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Exam 9: Reporting and Interpreting Liabilities

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Question 61

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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. What is the amount to be paid to the bank on March 31, 2017 for interest and principal?

A) $50,000.
B) $51,500.
C) $54,000.
D) $56,000.

E) C) and D)
F) None of the above

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Question 62

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

A) True
B) False

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Question 63

Multiple Choice

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Rudy Corporation is looking to purchase a building costing $500,000 by paying $100,000 cash on the purchase date, and agreeing to make annual payments for the next ten years. The first payment is due one year after the purchase date. Rudy's incremental borrowing rate is 10%. Each of the annual payments is closest to:

Which of the following describes an accrued liability?

With regard to reporting contingent liabilities on a balance sheet, financial statements prepared under International Financial Reporting Standards (IFRS) will:

A loan supported by an agreement to transfer ownership of assets if the loan is not repaid is called a:

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

When a company has debt coming due and wants to refinance and classify the debt as a long-term liability rather than paying for it currently with cash:

For the present value of a single amount, the compounding period may only be once a year.

When a liability is initially recorded, it is recorded at the future amount of all payments.

A company's income statement reported net income of $80,000 during 2016. The income tax return excluded a revenue item of $10,000 (reported on the income statement) because under the tax laws the $10,000 would not be reported for tax purposes until 2017. Required: Prepare the journal entry to record the 2016 income tax expense assuming a 40% tax rate.

Libby Company purchased equipment by paying $5,000 cash on the purchase date and agreeing to pay $5,000 every six months during the next four years. The first payment is due six months after the purchase date. Libby's incremental borrowing rate is 8%. The liability reported on the balance sheet as of the purchase date, after the initial $5,000 payment was made, is closest to:

Moore Company has the following partial list of account balances at year-end December 31, 2016: Additional information: The accounts payable balance at the end of the prior year was $3,000. Required: (All answers are for December 31, 2016.) 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, 2016, 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.

Smith Corporation entered into the following transactions: • Purchased inventory on account. • Collected an account receivable. • Purchased equipment using cash. Which of the following statements about Smith's transactions is correct?

Which of the following statements is correct?

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

Rae Company purchased a new vehicle by paying $10,000 cash on the purchase date and agreeing to pay $3,000 every three months during the next five years. The first payment is due three months after the purchase date. Rae's incremental borrowing rate is 12%. The vehicle reported on the balance sheet as of the purchase date is closest to:

Landseeker's Restaurants reported cost of goods sold of $322 million and accounts payable of $84 million for 2017. In 2016, cost of goods sold was $258 million and accounts payable was $72 million. Landseeker's accounts payable turnover ratio in 2017 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 transactions for SRJ Corporation resulted in a decrease in working capital?

Smith Corporation entered into the following transactions: • Purchased inventory on account. • Collected an account receivable. • Purchased equipment using cash. Which of the transactions for Smith Corporation resulted in an increase in working capital?