ACC 304 Week 9 Quiz – Strayer NEW
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Week 9 Quiz 5: Chapter 13,
Quiz 6: Chapter 14
CURRENT LIABILITIES AND CONTINGENCIES
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
1. A zero-interest-bearing
note payable that is issued at a discount will not result in any interest
expense being recognized.
2. Dividends
in arrears on cumulative preferred stock should be recorded as a current
liability.
3. Magazine
subscriptions and airline ticket sales both result in unearned revenues.
4. Discount
on Notes Payable is a contra account to Notes Payable on the balance sheet.
5. All
long-term debt maturing within the next year must be classified as a current
liability on the balance sheet.
6. A
short-term obligation can be excluded from current liabilities if the company
intends to refinance it on a long-term basis.
7. Many
companies do not segregate the sales tax collected and the amount of the sale
at the time of the sale.
8. A
company must accrue a liability for sick pay that accumulates but does not
vest.
9. Companies
report the amount of social security taxes withheld from employees as well as
the companies’ matching portion as current liabilities until they are remitted.
10. Accumulated
rights exist when an employer has an obligation to make payment to an employee
even after terminating his employment.
11. Companies
should recognize the expense and related liability for compensated absences in
the year earned by employees.
12. Companies
should accrue an estimated loss from a loss contingency if information
available prior to the issuance of financial statements indicates that it is
probable that a liability has been incurred.
13. A
company discloses gain contingencies in the notes only when a high probability
exists for realizing them.
14. The
expected profit from a sales type warranty that covers several years should all
be recognized in the period the warranty is sold.
15. The
fair value of an asset retirement obligation is recorded as both an increase to
the related asset and a liability.
16. The
cause for litigation must have occurred on or before the date of the financial
statements to report a liability in the financial statements.
17. Under
the expense warranty approach, companies charge warranty costs only to the
period in which they comply with the warranty.
18. Prepaid
insurance should be included in the numerator when computing the acid-test
(quick) ratio.
19. Paying a current liability with cash will
always reduce the current ratio.
20. Current
liabilities are usually recorded and reported in financial statements at their
full maturity value.
True False Answers—Conceptual
MULTIPLE CHOICE—Conceptual
21. Liabilities are
a. any accounts having credit balances after
closing entries are made.
b. deferred credits that are recognized and
measured in conformity with generally accepted accounting principles.
c. obligations to transfer ownership shares to
other entities in the future.
d. obligations
arising from past transactions and payable in assets or services in the future.
22. Which of the following is a current liability?
a. A long-term debt maturing currently, which is
to be paid with cash in a sinking fund
b. A long-term debt maturing currently, which is
to be retired with proceeds from a new debt issue
c. A long-term debt maturing currently, which is
to be converted into common stock
d. None of these
23. Which of the following is true about accounts payable?
1. Accounts payable should not be
reported at their present value.
2. When accounts payable are
recorded at the net amount, a Purchase Discounts account will be used.
3. When accounts payable are
recorded at the gross amount, a Purchase Discounts Lost account will be used.
a. 1
b. 2
c. 3
d. Both 2 and 3 are true.
24. Among the short-term obligations of Lance Company as of December
31, the balance sheet date, are notes payable totaling $250,000 with the
Madison National Bank. These are 90-day
notes, renewable for another 90-day period.
These notes should be classified on the balance sheet of Lance Company
as
a. current liabilities.
b. deferred charges.
c. long-term liabilities.
d. intermediate debt.
25. Which of the following is not
true about the discount on short-term notes payable?
a. The Discount on Notes Payable account has a
debit balance.
b. The Discount on Notes Payable account should
be reported as an asset on the balance sheet.
c. When there is a discount on a note payable,
the effective interest rate is higher than the stated discount rate.
d. All of these are true.
26. Which of the following may be a current liability?
a. Withheld Income Taxes
b. Deposits Received from Customers
c. Deferred Revenue
d. All of these
27. Which of the following items is a current liability?
a. Bonds (for which there is an
adequate sinking fund properly classified as a long-term investment) due in
three months.
b. Bonds due in three years.
c. Bonds (for which there is an
adequate appropriation of retained earnings) due in eleven months.
d. Bonds to be refunded when due
in eight months, there being no doubt about the marketability of the refunding
issue.
