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Exam 7: Accounting for Liabilities

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Question 41

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Accrual of interest on a note payable is a/an

A) asset source transaction.
B) asset use transaction.
C) asset exchange transaction.
D) claims exchange transaction.

E) A) and D)
F) B) and C)

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Question 42

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Which of the following would not be classified as a current asset?

A) Marketable Securities
B) Equipment
C) Prepaid Expenses
D) Interest Receivable

E) A) and C)
F) A) and B)

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Question 43

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What criterion is used for classifying liabilities as current? Provide three examples of current liabilities.

Sandusky Company borrowed $10,000 from the Lakeside Bank by issuing a 10% three-year installment note.Sandusky agreed to repay the principal and interest by making annual payments in the amount of $4,021.15.Based on this information,the amount of the interest expense associated with the second payment would be: (round your answer to the nearest dollar)

Sports Corporation decides to sell debenture bonds to raise $10,000.This is a/an

Saam Company borrowed $40,000 from the bank on December 1,2012.The note had an 8 percent annual interest rate and matured on May 31,2013,when Saam paid the principal and interest on the note. Required: a)What amount of cash did Saam pay for interest in 2012? b)What amount of interest expense did Saam report on the 2012 income statement? c)What was the amount of liabilities that Saam reported on its balance sheet at the end of 2012? d)What was the amount of cash that Saam paid to the bank on May 31,2013? How was the cash payment reported on the statement of cash flows? e)What amount of interest expense was reported on the 2013 income statement?

Hays paid the first year's interest payment on December 31,2012.Barnett Bank's prime rate was 4 percent for 2012.Which of the following answers shows the effect of this event on the financial statements?

Which of the following correctly shows the effects of the December 31,2013 payment?

On December 31,2010,Malcolm Corporation accrued interest on a $10,000 note payable that it had issued on March 1,2010.The note was a 1-year note with interest at 6%.How did the year-end accrual of interest affect Malcolm's financial statements?

Ransom Company borrowed $10,000 by issuing a promissory note.The note was for twelve months at an annual interest rate of 8%.

What is the going concern assumption,and how does it affect accounting for liabilities?

Upton Company obtained an $80,000 line of credit from the Key State Bank on January 1,2012.The company agreed to accept a variable interest rate that was set at 2% above the bank's prime lending rate.The bank's prime rate of interest and the amounts borrowed or repaid during the first three months of 2012 are shown in the following table.Assume that Upton borrows or repays on the first day of each month.Borrowing is shown as a positive amount and repayments are shown as negative amounts indicated by parentheses. The amount of interest expense recognized in March,rounded to the nearest dollar,would be:

Discuss the purpose of long-term debt financing.

On January 1,2012,Thayer Co.issued $100,000 of bonds payable.On December 31,2021,when the bonds matured,Thayer used cash to repay the bond principal and interest,which had not been accrued previously.Indicate the effects of the 12/31/21 payment.

On January 1,2012,Spencer Corporation signed a contract with the Mid-Rivers Bank for a line of credit that permitted Spencer to borrow up to $50,000.Indicate the effects of signing this contract.

Installment notes are loans that require payment of interest at regular intervals and payment of principal at maturity.

At the beginning of 2012,Orendi Designs,InC.had a balance in the Warranty Payable account of $10,500.During the year,Orendi sold several products that carried a two-year warranty for $450,000.Orendi estimated that warranty expense would be 5% of sales for the year. a)What is the amount of warranty expense for 2012? b)If Marianne paid warranty costs of $23,000 during 2012,what is the balance in the Warranty Payable account after the adjusting entry is made?

On December 31,2012,Spencer Corporation had a balance of $20,000 on a line of credit with Mid-Rivers Bank.Spencer made a payment of $11,200,which included $10,000 on the principal and $1,200 interest.Show the effects of this transaction on Spencer's financial statements.

Locke Company issued bonds payable.Which of the following choices accurately reflects how the issue would affect Locke's financial statements?

What is the operating cycle? How is the operating cycle used in classifying a business's assets and liabilities?