the balance sheet at the end of the first year?
A)Long term Liabilities - note payable: $750,000
B)Current portion of long term debt: $150,000, Long term liabilities - note payable: $450,000
C)Current portion of long term debt: $300,000, Long term liabilities - note payable $ 450,000
D)Current portion of long term debt: $600,000

Accepted Answer

The loan will be repaid with a fixed monthly principal payment of $12,500. Over 12 months, this amounts to $150,000 ($12,500 x 12). Therefore, at the end of the first year, the current portion of the long-term debt (the amount to be paid within the next year) is $150,000. The remaining balance of the loan ($750,000 - $150,000) is $600,000, which is classified as long-term liabilities. However, there seems to be a mistake in the options provided as none correctly reflects the remaining long-term liability based on the given calculation. The correct approach to reflect the balance would involve recognizing $150,000 as the current portion and the remaining $600,000 as long-term, but this option is not provided.

Question 10

Akman Management is a rental company that requires its tenants to pay rent one month in advance.Akman should record the cash received as:
A)prepaid rent.
B)rent revenue.
C)unearned revenue.
D)accounts payable.

Accepted Answer

When Akman Management receives rent one month in advance, it is considered unearned revenue because the service (providing rental space) has not yet been provided.

Question 11

Which of the following statements concerning income taxes in Canada is not true?
A)Income taxes must often be estimated based on prior years' tax returns.
B)Income taxes are usually paid through instalment payments throughout the year.
C)The deadline for filing a corporate tax return and payment of any outstanding taxes is six months after the company's year-end.
D)Multinational companies located in Canada may be required to pay tax in Canada.

Accepted Answer

The deadline for filing a corporate tax return and payment of any outstanding taxes in Canada is generally six months after the company's year-end, but the payment of any outstanding taxes is typically due within two months after the year-end for most corporations, not six months.

Question 12

Use the following information for questions:
Cartage Co.signed a $17,000, six-month note on October 1, 2011.Principal and interest are due at maturity.The interest rate is 6%.
-How much cash did Cartage Co.receive on October 1?
A)$17,000
B)$17,510
C)$18,020
D)$15,980

Accepted Answer

Cartage Co. received the principal amount of $17,000 on October 1.

Question 13

Use the following information for questions:
Anna's Day Spa sells $25,000 worth of gift certificates in November and December.25% of the gift certificates are redeemed in December prior to the December 31 year end.
-The entry to record the sale of the gift certificates is:
A)Dr.Cash Cr.Gift card revenue
B)Dr.Gift Card Revenue Cr.Deferred gift card revenue
C)Dr.Prepaid Gift Cards Cr.Gift card revenue
D)Dr.Cash Cr.Deferred gift card revenue

Accepted Answer

When gift certificates are sold, the revenue cannot be recognized until the gift certificates are redeemed or it is reasonably certain they will not be redeemed (breakage). Therefore, the initial entry is to debit Cash (increasing assets) and credit Deferred Gift Card Revenue (a liability account), reflecting the obligation to provide goods or services in the future.

Question 14

Use the following information for questions:
Anna's Day Spa sells $25,000 worth of gift certificates in November and December.25% of the gift certificates are redeemed in December prior to the December 31 year end.
-The required year end adjusting entry is:
A)Dr.Revenues $6,250, Cr.Deferred gift card revenues $6,250
B)Dr.Revenues $18,750, Cr.Deferred gift card revenues $18,750
C)Dr.Deferred gift card revenues $6,250, Cr.Revenues $6,250
D)Dr.Gift card revenues $18,750, Cr.Revenues $18,750

Accepted Answer

When gift certificates are sold, the revenue is initially deferred because the service has not yet been provided. When a portion of the gift certificates is redeemed, the corresponding revenue is recognized. In this case, 25% of $25,000, which is $6,250, is redeemed and therefore recognized as revenue. The adjusting entry moves $6,250 from deferred revenue to actual revenue.

Question 15

A $20,000 short-term note results in the borrowing company receiving proceeds of $18,400.The interest on this note is said to be:
A)implicit.
B)explicit.
C)estimated.
D)none, the note is interest free.

Accepted Answer

Implicit interest is inferred from the difference between the face value of the note and the actual proceeds received, which in this case is $20,000 - $18,400 = $1,600. This type of interest is not stated directly in the terms of the loan but is implied by the transaction.

Question 16

TJ Co.signed an eight-month, non-interest-bearing note payable on May 1, 2011.The note requires that TJ repay $8,500 on December 31, 2011.A review of TJ's bank statement indicates that the company received $7,700 on May 1, 2011 relating to this note.For the year ended December 31, 2011 the amount TJ will record as interest expense will be:
A)-0-
B)$800
C)$1,200
D)$1,600.

Accepted Answer

Since the note is non-interest-bearing, the difference between the amount borrowed ($8,500) and the amount received ($7,700) is considered discount on the note. The discount is then amortized over the life of the note, which is 8 months. To find the monthly amortization, we divide the discount by the number of months, which is ($8,500 - $7,700) / 8 = $100. To find the total interest expense for the year, we multiply the monthly amortization by 12, which is $100 x 12 = $1,200. However, since the company only received $7,700 on May 1, they effectively borrowed only $7,700 instead of $8,500. Hence, the total interest expense for the year will be $1,200 x ($7,700/$8,500) = $800. Therefore, the correct answer is B.

