Question 1

Which of the following is NOT classified as a current liability on the statement of financial position?

Accepted Answer

Notes payable due in 18 months

Question 2

A company borrows $100,000 from a bank under an operating line of credit. The interest rate is variable and collateral is required. How is this liability reported?

Accepted Answer

As a current liability under bank indebtedness

Question 3

Which of the following payroll deductions is mandatory for Canadian employees?

Accepted Answer

Canada Pension Plan (CPP)

Question 4

A company receives a property tax bill in March for the calendar year. How should the expense be recorded for January and February?

Accepted Answer

Record an expense for January and February upon receipt of the bill

Question 5

Which formula correctly calculates the Debt to Total Assets ratio?

Accepted Answer

$$Debt\ to\ Total\ Assets = \frac{Total\ Liabilities}{Total\ Assets}$$

Question 6

A company issues $1,000,000 of 5-year bonds at a coupon rate of 5%. The market rate is 6%. At what price will the bonds be issued?

Accepted Answer

At a discount

Question 7

Which of the following best describes a contingent liability?

Accepted Answer

A possible obligation dependent on a future event

Question 8

A company borrows $$120,000 for five years at 4% interest, with monthly instalment payments of 2$$,210. What is the interest expense for the first month?

Accepted Answer

$$400$$

Question 9

Which journal entry records the payment of net payroll to employees?

Accepted Answer

Debit Salaries Payable, Credit Cash

Question 10

A company issues $1,000,000 of 5-year bonds at a coupon rate of 5% when the market rate is 4%. What is the issue price of the bonds?

Accepted Answer

At a premium

Question 11

Which of the following is NOT a financial liability?

Accepted Answer

Deferred revenue

Question 12

A company has total liabilities of $$4,049 million and total assets of 7$$,934 million. What is its Debt to Total Assets ratio?

Accepted Answer

$$0.36$$

Question 13

Which formula is used to calculate Times Interest Earned?

Accepted Answer

$$Times\ Interest\ Earned = \frac{Net\ Income + Interest\ Expense + Income\ Tax\ Expense}{Interest\ Expense}$$

Question 14

When bonds are issued at a discount, how is the carrying amount of the bond calculated?

Accepted Answer

$$Carrying\ Amount = Face\ Value - Unamortized\ Discount$$

Question 15

A company issues $1,000,000 of bonds at 98.1417. What is the amount of the discount?

Accepted Answer

$$18,583$$

Question 16

Which of the following is a reason why interest expense decreases with each instalment payment on a loan?

Accepted Answer

The principal balance decreases after each payment

Question 17

Which of the following is TRUE regarding the presentation of current liabilities on the statement of financial position?

Accepted Answer

They are normally listed in order in which they are due

Question 18

A company issues $1,000,000 of bonds at a premium. How does the carrying amount of the bond change over time?

Accepted Answer

It decreases as the premium is amortized

Question 19

Which of the following is NOT an advantage of debt financing?

Accepted Answer

Principal and interest must be paid back on certain dates

Question 20

A company issues $1,000,000 of 5-year bonds at 101.9043. What is the amount of the premium?

Accepted Answer

$$19,043$$

Chapter 10: Reporting and Analyzing Liabilities – Study Notes

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