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Exam 9: Reporting and Interpreting Liabilities

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Question 31

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How should a contingent liability that is reasonably possible but cannot reasonably be estimated be reported within the financial statements?

A) It must be recorded and reported as a liability.
B) It does not need to be recorded as a liability nor disclosed in a note.
C) It must only be disclosed as a note to the financial statements.
D) It must be reported as a liability,but not disclosed in a note.

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Question 32

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The accrual of interest results in the following:

A) Increase in assets and liabilities.
B) Increase in assets and stockholders' equity.
C) Increase in liabilities and decrease in stockholders' equity.
D) Increase in liabilities and increase in stockholders' equity.

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Question 33

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In a recent year,The Walt Disney Company reported the following increases and decreases in current assets and current liabilities. 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.

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

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

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%.(FV of $1,PV of $1,FVA of $1,and PVA of $1) (Use the appropriate factor(s) from the tables provided. ) - The equipment reported on the balance sheet as of the purchase date is closest to:

A company's income statement reported income tax expense of $200,000 during 2019.The deferred tax liability on the balance sheet increased $20,000 during 2019.How much was the company's tax liability during 2019?

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%.(FV of $1,PV of $1,FVA of $1,and PVA of $1) (Use the appropriate factor(s) from the tables provided. ) - The vehicle reported on the balance sheet as of the purchase date is closest to:

On January 1,2019,Fold and Hold Corporation entered into a capital lease for equipment,which had a current cash equivalent cost of $38,971.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 31,2019.The lease contained a 10% interest rate on the unpaid balance. A.Prepare the journal entry to record the capital lease on January 1,2019. B.Prepare the entry to record the first installment payment on December 31,2019 (round to the nearest dollar).Assume that no adjusting entries have been made during the year.

Miranda Company borrowed $100,000 cash on September 1,2019,and signed a one-year 6%,interest-bearing note payable.Assume no adjusting entries have been made during the year.Which of the following would be the required adjusting entry at the end of the December 31,2019 accounting period?

Commander Appliance Store prepares annual financial statements.At December 31,2019.Commander needs to analyze the following items to determine the whether adjusting entries are required for 2019. 1.Twenty-two employees worked during 2019 and each of them will take two weeks of vacation in 2020.Twelve of these employees earn $500 per week and 10 employees earn $800 per week.(If an adjusting entry is required,ignore payroll taxes on this item. ) 2.Office rent for January,2020 has not yet been paid. 3.Commander sold 3,000 coffee brewing machines for total sales of $150,000.Commander expects that 30 machines will need warranty repairs in the next two years and estimates the cost of repairs to be $2,400. 4.Commander has been sued by a customer and assesses the probability of losing the lawsuit to be reasonably possible.The estimate of the contingency loss is $20,000. For each item listed,determine whether there should be an accrual and adjusting entry at December 31,2019.If so,then prepare the adjusting entry.If not,state the reason for not accruing a liability.

Grant Corporation is looking to purchase a building costing $900,000 by paying $300,000 cash on the purchase date,and agreeing to make payments every three months for the next five years.The first payment is due three months after the purchase date.Grant's incremental borrowing rate is 8%.Each of the payments is closest to: (FV of $1,PV of $1,FVA of $1,and PVA of $1) (Use the appropriate factor(s) from the tables provided. )

Rocket Corporation entered into the following transactions: • The accrual of wages and salaries expense. • The cash payment of a six-month note payable. • The cash payment in advance for a one-year insurance policy. Which of the following statements is correct with respect to determining Rocket's working capital? Assume that Rocket's operating cycle is four months.

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

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?

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 the appropriate adjusting entry was made on December 31,2019 and that no adjusting entries have been made during 2020.What is the amount of interest expense to be recorded when the interest and principal are paid on March 31,2020?

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%.(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 on the balance sheet as of the purchase date,after the initial $5,000 payment was made,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 1,2019.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. - Upon the first payment of the note on December 31,2019,the amount of interest expense to be recorded is:

On January 1,2019,Information Company purchased an asset with a cash equivalent value of $70,000.Arrangements were made with the supplier to pay $10,000 cash on January 1,2019,and the balance was to be paid over a three-year period,with equal annual payments of $24,553 to be made at the end of 2019,2020,and 2021.Each payment will include principal plus interest on the unpaid balance at 11% per year. A.Complete the following table: *Round to reduce principal to zero. B.Prepare the journal entry for the payment on December 31,2020. C.Explain the change,over time,on the amount of interest and the balance of the debt principal.

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 8%.The amount that needs to be invested today is closest to: