Q1 . When recording depreciation, total assets decrease and total liabilities in
ID: 2464627 • Letter: Q
Question
Q1. When recording depreciation, total assets decrease and total liabilities increase.
A. True B. False
Q2. Liabilities are presented in the financial statements at future value.
A. True B. False
Q3. Quartz Corporation issued $300,000 in bonds that mature in five years. The bonds have a stated interest rate of 8 percent and pay interest on December 31 each year. When the bonds were sold, the market rate of interest was 9 percent. The bonds were issued at par.
A. True B. False
Q4. All of the following are intangible assets except
A. Note Receivable B. Patent C. Goodwill D. Trademark.
Q5. Which of the following rules about contingent liabilities is NOT true?
A. A contingent liability that can be estimated and is probable should be recorded.
B. A contingent liability that cannot be estimated and is probable should be recorded.
C. A contingent liability that can be estimated and is only reasonably possible should
be disclosed but not recorded.
D. All of the above.
Explanation / Answer
(Q1) (B) False.
Depreciation is deducted from fixed assets, so total assets decrease. But liabilities do not change.
(Q2) (B) False
Liabilities are presented at current value only.
(Q3) (B) False
When bond interest rate is lower than market interest rate, bonds are sold at a discount, not par.
(Q4) (A)
Notes receivable is a current/non-current asset (based on maturity of note)
(Q5) (A)
Only option A is correct. Such a contingent liability is recorded to conform with the Principle of Prudence.
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