ACT 211... LMS Chapter 9

If the going rate of interest is 10%, which has the greater present value?

$1 received today

What is the cost of a car if you make equal annual payments of $6000 over 4 years compounded annually at 9%, rounded to the nearest $1?

$19,438

True or false: US corporations with foreign operations will be exposed to exchange rate fluctuations if the foreign operations are financed using debt that must be repaid with US dollars.

True

If a company forgets to record the journal entry to accrue interest expense, then its net income is too __ its liabilities are too ___.

high; low

A ___ accounts payable turnover ratio may result if management pays its suppliers more quickly and often.

higher

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

increase in assets and an increase in liabilities

When a contingent event that may give rise to a future loss is likely to occur, it is said to be ___.

probable

On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, the adjusting entry at December 31 would include a ___.

debit to Interest Expense of $1,000

___ expense is accrued with the passage of time as a result of debt.

interest

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.)

- $8,417 debit to Equipment - $8,417 credit to Notes Payable

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

Liability account

Assets are financed with ___ and stockholders' equity.

liabilities

The journal entry to record employer payroll taxes owed affects ___.

liabilities and stockholders' equity

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31, 2019. Assuming the November 1 transaction was properly recorded, how would the December 31, 2018, year-end adjusting entry affect the accounting equation?

Liabilities increase and stockholders' equity decreases.

The feature that distinguishes loss contingencies from other liabilities is the ___ that a loss will occur

Uncertainty

At year end, companies should report __.

accrued liabilities for amounts owed even if the amount must be estimated

On January 1, 2018, Vango Inc. purchased a $30,000 van and promised to pay $11,223.34 on December 31 for the next three 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%.

The present value of $1 received annually over 3 years compounded at 9% annually rounded to the nearest cent equals __.

$2.53 $2.53 = $1 * 2.5313

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 nearest $1)

$20,000

Calculate the amount of the annual payments required to pay off a $100,000 note in 5 years given a 7% rate of interest compounded annually (round to nearest $1).

$24,389

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 second year of this note (i.e., ended December 31, 2019), Interest Expense on this note payable equals ___. (Round to the nearest $1.)

$566

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

Gross earnings for the pay period are $100,000. Social Security is 6.2%; Medicare is 1.45%; Income taxes withheld are $21,850; and FUTA is $1,000. The journal entry to record the taxes incurred and paid by the employer includes a ___.

- $8,650 debit to Compensation expense - $1000 credit to FUTA payable - $7,650 credit to FICA payable

Which of the following are long-term liabilities?

- Notes payable due in 3 years - Private placement of debt due in 3 years - Bonds payable

Under U.S. GAAP, a contingent liability is required to ___.

- be int he notes to the financial statements if the loss may possibly occur and can be reasonably estimated - be reported on the balance sheet if the loss will probably occur and can be reasonably estimated

ABC purchased $500 of merchandise on account. ABC's journal entry to record this transaction includes a ___ of $500. (Check all that apply.)

- credit to Accounts Payable - debit to Inventory

The adjusting entry to record the amount of vacation earned, but not yet taken, includes a ___.

- credit to Accrued vacation liability - debit to Compensation expense

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.50; Medicare $8.70; Federal Income tax $58; and State Income tax $10. Assuming that John gets paid in cash, ABC would record a journal entry that includes a ___.

- credit to Cash of $486.10 - credit to Liability for income taxes withheld of $68 - credit to FICA (social security and medicare) payable of $45.90 - debit to Compensation expense of $600

On September 1, ABC Company borrowed $50,000 on a 9-month note payable with a 6% annual rate from XYZ National Bank. Assuming no adjusting entries have been recorded since year end (December 31), the entry ABC would record at maturity would include a ___.

- credit to Cash of $52,250 - debit to Interest Payable of $1,000 - debit to Notes Payable of $50,000 - debit to Interest Expense of $1,250

On November 1, 2015, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay all the interest as well as the principal on October 31, 2016. The journal entry on November 1, 2015 would include which of the following?

- credit to Note Payable for $100,000 - Debit to Cash for $100,000

On November 1, 2015, ABC Corp. borrowed $100,000 cash on an 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2016. The last adjusting journal entry was made on December 31, 2015, ABC's year end. The entry to record the payment on October 31, 2016 would include a ___.

- debit to Interest expense of $5,000 - credit to Cash of $106,000 - debit to Note Payable of $100,000 - debit to interest payable of $1,000

The entry to record a capital lease for equipment with a current cash equivalent of $100,000 is recorded with a $100,000 ___.

- debt to leased equipment - credit to lease payable

On January 1, 2018, Vango Inc. purchased a $30,000 van and promised to pay $11,223.34 on December 31 for the next three years. The market rate of interest is 6% compounded annually. The entry to record the second payment on December 31, 2019 will include a ___ than in the 1st payment.

- larger debit to Notes Payable - Smaller debit to Interest Expense

Which of the following would result in a deferred revenue?

- sales of subscriptions - sales of gift cards

Which of the following are current liabilities?

- wages payable - accounts payable - note payable due in 3 months

List the present values from smallest to largest (top to bottom).

1. $1 received in 3 years at 6% compounded annually. 2. $1 received in 1 year at 14% compounded annually. 3. $1 received in 2 years at 6% compounded annually.

List the present values from smallest (top) to largest (bottom). Assume compounding annually.