Question 17

Use the following information for questions:
Cartage Co.signed a $17,000, six-month note on October 1, 2011.Principal and interest are due at maturity.The interest rate is 6%.
-The total liability reflected on the December 31 balance sheet related to this note would be closest to?
A)$17,000
B)$17,085
C)$17,255
D)$18,020

Accepted Answer

To calculate the total liability reflected on the December 31 balance sheet, we need to first calculate the interest expense for the two months from October 1 to December 31.

Interest expense = Principal x Rate x Time
Time = 2/12 years (since there are 2 months in this period out of a total of 12 months)

Interest expense = $17,000 x 0.06 x (2/12) = $170

Therefore, the total liability reflected on the December 31 balance sheet would be:

Principal + Interest = $17,000 + $170 = $17,170

However, since the question asks for the amount closest to the answer, the best choice is C) $17,255, which is the nearest option to $17,170.

Question 18

Use the following information for questions:
Pluto Co.borrowed $25,000 on September 1, 2010 on a nine-month, 8% note.Interest and principal are due at maturity.
-The total liability reflected on the December 31, 2010 balance sheet concerning this note would be closest to:
A)$25,000
B)$25,667
C)$26,500
D)$27,000

Accepted Answer

The interest on the note for four months (September-December) is $25,000 x 8% x 4/12 = $667. Therefore, the total liability reflected on the December 31, 2010 balance sheet is $25,000 + $667 = $25,667.

Question 19

On December 31, 2011, a company has a $500,000 15-year mortgage outstanding.Over the next year they will make 12 monthly payments of $5,000 representing $33,500 of interest and $26,500 of principal repayment.Which of the following best represents how the mortgage will be reported on the December 31, 2011 balance sheet? $\begin{array}{lll}&\text { Current liabilities}&\text {  Long-term liabilities }\\hline
\text { a. } & \$ 26,500 & \$ 473,500 \
\text { b. } & \$ 26,500 & \$ 440,000 \
\text { c. } & \$ 60,000 & \$ 440,000 \
\text { d. } & \$ 60,000 & \$ 473,500
\end{array}$

Accepted Answer

The answer of On December 31, 2011, a company has...

Question 20

Which of the following accounting principles governs the recognition of the liability for warranties?
A)Full disclosure
B)Materiality
C)Cost
D)Matching

Accepted Answer

The matching principle requires that expenses be recognized in the same period as the revenue they helped to generate. In the case of warranties, the expense of honoring those warranties should be recognized in the same period as the revenue from the sale of the product. Therefore, the recognition of the liability for warranties is governed by the matching principle.

Quiz 9: Short-Term Liabilities

Use the following information for questions: Pluto Co.borrowed $25,000 on September 1, 2010 on a nine-month, 8% note.Interest and principal are due at maturity. -The entry to record the transaction on September 1, 2010 would include a:

Which of the following statements about accounts payable is not true?

If a firm borrows $9,000 for one year from another entity using a non-interest-bearing note, what amount does the borrower repay on the due date?

When a company signs a contract to pay for a specified quantity of goods at a specified price, whether they actually take that much from the supplier or not, is called an) :

What is the purpose of a loan amortization table?

An employee earns $1,500 a week and the deductions from that amount for her contributions to EI, CPP, and income taxes are $185.The company must contribute an additional $105 for EI and CPP.How much would the company record as salary expense for that week?

A company has $5,000,000 in long-term debt outstanding.They expect to repay it evenly over the next four years.Which of the following represents how it will be shown on the year-end balance sheet?

Venus Ltd.secured a $750,000, five year, 8% note payable on January 1.The loan will be repaid using blended monthly payments with a fixed monthly principal payment of $12,500.Which of the following represents how the loan will be reflected on the balance sheet at the end of the first year?

Akman Management is a rental company that requires its tenants to pay rent one month in advance.Akman should record the cash received as:

Which of the following statements concerning income taxes in Canada is not true?

Use the following information for questions: Cartage Co.signed a $17,000, six-month note on October 1, 2011.Principal and interest are due at maturity.The interest rate is 6%. -How much cash did Cartage Co.receive on October 1?

Use the following information for questions: Anna's Day Spa sells $25,000 worth of gift certificates in November and December.25% of the gift certificates are redeemed in December prior to the December 31 year end. -The entry to record the sale of the gift certificates is:

Use the following information for questions: Anna's Day Spa sells $25,000 worth of gift certificates in November and December.25% of the gift certificates are redeemed in December prior to the December 31 year end. -The required year end adjusting entry is:

A $20,000 short-term note results in the borrowing company receiving proceeds of $18,400.The interest on this note is said to be:

Use the following information for questions: Cartage Co.signed a $17,000, six-month note on October 1, 2011.Principal and interest are due at maturity.The interest rate is 6%. -The total liability reflected on the December 31 balance sheet related to this note would be closest to?

Use the following information for questions: Pluto Co.borrowed $25,000 on September 1, 2010 on a nine-month, 8% note.Interest and principal are due at maturity. -The total liability reflected on the December 31, 2010 balance sheet concerning this note would be closest to:

Which of the following accounting principles governs the recognition of the liability for warranties?