Question 1

On June 8, Williams Company issued an $80,000, 5%, 120-day note payable to Brown Industries. Assuming a 360-day year, what is the maturity value of the note?
A) $82,600
B) $84,000
C) $81,333
D) $88,200

Accepted Answer

Step 1: Find the interest on the note payable: 
Interest = Principal x Rate x Time 
= $80,000 x 5% x 120/360 
= $1,333.33

Step 2: Find the maturity value of the note payable: 
Maturity Value = Principal + Interest 
= $80,000 + $1,333.33 
= $81,333.33

Therefore, the correct answer is C.

Question 2

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

Accepted Answer

The product warranty expense should be recorded in the same period the revenue from the sale of the warranted products is recognized, not in the years when the expenditures for repairs occur, according to the matching principle in accounting.

Question 3

Assuming a 360-day year, when a $50,000, 90-day, 9% interest-bearing note payable matures, the total payment will be
A) $51,125
B) $54,500
C) $1,125
D) $4,500

Accepted Answer

To calculate the total payment for the note payable, we need to find the interest accrued for the 90-day period and add it to the principal amount.

Interest = Principal x Rate x Time 
Time = 90/360 = 0.25 years

Interest = $50,000 x 0.09 x 0.25 = $1,125

Total payment = Principal + Interest 
Total payment = $50,000 + $1,125 = $51,125

Therefore, the correct answer is A) $51,125.

Question 4

On June 1, Davis Inc. issued an $84,000, 5%, 120-day note payable to Garcia Company. Assume that the fiscal year of Garcia ends June 30. Using the 360-day year, what is the amount of interest revenue (rounded) recognized by Garcia in the following year?
A) $700
B) $1,600
C) $1,062
D) $4,200

Accepted Answer

First, we need to find the interest on the note payable:
Interest = Principal x Rate x Time
= $84,000 x 5% x 120/360
= $1,400
Garcia received $1,400 in interest revenue from Davis ($84,000 x 5%) for the 120-day period. Since Garcia's fiscal year ends on June 30 and the note was issued on June 1, only one month's interest revenue ($1,400/3) will fall into Garcia's fiscal year. Therefore, the amount of interest revenue recognized by Garcia in the following year will be $1,400/3 = $466.67 or rounded to $1,062.

Question 5

Assuming a 360-day year, the interest charged by the bank, at the rate of 6%, on a 90-day, discounted note payable of $100,000 is
A) $6,000
B) $1,500
C) $500
D) $3,000

Accepted Answer

The formula for calculating interest on a discounted note payable is:

Interest = Principal x Rate x Time

Where:
Principal = $100,000
Rate = 6%
Time = 90/360 (since it is a 360-day year and the note is for 90 days)

Plugging in the values:

Interest = $100,000 x 6% x 90/360
Interest = $1,500

Therefore, the interest charged by the bank on the note is $1,500.

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

Obligations that may arise from past transactions only if certain events occur in the future are contingent liabilities.

Accepted Answer

The answer of Obligations that may arise from past transactions...

Question 8

On July 8, Jones Inc. issued an $80,000, 6%, 120-day note payable to Miller Company. Assume that the fiscal year of Jones ends on July 31. Using the 360-day year, what is the amount of interest expense recognized by Jones in the current fiscal year?
A) $700
B) $4,200
C) $307
D) $1,400

Accepted Answer

We can start by calculating the interest expense using the following formula:

Interest expense = Principal x Interest rate x Time

Where:

Principal = $80,000
Interest rate = 6%
Time = 120/360 = 1/3 years (since we're using a 360-day year)

Plugging in the values, we get:

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

However, since the fiscal year of Jones ends on July 31 and the note was issued on July 8, the amount of interest expense recognized in the current fiscal year will be for 24 days only (from July 8 to July 31).

To calculate the interest expense for 24 days, we can use the following formula:

Interest expense = Principal x Interest rate x Time
Time = 24/360 = 1/15 years

Plugging in the values, we get:

Interest expense = $80,000 x 6% x 1/15 = $307

Therefore, the amount of interest expense recognized by Jones in the current fiscal year is $307. Option C is the correct answer.

Question 9

On May 18, Rodriguez Co. issued an $84,000, 6%, 120-day note payable on an overdue account payable to Wilson Company. Assume that the fiscal year of Rodriguez ends on June 30. Which of the following relationships is true?
A) Rodriguez is the creditor and credits Accounts Receivable.
B) Wilson is the creditor and debits Accounts Receivable.
C) Wilson is the borrower and credits Accounts Payable.
D) Rodriguez is the borrower and debits Accounts Payable.

Accepted Answer

Rodriguez Co. is the borrower of the note payable, so they would debit Accounts Payable. Wilson Company is the creditor, and they would credit Notes Payable. Neither Accounts Receivable nor Accounts Payable are affected in this transaction. Option B is incorrect because Wilson Company is not owed any money on their Accounts Receivable. Option A is incorrect because Rodriguez Co. is not owed any money on their Accounts Receivable. Option C is incorrect because Wilson Company is not borrowing any money.

Question 10

Current liabilities are due
A) but not receivable for more than one year
B) but not payable for more than one year
C) and receivable within one year
D) and payable within one year

Accepted Answer

Current liabilities are those that are due and payable within one year or the company's operating cycle, whichever is longer. Option D is the only choice that accurately reflects this definition.