28. Which of the following should not be included in the current liabilities section of the balance
sheet?
a. Trade notes payable
b. Short-term zero-interest-bearing notes
payable
c. The discount on short-term notes payable
d. All of these are included
29. Which of the following is a current liability?
a. Preferred dividends in arrears
b. A dividend payable in the form of additional
shares of stock
c. A cash dividend payable to preferred
stockholders
d. All of these
30. Stock dividends distributable should be classified on the
a. income statement as an expense.
b. balance sheet as an asset.
c. balance sheet as a liability.
d. balance sheet as an item of stockholders'
equity.
31. Of the following items, the only one which should not be
classified as a current liability is
a. current maturities of long-term debt.
b. sales taxes payable.
c. short-term obligations expected to be
refinanced.
d. unearned revenues.
32. An account which would be classified as a current liability is
a. dividends payable in the company's stock.
b. accounts payable—debit balances.
c. losses expected to be incurred within the
next twelve months in excess of the company's insurance coverage.
d. none of these.
33. Which of the following is a characteristic of a current
liability but not a long-term liability?
a. Unavoidable obligation.
b. Present obligation that entails settlement by
probable future transfer or use of cash, goods, or services.
c. Liquidation is reasonably expected to require
use of existing resources classified as current assets or create other current
liabilities.
d. Transaction or other event creating the
liability has already occurred.
34. Which of the following is not considered a part of the
definition of a liability?
a. Unavoidable obligation.
b. Transaction or other event creating the
liability has already occurred.
c. Present obligation that entails settlement by
probable future transfer or use of cash, goods, or services.
d. Liquidation is reasonably expected to require
use of existing resources classified as current assets or create other current
liabilities.
35. Why is the liability section of the balance sheet of primary importance
to bankers?
a. To evaluate the entity's credit quality.
b. To assist in understanding the entity's
liquidity.
c. To better understand sources of repayment.
d. To evaluate operating efficiency.
36. What is the relationship between current liabilities and a
company's operating cycle?
a. Liquidation of current liabilities is
reasonably expected within the company's operating cycle (or one year if less).
b. Current liabilities are the result of
operating transactions.
c. Current liabilities can't exceed the amount
incurred in one operating cycle.
d. There is no relationship between the two.
37. What is the relationship between present value and the concept
of a liability?
a. Present values are used to measure certain
liabilities.
b. Present values are not used to measure
liabilities.
c. Present values are used to measure all
liabilities.
d. Present values are only used to measure
long-term liabilities.
38. What is a discount as it relates to zero-interest-bearing notes
payable?
a. The discount represents the lender's costs to
underwrite the note.
b. The discount represents the credit quality of
the borrower.
c. The discount represents the cost of
borrowing.
d. The discount represents the allowance for
uncollectible amounts.
39. Where is debt callable by the creditor reported on the debtor's
financial statements?
a. Long-term liability.
b. Current liability if the creditor intends to
call the debt within the year, otherwise a long-term liability.
c. Current liability if it is probable that creditor
will call the debt within the year, otherwise a long-term liability.
d. Current liability.
40. Which of the following is not a condition necessary to exclude a
short-term obligation from current liabilities?
a. Intend to refinance the obligation on a
long-term basis.
b. Obligation must be due with one year.
c. Demonstrate the ability to complete the
refinancing.
d. Subsequently refinance the obligation on a
long-term basis.
41. Which of the following does not demonstrate evidence regarding
the ability to consummate a refinancing of short-term debt?
a. Management indicated that they are going to
refinance the obligation.
b. Actually refinance the obligation.
c. Have capacity under existing financing
agreements that can be used to refinance the obligation.
d. Enter into a financing agreement that clearly
permits the entity to refinance the obligation.
42. A company has not declared a dividend on its cumulative
preferred stock for the past three years. What is the required accounting
treatment or disclosure in this situation?
a. Record a liability for cumulative amount of
preferred stock dividends not declared.
b. Disclose the amount of the dividends in
arrears.
c. Record a liability for the current year's
dividends only.
d. No disclosure or recognition is required.
43. Which of the following situations may give rise to unearned
revenue?
a. Providing trade credit to customers.
b. Selling inventory.
c. Selling magazine subscriptions.
d. Providing manufacturer warranties.
44. Which of the following statements is correct?
a. A company may exclude a short-term obligation
from current liabilities if the firm intends to refinance the obligation on a
long-term basis.
b. A company may exclude a short-term obligation
from current liabilities if the firm can demonstrate an ability to consummate a
refinancing.
c. A company may exclude a short-term obligation
from current liabilities if it is paid off after the balance sheet date and
subsequently replaced by long-term debt before the balance sheet is issued.
d. None of these.
