Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
CHAPTER 9: CURRENT LIABILITIES, CONTINGENCIES, AND THE TIME
VALUE OF MONEY
1. Redfearn Company has current assets of $150,000 and current liabilities of $60,000. How much inventory
could it purchase on account and achieve its minimum desired current ratio of 2 to 1?
a. $10,000
b. $20,000
c. $30,000
d. $40,000
2. All of the following are characteristics of current liabilities except:
a. They may be replaced with a new short-term liability rather than being paid in cash.
b. They may involve estimated amounts.
c. They are due within one year or within the operating cycle, whichever is longer.
d. All three of the above are characteristic of current liabilities.
3. Which of the following accounts is not classified as a current liability?
a. Taxes payable
b. Note payable, due in three (3) years
c. Salaries payable
d. Accounts payable
4. Which of the following is not classified as a noncurrent liability?
a. Bonds payable
b. Capital lease obligations
c. Current portion of long-term debt
d. Mortgage payable
5. Current liabilities are defined as those liabilities which will be satisfied
a. by the end of the operating cycle.
b. within one year.
c. within one year or within the operating cycle, whichever is longer.
d. within one year or within the operating cycle, whichever is shorter.
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
6. Which of the following statements is true of liabilities?
a. Accounts payable are listed in the current liabilities section in alphabetical order by vendor.
b. Classification of current liabilities is important because of the liquidity concept.
c. Current liabilities are listed in order of decreasing amounts in the current liability section of the balance sheet.
d. The accounting principles followed in the U.S. differ from those of other countries; this is especially true
for current liabilities.
7. Which of the following statements about current liabilities is true?
a. Current liabilities are listed in order of decreasing amounts in the current liability section of the balance sheet.
b. The amount of current liabilities has little implication for a company's liquidity.
c. The current liability section never contains any portion of long-term liabilities.
d. The current ratio is defined as current assets divided by current liabilities.
8. A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400,
then the current ratio would be
a. 1.75 to 1
b. 2.25 to 1
c. 3.00 to 1
d. 3.50 to 1
9. 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. 1.75 to 1
b. 2.25 to 1
c. 3.00 to 1
d. 3.50 to 1
10. If current assets amount to $150, total assets $350, current liabilities $65, and total liabilities $100, then the
current ratio is
a. 2.12 to 1
b. 2.31 to 1
c. 3.03 to 1
d. 3.50 to 1
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
11. Long-term assets are $800, current liabilities are $500, and long-term liabilities are $600. If the current ratio is
2.5 to 1, then current assets are
a. $ 200
b. $ 625
c. $1,250
d. $2,000
12. If a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3 and pays March 12,
then the amount paid to the seller would be
a. $3,136
b. $3,150
c. $3,168
d. $3,200
13. The payment of accounts payable results in a(n)
a. decrease in liabilities and a decrease in assets.
b. decrease in liabilities and an increase in assets.
c. increase in liabilities and a decrease in owners’ equity.
d. decrease in liabilities and an increase in owners’ equity.
