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Exam 9: Reporting and Interpreting Liabilities

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Question 51

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Working capital is a measure of short-run liquidity and is measured by dividing current assets by current liabilities.

A) True
B) False

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Question 52

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Border Company purchased a truck that cost $17,000.The company signed a $17,000 note payable that specified four equal annual payments (at each year-end),each of which includes a payment on the principal and interest on the unpaid balance at 10% per annum. Requirements: A.Calculate the amount of each equal payment (round to the nearest dollar). B.Prepare the journal entry to record the purchase of the truck. C.Prepare the journal entry to record the first annual payment on the note (assume no interest has been accrued during the year). D.Will the interest paid with the first annual payment be more or less than the interest paid with the second annual payment? Explain your answer.

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A. To calculate the amount of each equal...

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Question 53

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A contingent liability is disclosed in a note to the financial statements when the liability is reasonably possible and can be estimated.

Alden Trucking Company is replacing part of their fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1,2010.Alden financed $37,908,000,the note agreement will require $10 million in annual payments starting on December 31,2010 and continuing for a total of five years (final payment December 31,2014) .Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually.What is the note and interest payable liability on December 31,2010 after the first payment was made?

Wolf Company borrowed $5,000 on an 8% note payable on March 1,2010.The maturity date of the note (and payment of all interest)is September 1,2011.The accounting period ends December 31.Assuming no adjusting entries are made during the year,prepare the journal entry for each of the following dates: A.March 1, 2010. B.December 31, 2010. C.September 1, 2011.

Miranda Company borrowed $100,000 cash on September 1,2010,and signed a one-year 6%,interest-bearing note payable.The interest and principal are both due on August 31,2011.Assume that the appropriate adjusting entry was made on December 31,2010 and that no adjusting entries have been made during 2011.The required journal entry to pay the note on August 31,2011 would be which of the following?

How much needs to be invested today if your goal is to have $100,000 five years from today? The return on the investment is expected to be 10% and will be compounded semi-annually.

The accrual of interest on a short-term note payable decreases both the quick ratio and current assets.

Chavez Chocolates had a quick ratio of 1.74 at year-end 2009.Which of the following would cause the ratio to decrease during 2010?

A company has a quick ratio of 0.9 before paying off a large current liability with cash.As a result,what happens to the quick ratio?

Rocket Corporation entered into the following transactions: The accrual of wages and salaries expense. The cash payment of a six-month note payable. The cash payment in advance for a one-year insurance policy. Which of the following statements is correct with respect to determining Rocket's working capital? Assume that Rocket's operating cycle is four months.

Purchasing inventory on account increases the accounts payable turnover ratio.

Smith Corporation entered into the following transactions: Purchased inventory on account. Collected an account receivable. Purchased equipment using cash. Which of the following statements is correct?

Halbur Company reported total assets of $150,000,current assets of $60,000,and total stockholders' equity of $60,000 and noncurrent liabilities of $65,000. Requirements (show computations): 1.Compute working capital. 2.Compute the current ratio.

How much needs to be invested today if your goal is to be able to withdraw $10,000 for each of the next nine years beginning one year from today and $50,000 ten years from today? The return on the investment is expected to be 6%.

At year-end 2010,General Tech reported a quick ratio of 2.75 and at year-end 2009 it was 3.10.Which of the following is a potential cause of the decrease in this ratio?

Grant Corporation is looking to purchase a building costing $900,000 by paying $300,000 cash on the purchase date,and agreeing to make payments every three months for the next five years; the first payment is due three months after the purchase date.Grant's incremental borrowing rate is 8%.How much will each of the payments be?

Phipps Company borrowed $25,000 cash on October 1,2010,and signed a six-month,8% interest-bearing note payable with interest payable at maturity.Assuming that no adjusting entries have been made during the year,the amount of accrued interest payable to be reported on the December 31,2010 balance sheet is which of the following?

Working capital increases when a company accrues revenues at year-end.

Rusty Corporation purchased a rust-inhibiting machine by paying $50,000 cash on the purchase date and agreeing to pay $10,000 every three months during the next two years; the first payment is due three months after the purchase date.Rusty's incremental borrowing rate is 8%.At what amount would the machine be reported at on the balance sheet as of the purchase date?