Question : 51. Phipps Company borrowed $25,000 cash October 1, 2010, and signed : 1228552

51. Phipps Company borrowed $25,000 cash on October 1, 2010, and signed a six-month, 8% interest-bearing note payable with interest payable at maturity. Assuming that no adjusting entries have been made during the year, the amount of accrued interest payable to be reported on the December 31, 2010 balance sheet is which of the following? 
A. $250
B. $300
C. $500
D. $750

52. Phipps Company borrowed $25,000 cash on October 1, 2010, and signed a six-month, 8% interest-bearing note payable with interest payable at maturity. The amount of interest expense to be reported during 2011 is which of the following? 
A. $1,000
B. $300
C. $500
D. $750

2011 interest expense ($500) = Amount borrowed ($25,000) ? Interest rate (8%) ? Number of months borrowed during 2011 relative to a year (3 ? 12)

53. Failure to make a necessary adjusting entry for accrued interest on a note payable would result in which of the following? 
A. An understatement of both liabilities and stockholders’ equity.
B. Net income to be overstated and assets to be understated.
C. Net income to be understated and liabilities to be understated.
D. An overstatement of net income, an understatement of liabilities, and an overstatement of stockholders’ equity.

54. The adjusting entry to record accrued interest on a note payable would not result in which of the following? 
A. A decrease in net income.
B. A decrease in stockholders’ equity.
C. An increase in liabilities.
D. A decrease in current assets.

55. Which of the following statements is incorrect? 
A. The currently maturing portion of long-term debt must be classified as a current liability.
B. The non-current portion of long-term debt will remain reported as a long-term liability.
C. When a company plans to refinance the currently maturing debt on a long-term basis, it must still report the currently maturing debt as a current liability.
D. The currently maturing portion of long-term debt is a current liability if it is due within the longer of one-year or the operating cycle.

56. Purdum Farms borrowed $10 million by signing a five year note on January 1, 2010 and repayments of the principal are payable annually in $2 million installments. Purdum Farms makes the first payment December 31, 2010 and then prepares its balance sheet. What amount will be reported as current and long-term liabilities respectively in connection with the note at December 31, 2010? 
A. $2 million in current liabilities and $8 million in long-term liabilities.
B. $2 million in current liabilities and $6 million in long-term liabilities.
C. Zero in current liabilities and $8 million in long-term liabilities.
D. Zero in current liabilities and $10 million in long-term liabilities.

57. How should a contingent liability that is “reasonably possible” but “cannot reasonably be estimated” be reported within the financial statements? 
A. It must be recorded and reported as a liability.
B. It does not need to be recorded or reported as a liability.
C. It must only be disclosed as a note to the financial statements.
D. It must be reported as a liability, but not disclosed in a note.

58. Young Company is involved in a lawsuit. When would the lawsuit be recorded as a liability on the balance sheet? 
A. When the loss probability is remote and the amount can be reasonably estimated.
B. When the loss is probable and the amount can be reasonably estimated.
C. When the loss probability is reasonably possible and the amount can be reasonably estimated.
D. When the loss is probable regardless of whether the loss can be reasonably estimated.

59. Houston Company is involved in a lawsuit. In which of the following situations is only footnote disclosure of the contingent liability reported within the financial statements? 
A. When the loss is remote and the amount cannot be reasonably estimated.
B. When the loss is probable and the amount can be reasonably estimated.
C. When the loss is reasonably possible and the amount can be reasonably estimated.
D. When the loss is remote and the amount can be reasonably estimated.

60. Which of the following statements about contingent liabilities is incorrect? 
A. A disclosure note is required when the loss is reasonably possible and the amount cannot be reasonably estimated.
B. A disclosure note is required when the loss is probable and the amount can be reasonably estimated.
C. A disclosure note is required when the loss is reasonably possible and the amount can be reasonably estimated.
D. A disclosure note is required when the loss is remote and the amount can be reasonably estimated.