financial accounting chapter 9

On January 1, 2018, Vango, Inc. purchased a van and promised to pay $11,223.34 on December 31 for the next 3 years. The market rate of interest is 6% compounded annually. The amount of the purchase is calculated by ______.

multiplying $11,223.34 by the present value of an annuity with n=3 and i=6%.

Many current liabilities on the balance sheet, such as Accounts payable, Accrued wages and Deferred revenue, have a direct relationship to ________ activities on the statement of cash flows.

operating

True or false: Employers are required to withhold income taxes from employees' pay checks.

true

True or false: An annuity is a series of unequal payments made at the same time each period.

False; An annuity is a series of equal payments.

Issuing a note payable for cash results in a(n) ______.

increase in assets and and an increase in liabilities

Accruing a liability always involves ______ expenses and ______ liabilities.

increasing; increasing

A ______ is a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time.

lease

What kind of account is deferred (or unearned) revenue?

liability account

Bonds are normally classified as ______ liabilities when they are first issued.

long-term

Assuming no inflation, $1 invested today is worth ______.

more than $1 received in the future because interest can be earned over time

The feature that distinguishes loss contingencies from other liabilities is the _________ that a loss will occur. (Enter one word per blank)

possibility

Which of the following would result in a deferred revenue? (Select all that apply.) sales on account sales collected within the discount period sales of subscriptions sales of gift cards

sales of subscriptions sales of gift cards

The current ratio and working capital are financial measures of ______.

liquidity

Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal income tax $18,000 and State income tax $3,850. What is the net pay to employees?

$70,000

quick ratio

CA excluding inventory/CL

A bond's maturity date is the date ______.

on which the bond principal will be repaid in full

Which of the following are examples of annuities? (Check all that apply.) Car payments Note payable with interest and principal due in 3 months Mortgage payments The present value of $1 received 3 years from today

Car payments Mortgage payments

Match the operating activity on the statement of cash flows with the related current liability on the balance sheet. cash received in advance from customers

deferred revenues

Accrued Taxes Payable is a(n) ______ and reports the amount ______.

liability; owed for federal income taxes

Analysts say that a company has _______ if it has the ability to meet its current obligations.

liquidity

When a company borrows money from a bank and signs a formal written contract that specifies the amount borrowed, the date it must be repaid and the interest rate, the company will debit Cash and credit _____________ _____________.

notes payable

If the lease results in a long-term lease liability then the lease is a(n) ______ lease.

operating or finance

Today's Fashions has a debt that has been properly reported as long-term debt before this year. Part of this debt is due this year. If Today's Fashions continues to report the current position of the debt as a long-term liability, then ______.

the current ratio will be overstated

annuity PV factor =

(1-((1+r)^-n))/r

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2019. The journal entry on November 1, 2018 would include which of the following? (Check all that apply.)

Debit to Cash for $100,000 Credit to Note payable for $100,000

PV =

FV/((1+r)^n)

A(n) ______ is a series of consecutive equal payments such as mortgage payments. (Enter one word per blank.)

annuity

accounts payable turnover ratio

total supplier purchases / average accounts payable

Which of the following may be classified as contingent liabilities? Environmental problems Future litigation losses Deposits from customers Product warranties Unearned revenues

Environmental problems Future litigation losses Product warranties

A finance lease is recorded as ______.

a non-current liability equal to the current cash equivalent of the future rent payments

Match the operating activity on the statement of cash flows with the related current liability on the balance sheet. purchase of inventory

accounts payabl

Match the operating activity on the statement of cash flows with the related current liability on the balance sheet. cash paid for employee compensation

accrued salaries

Which financial statements are needed in order to calculate the accounts payable turnover ratio?

balance sheet, income statement

A liability is first recorded at its cash equivalent amount, which ______ interest.

excludes

Accruing a liability always involves recording both a(n)______ and a liability.

expense

Which of the following have the same present value given a 10% interest rate compounded annually? (Check all that apply.) $1 one year from today $1 today $1.10 one year from today $0.90 one year from today

$1 today $1.10 one year from today

On January 1, Year 1, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, Year 3. The market rate of interest is 6% compounded annually. Assuming Notes Payable includes the accrued interest through year-end December 31, Year 2, the journal entry to record the payment of this note on January 1, Year 3 includes a ______. (Check all that apply.)

$10,000 debit to Notes Payable $10,000 credit to Cash

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. What is John's net pay?

$600 - 37.20 - 8.70 - 58 - 10 = $486.10

Ace Electronics signed a 10-year, $100,000, 4% note payable on January 1. When the note is signed, Ace should record a liability of ______.

$100,000 A liability is first recorded at its cash-equivalent amount, which excludes interest charges. Interest arises only when time passes.

What are the key events that occur with any note payable? (Check all that apply.) Recording interest received Accruing interest incurred, but not paid Recording principal paid Recording interest paid Recording the use of the funds

Accruing interest incurred, but not paid Recording principal paid Recording interest paid

Match the operating activity on the statement of cash flows with the related current liability on the balance sheet. cash paid for income taxes

accrued taxes payable

Bonds ______. (Check all that apply.) are required to be held until the bonds mature are sold in established markets making them liquid allow companies to raise more debt capital than a note payable because the bonds are issued to many creditors

are sold in established markets making them liquid allow companies to raise more debt capital than a note payable because the bonds are issued to many creditors

PV when compounded semiannually

multiply n*2, divide i by 2

Payroll deductions ______. (Check all that apply.) are all voluntary decrease the amount of cash an employee receives are amounts subtracted from employees' gross earnings to determine their net pay increase the amount of cash an employee receives are amounts added to employees' gross earnings to determine their net pay

decrease the amount of cash an employee receives are amounts subtracted from employees' gross earnings to determine their net pay

