Exam Study Questions
Solutions are at http://ruby.fgcu.edu/courses/jconreco/core1
Chapter 8

Answer the self study Questions on pages 391 - 392 in your textbook. Solutions can be found on page 408.

Short Answer
a. How does a firm classify a liability as a current liability?

b. What is the difference between simple interest and compound interest?

c. Name three liabilities that we would probably accrue at the end of the accounting period?

d. What is “current portion of long term debt”?

e. When should a contingent liability be reported (recorded) on the balance sheet? What two requirements must be met?

f. How do we determine what an amount deposited today will be worth in five years? What things do we need to know to calculate the amount in five years?

g. Is “f” above a present value problem or a future value problem? Is it a single sum or an annuity?

h. When recording a liability it is recorded at the “cash equivalent amount.” Does “cash equivalent amount” include interest?

i. If the future value factor is 1.851, what is the present value factor?

j. If a company bought a piece of machinery with a note payable and will be making annual payments of $5,000 for five years at 10% interest, at what amount should the liability “note payable” be recorded at the time of purchase?

True or False (if false explain why)

1. Current liabilities are short-term and usually will be paid or satisfied within one year or the operating cycle whichever is longer.

2. A current ratio that is high according to an industry average might mean the company may have excessive inventory levels or slow moving inventory items.

3. The “accounts payable” account should generally be used only for trade accounts payable (obligations owed to suppliers in the normal course of business) which relate to the purchase of goods and