14. If a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3 and pays April 2, then
the amount paid to the seller would be
a. $3,136
b. $3,150
c. $3,168
d. $3,200
15. 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. a discount
b. an expense
c. a loss
d. prepaid interest
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
16. A bank loaned Darden Company $10,000 on a 1-year, 6% note, but deducted the interest in advance. The
journal entry made by Darden to record receipt of the cash would include a
a. an increase in Cash for $9,400
b. an increase in Cash for $600
c. a decrease in Notes Payable for $10,600
d. a decrease in Notes Payable for $9,400
17. Assume the current ratio is 2 to 1. Payment on accrued salaries payable would cause the current ratio to
a. increase
b. decrease
c. be unchanged since the effects offset one another
d. be unchanged since it has no impact on any current accounts
18. Assume the current ratio is 3 to 4. Purchases of inventory on account would cause the current ratio to
a. increase
b. decrease
c. be unchanged since the effects offset each other
d. be unchanged since it has no effects on any current accounts
19. Assume the current ratio is 3 to 1. Estimating the warranties expense on the period’s sales would cause the
current ratio to
a. increase
b. decrease
c. be unchanged since the effects offset one another
d. be unchanged since it has no effect on any current accounts
20. The landlord records the security deposit she collects from the tenant as a(n)
a. asset
b. liability
c. contingent liability
d. contra liability
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
21. 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
22. If current assets amount to $62,000, total assets $350,000, current liabilities $31,000, and total liabilities
$125,000, then the current ratio is
a. 0.5 to 1
b. 2.0 to 1
c. 2.8 to 1
d. 3.0 to 1
23. Long-term assets are $5,000, current liabilities are $700, and long-term liabilities are $3,000. If the current ratio
is 3 to 1, then current assets are
a. $9,000
b. $6,900
c. $4,300
d. $2,100
24. If a company purchases $3,000 worth of inventory with terms of 1/15, n30 and pays within 15 days, then
the amount paid to the seller would be
a. $2,550
b. $2,970
c. $3,000
d. $3,030
25. A bank loaned York Construction Company $35,000 on a 1-year, 6% note, but deducted the interest in advance.
The journal entry made by York to record receipt of the cash would include an
a. increase in Cash for $35,000.
b. decrease in Notes Payable for $32,900.
c. increase in Discount on Notes Payable for $2,100.
d. increase in Interest Revenue for $2,100.
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
26. On November 1, Greenfield Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note
payable in the amount of $55,000. If you assume 360 days in year, the November 30 adjusting entry will be:
a. Debit Interest Expense $550 and credit Cash $550.
b. Debit Discount on Notes Payable $1,100 and credit Interest Payable $1,100.
c. Debit Interest Expense $550 and credit Interest Payable $550.
d. Debit Interest Expense $550 and credit Notes Payable $550.
27. 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. $90,900
c. $90,450
d. $90,000
28. Interest payable on a loan becomes a liability:
a. When the borrowed money is received.
b. When the note payable is issued.
c. At the maturity date.
d. As it accrues.
29. On November 1, 2014, Chancellor Co. borrowed $80,000 from State Bank and signed a 12%, six-month note
payable, all due at maturity. The interest on this loan is stated separately. At December 31, 2014, the adjusting
entry for this note includes a:
a. Debit to Interest Expense for $3,200.
b. Credit to Notes Payable for $1,600.
c. Credit to Cash for $4,800.
d. Credit to Interest Payable for $1,600.
30. On November 1, 2014, Chancellor Co. borrowed $80,000 from State Bank and signed a 12%, six-month note
payable, all due at maturity. The interest on this loan is stated separately. At December 31, 2014, Chancellor
Co.'s overall liability for this loan amounts to:
a. $84,800
b. $80,000
c. $81,600
d. $83,200
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
31. An invoice received from a supplier for $8,000 on January 1 with terms 1/15, n/30 means that the company
should pay
a. $7,920 before the end of January.
b. either $7,920 before January 16 or $8,000 before the end of the month.
c. $8,000 between January 2 and January 16.
d. $6,800 before January 16.
32. All of the following statements are true except:
a. U.S. standards do not require a classified balance sheet.
b. IFRS require companies to present classified balance sheets.
c. Under IFRS, an unclassified balance sheet based on the order of liquidity is acceptable only when it
provides more reliable information than a classified one.
d. U.S. standards require a classified balance sheet with liabilities in order by size or by order of liquidity.
33. 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. convention of conservation
c. practice of consistency
d. concept of historical cost
34. Proctor Inc. has a weekly payroll of $8,000 for a 5-day workweek, Monday through Friday. If December 31,
the last day of the accounting year, falls on Wednesday, Proctor would make an adjusting entry that would
a. increase wages expense $4,800.
b. decrease wages payable $4,800.
c. decrease cash $4,800.
d. increase wages payable $8,000.
35. An example of a current liability that must be accrued is
a. accounts payable.
b. current maturity of long-term debt.
c. revenue received in advance.
d. income taxes payable.
