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Exam 9: Accounting for Current Liabilities and Payroll

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Question 1

True/False

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Indicate whether each of the following statements is true or false. -When a warranty claim is settled,the seller's equity decreases.

A) True
B) False

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Question 2

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Issuing a note payable is a(n) :

A) Claims exchange transaction
B) Asset source transaction
C) Asset use transaction
D) Asset exchange transaction

E) B) and D)
F) B) and C)

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Question 3

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A classified balance sheet is one that distinguishes between operating and non-operating assets.

The December 31,Year 1,balance sheet of Rowan Company shows current assets of $32,000 and current liabilities of $20,000.On January 1,Year 2,the company had the following two transactions: 1) Issued common stock for $10,000 cash "2) Received a $6,000 cash payment for its accounts receivable After the two transactions are recorded,what is the company's current ratio?"

Joseph Company is preparing to repay a one-year note on May 1,Year 2.The first step in this process is to accrue eight months of interest expense.

At the end of Year 1,Durango Company recorded an adjustment for its obligation under product warranties.During Year 2,it paid cash to settle warranty claims from its customers.The Year 2 warranty settlements are asset use transactions.

If a company offers a warranty on the products it sells,the company records the warranty expense at the time that service is provided to customers under the terms of the warranty.

On October 1,Year 1,Harrison Company borrowed money by issuing a $24,000 face value discount note to its bank.The note had an 8% discount rate and had a one-year term to maturity.On that date,Harrison recorded a Discount on Notes Payable in the amount of $1,920.

Indicate whether each of the following statements is true or false.

Clarion Company provides a one-year warranty on all merchandise it sells.In Year 1,the company recorded sales of $500,000.It estimated that the warranty costs on these sales would amount to $2,000.In July of Year 2,Clarion paid $250 to satisfy a warranty claim.Indicate whether each of the following statements is true or false.

[The following information applies to the questions displayed below.] Madison Company issued an interest-bearing note payable with a face value of $24,000 and a stated interest rate of 8% to Metropolitan Bank on August 1, Year 1. The note carried a one-year term. -Based on this information alone,what is the amount of total liabilities appearing on Madison's balance sheet as of December 31,Year 1?

Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet?

Indicate whether each of the following statements is true or false.

[The following information applies to the questions displayed below.] The following information is taken from the balance sheet of Menendez Company on January 1, Year 1: -On January 1,Year 1 Menendez Company paid $2,000 cash to reduce its accounts payable. How will this transaction affect the current ratio?

Which of the following describes the effect of remitting the sales tax to the tax authority?

[The following information applies to the questions displayed below.] In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer. -Which of the following summarizes the effect of the payment of cash to settle the warranty claim in Year 2 on the elements of the financial statements?

On October 1,Year 1,Harrison Company borrowed money by issuing a $24,000 face value discount note to its bank.The note had an 8% discount rate and had a one-year term to maturity.On December 31,Year 1,Harrison should accrue interest expense in the amount of $1,920.

In September of Year 1,Hansen Company issued a note payable to borrow money from its bank.Principal and interest on the note would come due in June Year 2.Interest expense on this note must be accrued at the end of Year 1 for the period from issuance of the note to the last day of the accounting period.

Which of the following terms describes the ability to generate short-term cash flows?

Indicate whether each of the following statements is true or false. -When a warranty claim is settled,the seller's liabilities increase.