Ch 13 Current liabilities MCQ CPA

Irkalla Company has the following liabilities at December 31, year 8:

The bank loan of $2,000,000 requires Irkalla to maintain certain financial ratios but Irkalla has not been able to do so and is in violation of the loan agreement. The creditor has not waived its rights in regard to the loan. What amount should Irkalla report as current liabilities at December 31, year 8?

$3,300,000

During year 8, Leucothea Company became involved in a legal dispute with a supplier. At December 31, year 8, Leucothea’s legal advisor believed that an unfavorable outcome was probable. A reasonable estimate of resulting monetary damages is $100,000 but could be as much as $200,000. Leucothea has legal liability insurance coverage that limits their loss to $80,000. After the year 8 financial statements were issued, Leucothea agreed to settle the case for $125,000. What amount of accrued liability should Leucothea have reported in its December 31, year 8 balance sheet?

$100,000

Management can estimate the amount of loss that will occur if the company does not prevail in a currently contested lawsuit. If losing the suit is reasonably possible, which of the following describes how the entity may report the loss contingency in the financial statements?

option b

On November 1, 2027, Quantum Technology, a geothermal energy supplier, borrowed $16 million cash to fund a geological survey. The loan was made by Nevada BancCorp under a noncommitted short-term line of credit arrangement. Quantum issued a nine-month, 12% promissory note. Interest was payable at maturity. Quantum’s fiscal period is the calendar year.

1. 1. Prepare the journal entry for the issuance of the note by Quantum Technology.

2. 2. & 3. Prepare the appropriate adjusting entry for the note by Quantum on December 31, 2027 and journal entry for the payment of the note at maturity.