Current Liabilities Paper 1

1

In accordance with accounting for transfers and servicing, all of the following would be disclosed except






2

Lyle, Inc. is preparing its financial statements for the year ended December 31, year 2. Accounts payable amounted to $360,000 before any necessary year-end adjustment related to the following:
• At December 31, year 2, Lyle has a $50,000 debit balance in its accounts payable to Ross, a supplier, resulting from a $50,000 advance payment for goods to be manufactured to Lyle’s specifications.
• Checks in the amount of $100,000 were written to vendors and recorded on December 29, year 2. The checks were mailed on January 5, year 3.
What amount should Lyle report as accounts payable in its December 31, year 2 balance sheet?






3

Rabb Co. records its purchases at gross amounts but wishes to change to recording purchases net of purchase discounts. Discounts available on purchases recorded from October 1, year 1, to September 30, year 2, totaled $2,000. Of this amount, $200 is still available in the accounts payable balance. The balances in Rabb’s accounts as of and for the year ended September 30, year 2, before conversion are
Purchases $100,000
Purchase discounts taken 800
Accounts payable 30,000
What is Rabb’s accounts payable balance as of September 30, year 2, after the conversion?






4

On March 1, year 1, Fine Co. borrowed $10,000 and signed a two-year note bearing interest at 12% per annum compounded annually. Interest is payable in full at maturity on February 28, year 3. What amount should Fine report as a liability for accrued interest at December 31, year 2?






5

On September 1, year 1, Brak Co. borrowed on a $1,350,000 note payable from Federal Bank. The note bears interest at 12% and is payable in three equal annual principal payments of $450,000. On this date, the bank’s prime rate was 11%. The first annual payment for interest and principal was made on September 1, year 2. At December 31, year 2, what amount should Brak report as accrued interest payable?






6

Ames, Inc. has $500,000 of notes payable due June 15, year 3. Ames signed an agreement on December 1, year 2, to borrow up to $500,000 to refinance the notes payable on a long-term basis with no payments due until year 4. The financing agreement stipulated that borrowings may not exceed 80% of the value of the collateral Ames was providing. At the date of issuance of the December 31, year 2 financial statements, the value of the collateral was $600,000 and is not expected to fall below this amount during year 3. In Ames’ December 31, year 2 balance sheet, the obligation for these notes payable should be classified as
Short-term
Long-term






7

Cali, Inc. had a $4,000,000 note payable due on March 15, year 3. On January 28, year 3, before the issuance of its year 2 financial statements, Cali issued long-term bonds in the amount of $4,500,000. Proceeds from the bonds were used to repay the note when it came due. How should Cali classify the note in its December 31, year 2 financial statements?






8

On December 31, year 2, Largo, Inc. had a $750,000 note payable outstanding, due July 31, year 3. Largo borrowed the money to finance construction of a new plant. Largo planned to refinance the note by issuing long-term bonds. Because Largo temporarily had excess cash, it prepaid $250,000 of the note on January 12, year 3. In February year 3, Largo completed a $1,500,000 bond offering. Largo will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during year 3. On March 3, year 3, Largo issued its year 2 financial statements. What amount of the note payable should Largo include in the current liabilities section of its December 31, year 2 balance sheet?






9

Lime Co.’s payroll for the month ended January 31, year 2, is summarized as follows: Total wages $10,000 Federal income tax withheld 1,200 All wages paid were subject to FICA. FICA tax rates were 7% each for employee and employer. Lime remits payroll taxes on the 15th of the following month. In its financial statements for the month ended January 31, year 2, what amounts should Lime report as total payroll tax liability and as payroll tax expense?
Liability
Expense






10

Under state law, Acme may pay 3% of eligible gross wages or it may reimburse the state directly for actual unemployment claims. Acme believes that actual unemployment claims will be 2% of eligible gross wages and has chosen to reimburse the state. Eligible gross wages are defined as the first $10,000 of gross wages paid to each employee. Acme had five employees, each of whom earned $20,000 during year 2. In its December 31, year 2 balance sheet, what amount should Acme report as accrued liability for unemployment claims?






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