45. The ability to consummate the refinancing
of a short-term obligation may be demon- strated by
a. actually refinancing the obligation by
issuing a long-term obligation after the date of the balance sheet but before
it is issued.
b. entering into a financing agreement that
permits the enterprise to refinance the debt on a long-term basis.
c. actually refinancing the obligation by
issuing equity securities after the date of the balance sheet but before it is
issued.
d. all of these.
46. Which of the following statements is false?
a. A company may exclude a
short-term obligation from current liabilities if the firm intends to refinance
the obligation on a long-term basis and demonstrates an ability to complete the
refinancing.
b. Cash dividends should be
recorded as a liability when they are declared by the board of directors.
c. Under the cash basis method, warranty costs are charged to expense as
they are paid.
d. FICA taxes withheld from
employees' payroll checks should never be recorded as a liability since the
employer will eventually remit the amounts withheld to the appropriate taxing
authority.
47. Which of the following is not
a correct statement about sales taxes?
a. Sales taxes are an expense of
the seller.
b. Many companies record sales
taxes in the sales account.
c. If sales taxes are included in
the sales account, the first step to find the amount of sales taxes is to
divide sales by 1 plus the sales tax rate.
d. All of these are true.
S48. If
a short-term obligation is excluded from current liabilities because of
refinancing, the footnote to the financial statements describing this event
should include all of the following information except
a. a general description of the financing
arrangement.
b. the terms of the new obligation incurred or
to be incurred.
c. the terms of any equity security issued or to
be issued.
d. the number of financing institutions that
refused to refinance the debt, if any.
S49. In
accounting for compensated absences, the difference between vested rights and
accumulated rights is
a. vested rights are normally for a longer
period of employment than are accumulated rights.
b. vested rights are not contingent upon an
employee's future service.
c. vested rights are a legal and binding obligation
on the company, whereas accumulated rights expire at the end of the accounting
period in which they arose.
d. vested rights carry a stipulated dollar
amount that is owed to the employee; accumulated rights do not represent
monetary compensation.
P50. An
employee's net (or take-home) pay is determined by gross earnings minus amounts
for income tax withholdings and the employee's
a. portion of FICA taxes and unemployment taxes.
b. and employer's portion of FICA taxes, and
unemployment taxes.
c. portion of FICA taxes, unemployment taxes,
and any voluntary deductions.
d. portion of FICA taxes and any voluntary
deductions.
51. Which of these is not
included in an employer's payroll tax expense?
a. F.I.C.A. (social security) taxes
b. Federal unemployment taxes
c. State unemployment taxes
d. Federal income taxes
52. Which of the following is a condition for accruing a liability
for the cost of compensation for future absences?
a. The obligation relates to the rights that
vest or accumulate.
b. Payment of the compensation is probable.
c. The obligation is attributable to employee
services already performed.
d. All of these are conditions for the accrual.
53. A liability for compensated absences such as vacations, for
which it is expected that employees will be paid, should
a. be accrued during the period when the
compensated time is expected to be used by employees.
b. be accrued during the period following
vesting.
c. be accrued during the period when earned.
d. not be accrued unless a written contractual
obligation exists.
54. The amount of the liability for compensated absences should be
based on
1. the current rates of pay in
effect when employees earn the right to compensated absences.
2. the future rates of pay
expected to be paid when employees use compensated time.
3. the present value of the amount
expected to be paid in future periods.
a. 1.
b. 2.
c. 3.
d. Either 1 or 2 is acceptable.
55. What are compensated absences?
a. Unpaid time off.
b. A form of healthcare.
c. Payroll deductions.
d. Paid time off.
56. Which gives rise to the requirement to accrue a liability for
the cost of compensated absences?
a. Payment is probable.
b. Employee rights vest or accumulate.
c. Amount can be reasonably estimated.
d. All of the above.
57. Under what conditions is an employer required to accrue a
liability for sick pay?
a. Sick pay benefits can be reasonably
estimated.
b. Sick pay benefits vest.
c. Sick pay benefits equal 100% of the pay.
d. Sick pay benefits accumulate.
58. Which of the following taxes does not represent a common payroll
deduction?
a. Federal income taxes.
b. FICA taxes.
c. State unemployment taxes.
d. State income taxes.
