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Exam 9: Reporting and Interpreting Liabilities

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Question 51

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On October 1,2019,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 should be reported in the 2020 income statement?

A) $1,000.
B) $2,000.
C) $3,000.
D) $4,000.

E) None of the above
F) All of the above

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Question 52

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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. ) - The land reported on the balance sheet is closest to:

A) $100,000.
B) $38,550.
C) $110,000.
D) $71,446.

E) A) and D)
F) C) and D)

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Question 53

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

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

Landseeker's Restaurants reported cost of goods sold of $322 million and accounts payable of $84 million for 2020.In 2019,cost of goods sold was $258 million and accounts payable was $72 million.Landseeker's accounts payable turnover ratio in 2020 is closest to:

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. (show computations): 1.Determine the current liabilities. 2.Compute working capital.

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. - After the first payment was made,the note payable liability on December 31,2019 is closest to:

Purdum Farms borrowed $10 million by signing a five-year note on December 31,2017.Repayments of the principal are payable annually in installments of $2 million each.Purdum Farms makes the first payment on December 31,2018 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 31,2018,after the first payment is made?

Cash received from customers may result in a current liability.

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 incorrect?

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?

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. - On December 31,2019,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 31,2019 is closest to:

An accounts payable turnover ratio of 12 indicates that a company takes approximately 30 days,on average,to pay its suppliers.

The accrual of interest on a short-term note payable decreases working capital and current assets.

Mission Corp.borrowed $50,000 cash on April 1,2019,and signed a one-year 12%,interest-bearing note payable.The interest and principal are both due on March 31,2020. -Assume that no adjusting entries had been made before December 31,2019.Which of the following would be the required adjusting entry on December 31,2019?

Rachel Corporation purchased a building by paying $90,000 cash on the purchase date,agreeing to pay $50,000 every year for the next nine years and one payment of $100,000 ten years from the purchase date.The first payment is due one year after the purchase date.Rachel'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. ) - The liability reported at on the balance sheet as of the purchase date,after the initial $90,000 payment was made,is closest to:

Which of the following would not be a result of the adjusting entry to record accrued interest on a note payable?

Working capital increases when a company purchases equipment and signs a 2-year note payable.

Which of the following is not a current liability?

Working capital is a measure of long-term liquidity and is calculated by subtracting the current liabilities from the current assets.