Question 1

Which of the following is NOT considered a current liability?

Accepted Answer

Bonds payable due in 5 years

Question 2

A company issues a $100,000, 5-year bond with a coupon rate of 6% when the market rate is 7%. At what price will the bond be issued?

Accepted Answer

At a discount, below $100,000

Question 3

Which of the following best describes a financial liability?

Accepted Answer

A present obligation to transfer cash or another financial asset due to a past transaction

Question 4

A company borrows $$120,000 at 4% interest, to be repaid in equal monthly instalments of 2$$,210 over 5 years. What is the interest expense for the second month if the principal balance after the first payment is $118,190?

Accepted Answer

$394

Question 5

Which of the following is a mandatory payroll deduction in Canada?

Accepted Answer

Canada Pension Plan (CPP)

Question 6

A company receives a property tax bill for $6,000 in March, covering the calendar year. How should the company record the expense for January and February?

Accepted Answer

Record $$1,000 as property tax expense and 1$$,000 as property tax payable

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

Accepted Answer

$19,043

Question 9

Which formula correctly calculates the Debt to Total Assets ratio?

Accepted Answer

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

Question 10

A company has net income of $$300,000, interest expense of 50$$,000, and income tax expense of $30,000. What is the Times Interest Earned ratio?

Accepted Answer

$$\frac{300,000 + 50,000 + 30,000}{50,000} = 7.6$$

Question 11

Which of the following is TRUE regarding the amortization of a bond discount?

Accepted Answer

The carrying amount of the bond increases over time until maturity

Question 12

A company issues $500,000 of 8% bonds when the market rate is 6%. Which of the following statements is correct?

Accepted Answer

The bonds will be issued at a premium

Question 13

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

Accepted Answer

Issuing debt dilutes ownership of current shareholders

Question 14

A company has total liabilities of $$4,049 million and total assets of 7$$,934 million. What is the debt to total assets ratio?

Accepted Answer

$$\frac{4,049}{7,934} = 0.51 or 51$$%

Question 15

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

Accepted Answer

They are normally listed in order of their due dates

Question 16

A company issues a $1,000,000, 5-year, 5% bond at 98.1417. What is the cash received from the bond issue?

Accepted Answer

$981,417

Question 17

Which of the following is a characteristic of a provision?

Accepted Answer

It is recorded when the outflow of resources is probable and can be estimated

Question 18

A company has a bank loan with monthly instalment payments. Which portion of the loan should be classified as a current liability?

Accepted Answer

The portion due within the next year

Question 19

Which of the following best describes the calculation of the issue price of a bond?

Accepted Answer

Present value of the face value plus present value of all future interest payments, discounted at the market rate

Question 20

A company has gross payroll of $$100,000. CPP deductions are 4$$,737, EI deductions are $$1,420, and income tax deductions are 12$$,200. What is the net pay to employees?

Accepted Answer

$$100,000 - (4,737 + 1,420 + 12,200) = 81$$,643

Chapter 10: Reporting and Analyzing Liabilities – Study Notes

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