127.
Discount Travel has the following current assets: cash, $102 million; receivables, $94
million; inventory, $182 million; and other current assets, $18 million. Discount Travel also
has the following liabilities: accounts payable, $98 million; current portion of long-term
debt, $35 million; and long-term debt, $23 million. Based on these amounts, what is the
acid-test ratio?
128.
Which of the following statements regarding liquidity ratios is false?
129.
Which of the following statements regarding liquidity ratios is true?
130.
Which of the following is true regarding the relationship between the current ratio and the
acid-test ratio?
131.
A company’s liquidity refers to its:
132.
Which financial ratio relates most closely to a company’s ability to pay its short-term
debts?
133.
Working capital is
134.
The current ratio is
135.
The acid-test ratio is
136.
Which of the following measures of liquidity does not control for the relative size of the
company?
137.
Assuming a current ratio of 1.2 and an acid-test ratio of 0.80, how will the purchase of
inventory with cash affect each ratio?
138.
Assuming a current ratio of 1.0 and an acid-test ratio of 0.80, how will the borrowing of
cash by issuing a six-month note payable affect each ratio?
139.
Assuming a current ratio of 1.2 and an acid-test ratio of 0.80, how will an increase in
accounts receivable affect each ratio?
140.
Which of the following would
not
result in an increase in both the current ratio and the
acid-test ratio?
141.
Which of the following would result in an increase in the current ratio, but not necessarily
the acid-test ratio?
Matching Questions
142.
Match the following
1. Current portion of
2. The riskiness of a
business’s obligations
Informal agreement that permits a company to borrow up to
Classifying liabilities as either current or long-term helps
Amount of note payable × annual interest rate × fraction
143.
Match the following
Cash, short-term investments, and accounts receivable all
2. Current portion of
3. Recording a
4. Commercial paper
5. Deferred revenues
Interest expense is recorded in the period interest is
7. Accrual accounting
Loss is reasonably possible and amount is reasonably
9. The riskiness of a
business’s
Unsecured notes sold in minimum denominations of
10. Disclosure of a
Classifying liabilities as either current or long-term helps
8-70
144.
Match the following
A written promise to repay the amount borrowed plus
2. Recording a
Loss is reasonably possible and amount is reasonably
3. Current portion of
4. Disclosure of a
A liability that requires the sacrifice of something other
Essay Questions
145.
Match (by letter) the correct reporting method for each of the items listed below.
Reporting Method
C. Current liability
L. Long-term liability
D. Disclosure note only
N. Not reported
Item
_____ 1. Accounts payable.
_____ 2. A contingent liability that is
probable
of occurring within the next year and is reasonably
estimable.
_____ 3. A contingent liability that is
reasonably possible
of occurring within the next year and is
reasonably estimable.
_____ 4. Current portion of long-term debt.
_____ 5. Sales tax collected from customers.
146.
Match (by letter) the correct reporting method for each of the items listed below.
Reporting Method
C. Current liability
L. Long-term liability
D. Disclosure note only
N. Not reported
Item
_____1. Notes payable due in two years.
_____2. Customer advances.
_____3. Commercial paper.
_____4. Unused line of credit.
_____ 5. A contingent liability that is
probable
of occurring within the next year but cannot be
estimated.
147.
On November 1, Vacation Destinations borrows $1.5 million and issues a six-month, 8%
note payable. Interest is payable at maturity. Record the issuance of the note and the
appropriate adjusting entry for interest expense at December 31, the end of the reporting
period.
148.
On September 1, 2018, Allied Moving Corp. borrows $100,000 cash from First National
Bank. Allied signs a six-month, 6% note payable. Interest is payable at maturity. Allied’s
year-end is December 31.
1. Record the note payable by Allied Moving Corp.
2. Record the appropriate adjusting entry for the note by Allied Moving Corp. on December
31, 2018.
3. Record the payment of the note at maturity.
8-75
149.
On November 1, 2018, Dual Systems borrows $200,000 to expand operations. Dual
Systems signs a six-month, 9% promissory note. Interest is payable at maturity. Dual
System’s year-end is December 31.
1. Record the issuance of the note by Dual Systems.
2. Record the appropriate adjusting entry for the note by Dual Systems on December 31,
2018.
3. Record the payment of the note by Dual Systems at maturity on April 30, 2019.
150.
Assume that on July 1, 2018, Togo’s Sandwiches issues a $2 million, one-year note.
Interest is payable at maturity. Determine the amount of interest expense that should be
recorded in a year-end adjusting entry under each of the following independent
assumptions:
Interest Rate
Fiscal Year-End
1.
8%
31 December
2.
9%
30 September
3.
6%
31 October
4.
7%
31 January
151.
The following selected transactions relate to liabilities of Food Emporium whose fiscal
year ends on December 31.
Jan. 26
Negotiated a line of credit with City Bank that can be renewed
annually upon bank approval. The amount available under the line of
credit is $1 million at the bank’s prime rate.
March 1
Arranged a six-month bank loan of $400,000 with City Bank under the
line of credit agreement. Interest at the prime rate of 8% is payable at
maturity.
September 1
Paid the 8% note at maturity.
Cash
(
Record the appropriate entries, if any, on January 26, March 1, and September 1.
152.
Mike Smith is a college football coach making a base salary of $960,000 a year ($80,000
per month). Employers are required to withhold a 6.2% Social Security tax up to a
maximum base amount and a 1.45% Medicare tax with no maximum. Assuming the Social
Security base amount is $118,500, compute how much will be withheld during the year for
Coach Smith’s Social Security and Medicare. Through what month will Social Security be
withheld? What additional amount will the employer need to contribute?
153.
Accurate Reports has 50 employees each working 40 hours per week and earning $25 an
hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes
are 7.65% of the first $118,500 earned per employee and 1.45% thereafter. Unemployment
taxes are 3.8% of the first $7,000 earned per employee.
1. Compute the total salaries expense, the total withholdings from employee salaries, and
the actual direct deposit of payroll for the first week of January.
2. Compute the total payroll tax expense Accurate Reports will pay for the first week of
January.
154.
During January, Deluxe Printing pays employee salaries of $1 million. Withholdings in
January are $76,500 for the employee portion of FICA, $210,000 for federal and state
income tax, and $40,000 for the employee portion of health insurance (payable to Blue
Cross/Blue Shield). The company incurs an additional $38,000 for federal and state
unemployment tax and $30,000 for the employer portion of health insurance.
1. Record the employee salary expense, withholdings, and salaries payable.
2. Record the employer-provided fringe benefits.
3. Record the employer payroll taxes.