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
36. On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note. If
the company's fiscal year ends as of December 31, Lawrence should make an entry to increase
a. interest expense, $4,200.
b. notes payable, $1,050.
c. interest payable, $1,050.
d. prepaid interest, $3,150.
37. Employees earn $5,000 per day, work five days per week, Monday through Friday, and get paid every Friday.
If the previous payday was January 26 and the accounting period ends on January 31, what amount is the
ending balance in the wages payable account?
a. $ 9,000
b. $10,000
c. $15,000
d. $25,000
38. Executive, Inc. has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday. If December
31, the last day of the accounting year, falls on Thursday, Executive would make an adjusting entry that
would
a. increase Wages Expense $8,000.
b. decrease Wages Payable $2,000.
c. decrease Cash $8,000.
d. increase Wages Payable $2,000.
39. 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, 2014. What amount is wages expense for April for the payday,
Friday, April, 4, 2014?
a. $ -0-
b. $40,000
c. $10,000
d. $50,000
40. On May 1, the Chris Company borrowed $30,000 from the Third Street Bank on a 1-year, 6% note. If the
company keeps its records on a calendar year, an entry is needed on December 31 to increase
a. Interest Expense, $600.
b. Interest Expense, $1,800.
c. Interest Payable, $900.
d. Interest Payable, $1,200.
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
41. Almost all current liabilities affect the operating category of the statement of cash flows, but one that does not
affect cash provided by operating activities is
a. accounts payable.
b. interest payable.
c. notes payable.
d. taxes payable.
42. Which of the following statements regarding the inclusion of liabilities on the statement of cash flows is true?
a. All current liabilities affect the operating activities section.
b. Long-term liabilities generally affect the investing activities section.
c. A decrease in a current liability from the beginning to the end of the year is accompanied by a
decrease of cash.
d. A decrease in a current liability from the beginning to the end of the year is accompanied by an
inflow of cash.
43. A company's balance sheet shows the account, Notes Payable. This resulted from a loan made by the company's
bank. If the end-of-year balance in the notes payable account exceeds the beginning-of-year balance by $5,000,
this is shown on the cash flow statement as an
a. inflow of cash of $5,000 in the operating activities category.
b. outflow of cash of $5,000 in the operating activities category.
c. inflow of cash of $5,000 in the financing activities category.
d. outflow of cash of $5,000 in the financing activities category.
44. Carrington, Inc. recorded $97,000 in salary expense for January, 2015. Its beginning balance in salaries
payable was $3,000 and its ending balance was $4,000. How much was paid in cash for salaries during
January, 2015?
a. $96,000
b. $97,000
c. $98,000
d. $99,000
45. Which of the following would appear on the balance sheet as a current liability?
a. A loss from an anticipated strike by employees.
b. Potential damages from possible explosions in a fireworks factory.
c. Premium offers in cereal boxes.
d. The possible loss from a lawsuit.
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
46. All of the following statements are true except:
a. The threshold for recording items as liabilities is a lower under IFRS than under U.S. GAAP.
b. The threshold for recording items as liabilities is a lower under U.S. GAAP than under IFRS.
c. IFRS requires a liability to be recorded as a present value amount.
d. Under U.S. GAAP, a contingent item should be recorded as a liability if the loss or outflow is probable
and can be reasonably estimated.
47. In 2015, Baloga Heating Company sold 400 water heaters for $350 each. The water heaters carry a 2-year
warranty for repairs. Baloga estimates that repair costs will average 2% of the total selling price. How
much is recorded in the warranty liability account as a result of selling the water heaters during 2015?
a. $4,200
b. $2,800
c. $1,400
d. No liability should be recorded until the water heaters are brought back for repairs.
