Question 1

A company receives $95 for merchandise sold to a consumer,of which $5 is for sales tax.The $5 of sales tax:

Accepted Answer

The sales tax is a liability to the company until it is paid to the government.

Question 2

On October 1,you borrow $200,000 in order to build a new facility.The loan is for 10 years,at 7% interest,and semiannual interest payments are due each April and October.The journal entry to record the issuance of the promissory note should:

Accepted Answer

The journal entry to record the issuance of the promissory note should debit Cash for the amount of the loan ($200,000) and credit Notes Payable for the same amount. The interest expense and payable will be recorded as the interest is accrued and paid semiannually. Therefore, options A and D are incorrect as they attempt to record the interest expense and payable at the time of issuance. Option B is also incorrect as it only records the payment of interest and not the issuance of the loan.

Question 3

Which of the following statements regarding bond discounts or premiums is true?

Accepted Answer

A discount on a bond increases the interest expense of the loan to the issuer because the issuer receives less cash than the face value of the bond but must repay the full face value at maturity, effectively increasing the cost of borrowing.

Question 4

Current liabilities are due:

Accepted Answer

Current liabilities are amounts that a company owes and expects to pay within one year or the current operating cycle, whichever is longer. Therefore, the option that correctly identifies current liabilities as payable within the current operating cycle or one year, whichever is longer, is D. Choices A and B are incorrect because they refer to receivable instead of payable, and choice C is incorrect because it does not include the option of payable within one year.

Question 5

During one pay period,your company distributes $130,500 to employees as net pay.The income tax withholdings were $19,000 and the FICA withholdings were $5,000.The total wages and payroll tax expense to the company for this pay period,excluding any unemployment taxes,was:

Accepted Answer

The answer of During one pay period,your company distributes $130,500...

Question 6

Current liabilities could include all of the following except:

Accepted Answer

A bank loan due in 18 months is not considered a current liability because it is not due within the next 12 months. Current liabilities are obligations expected to be settled within one year.

Question 7

Which of the following statements regarding payroll liabilities is true?

Accepted Answer

Accrued payroll includes liabilities like retirement and health benefits that have been earned by employees but not yet paid by the employer.

Question 8

A typical balance sheet provides no information regarding which of the following items?

Accepted Answer

The answer of A typical balance sheet provides no information...

Question 9

Which of the following is not true regarding the quick ratio?

Accepted Answer

A quick ratio greater than 1 implies that a company has more liquid assets than current liabilities, indicating a high ability to pay off short-term obligations. Therefore, it is not true that a quick ratio greater than 1 implies a company could not pay all of its current liabilities.

Question 10

Use the information above to answer the following question.A company pays $9,000 in interest on notes consisting of $6,000 of interest that was accrued during the last accounting period and $3,000 of interest that accumulated during this accounting period that has not yet been accrued on the books.The journal entry for the interest payment should:

Accepted Answer

The company has $6,000 of interest that was accrued during the last period and $3,000 of interest that has not yet been accrued. Therefore, the journal entry should debit Interest Expense for $3,000 (the amount accrued in this period), debit Interest Payable for $6,000 (the amount accrued in the previous period that has not yet been paid), and credit Cash for the total amount of $9,000. This reflects the fact that the company is paying $9,000 in interest, but only $3,000 of it relates to this accounting period.

Question 11

A company typically records the amount owed to suppliers for goods or services when:

Accepted Answer

The amount owed to suppliers for goods or services is recorded when they are received, as this is when the company incurs the liability to pay the supplier. Option A is incorrect because simply ordering the goods or services does not necessarily create a liability to pay. Option B is incorrect because a verbal commitment is not sufficient to create a liability. Option C is incorrect because recording the payment does not reflect the actual liability owed to the supplier.

Question 12

Which one of the following statements is true?

Accepted Answer

A line of credit provides a source of cash that a company can draw upon if needed, thereby improving its ability to meet short-term obligations. Choice A is incorrect because liquidity refers to a company's ability to convert its assets into cash to meet its obligations, not just its debt obligations. Choice B is incorrect because a quick ratio below one means a company may have difficulty meeting its current liabilities, but it does not necessarily make it a serious credit risk. Choice D is incorrect because liquid assets only include assets that can be easily converted into cash, such as cash and marketable securities, not all current assets.

Question 13

On October 1,2013,you borrow $200,000 at 6% interest and record the promissory note.In April and again in October of the following year,you are required to pay half the annual interest to your creditor.On December 31,2013,your adjusting journal entry for the quarter should:

Accepted Answer

The interest for the quarter (October to December) is calculated as $200,000 * 6% * (3/12) = $3,000. The adjusting entry should record this accrued interest as an expense and a payable.

Question 14

Which of the following statements regarding loan terminology is true?

Accepted Answer

Loan covenants are terms and conditions set by lenders as part of the loan agreement. If a borrower violates a loan covenant, the lender may revise the loan terms or even demand immediate repayment. The other statements are not true. Collateral is something pledged as security on a loan, a pre-approved line of credit is not the same as a secured loan, and not all companies are able to establish lines of credit.

Question 15

In October,you borrow $50,000 in order to buy new equipment.The loan is repayable in five years,at 8% annual interest.Semiannual interest payments are due each March and September.Assuming no other long-term debt,what is the initial balance in the long-term debt account?

Accepted Answer

The initial loan amount is $50,000, and there are no other long-term debts mentioned in the problem. Therefore, the initial balance in the long-term debt account is also $50,000. The semiannual interest payments are not relevant to determining the initial balance.

Question 16

Which one of the following statements regarding amortization of discounts and premiums is not true?

Accepted Answer

Under the effective-interest method, the interest expense recorded is actually greater than the interest paid on the bond when a bond is sold at a discount, not less.

Question 17

Which of the following statements regarding bond terminology is true?

Accepted Answer

The stated interest rate is always expressed as an annual interest rate, regardless of whether the bond makes semiannual or annual interest payments. The face value of a bond is its original value and may be higher or lower than the current market value, while the carrying value of a bond is the value at which it is carried on a company's balance sheet and may differ from the face value. The stated rate of interest does not determine the price that investors are willing to pay for the bond on the issue date.

Question 18

Use the information above to answer the following question.How would this information be reported on the balance sheet at the end of the first quarter?

Accepted Answer

The interest expense of $400 would not be reported on the balance sheet, but the interest payable would be reported under current liabilities. The current portion of the long-term debt ($5,000) would also be reported under current liabilities, and the remaining long-term debt ($15,000) would be reported under long-term liabilities. Therefore, the best choice is B.

Question 19

Which of the following statements regarding bonds payable net of a discount or premium is not true?

Accepted Answer

When using the Simplified Approach (Effective-interest Method) of amortization, the balance in the Bonds Payable, Net account will decrease as the bond approaches the maturity date because the discount or premium is being amortized over the life of the bond. Therefore, statement C is not true.

Question 20

If a company's gross wages are $12,000,and it withholds $1,800 for income taxes and $800 for FICA taxes and other deductions,the journal entry to record the employees' pay should include a:

Accepted Answer

The company's gross wages of $12,000 are reduced by the income taxes withheld of $1,800 and FICA taxes and other deductions of $800 for a total of $2,600. Therefore, the amount owed to the employees is $12,000 - $2,600 = $9,400. This amount should be recorded as a credit to Wages Payable. So, the journal entry should include a credit to Wages Payable for $9,400. The corresponding debit should be to Wages Expense. So, option D is the correct choice.

Quiz 10: Liabilities