Q: Which formula is used to calculate Days Payable Outstanding (DPO)?

$$\frac{365}{\text{Accounts Payable Turnover Ratio}}$$

Q: Bell Corporation purchases inventory on February 1, 2020 for $80,000 in exchange for a short-term note payable, due in one year, with interest at 8%. On December 31, 2020, what is the amount of accrued interest payable?

$$80,000 \times 8\% \times \frac{11}{12} = 5,867$$

Q: Which of the following is a correct formula for calculating purchases from suppliers?

$$\text{Cost of Goods Sold} + \text{Ending Inventory} - \text{Beginning Inventory}$$

Q: Black & Decker made sales of $100,000 subject to product warranties. If 3% of sales are estimated to require replacement, what is the warranty expense for the year?

$$100,000 \times 0.03 = 3,000$$

Question 1

Which of the following best describes a current liability?

Accepted Answer

A debt payable in cash within one year or the operating cycle, whichever is longer.

Question 2

Amazon.com, Inc. had accounts payable of $$78,664 million at December 31, 2022. If its cost of goods sold for the year was 233$$,307 million and average accounts payable was $79,132 million, what is the accounts payable turnover ratio?

Accepted Answer

9.23

Question 3

Which formula is used to calculate Days Payable Outstanding (DPO)?

Accepted Answer

$$\frac{365}{	ext{Accounts Payable Turnover Ratio}}$$

Question 4

Fowler Inc. reports Cost of Goods Sold of $$130,000 and accounts payable of 60$$,000 on January 1, 2021 and $40,000 on December 31, 2021. What is the Days Payable Outstanding (DPO) for Fowler Inc. during 2021?

Accepted Answer

140.4 days

Question 5

A company purchases inventory for $8,000 on January 1, 2024, using a short-term note payable with 10% interest due in one year. What is the journal entry for the purchase?

Accepted Answer

Debit Inventory $$8,000; Credit Note Payable, Short-Term 8$$,000

Question 6

Bell Corporation purchases inventory on February 1, 2020 for $80,000 in exchange for a short-term note payable, due in one year, with interest at 8%. On December 31, 2020, what is the amount of accrued interest payable?

Accepted Answer

$$80,000 	imes 8\% 	imes \frac{11}{12} = 5,867$$

Question 7

Which of the following is NOT a current liability?

Accepted Answer

Bonds payable

Question 8

S&C Roofing had sales on account of $30,200 subject to state sales tax of 7%. What is the correct journal entry to record this sales transaction?

Accepted Answer

Debit Accounts Receivable $$32,314; Credit Sales Revenue 30$$,200; Credit Sales Tax Payable $2,114

Question 9

Which of the following is a correct formula for calculating purchases from suppliers?

Accepted Answer

$$	ext{Cost of Goods Sold} + 	ext{Ending Inventory} - 	ext{Beginning Inventory}$$

Question 10

Which of the following is true regarding accrued liabilities?

Accepted Answer

They are recognized as expenses are incurred and matched against revenues earned in the same period.

Question 11

Black & Decker made sales of $100,000 subject to product warranties. If 3% of sales are estimated to require replacement, what is the warranty expense for the year?

Accepted Answer

$$100,000 	imes 0.03 = 3,000$$

Question 12

Ridge Corporation sells appliances with a 3-year warranty. In 2020, Ridgepointe made sales of $$300,000 subject to warranties estimated at 4% of sales. Payments for defects that year totaled 8$$,000. What is the entry to accrue warranty expense?

Accepted Answer

Debit Warranty Expense $$12,000; Credit Accrued Warranties Payable 12$$,000

Question 13

Which of the following is the correct treatment for a contingent liability under U.S. GAAP if the loss is probable and can be reasonably estimated?

Accepted Answer

Accrue the liability and disclose it in the financial statements.

Question 14

GK, Inc. has three litigation claims: one probable and estimable at $$75,000, one probable but not estimable at 50$$,000, and one reasonably possible and estimable at $8,000. What amount should be accrued as a contingent liability?

Accepted Answer

$75,000

Question 15

Which of the following is NOT a benefit of deploying robotic process automation (RPA) in the accounts payable process?

Accepted Answer

RPA increases errors in invoice entry.

Question 16

Which of the following is a suitable candidate for RPA in accounting?

Accepted Answer

A process that is rule-based, repetitive, and processes high volumes of structured data.

Question 17

Which of the following is the correct formula for calculating accounts payable turnover?

Accepted Answer

$$\frac{	ext{Cost of Goods Sold}}{	ext{Average Accounts Payable}}$$

Question 18

Which of the following is true about the current portion of long-term debt?

Accepted Answer

It is reclassified as a current liability at year-end for the amount due within the next year.

Question 19

From the following list, which items would be included in the calculation of total current liabilities? (Select the best answer)

Accepted Answer

Sales tax payable, accrued warranties payable, current portion of long-term debt, accounts payable, interest payable, unearned revenue, accrued liabilities payable

Current and Contingent Liabilities: Financial Accounting Study Notes

Study Guide - Practice Questions

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