59. What is a contingency?
a. An existing situation where certainty exists
as to a gain or loss that will be resolved when one or more future events occur
or fail to occur.
b. An existing situation where uncertainty
exists as to possible loss that will be resolved when one or more future events
occur.
c. An existing situation where uncertainty exists
as to possible gain or loss that will not be resolved in the foreseeable
future.
d. An existing situation where uncertainty
exists as to possible gain or loss that will be resolved when one or more
future events occur or fail to occur.
60. When is a contingent liability recorded?
a. When the amount can be reasonably estimated.
b. When the future events are probable to occur
and the amount can be reasonably estimated.
c. When the future events are probable to occur.
d. When the future events will possibly occur
and the amount can be reasonably estimated.
61. Which of the following is an example of a contingent liability?
a. Obligations related to product warranties.
b. Possible receipt from a litigation
settlement.
c. Pending court case with a probable favorable
outcome.
d. Tax loss carryforwards.
62. Which of the following terms is associated with recording a
contingent liability?
a. Possible.
b. Likely.
c. Remote.
d. Probable.
63. Which of the following is the proper way to report a gain contingency?
a. As an accrued amount.
b. As deferred revenue.
c. As an account receivable with additional
disclosure explaining the nature of the contingency.
d. As a disclosure only.
64. Which of the following contingencies need not be disclosed in the financial statements or the notes thereto?
a. Probable losses not reasonably estimable
b. Environmental liabilities that cannot be
reasonably estimated
c. Guarantees of indebtedness of others
d. All of these must be disclosed.
65. Which of the following sets of conditions would give rise to the
accrual of a contingency under current generally accepted accounting
principles?
a. Amount of loss is reasonably estimable and
event occurs infrequently.
b. Amount of loss is reasonably estimable and
occurrence of event is probable.
c. Event is unusual in nature and occurrence of
event is probable.
d. Event is unusual in nature and event occurs
infrequently.
66. Jeff Beck is a farmer who owns land which borders on the
right-of-way of the Northern Railroad. On August 10, 2012, due to the admitted
negligence of the Railroad, hay on the farm was set on fire and burned. Beck
had had a dispute with the Railroad for several years concerning the ownership
of a small parcel of land. The representative of the Railroad has offered to
assign any rights which the Railroad may have in the land to Beck in exchange
for a release of his right to reimbursement for the loss he has sustained from
the fire. Beck appears inclined to accept the Railroad's offer. The Railroad's
2012 financial statements should include the following related to the incident:
a. recognition of a loss and creation of a
liability for the value of the land.
b. recognition of a loss only.
c. creation of a liability only.
d. disclosure in note form only.
67. A contingency can be accrued when
a. it is certain that funds are available to
settle the disputed amount.
b. an asset may have been impaired.
c. the amount of the loss can be reasonably
estimated and it is probable that an asset has been impaired or a liability
incurred.
d. it is probable that an asset has been
impaired or a liability incurred even though the amount of the loss cannot be
reasonably estimated.
68. A contingent liability
a. definitely exists as a liability but its
amount and due date are indeterminable.
b. is accrued even though not reasonably
estimated.
c. is not disclosed in the financial statements.
d. is the result of a loss contingency.
69. To record an asset retirement obligation (ARO), the cost
associated with the ARO is
a. expensed.
b. included in the carrying amount of the
related long-lived asset.
c. included in a separate account.
d. none of these.
70. A company is legally obligated for the costs associated with the
retirement of a long-lived asset
a. only when it hires another party to perform
the retirement activities.
b. only if it performs the activities with its
own workforce and equipment.
c. whether it hires another party to perform the
retirement activities or performs the activities itself.
d. when it is probable the asset will be
retired.
71. Assume
that a manufacturing corporation has (1) good quality control, (2) a one-year
operating cycle, (3) a relatively stable pattern of annual sales, and (4) a
continuing policy of guaranteeing new products against defects for three years
that has resulted in material but rather stable warranty repair and replacement
costs. Any liability for the warranty
a. should be reported as long-term.
b. should be reported as current.
c. should be reported as part current and part
long-term.
d. need not be disclosed.
72. Ortiz Corporation, a manufacturer of household paints, is
preparing annual financial statements at December 31, 2012. Because of a
recently proven health hazard in one of its paints, the government has clearly
indicated its intention of having Ortiz recall all cans of this paint sold in
the last six months. The management of Ortiz estimates that this recall would
cost $800,000. What accounting recognition, if any, should be accorded this
situation?
a. No recognition
b. Note disclosure only
c. Operating expense of $800,000 and liability
of $800,000
d. Appropriation of retained earnings of
$800,000
73. Information available prior
to the issuance of the financial statements indicates that it is probable that,
at the date of the financial statements, a liability has been incurred for
obligations related to product warranties. The amount of the loss involved can
be reasonably estimated. Based on the
above facts, an estimated loss contingency should be
a. accrued.
b. disclosed but not accrued.
c. neither
accrued nor disclosed.
d. classified as an appropriation of retained
earnings.
