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Exam 9: Reporting and Interpreting Liabilities

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Question 41

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Working capital decreases when accrued wages expense is recorded at year-end.

A) True
B) False

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Question 42

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Many strong companies intentionally create low quick ratios.

A) True
B) False

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Question 43

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A company's income statement reported income tax expense of $200,000 during 2010.The deferred tax liability on the balance sheet increased $20,000 during 2010.How much was the company's tax liability during 2010?

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 $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%.At what amount would the building be reported at on the balance sheet as of the purchase date?

Quick assets include cash,accounts receivable,and inventory.

The accounts payable turnover ratio is difficult to manipulate.

Rice Corporation's attorney has provided the following summaries of three lawsuits against Rice: • lawsuit A: The loss is probable,but the loss can't be reasonably estimated. • lawsuit B: The loss is reasonably possible,but the loss can't be reasonably estimated. • lawsuit C: The loss is reasonably possible and can be reasonably estimated. Which of the following statements is incorrect?

Information Company purchased an asset that cost $70,000 on January 1,2010.Arrangements were made with the supplier to pay $10,000 cash on January 1,2010,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 2010,2011,and 2012.Each payment will include principal plus interest on the unpaid balance at 11% per year. Requirements: $\begin{array}{l}\text { Date } & \text { Payment } & \text { Interest }&\text { Reduction in} & \text { Unpaid } \\ & & \text { Expense}&\text { Principal} & \text { Principal } \\01 / 01 / 10 & &&&\\12 / 31 / 10 & &&&\\12 / 31 / 11& &&&\\12 / 31 / 12 & &&&\\\text { Totals }& &*&&\end{array}$ *Round to reduce principal to zero. B.Prepare the journal entry for the payment on December 31,2011. C.Explain the change,over time,on the amount of interest and the balance of the debt principal.

A company borrowed $100,000 at 6% interest on September 1,2009.Assuming no adjusting entries have been made during the year,the entry to record interest accrued on December 31,2009 would include a debit to interest expense and a credit to interest payable for $2,000.

Alden Trucking Company is replacing part of their fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1,2010.Alden financed $37,908,000,the note agreement will require $10 million in annual payments starting on December 31,2010 and continuing for a total of five years (final payment December 31,2014) .Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually.How much is the 2011 interest expense?

Husky Corporation is looking to purchase a building costing $500,000 by agreeing to make payments every three months for the next five years; the first payment is due three months after the purchase date.Husky's incremental borrowing rate is 12%.How much will each of the payments be?

Which of the following statements incorrectly describes the accounts payable turnover ratio?

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

Miranda Company borrowed $100,000 cash on September 1,2010,and signed a one-year 6%,interest-bearing note payable.Assuming no adjusting entries have been made during the year,the required adjusting entry at the end of the accounting period,December 31,2010,would be which of the following?

The following is a partial list of account balances for Coen,Inc.as of December 31,2010: $\begin{array} { l r } \text { Accounts payable } & \$ 5,000 \\\text { Accounts receivable } & 6,000 \\\text { Bonds payable (100\% due in 10 years) } & 40,000 \\\text { Mortgage payable ( } 10 \% \text { due within one year) } & 10,000 \\\text { Notes payable (due in six months) } & 2,000 \\\text { Salaries payable } & 800 \\\text { Sales revenue } & 49,000 \\\text { Income taxes payable } & 8,000 \\\text { Unearned revenue } & 800\end{array}$ Required: Prepare the liability section of Coen Inc.'s classified balance sheet for December 31,2010.

In a recent year,The Walt Disney Company reported the following increases or decreases in current assets and current liabilities.Identify whether each of these increases or decreases caused cash to increase or decrease.Show increases with a (+)in front of the amount and decreases with a (-)in front of the amount in the column labeled cash effect.: $\quad$$\quad$$\quad$$\quad$$\quad$$\text { Changes in current assets and liabilities (in millions) }$ $\begin{array}{llc}{\text { Account }} & \text { Account Balance Change } & \text { Cash Effect }(+/-) \\\text { Receivables-CA } & \text { Decrease } \$ 366 & 1 . \\\text { Inventories-CA } & \text { Decrease } \$ 103 & 2 . \\\text { Film and television } & \text { Increase } \$ 848 & 3 . \\\text { costs-CA } &&\\\text { Current portion of } & \text { Increase } \$ 292 & 5 . \\\text { borrowings-CL } &&\\\text { Unearned royalties-CL } & \text { Increase } \$ 69 & 6 .\end{array}$

Which of the following statements about contingent liabilities is incorrect?

The following data were provided by the detailed payroll records of Mountain Corporation for the month of March 2011: $\begin{array} { l r r } \text { Compensation (wages) } & 35,000 & \\\text { Income taxes withheld } & 7,350 & \\\quad \text { Union dues } & & 175\end{array}$ FICA taxes at a 7.65% rate (no employee had reached the maximum). Requirements: A.Prepare the March 31,2011 journal entry to record the payroll and the related employee deductions. B.Give the March 31,2011 journal entry to record the employer's FICA payroll tax expense.

How much needs to be invested today if 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%.

Huck Corporation is looking to purchase a truck costing $49,000 by agreeing to make payments every three months for the next two years; the first payment is due three months after the purchase date.Huck's incremental borrowing rate is 8%.How much will each of the payments be?