Question 11

Martinez Co. borrowed $50,000 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
A) debit to Interest Payable for $750
B) debit to Interest Expense for $750
C) credit to Cash for $50,000
D) credit to Cash for $54,500

Accepted Answer

The interest on the note can be calculated using the formula:

Interest = Principal x Rate x Time

Time is calculated as 60/360 = 1/6 of a year.

Interest = $50,000 x 0.09 x 1/6 = $750

Since the note is being paid off, the entry would be to debit the liability account (Notes Payable) for $50,000, debit the expense account (Interest Expense) for $750, and credit the asset account (Cash) for $50,750 ($50,000 + $750 interest). Therefore, the correct option is B, debit to Interest Expense for $750.

Question 12

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 13

When a borrower receives the face amount of a discounted note less the discount, the amount is known as the
A) note proceeds
B) note discount
C) note deferred interest
D) note principal

Accepted Answer

The face amount of a discounted note less the discount is known as the note proceeds. This is the amount that the borrower receives from the lender after the lender has deducted the discount. The note proceeds represent the actual amount of money that the borrower will receive and is usually less than the face amount of the note. Therefore, the correct answer is A) note proceeds.

Question 14

Anderson Co. issued a $50,000, 60-day, discounted note to National Bank. The discount rate is 6%. At maturity, assuming a 360-day year, the borrower will pay
A) $53,000
B) $50,500
C) $50,000
D) $49,500

Accepted Answer

The answer of Anderson Co. issued a $50,000, 60-day, discounted...

Question 15

On June 8, Smith Technologies issued a $75,000, 6%, 140-day note payable to Johnson Company. What is the due date of the note?
A) October 28
B) October 27
C) October 26
D) October 25

Accepted Answer

To find the due date, we need to add the number of days in the note to the date it was issued.

June has 30 days, and adding 140 days will give us a total of 170 days.

Counting forward 170 days from June 8 gives us October 26 as the due date.

Therefore, the answer is choice C.

Question 16

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

Accepted Answer

A defined contribution plan, such as a 401(k), does not promise a fixed annual pension benefit. Instead, the amount of retirement income the employee receives depends on their contributions, the performance of their investment choices, and other factors such as fees and taxes.

Question 17

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 promises a specified retirement income to the employee, regardless of the performance of the investments used to fund the future benefit. Therefore, the employer bears the investment risks and is responsible for ensuring there are sufficient funds to pay the promised retirement income.

Question 18

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

Accepted Answer

The accounting for defined benefit plans is often complex and involves actuarial calculations, assumptions, and estimates. It requires careful measurement and recognition of the plan's assets, liabilities, and expenses, as well as disclosure of additional information in the financial statements.

Question 19

Assuming a 360-day year, proceeds of $48,750 were received from discounting a $50,000, 90-day note at a bank. The discount rate used by the bank in computing the proceeds was
A) 6.25%
B) 10%
C) 10.26%
D) 9.75%

Accepted Answer

The discount amount is $50,000 - $48,750 = $1,250. The discount rate is calculated as ($1,250 / $50,000) * (360 / 90) = 10%.

Question 20

Notes may be issued
A) when assets are purchased
B) to creditors to temporarily satisfy an account payable created earlier
C) when borrowing money
D) All of these choices

Accepted Answer

Notes may be issued in all of these scenarios, whether it is to finance the purchase of assets, to temporarily satisfy an account payable through taking out a loan, or when directly borrowing money.

Quiz 11: Current Liabilities and Payroll

On June 8, Williams Company issued an $80,000, 5%, 120-day note payable to Brown Industries. Assuming a 360-day year, what is the maturity value of the note?

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

Assuming a 360-day year, when a $50,000, 90-day, 9% interest-bearing note payable matures, the total payment will be

On June 1, Davis Inc. issued an $84,000, 5%, 120-day note payable to Garcia Company. Assume that the fiscal year of Garcia ends June 30. Using the 360-day year, what is the amount of interest revenue (rounded) recognized by Garcia in the following year?

Assuming a 360-day year, the interest charged by the bank, at the rate of 6%, on a 90-day, discounted note payable of $100,000 is

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

Obligations that may arise from past transactions only if certain events occur in the future are contingent liabilities.

On July 8, Jones Inc. issued an $80,000, 6%, 120-day note payable to Miller Company. Assume that the fiscal year of Jones ends on July 31. Using the 360-day year, what is the amount of interest expense recognized by Jones in the current fiscal year?

On May 18, Rodriguez Co. issued an $84,000, 6%, 120-day note payable on an overdue account payable to Wilson Company. Assume that the fiscal year of Rodriguez ends on June 30. Which of the following relationships is true?

Current liabilities are due

Martinez Co. borrowed $50,000 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

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.

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

Anderson Co. issued a $50,000, 60-day, discounted note to National Bank. The discount rate is 6%. At maturity, assuming a 360-day year, the borrower will pay

On June 8, Smith Technologies issued a $75,000, 6%, 140-day note payable to Johnson Company. What is the due date of the note?

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

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

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

Assuming a 360-day year, proceeds of $48,750 were received from discounting a $50,000, 90-day note at a bank. The discount rate used by the bank in computing the proceeds was

Notes may be issued