48. In 2015, Morton Co. sold 100 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects.
Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at
the beginning of the year was $42,000. $11,000 in claims was actually incurred during the year to honor their
warranty. What was the balance in the ending estimated warranty liability at the end of the year?
a. $47,000
b. $42,000
c. $37,000
d. $ 5,000
49. In 2015, Morton Co.sold 150 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects.
Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at
the beginning of the year was $14,000. $20,000 in claims was actually incurred during the year to honor their
warranty. What was the warranty expense for 2015?
a. $10,000
b. $18,000
c. $20,000
d. $24,000
50. Which of the following statements regarding contingencies is true?
a. Contingencies that are probable and not estimable appear on the balance sheet.
b. Contingencies that are probable and not estimable are disclosed in the notes to the financial statements.
c. Contingencies that are remote but estimable are disclosed in the notes to the financial statements.
d. Contingent assets are recorded on the balance sheet, but not in the notes to the financial statements.
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
51. Which of the following statements regarding contingencies is true?
a. Contingencies that are probable and estimable must be recorded before the outcome of future events.
b. Contingent assets, if probable and estimable, are treated in much the same way as contingent liabilities.
c. The accounting principle that determines whether a contingent asset is recorded is that of materiality.
d. Contingencies that are not estimable should not be disclosed even if probable.
52. A cereal company includes one premium coupon in every cereal box. Upon returning 10 such coupons to the
company, a customer will be sent a free cereal bowl. In a recent year, the company sold 200,000 boxes of
cereal for $1 a box. It is estimated that 20% of the coupons will be returned. If the cereal bowls cost the
company $3 each, what amount of liability for premium redemptions must be recorded by the company?
a. $ 6,000
b. $ 12,000
c. $ 24,000
d. $200,000
53. A firm is required to estimate a liability for repairs for products sold with a warranty. If the firm's accountants
later find that the estimated amount for repairs has been overstated, the correct accounting procedure is to
a. make an adjusting entry to reduce the amount of estimate.
b. make a correcting entry because the overstatement is an error.
c. show the amount of overstatement on the income statement as a loss.
d. do nothing for the year in question and modify the next year's estimate.
54. Clarion Inc. issues numerous discount coupons throughout the year. A balance in the Estimated Liability for
Coupon Redemption
a. indicates an error had been made in posting.
b. should equal the same amount of coupons redeemed.
c. is the amount of outstanding coupons it expects to be redeemed.
d. indicates that more coupons were redeemed than estimated.
55. In 2015, Boone, Inc. sold 1,000 carpets for $50 each. The carpets carry a 2-year warranty for repairs. Boone
estimates that repair costs will average 2% of the total selling price. What is the amount that would be
recorded in the warranty liability account as a result of selling the carpets during 2015?
a. $1,000
b. $ 500
c. $ 20
d. No liability should be recorded until the carpets are returned for repairs.
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
56. Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion. The litigation is
anticipated to continue for several years, but no reasonable estimate can be made at this time regarding
ultimate financial responsibility. This situation is an example of:
a. An $3 billion expense to be recorded in the income statement during the year of the suit.
b. A loss contingency that should be disclosed in the notes to Boston’s financial statements.
c. An estimated liability that must appear in Boston Trombley Company's balance sheet.
d. None of these. No accrual or disclosure is required in Boston’s financial statements.
57. Which of the following is an example of a contingent liability?
a. A liability for notes payable with interest included in the face amount.
b. The liability for future warranty repairs on computers sold during the current period.
c. A lawsuit pending against a restaurant chain for improper preparation of food.
d. A corporate long-term employment contract with the chief executive officer.
58. The total amount of simple interest calculated annually on a $4,000 note payable in 5 years at
9% is:
a. $1,800.00
b. $1,411.20
c. $2,154.60
d. $554.04
59. The total amount of simple interest calculated annually on a $6,000 note payable for 3 years at
11% is
a. $1,980
b. $2,205
c. $6,600
d. $7,980
60. To determine whether a lottery winner would prefer to receive the money in a single lump sum
immediately or receive an equal amount over a period of years, you would use which type of time value of
money calculation?
a. The future value of a single amount.
b. The present value of a single amount.
c. The future value of an annuity.
d. The present value of an annuity.
