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Chapter 9: Current Liabilities, Contingencies, and the True Value of Money
86. In 2016, 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 2016?
a.
$4,200
b.
$2,800
c.
$1,400
d.
No liability should be recorded until the water heaters are brought back for repairs.
ANSWER:
b
RATIONALE:
350 Water Heaters × $400 each = $140,000 (Total Sales)
$140,000 × .02 or 2% = $2,800
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Analyzing
87. In 2016, 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
ANSWER:
a
RATIONALE:
100 Balloons × $4,000 = $400,000
$400,000 × .04 or 4% = $16,000
$42,000 (Beginning Balance) + $16,000 (Estimated Expense) – $11,000 (Claims) = $47,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Analyzing
88. In 2016, 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 2016?
a.
$10,000
b.
$18,000
c.
$20,000
d.
$24,000
ANSWER:
d
RATIONALE:
150 balloons × $4,000 = $600,000
$600,000 × .04 or 4% = $24,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Analyzing
89. 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.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Understanding
90. 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.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Understanding
91. 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
ANSWER:
b
RATIONALE:
200,000 Boxes × .20 or 20% = 40,000 Coupons
40,000 Coupons / 10 Coupons per Bowl = 4,000 Bowls
4,000 Bowls × $3 = $12,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Analyzing
92. 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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Applying
93. 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.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Applying
94. In 2016, Scranton, Inc. sold 2,000 carpets for $50 each. The carpets carry a 2-year warranty for repairs. Scranton
estimates that repair costs will average 3% 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 2016?
a.
$1,500
b.
$3,000
c.
$50
d.
No liability should be recorded until the carpets are returned for repairs.
ANSWER:
b
RATIONALE:
1,000 carpets × $50 = $50,000
$50,000 × .02 or 2% = $1,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Analyzing
95. 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.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Applying
96. 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.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Applying
97. 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
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-05 - LO: 09-05
KEYWORDS:
Bloom's: Analyzing
98. 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
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-05 - LO: 09-05
KEYWORDS:
Bloom's: Analyzing
99. 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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Understanding
100. 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
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
101. 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 $2,000 note payable for 1 year at 8% is
a.
$164.86
b.
$240.00
c.
$40.00
d.
None of these choices.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
102. 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 12% compounded quarterly for 2 years, then the interest factor
used in the calculation is
a.
3% for eight periods
b.
12% for eight periods
c.
the interest factor for 12% for two periods divided by 4
d.
None of these choices
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
103. 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
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Understanding
104. 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
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
105. 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
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
106. 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
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
107. 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
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
108. 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
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
109. 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.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
110. 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
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
111. 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.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
112. 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
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
113. 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
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
114. 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
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
115. 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
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
116. 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.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
117. 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
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
118. 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
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
119. 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
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
120. 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 quarterly to annually?
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.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Analyzing
121. 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%
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
FACC.PONO.13.09-07 - LO: 09-07
KEYWORDS:
Bloom's: Analyzing
122. 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 Vito 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%
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
FACC.PONO.13.09-07 - LO: 09-07
KEYWORDS:
Bloom's: Analyzing
123. 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
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-07 - LO: 09-07
KEYWORDS:
Bloom's: Analyzing
124. 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
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-07 - LO: 09-07
KEYWORDS:
Bloom's: Analyzing
125. 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
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-07 - LO: 09-07
KEYWORDS:
Bloom's: Analyzing
126. 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.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-07 - LO: 09-07
KEYWORDS:
Bloom's: Understanding
127. All of the following statements about current liabilities are true except:
a.
Current liabilities are obligations which will be satisfied within one year.
b.
Current liabilities are normally recorded at face value .
c.
The current liability section never contains any portion of long-term liabilities.
d.
Current liabilities finance the working capital of the company.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-021 - LO: 09-02
KEYWORDS:
Bloom's: Understanding
128. If your bank gives you a $2,000 loan at 8% per year, but deducts the interest in advance, is 8% the "real" rate of
interest that you will pay?
a.
Yes.
b.
No. The interest rate is actually lower than 8 percent.
c.
No. The interest rate is actually higher than 8 percent.
d.
There is not enough information to answer this question accurately.
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-02 - LO: 09-02
KEYWORDS:
Bloom's: Understanding
129. What is the correct classification of the account: Discount on Notes Payable?
a.
an asset
b.
an expense
c.
a revenue
d.
a contra liability
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-021 - LO: 09-02
KEYWORDS:
Bloom's: Analyzing
130. What type of interest is calculated on the balance of the principal only?
a.
equivalent interest
b.
compounded interest
c.
future interest
d.
simple interest
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.09-021 - LO: 09-02
KEYWORDS:
Bloom's: Analyzing
Completion
131. The classification of current liabilities is closely tied to the concept of _____________________.
ANSWER:
liquidity
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-021 - LO: 09-02
KEYWORDS:
Bloom's: Remembering
132. A current ratio of ____________________ or better is usually considered a comfortable margin.
ANSWER:
2:1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-021 - LO: 09-02
KEYWORDS:
Bloom's: Remembering
133. Terms of 2/10, n30 mean that if the discount is not taken, full payment is due within
___________________________ days.
ANSWER:
thirty
30
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-021 - LO: 09-02
KEYWORDS:
Bloom's: Remembering
134. The difference between notes payable and accounts payable is ___________________________________.
ANSWER:
a formal contractual agreement
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-021 - LO: 09-02
KEYWORDS:
Bloom's: Remembering
135. At December 31, 2016, an amount due on December 31, 2017, would be classified as a(n)
_______________________ liability.
ANSWER:
current
short-term
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-021 - LO: 09-02
KEYWORDS:
Bloom's: Remembering
136. ___________________________ include any amount that has been incurred due to the passage of time, but not paid
as of the balance sheet date.
