Question 1

An example of a current liability that must be accrued is

Accepted Answer

Income taxes payable are typically accrued because they represent an obligation that has been incurred but not yet paid.

Question 2

The terms referring to contingencies differ between U.S. GAAP and IFRS.

Accepted Answer

There are differences in the terminology used to refer to contingencies under U.S. GAAP and IFRS. For example, under U.S. GAAP, a contingency may be referred to as a "loss contingency" or a "contingent liability," while under IFRS it may be referred to as a "provision" or a "contingent liability."

Question 3

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. If Garrett has $5,000 per year to invest for 10 years and wants to accumulate $87,745 at the end of that time, he must find an investment that is earning at a rate of

Accepted Answer

Using the future value of an annuity formula or table, the rate that allows $5,000 per year to grow to $87,745 over 10 years is approximately 12%.

Question 4

Clarion Inc. issues numerous discount coupons throughout the year. A balance in the Estimated Liability for Coupon Redemption

Accepted Answer

The Estimated Liability for Coupon Redemption represents the amount of outstanding coupons that Clarion Inc. expects to be redeemed by customers. It is an estimate of the future liabilities that the company will have to fulfill. Thus, the balance in this account should equal the same amount of coupons redeemed, as it reflects the liability that the company has to account for.

Question 5

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Cory and Ginger want to buy an airplane. They find one that will cost $200,000. They must pay 10% down, and can get the balance financed with a 10 year loan at 7% interest and annual payments. What is their annual payment?

Accepted Answer

The answer of The solution to this problem requires time...

Question 6

Which of the following statements regarding contingencies is true?

Accepted Answer

Contingencies that are probable but not estimable are disclosed in the notes to the financial statements, as they cannot be recorded on the balance sheet due to the lack of a reliable estimate.

Question 7

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 answer of On November 1, 2014, Chancellor Co. borrowed...

Question 8

On September 1, 2015, Ensign Inc. borrowed $21,000 from Emerald City National Bank by issuing a 12-month note. The bank discounted the note at 7.5%.
REQUIRED:
1. Identify the accounting equation effects to record the issuance of the note.
2. Identify the accounting equation effects needed at December 31, 2015, to accrue interest.
3. Identify the accounting equation effects to record the payment of the note on September 1, 2016.
4. What effective rate of interest did Ensign pay?

Accepted Answer

The answer of On September 1, 2015, Ensign Inc. borrowed...

Question 9

Redfearn Company has current assets of $150,000 and current liabilities of $60,000. How much inventory could it purchase on account and achieve its minimum desired current ratio of 2 to 1?

Accepted Answer

Current assets = $150,000Current liabilities = $60,000Desired current ratio = 2:1To achieve a current ratio of 2:1, current assets must be twice the current liabilities.Therefore, current assets = 2 * current liabilities= 2 * $60,000= $120,000Inventory that can be purchased on account = Current assets - Current liabilities= $150,000 - $60,000= $90,000However, the company already has $150,000 in current assets. Therefore, the maximum amount of inventory that can be purchased on account is:$90,000 - $150,000= -$60,000This means that the company cannot purchase any inventory on account and still achieve its desired current ratio.

Question 10

Terms of 2/10, n30 mean that if the discount is not taken, full payment is due within
___________________________ days.

Accepted Answer

The answer of Terms of 2/10, n30 mean that if...

Question 11

Current liabilities are defined as those liabilities which will be satisfied

Accepted Answer

Current liabilities are obligations expected to be settled within one year or the operating cycle, whichever is longer, to ensure all short-term obligations are covered.

Question 12

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 adjustment that would

Accepted Answer

The answer of Executive, Inc. has a weekly payroll of...

Question 13

When a bank deducts the interest on a note in advance, the note has been .

Accepted Answer

The answer of When a bank deducts the interest on...

Question 14

Apply the time value of money in the following independent situations:
1. Margaret Carlson made a deposit in the bank on January 1, 2008. The bank pays interest at the rate of 8% compounded annually. On January 1, 2015, the deposit has accumulated to $40,000. How much money did Margaret originally deposit on January 1, 2008?
2. Claude Cooper deposited $15,600 in the bank on January 1 a few years ago. The bank pays an interest rate of 10% compounded annually, and the deposit is now worth $40,420. For how many years has the deposit been invested?

Accepted Answer

The answer of Apply the time value of money in...

Question 15

You are interested in accumulating $10,000 so that you can take a cruise in 3 years. If you trying to solve for the amount that you need to invest each year, earning 6% interest compounded annually, the $10,000 represents:

Accepted Answer

The $10,000 represents the future value, which is the amount you want to have in 3 years after earning interest on your investments.

Question 16

The total amount of simple interest calculated annually on a $6,000 note payable for 3 years at 11% is

Accepted Answer

Simple interest is calculated as Principal x Rate x Time. For this problem: $6,000 x 0.11 x 3 = $1,980.

Question 17

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. The present value of $7,000 to be received in 7 years at 7% compounded annually is

Accepted Answer

The present value is calculated using the present value factor from the tables for 7 years at 7%. The factor is approximately 0.623, and multiplying this by $7,000 gives $4,361.

Question 18

If the market value that you paid for a car is known and the annual payment and number of payments is known, the table factor to help find the interest rate can be calculated by dividing .

Accepted Answer

The answer of If the market value that you paid...

Question 19

An annuity is a series of equal payments made at equal intervals in the future.

Accepted Answer

This is the correct definition of an annuity.

Question 20

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Denise wants to help pay for her niece's college tuition. Her niece will begin college in one year. How much would Denise need to put into a savings account today at 6% so that her niece can withdraw $10,000 per year for 4 years, and reduce the account balance to zero at the end of the 4 years?

Accepted Answer

The future value of the withdrawals is $40,000. The present value of the withdrawals at 6% for 4 years is $34,650.

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