P74. Espinosa
Co. has a loss contingency to accrue. The loss amount can only be reasonably
estimated within a range of outcomes. No single amount within the range is a
better estimate than any other amount. The amount of loss accrual should be
a. zero.
b. the minimum of the range.
c. the mean of the range.
d. the maximum of the range.
S75. Dean
Company becomes aware of a lawsuit after the date of the financial statements,
but before they are issued. A loss and related liability should be reported in
the financial statements if the amount can be reasonably estimated, an
unfavorable outcome is highly probable, and
a. the Dean Company admits guilt.
b. the court will decide the case within one
year.
c. the damages appear to be material.
d. the cause for action occurred during the
accounting period covered by the financial statements.
S76. Use
of the accrual method in accounting for product warranty costs
a. is required for federal income tax purposes.
b. is frequently justified on the basis of
expediency when warranty costs are immaterial.
c. finds the expense account being charged when
the seller performs in compliance with the warranty.
d. represents accepted practice and should be
used whenever the warranty is an integral and inseparable part of the sale.
77. Which of the following best describes the accrual method of
accounting for warranty costs?
a. Expensed when paid.
b. Expensed when warranty claims are certain.
c. Expensed based on estimate in year of sale.
d. Expensed when incurred.
78. Which of the following best describes the cash-basis method of
accounting for warranty costs?
a. Expensed based on estimate in year of sale.
b. Expensed when liability is accrued.
c. Expensed when warranty claims are certain.
d. Expensed when incurred.
79. Which of the following is a characteristic of the expense
warranty approach, but not the sales warranty approach?
a. Estimated liability under warranties.
b. Warranty expense.
c. Unearned warranty revenue.
d. Warranty revenue.
80. An electronics store is running a promotion where for every
video game purchased, the customer receives a coupon upon checkout to purchase
a second game at a 50% discount. The coupons expire in one year. The store
normally recognized a gross profit margin of 40% of the selling price on video
games. How would the store account for a purchase using the discount coupon?
a. The reduction in sales price attributed to
the coupon is recognized as premium expense.
b. The difference between the cost of the video
game and the cash received is recognized as premium expense.
c. Premium expense is not recognized.
d. The difference between the cost of the video
game and the selling price prior to the coupon is recognized as premium
expense.
81. What condition is necessary to recognize an asset retirement
obligation?
a. Company has an existing legal obligation and
can reasonably estimate the amount of the liability.
b. Company can reasonably estimate the amount of
the liability.
c. Company has an existing legal obligation.
d. Obligation event has occurred.
82. Which of the following are not factors that are considered when
evaluating whether or not to record a liability for pending litigation?
a. Time period in which the underlying cause of
action occurred.
b. The type of litigation involved.
c. The probability of an unfavorable outcome.
d. The ability to make a reasonable estimate of
the amount of the loss.
83. How do you determine the acid-test ratio?
a. The sum of cash and short-term investments
divided by short-term debt.
b. Current assets divided by current
liabilities.
c. Current assets divided by short-term debt.
d. The sum of cash, short-term investments and
net receivables divided by current liabilities.
84. What does the current ratio inform you about a company?
a. The extent of slow-moving inventories.
b. The efficient use of assets.
c. The company's liquidity.
d. The company's profitability.
S85. Which
of the following is not acceptable treatment for the presentation of current
liabilities?
a. Listing current liabilities in order of
maturity
b. Listing current liabilities according to
amount
c. Offsetting current liabilities against assets
that are to be applied to their liquidation
d. Showing current liabilities immediately below
current assets to obtain a presentation of working capital
P86. The
ratio of current assets to current liabilities is called the
a. current ratio.
b. acid-test ratio.
c. current asset turnover ratio.
d. current liability turnover ratio.
87. Accrued liabilities are disclosed in financial statements by
a. a footnote to the statements.
b. showing the amount among the liabilities but
not extending it to the liability total.
c. an appropriation of retained earnings.
d. appropriately classifying them as regular
liabilities in the balance sheet.