ANSWER:
Accrued liabilities
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-02 - LO: 09-02
KEYWORDS:
Bloom's: Remembering
137. When a bank deducts the interest on a note in advance, the note has been ____________________.
ANSWER:
discounted
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-02 - LO: 09-02
KEYWORDS:
Bloom's: Remembering
138. Almost all current liabilities appear within the ___________________ Activities category of the Statement of Cash
Flows.
ANSWER:
Operating
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-03 - LO: 09-03
KEYWORDS:
Bloom's: Remembering
139. Using the indirect method, an increase in accounts payable would be shown as a(n) _____________ in the
___________ Activities section of the statement of cash flows.
ANSWER:
increase or addition to net income
Operating
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-03 - LO: 09-03
KEYWORDS:
Bloom's: Remembering
140. An obligation that involves an existing condition for which the outcome is not known with certainty and depends on
some event that will occur in the future is call a(n) ___________________________.
ANSWER:
contingent liability
contingent loss
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Remembering
141. The interest earned on the principal amount only is referred to as ______________________________.
ANSWER:
simple interest
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-05 - LO: 09-05
KEYWORDS:
Bloom's: Remembering
142. The issue price of a bond is based on the _____________________ of the cash flows that the bond will produce.
ANSWER:
present value
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Remembering
143. If a 12% interest rate is compounded quarterly for 3 years, then there would be __________________________
compounding periods.
ANSWER:
12
twelve
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Remembering
144. The ____________________________ of a single sum represents the value today of a single amount to be received
or paid at a future time.
ANSWER:
present value
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-06 - LO: 09-06
KEYWORDS:
Bloom's: Remembering
145. If the present and future values are known along with the number of periods, then the _________________________
can be determined.
ANSWER:
interest rate
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-07 - LO: 09-07
KEYWORDS:
Bloom's: Remembering
146. If the market value that you paid for a car is known and the annual payment and number of payments is known, the
table factor to help find the interest rate can be calculated by dividing ______________________.
ANSWER:
the market paid by the annual payment
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-07 - LO: 09-07
KEYWORDS:
Bloom's: Remembering
Chapter 9: Current Liabilities, Contingencies, and the True Value of Money
Matching
Identify the classifications of the following accounts as either current or long-term liabilities for the December 31, 2016
balance sheet.
a.
Current liability
b.
Long-term liability
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-021 - LO: 09-02
KEYWORDS:
Bloom's: Applying
147. An amount of money owed to a supplier based on the terms 2/20, n/40, for which no note was executed.
ANSWER:
a
148. An amount of money owed to a creditor on a note due August 15, 2024.
ANSWER:
b
149. Estimated warranty payable by June 30, 2017.
ANSWER:
a
150. An amount of money owed in 2017 to a creditor as an annual installment payment on a ten-year note, due June 30,
2022.
ANSWER:
a
151. An amount of money owed for years 2018 to 2022 to a creditor as annual installment payments on a ten-year note,
due June 30, 2022.
ANSWER:
b
152. An amount of money owed to the federal government based on the company’s annual income.
ANSWER:
a
Chapter 9: Current Liabilities, Contingencies, and the True Value of Money
Match each of the following terms pertaining to liabilities to their definitions.
a.
Current liability
b.
Accounts payable
c.
Notes payable
d.
Discount on notes payable
e.
Current maturities of long-term liabilities
f.
Accrued liabilities
g.
Contingent liability
h.
Estimated liability
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-02 - LO: 09-02
FACC.PONO.13.09-021 - LO: 09-02
FACC.PONO.13.09-03 - LO: 09-03
FACC.PONO.13.09-04 - LO: 09-04
KEYWORDS:
Bloom's: Remembering
153. The portion of a long-term liability that will be paid within one year of the balance sheet date.
ANSWER:
e
154. Accounts that will be satisfied within one year or the next operating cycle.
ANSWER:
a
155. A liability that has been incurred but has not been paid as of the balance sheet date.
ANSWER:
f
156. Amounts owed for the purchase of inventory, goods, or services acquired in the normal course of business.
ANSWER:
b
157. A liability that involves an existing condition for which the outcome is not known with certainty and depends on
some future event.
ANSWER:
g
158. Amounts owed that are represented by a formal contractual agreement. These amounts usually require the payment
of interest.
ANSWER:
c
159. A contra-liability account that represents interest deducted from a loan or note in advance.
ANSWER:
d
Chapter 9: Current Liabilities, Contingencies, and the True Value of Money
From the following list, identify whether the change in the account balance during the year would be reported as an
operating (O), an investing (I), or a financing (F) activity or not separately reported on the statement of cash flows (N).
Assume that the indirect method is used to determine the cash flows from operating activities.
a.
O - Operating
b.
I - Investing
c.
F - Financing
d.
N - Not separately reported on the Statement of Cash Flows
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-03 - LO: 09-03
KEYWORDS:
Bloom's: Applying
160. Taxes payable
ANSWER:
a
161. Salaries and wages payable
ANSWER:
a
162. Other accrued liabilities
ANSWER:
a
163. Notes payable
ANSWER:
c
164. Current maturities of long-term debt
ANSWER:
c
165. Accounts payable
ANSWER:
a
Match each of the following terms related to interest and time value of money calculations to their appropriate definition.
a.
Time value of money
b.
Simple interest
c.
Compound interest
d.
Future value of a single amount
e.
Present value of a single amount
f.
Annuity
g.
Future value of an annuity
h.
Present value of an annuity
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.09-05 - LO: 09-05
FACC.PONO.13.09-06 - LO: 09-06
FACC.PONO.13.09-07 - LO: 09-07
KEYWORDS:
Bloom's: Remembering