1. $1,000 received in 3 years at 9%. 2. $1,000 received in 3 years at 6%. 3. $1,000, 3-year annuity at 9%. 4. $1,000, 3-year annuity at 6%.

True Statements

1.) Compounding interest means earning interest on interest. 2.) Compounding interest monthly will result in a higher return than compounding annually. 3.) Compounding interest at 10% over a 20-year period results in earning more in interest than the original amount invested.

Assuming a 365-day year,Barry Bees, Inc.'s Cost of Goods Sold equals $10,000. Its Beginning Accounts Payable was $800, and its Ending Accounts Payable was $1,200. Barry Bee's average number of days payable are outstanding equals ___ days.

36.5 = 365 days/($10,000/($800+1,200)/2).

The number of periods (n) and interest rate (i) per period used in calculating the present value of an annuity that is paid monthly over 5 years at 12% annually are ___.

n=60; i=1%

Accounts payable are considered good sources of financing because they ___.

are non-interest bearing

A(n) ___ is a series of consecutive equal payments such as mortgage payments.

annuity

An end-of-period adjusting entry that debits deferred (or unearned) revenue most likely will credit a(n) ___ account.

revenue

Today's Fashions has a debt that has been properly reported as long-term liability 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

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

Starcents, Inc. purchased equipment and agreed to pay the supplier $10,00 each year for the next 3 years and an additional $100,000 at the end of the 3rd year. The supplier charges 6% interest per year. The entry to record this purchase includes a debit to Equipment of ___.

$110,690

On January 1, 2018, Vango Inc. purchased a $30,000 van and promised to pay $11,223.34 on December 31 for the next three years. The market rate of interest is 6% compounded annually. The entry to record the 1st payment on December 31, 2018 includes ___.

- $9,423.34 debit to Notes Payable - $1,800 debit to Interest Expense - $11,223.34 credit to Cash

Cellem, Inc.s Beginning Accounts Payable is $4,000 and its Ending Accounts Payable is $2,000. The accounts payable turnover is 6. Cost of Goods Sold must equal ___.

$18,000

Warren Teas, Inc. sold all its brewing equipment to customers with a 6-month warranty. At year end, Warren Teas estimates that future repair work on the warranty will cost $1,000 and thus should record ___.

- a $1,000 credit to a current liability - a $1,000 debit to an expense

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?

- current portion of long-term debt of $25,000 - long-term debt of $25,000

On January 1, 2015, Le Sea, Inc. purchased equipment by issuing a note that requires 10 annual payments of $10,000 based on an 8% effective interest rate. The entry to record the purchase on January 1, 2015 includes a ____.

- $67,100 credit to Note Payable - $67,100 debit to Equipment

On January 1, 2018, Vango Inc. purchased a $30,000 van and promised to pay $11,223.34 on December 31 for the next three years. The market rate of interest is 6% compounded annually. The entry to record the purchase includes a ___. 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 credit to Notes Payable - $30,000 debit to Equipment

On November 1, 2018, ABC Corp. borrowed $100,000 cash on an 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2019. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, 2018, ABC's year end, would include a ___.

- debit to Interest Expense of $1000 - credit to Interest Payable of $1000

On September 1, ABC Company borrowed $1,000 on a 12%, 5-year note payable from XYZ National Bank with interest due annually on September 1. At year end, December 31, ABC adjusted for the four months of interest owed. It has made no journal entries related to this note since December 31. The entry to record the payment of interest on September 1 would include a ____.

- debit to Interest Expense of $80 - credit to Cash of $120 - debit to Interest Payable of $40

Federal and state unemployment taxes are ___.

- expenses to companies - paid by employers to cover potential unemployment benefits

Which of the following would result in an accrued liability?

- income taxes incurred, but not yet paid - vacation owed - health insurance coverage for retirement owed

Which of the following are payroll deductions from an employees' gross earnings?

- medicare - FICA tax - federal income tax

Which of the following may be classified as contingent liabilities?

- product warranties - environmental problems - future litigation losses

When preparing the statement of cash flows, changes in current assets and current liabilities are added to or subtracted from net income. Match the adjustment to net income on the left with the reason for the adjustment listed on the right.

1.) add increases in current liabilities - because expenses incurred were greater than the cash paid during the period. 2.) Subtract decreases in current liabilities - because the cash paid was greater than the expense incurred during the period.

Match the proper periods and interest rate per period to use in calculating the following present values.

1.) n=24, i=0.5% ... 2-year, 6% annuity paid monthly 2.) n=2, i=6% ... 2-year, 6% paid annually 3.) n=4, i=3% ... 2-year, 6% semi-annual payments 4.) n=8, i=1.5% ... 2-year, 6% quarterly payments

What are the two criteria used to determine whether a contingent liability is reported in the financial statements?

1.) the likelihood of the loss 2.) the ability to estimate the amount of the loss

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.50; Medicare $8.70; Federal Income tax $58; and State Income tax $10. Assuming that John gets paid in cash and payroll deductions will be paid the following month, how would ABC record the payroll deductions?

Current liabilities increase $113.90

At year end, a company has long-term debt that matures within the year. The company has the intent and ability to refinance by issuing a long-term loan but has not yet begun negotiations to do so. Which standards REQUIRE that the company classify the debt as current instead of allowing it to classify the debt as long-term?

IFRS

New companies often experience rapid sales growth and increases in working capital. Working capital increases are caused by increases in sales-related asset accounts, such as ___ and accounts ____.

inventory receivable

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

liquidity