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Which of the following is true regarding purchases made from a seller that offers a discount for early payment?
Under the net method, a company initially records a purchase as if the discount is going to be taken. Recording the purchase includes a credit to accounts payable.
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Glidell Company issues coupons for its products, which are redeemable at grocery stores. Each coupon entities the customer to $.65 off their purchase of Glidell's products. Additionally, Glidell reimburses retailers an additional $.05 per coupon. On July 1 of the current year, Glidell mailed out $1 million coupons to consumers, and expects 300,000 to be redeemed by their expiration date of December 31. Retailers can take up to 90 days to mail their coupons to Glidell. As of December 31, Glidell has made payments of $95,000 to retailers, and has 115,000 coupons waiting to be processed for payment. What amount should Glidell report as outstanding liability for coupons in its December 31 balance sheet?
Glidell must record an expense of $.70 ($.65 savings to customer + $.05 fee to retailers) for each of the 300K coupons it expects to be redeemed. 300K x $.70 = $210K. Glidell then subtracts the $95K it has already paid out.
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The Wyman Company borrowed $250,000 on October 31, Year 1, and signed a two-year note bearing interest of 10% on that date. Interest is compounded annually and is payable in full at the note’s maturity date of March 31, Year 3. What amount of liability for interest should Wyman report at December 31, Year 2?
The liability for interest at the end of Year 2 should include interest expense recorded in Year 1 and in Year 2. In Year 1, Wyman will record $4,167 in interest ($250K x 10% x 2/12 months). In Year 2, this interest will be compounded and added to the principal. Therefore, interest expense in Year 2 will be $25,417 ($245,167 x 10% x 12/12 months). The interest from both years will be added together to get the total liability at the end of Year 2.
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Under which of the following circumstances does substantial doubt exist about an entity's ability to continue as a going concern?
Substantial doubt exists when relevant conditions and events, indicate it is probable that the entity will not be able to meet its obligations as they become due within one year from the financial statement issuance date.
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Which of the following conditions or events would least likely raise substantial doubt about an entity's ability to continue as a going concern?
In this example, the warehouse is insured and likely to be covered by insurance after the flood.
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Of the following liabilities, which would a company include in the current liability section of its balance sheet?
While a mortgage is a long term liability, any portion of it due within one year is considered a current liability. The other options are all long term liabilities.
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