88. The numerator of the acid-test ratio consists of
a. total current assets.
b. cash and marketable securities.
c. cash and net receivables.
d. cash, marketable securities, and net
receivables.
89. Each of the following are included in both the current
ratio and the acid-test ratio except
a. cash.
b. short-term investments.
c. net receivables.
d. inventory.
Multiple Choice
Answers—Conceptual
Multiple Choice—Computational
90. Glaus Corp. signed a three-month, zero-interest-bearing note on
November 1, 2012 for the purchase of $250,000 of inventory. The face value of
the note was $253,675. Assuming Glaus used a “Discount on Note Payable” account
to initially record the note and that the discount will be amortized equally
over the 3-month period, the adjusting entry made at December 31, 2012 will
include a
a. debit to Discount on Note Payable for $1,225.
b. debit to Interest Expense for $2,450.
c. credit to Discount on Note Payable for
$1,255.
d. credit to Interest Expense for $2,450.
91. The effective interest on a 12-month, zero-interest-bearing note
payable of $300,000, discounted at the bank at 8% is
a. 8.51%.
b. 8%.
c. 11.49%.
d. 8.70%.
92. On September 1, Hydra purchased $13,300 of inventory items on
credit with the terms 1/15, net 30, FOB destination. Freight charges were $280.
Payment for the purchase was made on September 18. Assuming Hydra uses the
perpetual inventory system and the net method of accounting for purchase
discounts, what amount is recorded as inventory from this purchase?
a. $13,167.
b. $13,447.
c. $13,580.
d. $13,300.
93. Sodium Inc. borrowed $280,000 on April 1. The note requires
interest at 12% and principal to be paid in one year. How much interest is
recognized for the period from April 1 to December 31?
a. $0.
b. $33,600.
c. $8,400.
d. $25,200.
94. Collier borrowed $350,000 on October 1 and is required to pay
$360,000 on March 1. What amount is the note payable recorded at on October 1
and how much interest is recognized from October 1 to December 31?
a. $350,000 and $0.
b. $350,000 and $6,000.
c. $360,000 and $0.
d. $350,000 and $10,000.
95. Purest owes $2 million that is due on February 28. The company
borrows $1,600,000 on February 25 (5-year note) and uses the proceeds to pay
down the $2 million note and uses other cash to pay the balance. How much of
the $2 million note is classified as long-term in the December 31 financial
statements.
a. $2,000,000.
b. $0.
c. $1,600,000.
d. $400,000.
96. Vista newspapers sold 6,000 of annual subscriptions at $125 each
on September 1. How much unearned revenue will exist as of December 31?
a. $0.
b. $500,000.
c. $250,000.
d. $750,000.
97. Purchase Retailer made cash sales during the month of October of
$221,000. The sales are subject to a 6% sales tax that was also collected.
Which of the following would be included in the summary journal entry to
reflect the sale transactions?
a. Debit Cash for $221,000.
b. Credit Sales Taxes Payable for $12,510.
c. Credit Sales Revenue for $208,490.
d. Credit Sales Taxes Payable for $13,260.
98. On
February 10, 2012, after issuance of its financial statements for 2011, House
Company entered into a financing agreement with Lebo Bank, allowing House
Company to borrow up to $6,000,000 at any time through 2014. Amounts borrowed
under the agreement bear interest at 2% above the bank's prime interest rate
and mature two years from the date of loan. House Company presently has $2,250,000
of notes payable with First National Bank maturing March 15, 2012. The company
intends to borrow $3,750,000 under the agreement with Lebo and liquidate the
notes payable to First National. The agreement with Lebo also requires House to
maintain a working capital level of $9,000,000 and prohibits the payment of
dividends on common stock without prior approval by Lebo Bank. From the above information only, the total
short-term debt of House Company as of the December 31, 2012 balance sheet date
is
a. $0.
b. $2,250,000.
c. $3,000,000.
d. $6,000,000.
99. On December 31, 2012, Irey Co. has $4,000,000 of short-term
notes payable due on February 14, 2013. On January 10, 2013, Irey arranged a
line of credit with County Bank which allows Irey to borrow up to $3,000,000 at
one percent above the prime rate for three years. On February 2, 2013, Irey
borrowed $2,400,000 from County Bank and used $1,000,000 additional cash to
liquidate $3,400,000 of the short-term notes payable. The amount of the
short-term notes payable that should be reported as current liabilities on the
December 31, 2012 balance sheet which is issued on March 5, 2013 is
a.
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