US corporations pay federal taxes on ______ and ______.

income, payroll

A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n) ______.

lease

The journal entry to record the purchase of an asset in exchange for $100,000 due in 3 years at a market rate of interest of 12% compounded annually includes a debit to the asset in the amount of ______.

the present value of $100,000 discounted at 12% for 3 years

Sally Company manufactures large kitchen appliances. For the first year of purchase, the company will repair any manufacturing defect free of charge. Sally apparently sells its appliances with a ___________.

warranty

Which of the following is a guarantee that protects a customer from product defects for a specified period of time? Contingency Warranty Sales allowance Promissory note

warranty

On January 1, 2017, Burrows, Inc. received $16,834 and agreed to pay off the note and interest owed on January 1, 2019. The market rate of interest is 9% compounded annually. The payment made on January 1, 2019 equals a ______ credit to Cash. (round to the nearest $1)

$20,000

Acme Enterprises began the new year owing its suppliers $3,000 for merchandise purchased last year. Acme then sold half of this merchandise for $5,000 on account. Two weeks later, Acme paid its suppliers $1,000 and bought another $4,000 of merchandise on account. Acme now has an Accounts payable balance of ______.

$3,000 - 1,000 + 4,000 = $6,000.

On January 1, 2018, Vango, Inc. purchased a van and promised to pay $11,223.34 on December 31 for the next 3 years. The market rate of interest is 6% compounded annually. The entry to record the purchase includes a ______. (Check all that apply.) Note: Present value of an annuity at 6% and 3 years = 2.6730; Present value of $1 at 6% and 3 years = 0.8396

$30,000 debit to Equipment $30,000 credit to Notes Payable

The entry to record the purchase of equipment that requires a $10,000 payment in 2 years includes a ______. The market rate of interest is 9% compounded annually. (Check all that apply.) $17,591 debit to Equipment $8,417 credit to Notes Payable $10,000 debit to Equipment $10,000 credit to Notes Payable $17,591 credit to Notes Payable $8,417 debit to Equipment

$8,417 debit to Equipment $8,417 credit to Notes Payable 10,000/((1+.09)^2)

During 2019, Barry Bees, Inc.'s Sales equal $30,000 and Cost of goods sold equals $10,000. Its December 31, 2018 Accounts payable was $800 and its December 31, 2019 Accounts payable is $1,200. Barry Bee's accounts payable turnover equals ______ times for the year ended December 31, 2019.

10,000/((800+1200)/2)=10

Which of the following obligations are long-term? (Check all that apply.) 10-year bonds 10-year Leases Accounts payable Notes payable due in 2 years Common stock

10-year bonds 10-year Leases Notes payable due in 2 years

On January 1, 2018, Moonbucks, Inc., received $79,380 and agreed to pay $100,000 in 3 years on December 31, 2020. The market rate of interest is 8% compounded annually. For the year ended December 31, 2018, Interest Expense on this note payable equals $_________

6350

On January 1, 2018, Moonbucks, Inc., received $79,380 and agreed to pay $100,000 in 3 years on December 31, 2020. The market rate of interest is 8% compounded annually. For the 2nd year ended December 31, 2019, Interest Expense on this note payable equals $______

6858

Which of the following factors will result in a higher present value of $1? (Check all that apply.) A compounding of interest more frequently A lower interest rate A higher interest rate A compounding of interest less frequently

A lower interest rate A compounding of interest less frequently If rates are lower then more will need to be invested at the present to receive a specified amount in the future. Thus lower (not higher) rates will cause the present value to be higher.

On January 1, 2018, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, 2020. The market rate of interest is 6% compounded annually. For the 2nd year of this note (i.e., ended December 31, 2019), Interest Expense on this note payable equals ______. (Round to the nearest $1.)

For the year ended December 31, 2018, the company incurred Interest Expense of $534 (=$8,900 x 6%). The company's Notes Payable has increased to $9,434 (=$8,900 + $534) at December 31, 2018. For the year ended December 31, 2019, the company's Interest Expense equals $566 (=$9,434 x 6%).

Which of the following would result in an accrued liability? (Select all that apply.) Health insurance coverage in retirement Vacation owed Income taxes incurred, but not yet paid Revenues earned, but not yet collected

Health insurance coverage in retirement Vacation owed Income taxes incurred, but not yet paid

On January 1, 2018, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, 2020. The market rate of interest is 6% compounded annually. For the year ended December 31, 2018, Interest Expense on this note payable equals ______. (Round to the nearest whole dollar.)

In 2018, Interest Expense is $534 = $8,900 x 6%. In 2019, Interest Expense is $566 rounded = (($8,900 + 534) x 6%). By January 1, 2020, the Note Payable balance will grow to equal $10,000.

XYZ borrowed $50,000 this year. Half of the loan will be repaid next year and the remainder will be paid the following year. How will the $50,000 be reported on its balance sheet at the end of this year? (Check all that apply.)

Long-term debt of $25,000 Current portion of long-term debt of $25,000

If the going rate of interest is 10%, which has the greater present value? $1.05 received one year from today $1.08 received two years from today $1 received today $1.30 received three years from today

Receiving $1 today is greater than receiving $1.30 in 3 years. The present value of $1.30 in 3 years at 10% equals $0.98 rounded (=$1.30 x 0.7513).

The adjusting entry to record the amount of vacation earned, but not yet taken, includes a ______. (Check all that apply.)

credit to Accrued vacation liability debit to Compensation expense