Bakersfield College

ACG 2021

1)Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of:

1. 1. Matching.
   2. Consistency.
   3. Materiality.
   4. Conservatism.

 

 

 

 

2. The key accounting considerations relating to accounts payable are:
   1. Determining their existence and ensuring that they are recorded in the appropriate accounting period.
   2. Determining their present value and ensuring that they are recorded in the appropriate accounting period.
   3. Determining their existence and determining the correct amount.
   4. Determining the present value of the principal and the amount of the interest.

 

 

 

 

3. Classifying liabilities as either current or long-term helps creditors assess:
   1. Profitability.
   2. The relative risk of a firm's liabilities.
   3. The degree of a firm's liabilities.
   4. The amount of a firm's liabilities.

 

 

 

 

4. When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in:
   1. A current liability.

1. 2. Revenue.
   3. Shareholders' equity.
   4. Paid-in capital.

 

 

 

 

5. A discount on a noninterest-bearing note payable is classified in the balance sheet as:
   1. An asset.
   2. A component of shareholders' equity.
   3. A contingent liability.
   4. A contra liability.

 

 

 

 

6. The rate of interest printed on the face of a note payable is called the:
   1. Yield rate.
   2. Effective rate.
   3. Market rate.
   4. Stated rate.

 

 

 

 

7. The rate of interest that actually is incurred on a note payable is called the:
   1. Face rate.
   2. Contract rate.
   3. Effective rate.
   4. Stated rate.

 

 

 

 

8. On October 31, 2016, Simeon Builders borrowed $16 million cash and issued a 7-month, noninterest-bearing note. The loan was made by Star Finance Co. The stated discount rate is 8%. Sky's effective interest rate on this loan is:
   1. More than the stated discount rate of 8%.
   2. Less than the stated discount rate of 8%.
   3. Equal to the stated discount rate of 8%.
   4. Unrelated to the stated discount rate of 8%.

 

 

 

9. On April 31, 2016, Elkhorn Associates borrowed $10 million cash from Colonial Bank and issued a 5-month, noninterest-bearing note, priced to yield an effective interest rate of 10%. The stated discount rate on this loan is:
   1. More than the effective interest rate.
   2. Less than the effective interest rate.
   3. Equal to the effective interest rate.
   4. Unrelated to the effective interest rate.

 

 

 

 

10. Large, highly rated firms sometimes sell commercial paper:
    1. To borrow funds at a lower rate than through a bank.
    2. To earn a profit on the paper.
    3. To avoid paperwork.
    4. Because the interest rate is locked in by the Federal Reserve Board.

 

 

 

 

11. Jane's Donut Co. borrowed $200,000 on January 1, 2016, and signed a two-year note bearing interest at 12%. Interest is payable in full at maturity on January 1, 2018. In connection with this note, Jane's should report interest expense at December 31, 2016, in the amount of:

a.     $0.

b.     $24,000.

c.     $48,000.

d.     $50,880.

 

 

 

 

12. What is the effective interest rate (rounded) on a 3-month, noninterest-bearing note with a stated rate of 12% and a maturity value of $200,000?

a.     12.4%.

b.     13.6 %.

c.     11.5%.

d.     3.1%.

 

 

 

 

13. On September 1, 2016, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank where the stated discount rate is 9%. Hiker's effective interest rate on this loan (rounded) is:

a.     9.0%.

b.     9.5%.

c.     9.6%.

d.     9.7%.

 

 

 

 

14. Universal Travel Inc. borrowed $500,000 on November 1, 2016, and signed a 12-month note bearing interest at 6%. Interest is payable in full at maturity on October 31, 2017. In connection with this note, Universal Travel Inc. should report interest payable at December 31, 2016, in the amount of:

a.     $ 8,000.

b.     $30,000.

c.     $ 5,000.

d.     $25,000.

 

 

 

 

 

15. Oklahoma Oil Corp. paid interest of $785,000 during 2016, and the interest payable account decreased by $125,000. What was interest expense for the year?

a.     $910,000.

b.     $660,000.

c.     $555,000.

d.     $785,000.

 

 

 

 

16. On June 1, 2016, Dirty Harry Co. borrowed cash by issuing a 6-month noninterest-bearing note with a maturity value of $500,000 and a discount rate of 6%. Assuming straight-line amortization of the discount, what is the carrying value of the note as of September 30, 2016?

a.     $525,000.

b.     $300,000.

c.     $495,000.

d.     $475,000.

 

 

 

 

 

 

 

 

17. At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent:
    1. Liabilities until the product or service is provided.
    2. A component of shareholders' equity.
    3. Long-term assets until the product or service is provided.
    4. Revenue upon receipt of the advance payment.

 

 

 

18. Which of the following is not true about deferred revenue?
    1. Deferred revenue with respect to gift cards is recognized as revenue when the gift cards expire.
    2. Deferred revenue is a liability.
    3. Deferred revenue is recognized on credit sales when collectibility can be estimated.
    4. Customer prepayments typically require recognition of deferred revenue.

 

 

 

19. M Corp. has an employee benefit plan for compensated absences that gives each employee 15 paid vacation days. Vacation days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days. At December 31, 2016, M's unadjusted balance of liability for compensated absences was $30,000. M estimated that there were 200 total vacation days available at December 31, 2016. M's employees earn an average of $150 per day. In its December 31, 2016, balance sheet, what amount of liability for compensated absences is M required to report?

a.    $             0.

b.   $ 30,000.

c.     $225,000.

d.   $450,000.

 

 

 

 

20. Which of the following generally is associated with accounts payable?

Reported at

Interest expense                          present value

1. 1. No                                                    No
   2. No                                                    Yes
   3. Yes                                                    No
   4. Yes                                                    Yes

 

 

 

21. Lake Co. receives nonrefundable advance payments with special orders for containers constructed to customer specifications. Related information for 2016 is as follows ($ in millions):

Customer advances balance, Dec. 31, 2015                         $110

Advances received with 2016 orders                                        195

Advances applicable to orders shipped in 2016                    180