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Exam 9: Reporting and Interpreting Liabilities

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Question 41

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Fold and Hold Corporation entered into a capital lease for equipment, which had a current cash equivalent cost of $38,971 on January 1, 2016. Fold and Hold paid cash of $10,000 on the date of entering into the lease, and promised to pay the balance in six equal annual installments on each December 31 beginning with December 31, 2016. The lease contained a 10% interest rate on the unpaid balance. Required: A.Prepare the journal entry to record the capital lease on January 1, 2016. B.Prepare the entry to record the first installment payment on December 31, 2016 (round to the nearest dollar).Assume that no adjusting entries have been made during the year.

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Question 42

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An annuity is a series of consecutive payments, each one increasing by a fixed dollar amount over the payment amount of the prior year.

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B) False

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Question 43

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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"?

Rusty Corporation purchased a rust-inhibiting machine by paying $50,000 cash on the purchase date and agreeing to pay $10,000 every three months during the next two years. The first payment is due three months after the purchase date. Rusty's incremental borrowing rate is 8%. The liability reported on the balance sheet as of the purchase date, after the initial $50,000 payment was made, is closest to:

Working capital decreases when a company pays taxes payable.

Your goal is to be able to withdraw $5,000 for each of the next ten years beginning one year from today. The return on the investment is expected to be 12%. The amount that needs to be invested today is closest to:

SRJ Corporation entered into the following transactions: • The accrual of interest expense on a six-month note payable. • Collected cash for services to be provided within the next six months. • The reclassification of short-term debt to long-term debt. Which of the following statements is correct with respect to determining the net cash flow from operating activities on a statement of cash flows?

In a recent year, The Walt Disney Company reported the following increases and decreases in current assets and current liabilities. Required: Identify whether each of these increases or decreases caused cash to increase or decrease. Enter an "I" if the change in the account balance caused an increase in cash flow or enter a "D" if the change in the account balance caused a decrease in cash flow.

Halbur Company reported total assets of $150,000, current assets of $60,000, total stockholders' equity of $60,000, and noncurrent liabilities of $65,000. Required: (show computations): 1. Determine the current liabilities. 2. Compute working capital.

Your goal is to be able to withdraw $10,000 for each of the next nine years beginning one year from today and also to withdraw $50,000 ten years from today. The return on the investment is expected to be 6%. The amount that needs to be invested today is closest to:

A contingent liability is disclosed in a note to the financial statements when the liability is reasonably possible and can be estimated.

Thomas Company decided to borrow $30,000 on March 1^st, 2016. Thomas signed a 2-year 6% interest-bearing note. What is the adjustment amount to accrue interest on December 31, 2017?

A contingent liability is reported on the balance sheet if it is probable and can be estimated.

Which of the following is correct?

Straight Industries purchased a large piece of equipment from Curvy Company on January 1, 2016. Straight Industries signed a note, agreeing to pay Curvy Company $400,000 for the equipment on December 31, 2018. The market rate of interest for similar notes was 8%. The present value of $400,000 discounted at 8% for three years was $317,520. On January 1, 2016, Straight Industries recorded the purchase with a debit to equipment for $317,520 and a credit to notes payable for $317,520. On December 31, 2016, Straight recorded an adjusting entry to account for interest that had accrued on the note. Assuming no adjusting entries have been made during the year, the interest expense accrued at December 31, 2016 is closest to:

Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1, 2016. Alden financed $37,908,000, and the note agreement will require $10 million in annual payments starting on December 31, 2016 and continuing for a total of four more years (final payment December 31, 2020) . Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually. After the first payment was made, the note payable liability on December 31, 2016 is closest to:

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

Which of the following statements is incorrect?

Mission Corp. borrowed $50,000 cash on April 1, 2016, and signed a one-year 12%, interest-bearing note payable. The interest and principal are both due on March 31, 2017. Assume that no adjusting entries had been made before December 31, 2016. Which of the following would be the required adjusting entry on December 31, 2016?

SRJ Corporation entered into the following transactions: • The accrual of interest expense on a six-month note payable. • Collected cash for services to be provided within the next six months. • The reclassification of short-term debt to long-term debt. Which of the transactions for SRJ Corporation resulted in an increase in working capital?