QUIZ 2 ACCT 302.docx - QUIZ#2 CONNECT ACCT 302 86.68/100 1...

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QUIZ #2 CONNECT ACCT 302 86.68/100 1. Jane's Donut Co. borrowed $207,000 on January 1, 2018, and signed a two-year note bearing interest at 11%. Interest is payable in full at maturity on January 1, 2020. In connection with this note, Jane's should report interest expense at December 31, 2018, in the amount of: $22,770 Explanation $207,000 × 11% × 12/12 = $22,770 2. Lake Co. receives nonrefundable advance payments with special orders for containers constructed to customer specifications. Related information for 2018 is as follows ($ in millions): Customer advances balance, Dec. 31, 2017 $ 100 Advances received with 2018 orders 205 Advances applicable to orders shipped in 2018 174 Advances from orders canceled in 2018 46 $85 million Explanation $100 + 205 – 174 – 46 = $85 million 3. On December 31, 2018, L Inc. had a $2,500,000 note payable outstanding, due July 31, 2019. L borrowed the money to finance construction of a new plant. L planned to refinance the note by issuing long-term bonds. Because L temporarily had excess cash, it prepaid $600,000 of the note on January 23, 2019. In February 2019, L completed a $4,000,000 bond offering. L will use the bond offering proceeds to repay the note payable at its maturity and to pay construction costs during 2019. On March 13, 2019, L issued its 2018 financial statements. What amount of the note payable should L include in the current liabilities section of its December 31, 2018, balance sheet? $600,000 Explanation GAAP states that the amount excluded from current liabilities through refinancing cannot exceed the amount actually refinanced. Therefore, L should consider the $1,900,000 paid by the refinancing to be a long-term liability and the $600,000 a current liability in the December 31, 2018, balance sheet. The refinancing was completed before the issuance of the financial statements and meets both criteria (intent and financial ability) for the classification of the $1,900,000 as a long-term liability. 4. Panther Co. had a quality-assurance warranty liability of $353,000 at the beginning of 2018 and $308,000 at the end of 2018. Warranty expense is based on 2% of sales, which were $48 million for the year. What were the warranty expenditures for 2018? $1,005,000 Explanation Warranty Liability 353,000
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? 960,000 308,000 *($48,000,000 × 2%) $353,000 + $960,000 – $308,000 = $1,005,000 5. Which of the following is the best definition of a current liability?
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  • Fall '18
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