Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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Page 61
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-05 – LO: 10–05
FNMN.WAJO.19.10-07 – LO: 10–07
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.ACBSP.APC.23 – Financial Statement Analysis
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
142. Current assets/Current liabilities
ANSWER:
a
POINTS:
1
143. Remote contingent liability
ANSWER:
g
POINTS:
1
144. Current assets – Current liabilities
ANSWER:
b
POINTS:
1
145. Cash + Temporary investments + Accounts receivable
ANSWER:
c
POINTS:
1
146. (Cash + Temporary investments + Accounts receivable)/Current liabilities
ANSWER:
d
POINTS:
1
147. Probable likelihood and estimable liability
ANSWER:
e
POINTS:
1
148. Probable likelihood of a liability but cannot be estimated
ANSWER:
f
POINTS:
1
149. Reasonably possible likelihood of a liability
ANSWER:
f
POINTS:
1
150. Measures the “instant” debt-paying ability of a company
ANSWER:
d
POINTS:
1
151. On January 1, Yeargan Company obtained a $125,000, 7-year 5% installment note from Farmers Bank. The note
requires annual payments of $21,602, with the first payment occurring on the last day of the fiscal year. The first payment
consists of $6,250 interest and principal repayment of $15,352.
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
QUESTION TYPE:
Subjective Short Answer
Journalize the following entries:
(a) Issued the installment note for cash on January 1.
(b) Paid the first annual payment on the note.
ANSWER:
(a)
125,000
125,000
(b)
6,250
15,352
21,602
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Objective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-04 – LO: 10–04
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term 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
152. A business issued a 120-day, 6% note for $10,000 to a creditor on account. The company uses a 360-day year for
interest calculations. Journalize the entries to record (a) the issuance of the note and (b) the payment of the note at
maturity, including interest.
Description
Debit
Credit
(a)
(b)
ANSWER:
Description
Debit
Credit
(a)
Accounts Payable
10,000
Notes Payable
10,000
(b)
Notes Payable
10,000
Interest Expense
200*
Cash
10,200
*$10,000 × 6% × 120/360 = $200
POINTS:
1
Jun. 30
James Co. issued a 60-day, 5% note for $90,000 on account.
Aug. 29
James Co. paid the amount due.
June 1
Inventory
Accounts Payable
30
Accounts Payable
Notes Payable
155. Roseland Design borrowed $700,000 on a 90-day note from CorpOne Funding Company. CorpOne discounts the
note at 8%. (Assume a 360-day year is used for interest calculations.)
(a)
Journalize Roseland’s entries to record:
a.
The issuance of the note.
b.
The payment of the note at maturity.
(b)
Journalize CorpOne’s entries to record:
a.
The receipt of the note.
b.
The receipt of the payment of the note at maturity.
ANSWER:
(a)
a.
Cash
686,000
Interest Expense
14,000*
Notes Payable
700,000
b.
Notes Payable
700,000
Cash
700,000
(b)
a.
Notes Receivable
700,000
Cash
686,000
Interest Revenue
14,000*
b.
Cash
700,000
Notes Receivable
700,000
*$700,000 × 8% × 90/360
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Applying
QUESTION TYPE:
Subjective Short Answer
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
156. Journalize the following entries on the books of the borrower and creditor. Label accordingly. (Assume a 360-day
year is used for interest calculations.)
Jun. 1
James Co. purchased merchandise on account from O’Leary Co., $90,000, terms n/30.
Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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Aug. 1
Winston Co. purchased merchandise for $75,000 on account from Bagley Co., terms n/30.
Sept. 1
Winston Co. issued a 90-day, 6% note for $75,000 on account.
Nov. 30
Winston Co. paid the amount due.
ANSWER:
Aug. 1
Inventory
75,000
Accounts Payable
75,000
Sept. 1
Accounts Payable
75,000
Notes Payable
75,000
Nov. 30
Notes Payable
75,000
Interest Expense
1,125
Cash
76,125
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Applying
QUESTION TYPE:
Subjective Short Answer
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
160. A borrower has two alternatives for a loan: (a) issue a $480,000, 60-day, 8% note or (2) issue a $480,000, 60-day
note that the creditor discounts at 8%. (Assume a 360-day year is used for interest calculations.)
(a)
Calculate the amount of the interest expense for each option.
(b)
Determine the proceeds received by the borrower in each situation.
ANSWER:
(a)
$480,000 × 8% × 60/360 = $6,400 for each alternative.
(b)
(1)
$480,000 interest-bearing note: $480,000 proceeds
(2)
$480,000 discounted note: $480,000 – $6,400 interest = $473,600
proceeds
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Applying
QUESTION TYPE:
Subjective Short Answer
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
withholding was $525. Assuming the social security rate is 6% and Medicare is 1.5%, and all earnings are subject to
FICA taxes, what is Green’s net pay?
ANSWER:
Total wage payment
$2,500.00