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Exam 9: Reporting and Interpreting Liabilities

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Question 1

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Straight Industries purchased a large piece of equipment from Curvy Company on January 1,2019.Straight Industries signed a note,agreeing to pay Curvy Company $400,000 for the equipment on December 31,2021.The market rate of interest for similar notes was 8%.The present value of $400,000 discounted at 8% for three years was $317,532.On January 1,2019,Straight Industries recorded the purchase with a debit to equipment for $317,532 and a credit to notes payable for $317,532. -(FV of $1,PV of $1,FVA of $1,and PVA of $1) (Use the appropriate factor(s) from the tables provided. ) On Straight Industries' balance sheet for the year ended December 31,2019,the book value of the liability for notes payable,including accrued interest would be closest to:

A) $342,935.
B) $349,520.
C) $345,013.
D) $347,213.

E) All of the above
F) B) and C)

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Question 2

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A current liability is created when a customer pays cash for services to be provided in the future.

A) True
B) False

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Question 3

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With regard to reporting of contingent liabilities,U.S.GAAP and International Financial Reporting Standards (IFRS) differ in defining the term "probable".Which of the following is correct with regard to defining "probable"?

Straight Industries purchased a large piece of equipment from Curvy Company on January 1,2019.Straight Industries signed a note,agreeing to pay Curvy Company $400,000 for the equipment on December 31,2021.The market rate of interest for similar notes was 8%.The present value of $400,000 discounted at 8% for three years was $317,532.On January 1,2019,Straight Industries recorded the purchase with a debit to equipment for $317,532 and a credit to notes payable for $317,532. - How much is the 2020 interest expense,assuming that the December 31,2019 adjusting entry was made?

The choice of inventory method has an impact on the accounts payable turnover ratio.

Husky Corporation is looking to purchase a building costing $500,000 by agreeing to make payments every three months for the next five years.The first payment is due three months after the purchase date.Husky's incremental borrowing rate is 12%.Each of the payments is closest to: (FV of $1,PV of $1,FVA of $1,and PVA of $1) (Use the appropriate factor(s) from the tables provided. )

Deferred revenues can be classified as either current or long term liabilities.

Which of the following operating activities is not correctly matched with the current liability that results from the activity?

Which of the following best describes the accrual of interest?

A company's income statement reported net income of $40,000 during 2019.The income tax return excluded a revenue item of $3,000 (reported on the income statement) because under the tax laws the $3,000 would not be reported for tax purposes until 2020.Which of the following statements is correct assuming a 21% tax rate?

Short Company purchased land by paying $10,000 cash on the purchase date and agreeing to pay $10,000 for each of the next ten years beginning one-year from the purchase date.Short's incremental borrowing rate is 10%.(FV of $1,PV of $1,FVA of $1,and PVA of $1) (Use the appropriate factor(s) from the tables provided. ) - On the balance sheet as of the purchase date,after the initial $10,000 payment was made,the liability reported is closest to:

Working capital decreases when a company pays taxes payable.

Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1,2019.Alden financed $37,908,000,and the note agreement will require $10 million in annual payments starting on December 31,2019 and continuing for a total of four more years (final payment December 31,2023) .Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually. - On January 1,2019,Alden will record a note payable in the amount of:

A company borrowed $100,000 at 6% interest on September 1,2019.Assuming adjusting entries have not been made during the year,the entry to record interest accrued on December 31,2019 would include a debit to interest expense and a credit to interest payable for $2,000.

You have been asked to compute the cash equivalent price of a machine assuming the cost (including principal and interest) is to be paid in two unequal payments after the acquisition date.Which of the following table values would be used to find the cost of the machine?

Darwin Corporation's attorney has provided the following summaries of three lawsuits against Darwin: • Lawsuit A: The loss is probable and the loss can be reasonably estimated. • Lawsuit B: The loss is reasonably possible and the loss cannot be reasonably estimated. • Lawsuit C: The loss is reasonably possible and the loss can be reasonably estimated. - Which of the following statements is incorrect?

Rice Corporation's attorney has provided the following summaries of three lawsuits against Rice: • Lawsuit A: The loss is probable,but the loss cannot be reasonably estimated. • Lawsuit B: The loss is reasonably possible,but the loss cannot be reasonably estimated. • Lawsuit C: The loss is reasonably possible and can be reasonably estimated. - Which of the following statements is correct?

Moore Company has the following partial list of account balances at year-end December 31,2019: Additional information: The accounts payable balance at the end of the prior year was $3,000. (All answers are for December 31,2019. ) A.Determine the following items: 1.Current assets 2.Current liabilities 3.Working capital 4.Accounts payable turnover ratio 5.Average age of accounts payable B.Assume that cash is used at December 31,2019,to pay the entire balance of accounts payable.Determine the revised amounts from part (A)above for the following items: 1.Current assets 2.Current liabilities 3.Working capital 4.Accounts payable turnover ratio 5.Average age of accounts payable C.Comment on the effect of paying accounts payable at year-end with regard to working capital and accounts payable management.

Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1,2019.Alden financed $37,908,000,and the note agreement will require $10 million in annual payments starting on December 31,2019 and continuing for a total of four more years (final payment December 31,2023) .Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually. -What is the amount of the 2020 interest expense?

An employee has an obligation to pay his payroll taxes to the employer.