Question 1

Examples of contingent assets include all of the following except:

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Question 2

Which of the following is the proper way to report a probable contingent asset?

Accepted Answer

A probable contingent asset can only be disclosed in the financial statements as it is not certain to materialize. It cannot be recorded as an accrued amount, deferred revenue or an account receivable as there is no certainty that it will be received. Disclosing the nature of the contingency is the appropriate way to inform users of the financial statements about the potential asset.

Question 3

Which of the following is the proper way to report a contingent asset considered probable?

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Question 4

On June 20, Ying Company purchased goods from Chee-Chow Company for HK$30,000, terms 2\10, n\30.The invoice was paid on June 27.The company uses a perpetual inventory system and records purchases gross.The June 27 journal entry to record payment of the account would include:

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Question 5

Contingent assets need not be disclosed in the financial statements or the notes thereto if they are considered?

Accepted Answer

Contingent assets need not be disclosed in the financial statements or the notes thereto if they are possible but not probable. Contingent assets that are probable or virtually certain should be disclosed in the notes to the financial statements.

Question 6

Collier borrowed $175,000 on October 1 and is required to pay $180,000 on March 1.What amount is the note payable recorded at on October 1 and how much interest is recognized from October 1 to December 31?

Accepted Answer

The note payable is recorded at the principal amount of $175,000 on October 1. The interest recognized from October 1 to December 31 is $3,000, calculated as the difference between the repayment amount ($180,000) and the principal ($175,000) prorated for the period (3 months out of 5 months total).

Question 7

An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount.The coupons expire in one year.The store normally recognized a gross profit margin of 40% of the selling price on video games.How would the store account for a purchase using the discount coupon?

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Question 8

Glaus Corp.signed a three-month, zero-interest-bearing $152,205 note on November 1, 2010 for the purchase of $150,000 of inventory.The adjusting entry made at December 31, 2010 will include a

Accepted Answer

Since the note is zero-interest-bearing, there is no interest expense to record until the note matures. The adjusting entry on December 31, 2010, will include a debit to Inventory and a credit to Accounts Payable for the purchase of inventory. The note payable will also need to be adjusted to reflect the interest that has accrued. The formula for calculating the interest is Principal x Rate x Time. In this case, the Principal is $150,000, the Rate is 0 (since it is zero-interest-bearing), and the Time is 2/12 (since two months have passed since the note was issued). Therefore, the interest accrued is $0. The adjusting entry will include a debit to Interest Expense for $1,470 ($152,205 x 12% x 1/12) to reflect the interest that will be paid when the note matures.

Question 9

Sodium Inc.borrowed $175,000 on April 1.The note requires interest at 12% and principal to be paid in one year.How much interest is recognized for the period from April 1 to December 31?

Accepted Answer

The interest for the period from April 1 to December 31 is calculated as follows: $175,000 * 12% * (9/12) = $15,750.

Question 10

Which of the following are not factors that are considered when evaluating whether or not to record a liability for pending litigation?

Accepted Answer

The type of litigation involved is not typically a factor in determining whether or not to record a liability for pending litigation. The other options, the time period in which the underlying cause of action occurred, the probability of an unfavorable outcome, and the ability to make a reasonable estimate of the amount of the loss, are all factors that would be considered.

Question 11

All of the following are true regarding the presentation of current liabilities in the statement of financial position except

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Question 12

On December 31, 2011, Frye Co.has £4,000,000 of short-term notes payable due on February 28, 2012.On December 23, 2011, Frye arranged a line of credit with County Bank which allows Frye to borrow up to £3,500,000 at one percent above the prime rate for three years.On February 2, 2007, Frye borrowed £2,500,000 from County Bank and used £500,000 additional cash to liquidate £3,000,000 of the short-term notes payable.The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2011 statement of financial position which is issued on March 15, 2012 is

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Question 13

How do you determine the acid-test ratio?

Accepted Answer

The acid-test ratio, also known as the quick ratio, is calculated by taking the sum of cash, short-term investments, and net receivables (current assets that can be quickly converted to cash) and dividing it by current liabilities. Option D is the only choice that includes net receivables and excludes inventory, which may not be easily liquidated into cash.

Question 14

The effective interest on a 12-month, zero-interest-bearing note payable of $300,000, discounted at the bank at 10% is

Accepted Answer

To find the effective interest rate, we need to find the discount on the note, which is the difference between face value and the amount received, and then divide it by the amount received.

The formula for finding the discount is:

Discount = Face Value - Amount Received

The face value of the note is $300,000, and since it is a zero-interest-bearing note, the amount received is also $300,000.

So, the discount is:

Discount = $300,000 - $300,000 = $0

Next, we need to find the interest rate that would produce a $0 discount on a 12-month note with a face value of $300,000, given a bank discount rate of 10%.

The formula for finding the interest rate is:

Interest Rate = Discount / Face Value x (360 / Days)

Where Days is the term of the note, which in this case is 12 months, or 360 days.

Plugging in the values, we get:

Interest Rate = $0 / $300,000 x (360 / 360) x 100%
Interest Rate = 0%

So, the effective interest rate on the note is the bank discount rate of 10% plus the interest rate of 0%, which gives us a total of:

Effective Interest Rate = 10% + 0% = 10.00%

So, the best choice is D, 11.11%.

Question 15

On September 30, Yang Company signed a HK$150,000, one-year zero-interest-bearing note at First Solvent Bank.Yang's borrowing rate on such obligations is 12% (.89286 present value factor).The September 30 journal entry to record issuance of the note would include:

Accepted Answer

The note is a zero-interest-bearing note, so it is recorded at its present value. The present value of the note is HK$150,000 * 0.89286 = HK$133,929. Therefore, the credit to Notes Payable would be HK$133,929.

Question 16

Which of the following is the proper way to report a contingent asset, receipt of which is virtually certain?

Accepted Answer

A contingent asset is disclosed when there is a possible gain in the future as a result of past events. When the receipt of the asset is virtually certain, it should be recognized as an asset on the balance sheet.

Question 17

Provisions are contingent liabilities which are accrued because the likelihood of an unfavorable outcome is

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Question 18

On September 1, Hydra purchased $9,500 of inventory items on credit with the terms 1\15, net 30, FOB destination.Freight charges were $200.Payment for the purchase was made on September 18.Assuming Hydra uses the perpetual inventory system and the net method of accounting for purchase discounts, what amount is recorded as accounts payable from this purchase?

Accepted Answer

Under the net method, the purchase is recorded net of the discount. The discount is 1% of $9,500, which is $95. Therefore, the accounts payable recorded is $9,500 - $95 = $9,405. Freight charges are not included in accounts payable as they are paid separately.

Question 19

What condition is necessary to recognize an environmental liability?

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Question 20

A contingent liability

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...

Quiz 13: Current Liabilities, Provisions, and Contingencies