Financial Accounting Chapter 9

Compound interest is a repeated calculation of the interest only on the principal over certain periods of time. True False

False

A contingent liability is recorded if it is probable and can be reasonably estimated. True False

True

A remotely possible loss from a lawsuit is not reported on the balance sheet as a current liability. True False

True

An amount that has been incurred as an expense, but has not yet been paid should be considered an accrued liability. True False

True

The current maturity of long-term debt is a current liability. True False

True

Warranty expenses are the result of the selling company's estimate of the number of units sold during the current year that may become defective and need repair or replacement during the warranty period. True False

True

Which of the following accounts is not classified as a current liability? a. Note payable, due in three years b. Salaries payable c. Taxes payable d. Accounts payable

a. Note payable, due in three years

There are some liabilities, such as income tax payable, for which the amounts must be estimated. Failure to estimate these amounts and record them would be a violation of the a. matching principle. b. practice of consistency. c. convention of conservation. d. concept of historical cost.

a. matching principle.

Which of the following would appear on the balance sheet as a current liability? a. The possible loss from a lawsuit b. Premium offers in cereal boxes c. A loss from an anticipated strike by employees d. Potential damages from possible explosions in a fireworks factory

b. Premium offers in cereal boxes

If a company borrows money from its bank and the bank deducts the interest in advance, the company would record the amount of the interest deduction as a. an expense. b. a discount. c. a loss. d. prepaid interest.

b. a discount.

A company's weekly payroll amounts to $50,000 and payday for the week is every Friday. Employees work five days per week, Monday through Friday. The appropriate journal entry was recorded at the end of the accounting period, Monday, March 31, 2017. What amount is wages expense in April for the payday, Friday, April, 4, 2017? a. $50,000 b. $0 c. $40,000 d. $10,000

c. $40,000

Marsh Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date. After one month, the company's total liability for this loan amounts to a. $91,800. b. $90,450. c. $90,900. d. $90,000.

c. $90,900.

Which of the following statements regarding contingencies is true? a. The accounting principle that determines whether a contingent asset is recorded is that of materiality. b. Contingencies that are not estimable should not be disclosed even if probable. c. Contingencies that are probable and estimable must be recorded before the outcome of future events. d. Contingent assets, if probable and estimable, are treated in much the same way as contingent liabilities.

c. Contingencies that are probable and estimable must be recorded before the outcome of future events.

A company has $8,000 in cash, $9,250 in accounts receivable, and $19,500 in inventory. If current liabilities are $14,350, then the quick ratio would be a. 5.0 to 1. b. 2.6 to 1. c. 2.0 to 1. d. 1.2 to 1.

d. 1.2 to 1.

A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400, then the quick ratio would be a. 2.25 to 1. b. 3.00 to 1. c. 3.50 to 1. d. 1.75 to 1.

d. 1.75 to 1.