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Exam 9: Reporting and Interpreting Liabilities

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Question 31

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Which of the following is not a current liability?

A) A liability due within one-year for a business with a fifteen-month operating cycle.
B) A liability due within three months for a business with a two-month operating cycle.
C) A liability due within one-year for a business with a nine-month operating cycle.
D) A liability due within fifteen months for a business with a one-year operating cycle.

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

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Question 32

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Purdum Farms borrowed $10 million by signing a five year note on January 1,2010 and repayments of the principal are payable annually in $2 million installments.Purdum Farms makes the first payment December 31,2010 and then prepares its balance sheet.What amount will be reported as current and long-term liabilities respectively in connection with the note at December 31,2010?

A) $2 million in current liabilities and $8 million in long-term liabilities.
B) $2 million in current liabilities and $6 million in long-term liabilities.
C) Zero in current liabilities and $8 million in long-term liabilities.
D) Zero in current liabilities and $10 million in long-term liabilities.

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

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Question 33

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If income tax expense reported on the income statement is $45,000 for 2010,and the tax return for 2010 (the first year) shows an income tax liability of $42,000,the deferred income tax on the balance sheet at the end of 2010 will be which of the following? Assume a 40% tax rate.

each of the independent problems (show computations): A.Company A deposited $20,000 in a savings account on January 1, 2009, that will accumulate 6% interest each December 31. 1.What will be the fund balance as of December 31, 2013? 2.How much interest will be earned as of December 31, 2013? B.Company B needs to accumulate a $50,000 fund by making five equal annual deposits.Assuming a 7% interest accumulation, how much must be deposited at the end of each year? C.Company C has a new machine that has an estimated life of five years and a $5,000 residual value.Assuming an 8% interest rate, what is the present value of the estimated residual value? D.Company D owes a $50,000 debt that is now due (January 1, 2011).Arrangements have been made to pay it off in five equal annual installments starting December 31, 2011 (an ordinary annuity situation).

Which of the following questions is incorrect with respect to determining the accounting for leases?

Why are present value concepts and applications so important when companies purchase equipment financed by the seller?

On September 1,2010,Donna Equipment signed a one-year,8% interest-bearing note payable for $50,000.Assuming that Donna Equipment maintains its books on a calendar year basis,how much interest expense that should be reported in the 2011 income statement?

Which of the following transactions will decrease the accounts payable turnover ratio?

Which of the following accounts would not be considered when calculating the quick ratio?

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 can't be reasonably estimated. • lawsuit C: The loss is reasonably possible and the loss can be reasonably estimated. Which of the following statements is incorrect?

Which of the following statements is incorrect?

Long-term liabilities are reported on the balance sheet at an amount equal to the future cash flows.

Purchasing inventory on account decreases the quick ratio.

The FICA (social security)tax is a matching tax with a portion paid by both the employer and the employee.

Selling inventory on account increases the quick ratio.

The quick ratio can be manipulated by management through paying off current liabilities before the end of the accounting period.

Failure to make a necessary adjusting entry for accrued interest on a note payable would result in which of the following?

A company's income statement reported net income of $80,000 during 2010.The income tax return excluded a revenue item of $6,000 (reported on the income statement) because under the tax laws the $6,000 would not be reported for tax purposes until 2011.Which of the following statements is incorrect assuming a 35% tax rate?

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

Which of the following statements is correct?