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
61. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
If interest is compounded annually, the total amount of interest on an $18,000 note payable for 4 years at
10% is
a. $5,706
b. $7,200
c. $8,352
d. $8,500
62. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
The total amount of interest compounded quarterly on a $1,500 note payable for 1 year at
12% is
a. $180.00
b. $187.50
c. $189.00
d. $ 45.00
63. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
If you must calculate the present value of an amount at 8% compounded quarterly for 2 years, then the
interest factor used in the calculation is
a. 8% for two periods
b. 2% for eight periods
c. the interest factor for 8% for two periods divided by 4
d. twice that for one period at 8% multiplied by 2
64. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
If a company wishes to accumulate $500,000 in 20 years at 5% by making equal yearly deposits into an account,
calculation of the deposits is an application of the
a. future value of a single amount
b. present value of a single amount
c. future value of an annuity
d. present value of an annuity
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
65. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
The future value of $6,000 at 12% compounded quarterly for 5 years
is
a. $ 6,954
b. $ 9,600
c. $10,572
d. $10,836
66. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
The future value of equal semi-annual payments of $500 at 8% compounded semiannually for 4
years is
a. $ 868
b. $2,000
c. $4,607
d. $9,320
67. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
The present value of $7,000 to be received in 7 years at 7% compounded annually is
a. $3,430
b. $6,657
c. $4,361
d. $7,000
68. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
How much would have to be deposited in a savings account earning 6%, so that equal annual withdrawals of
$200 can be made at the end of each of 10 years? The balance at the end of the last year would be zero.
a. $ 528
b. $1,472
c. $2,000
d. $2,636
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
69. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
Kingston inherited $140,000 from an aunt. If Kingston decides not to spend his inheritance but to leave the
money in his savings account until he retires in 15 years, how much money will he have assuming an annual
interest rate of 8%, compounded semiannually?
a. $ 308,000
b. $ 509,880
c. $ 454,020
d. $7,851,900
70. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
If the interest factor used to calculate the future value of $1 at 6% for 5 periods is 1.338, then the present value
of $1 at 6% for 5 periods is
a. 1.338 × 1.338.
b. 1/1.338.
c. 1/(1.338 × 1.338).
d. 0.338.
71. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
Pablos wants to save some money so that he can make a down payment of $3,000 on a car when he graduates
from college 4 years from now. If he opens a savings account and earns 3% on his money, compounded
annually, how much will he have to invest now?
a. $2,520
b. $2,664
c. $2,910
d. $3,000
72. Using the future value table, a student found that the future value amount of $1 for 5 years at an annual
interest rate of 10% is 1.611. The student also observed that the future value of $1 for 5 years at 10%
compounded semiannually is 1.629. This means that
a. the more often the compounding, the higher the future value.
b. the student was looking in the wrong column; the second amount should be 1.611/2.
c. there was an error in the table.
d. when interest is compounded semiannually, more money must be deposited to have a desired ending balance.
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
73. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
David, a high school math teacher, wants to set up an IRA account into which he will deposit $2,000 per year.
He plans to teach for 20 more years and then retire. If the interest on his account is 7% compounded annually,
how much will be in his account when he retires?
a. $ 4,800
b. $21,118
c. $74,458
d. $81,990
74. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
Winston wins the lottery. He wins $20,000 per year to be paid to him for 10 years. The state offers him the
choice of a cash settlement now instead of the annual payments for 10 years. If the interest rate is 6%, what is
the amount the state will offer for a settlement today?
a. $147,200
b. $154,440
c. $175,000
d. $200,000
75. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
Cory and Ginger want to buy an airplane. They find one that will cost $200,000. They must pay 10% down, and
can get the balance financed with a 10 year loan at 7% interest and annual payments. What is their annual
payment?
a. $26,826
b. $25,626
c. $24,457
d. $19,260
76. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
Josh and Sara want to buy a house in 4 years. If the house will cost $180,000, how much must they deposit at
the end of every year for the next 4 years at 5% compounded annually in order to buy the house?
a. $32,040
b. $36,990
c. $41,763
d. $45,000
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
77. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
The table factor for the future value of an annuity for 4 annual deposits at 8% is
a. the same as for the future value of $1 multiplied by 4.
b. the reciprocal of the future value of $1 factor for n = 4 and 8%.
c. the cumulative total of the future value of $1 factors for 4 deposits at 8%.
d. the same as using the future value of $1 factors at 8% for 3, 2, 1 and 0 periods.
78. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
Denise wants to help pay for her niece's college tuition. Her niece will begin college in one year. How much
would Denise need to put into a savings account today at 6% so that her niece can withdraw $10,000 per year for
4 years, and reduce the account balance to zero at the end of the 4 years?
a. $31,680
b. $34,650
c. $37,600
d. $37,720
79. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
A company will have to pay a $50,000 liability in 4 years. How much must be deposited now into a bank
account earning 8% compounded semiannually to fully fund the future payment?
a. $34,000
b. $35,500
c. $36,523
d. $36,550
80. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
To calculate the future value of an amount that is invested at 12%, compounded quarterly, at the end of three
years, the interest factor used would be
a. 1% for 12 periods
b. 3% for four periods
c. 3% for 12 periods
d. 12% for three periods
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
81. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
For a given single sum invested at 8% for 4 years, how will the future value be affected if the compounding
period is changed from annual to quarterly?
a. The future value will decrease.
b. The future value will increase.
c. The future value will stay the same.
d. There is not enough information to determine the impact.
82. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
If Shidan has $5,000 to invest and wants to have $10,000 at the end of 9 years, what compounded interest rate
must she get on her money (assume annual compounding)?
a. 5%
b. 6%
c. 7%
d. 8%
83. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
If Garrett has $5,000 per year to invest for 10 years and wants to accumulate $87,745 at the end of that time,
he must find an investment that is earning at a rate of
a. 15%
b. 12%
c. 11%
d. 6%
84. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
Mackie’s individual retirement account (IRA) currently has a balance of $100,000 and is earning 6%.
Beginning one year from today, what equal annual amounts can be withdrawn from the IRA for 10 years so
that the balance after the tenth withdrawal is zero?
a. $10,000
b. $12,950
c. $13,587
d. $14,237
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
85. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
Barton Company has just purchased a machine with a cost of $100,000, and signed a note agreeing to pay
the manufacturer equal annual amounts of $17,400. If the current rate of interest is 8%, how many equal
annual payments will be made?
a. 6
b. 8
c. 10
d. 12
86. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in
the text is necessary to complete the calculations.
Approximately how many years will it take for a sum invested at 8% with annual compounding to quadruple?
a. 9 years
b. 17 years
c. 18 years
d. 81 years
87. You are interested in accumulating $10,000 so that you can take a cruise in 3 years. If you trying to solve for
the amount that you need to invest each year, earning 6% interest compounded annually, the $10,000
represents:
a. The amount to invest.
b. An annuity.
c. A present value.
d. A future value.
88. A note payable due in two years is a current liability.
a. True
b. False
89. The current maturity of long-term debt is a current liability.
a. True
b. False
Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
90. A note payable that is due in six months is a current liability.
a. True
b. False
91. If a bank discounts a note, then the borrower needs to only pay the cash received and not the face value of the
note.
a. True
b. False
92. A possible loss from lawsuit is not reported on the balance sheet as a current liability.
a. True
b. False
93. Discount on Notes Payable is treated as a reduction of notes payable on the balance sheet.
a. True
b. False
94. For users of financial statements, the current liability classification in the balance sheet is important because it
is most closely tied to the concept of profitability.
a. True
b. False
95. When a liability is accrued, the account debited in the transaction is a stockholders’ equity account.
a. True
b. False
96. U.S. standards do not require a classified balance sheet, but International accounting standards require
companies to present classified balance sheets with liabilities classified as either current or long term.
a. True
b. False
97. Accrued wages is not a current liability.
a. True
b. False
