Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-03 – LO: 10–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.14 – Payroll/Other Compensation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
29. Depending upon when an unfunded pension liability is to be paid, it will be classified on the balance sheet as either a
long-term or a current liability.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-03 – LO: 10–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.14 – Payroll/Other Compensation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
30. During the first year of operations, employees earned vacation pay of $35,000. The vacations will be taken during the
second year. The vacation pay expense should be recorded in the second year as the vacations are taken by the
employees.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-03 – LO: 10–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.14 – Payroll/Other Compensation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
31. One of the more popular defined contribution plans is the 401k plan.
a.
True
b.
False
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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Page 12
ANSWER:
True
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-03 – LO: 10–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.14 – Payroll/Other Compensation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
32. A defined contribution plan promises employees a fixed annual pension benefit.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-03 – LO: 10–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.14 – Payroll/Other Compensation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
33. In a defined benefits plan, the employer bears the investment risks in funding a future retirement income benefit.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-03 – LO: 10–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.14 – Payroll/Other Compensation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
34. The accounting for defined benefit plans is usually very easy and straightforward.
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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Page 13
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-03 – LO: 10–03
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.14 – Payroll/Other Compensation
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
35. During the first year of operations, a company granted warranties on its products at an estimated cost of $8,500. The
product warranty expense should be recorded in the years of the expenditures to repair the products covered by the
warranty payments.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Applying
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-05 – LO: 10–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
36. Obligations that may arise from past transactions only if certain events occur in the future are contingent liabilities.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-05 – LO: 10–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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Page 16
c.
October 26
d.
October 25
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-01 – LO: 10–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
43. On June 8, Williams Company issued an $80,000, 5%, 120-day note payable to Brown Industries. Assuming a 360-
day year, what is the maturity value of the note? When required, round your answer to the nearest dollar.
a.
$82,600
b.
$84,000
c.
$81,333
d.
$88,200
ANSWER:
c
RATIONALE:
Maturity value of the note = [$80,000 + ($80,000 × 5% × 120 ÷ 360)] = $81,333
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-01 – LO: 10–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
44. On July 8, Jones Inc. issued an $80,000, 6%, 120-day note payable to Miller Company. Assume that the fiscal year of
Jones ends July 31. Using a 360-day year, what is the amount of interest expense recognized by Jones in the current fiscal
year? When required, round your answer to the nearest dollar.
a.
$700
b.
$4,200
c.
$307
d.
$1,400
ANSWER:
c
RATIONALE:
Interest expense recognized = [($80,000 × 6% × 120 ÷ 360) × 23 / 120] = $307
POINTS:
1
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49. Assuming a 360-day year, the interest charged by the bank, at the rate of 6%, on a 90-day, discounted note payable of
$100,000 is
a.
$6,000
b.
$1,500
c.
$500
d.
$3,000
ANSWER:
b
RATIONALE:
Interest charged = [$100,000 × 6% × (90 ÷ 360)] = $1,500
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-01 – LO: 10–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
50. Assuming a 360-day year, when a $50,000, 90-day, 9% interest-bearing note payable matures, total payment will be
a.
$51,125
b.
$54,500
c.
$1,125
d.
$4,500
ANSWER:
a
RATIONALE:
Total payment = [$50,000 + ($50,000 × 9% × 90 ÷ 360)] = $51,125
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-01 – LO: 10–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
51. Assuming a 360-day year, proceeds of $48,750 were received from discounting a $50,000, 90-day note at a bank. The
discount rate used by the bank in computing the proceeds was
a.
6.25%
b.
10.00%
c.
10.26%
d.
9.75%
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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Page 20
ANSWER:
b
RATIONALE:
Discount amount = [$50,000 – $48,750] = $1,250
Discount rate = [($1,250 ÷ $50,000) × (360 ÷ 90)] = 10%
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-01 – LO: 10–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
52. Anderson Co. issued a $50,000, 60-day, discounted note to National Bank. The discount rate is 6%. At maturity,
assuming a 360-day year, the borrower will pay
a.
$53,000
b.
$50,500
c.
$50,000
d.
$49,500
ANSWER:
c
RATIONALE:
Maturity amount = $50,000
The borrower must repay the face amount of the note on the due date.
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-01 – LO: 10–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
53. Chang Co. issued a $50,000, 120-day, discounted note to Guarantee Bank. The discount rate is 6%. Assuming a 360-
day year, the cash proceeds to Chang Co. are
a.
$49,750
b.
$47,000
c.
$49,000
d.
$51,000
ANSWER:
c
RATIONALE:
Cash proceeds = [$50,000 – ($50,000 × 6% × 120 / 360)] = $49,000
POINTS:
1
DIFFICULTY:
Bloom’s: Applying