Question 1

An example of a current liability that must be accrued is

Accepted Answer

Income taxes payable must be accrued because they represent taxes owed to the government that have not yet been paid. Accruing for income taxes ensures that the liability is properly recorded and recognized in the financial statements. Choices A, B, and C do not necessarily require accrual because they are already recorded as current liabilities.

Question 2

Proctor 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, Proctor would make an adjusting entry that would

Accepted Answer

The correct adjusting entry for Proctor Inc. would be to recognize the wages expense incurred but not yet paid for the three days of the workweek that have passed (Monday through Wednesday). Since the weekly payroll is $8,000 for a 5-day workweek, the daily payroll is $1,600 ($8,000 / 5). For three days, this amounts to $4,800 ($1,600 x 3), which should be recognized as an additional wages expense to accurately reflect the costs incurred during the year. This adjustment does not involve decreasing cash or wages payable directly but rather increases the wages expense to account for the accrued wages.

Question 3

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 4

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 90-day note payable was signed on November 1,  so it will come due on January 30. The November 30 adjusting entry is needed to account for the amount of interest expense that has accrued since the note was signed.

To calculate the interest expense, we need to use the formula:

Interest = Principal x Rate x Time

where: 
- Principal = $55,000
- Rate = 12% annual rate, or 0.12/360 per day
- Time = 30 days (from November 1 to November 30)

Therefore, Interest = $55,000 x 0.12/360 x 30 = $550

The adjusting entry should debit Interest Expense for $550, and credit Interest Payable for $550. This will record the amount of interest that has accrued as an expense on the income statement, and as a liability on the balance sheet.

Option A is incorrect because it suggests crediting Cash, which is not necessary for an adjusting entry. 
Option B is incorrect because it suggests using a discount on the notes payable, which is not relevant to this scenario. 
Option D is incorrect because it suggests directly reducing the Notes Payable account, which is not accurate.

Question 5

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 6

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 ending balance in the wages payable account is $15,000 because employees worked for three days (January 29, 30, and 31) after the last payday on January 26, and they earn $5,000 per day. Therefore, 3 days x $5,000 = $15,000.

Question 7

Interest payable on a loan becomes a liability:

Accepted Answer

Interest payable on a loan becomes a liability as it accrues, meaning as time passes and the interest grows, it becomes a liability for the borrower.

Question 8

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 9

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 the company can take a 1% discount if they pay within 15 days, but they must pay the full amount within 30 days. Therefore, the company can either pay $7,920 (1% discount from $8,000) before January 16 or pay the full $8,000 before the end of the month. Option A is incorrect because the discount is only applicable if paid within 15 days, not by the end of the month. Option C is incorrect because the company can take advantage of the discount if paid by January 16. Option D is incorrect because it is not mentioned in the terms of the invoice.

Question 10

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...

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, Monday, March 31, 2014.What amount is wages expense for April for the payday, Friday, April, 4, 2014?

Accepted Answer

Since the payday falls on Friday, April 4, the wages expense for the week of March 31-April 4 will be included in the April payroll. Therefore, the wages expense for April will be $40,000 ($50,000 - 1 day's worth of wages for April 4).

Question 12

Marsh 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

After one month, Marsh Corporation owes one-sixth of the principal plus one month's worth of interest:

($90,000 × 0.12 × 1/12) + ($90,000 × 1/6) = $1,080 + $15,000 = $16,080

Adding this to the original principal yields a total liability of $106,080. However, this amount will not be due until the maturity date. Therefore, the correct answer is the closest amount to Marsh Corporation's total liability after one month, which is option B, $90,900.

Question 13

All of the following statements are true except:

Accepted Answer

U.S. standards require a classified balance sheet, but do not specify whether liabilities should be listed in order by size or by order of liquidity.

Question 14

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

Accepted Answer

The correct answer is C because when a bank deducts interest in advance on a loan, the borrower records the interest as a "Discount on Notes Payable." This discount reduces the carrying amount of the note payable and is amortized over the life of the note. The interest deducted in advance ($35,000 * 6% = $2,100) is not recorded as Interest Revenue by the borrower but as a discount on the liability.

Question 15

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...

Question 16

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...

Question 17

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 18

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

The formula to calculate the interest on a note payable is: 
Interest = Principal x Annual Interest Rate x Time
In this case, Principal = $80,000, Annual Interest Rate = 12%, and Time = 2/12 (since there are 2 months left until maturity from December 31). 
Interest = $80,000 x 0.12 x (2/12) = $1,280
Therefore, the total liability for the loan at December 31, 2014 is: 
$80,000 (principal) + $1,280 (interest) = $81,600. Therefore, choice C is the correct answer.

Question 19

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...

Question 20

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 corresponding revenues. In the case of income tax payable, it is necessary to estimate the amount of tax owed in the current period based on the revenues earned, in order to match the expense with the corresponding revenue. Failure to estimate and record this amount would be a violation of the matching principle. The convention of conservation relates to the principle of prudence, which requires that losses or expenses be recognized as soon as they are probable and that gains or revenues be recognized only when they are realized or incurred. The practice of consistency requires that accounting methods be applied consistently from one period to the next. The concept of historical cost requires that assets be recorded and reported at their original cost.

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