Question 1

Franco Company credits its Sales Revenue account for the sales price and the sales tax collected on sales. If the sales tax rate is 9% and the balance in the Sales Revenue account amounted to €465,000, what is the amount of the sales taxes owed to the taxing authority (rounded to the nearest €)?
A) €51,667.
B) €42,660.
C) €41,850.
D) €38,395.

Accepted Answer

The answer of Franco Company credits its Sales Revenue account...

Question 2

Crawford Company has total proceeds (before segregation of sales taxes) from sales of $7,950. If the sales tax is 6%, the amount to be credited to Sales Revenue is:
A) $7,950.
B) $7,473.
C) $8,427.
D) $7,500.

Accepted Answer

The answer of Crawford Company has total proceeds (before segregation...

Question 3

On October 1, 2013, Pennington Company issued an €80,000, 10%, nine-month interest-bearing note. If Pennington Company is preparing financial statements at December 31, 2013, the adjusting entry for accrued interest will include a
A) credit to Notes Payable of €2,000.
B) debit to Interest Expense of €2,000
C) credit to Interest Payable of €4,000.
D) debit to Interest Expense of €3,000.

Accepted Answer

Since the note was issued on October 1st and is a nine-month note, it will mature on June 30th of the following year. Therefore, from October 1st to December 31st, three months have passed and interest will have accrued on the note for three months.

The formula to calculate the interest is:

Principal x Interest Rate x Time = Interest
€80,000 x 10% x 3/12 = €2,000

Therefore, the adjusting entry for accrued interest will be:

Debit Interest Expense €2,000
Credit Interest Payable €2,000

Question 4

The interest charged on a ¥300,000,000 note payable, at the rate of 8%, on a 3-month note would be
A) ¥24,000,000.
B) ¥12,000,000.
C) ¥6,000,000.
D) ¥4,000,000.

Accepted Answer

The answer of The interest charged on a ¥300,000,000 note...

Question 5

London Bank and Trust agrees to lend the Beckham Company £3,000,000 on January 1, 2014. Beckham Company signs a £3,000,000, 6%, 9-month note. What entry will Beckham Company make to pay off the note and interest at maturity assuming that no interest has been accrued since June 30?

Accepted Answer

The answer of London Bank and Trust agrees to lend...

Question 6

Ski Quarterly typically sells subscriptions on an annual basis, and publishes four times a year in January, April, July and October. The magazine sells 70,000 subscriptions in January at CHF20 each. What entry is made in January to record the sale of the subscriptions?

Accepted Answer

The answer of Ski Quarterly typically sells subscriptions on an...

Question 7

In what order are current liabilities typically listed on the statement of financial position?
A) In order of the dates they become due.
B) In order of increasing liquidity.
C) In order of decreasing liquidity.
D) Notes Payable first followed by Accounts Payable, then in order of magnitude.

Accepted Answer

The answer of In what order are current liabilities typically...

Question 8

Harrods Company receives £220, of which £20 is for sales tax. The journal entry to record the sale would include a
A) debit to Sales Taxes Payable for £20.
B) credit to Sales Taxes Payable for £20.
C) debit to Sales Revenue for £220.
D) debit to Cash for £200.

Accepted Answer

The answer of Harrods Company receives £220, of which £20...

Question 9

The interest charged on a ¥150,000,000 note payable, at the rate of 8%, on a 90-day note would be
A) ¥12,000,000.
B) ¥6,666,000.
C) ¥3,000,000.
D) ¥1,000,000.

Accepted Answer

The answer of The interest charged on a ¥150,000,000 note...

Question 10

Sales taxes collected by a retailer are recorded by
A) crediting Sales Tax Revenue.
B) debiting Sales Tax Expense.
C) crediting Sales Taxes Payable.
D) debiting Sales Taxes Payable.

Accepted Answer

Sales taxes collected by a retailer are not revenue for the retailer; instead, they are liabilities because the retailer owes this money to the government. Therefore, they are recorded by crediting Sales Taxes Payable, indicating an increase in the liability account.

Question 11

The interest charged on a ¥300,000,000 note payable, at the rate of 6%, on a 2-month note would be
A) ¥18,000,000.
B) ¥9,000,000.
C) ¥4,500,000.
D) ¥3,000,000.

Accepted Answer

The answer of The interest charged on a ¥300,000,000 note...

Question 12

On October 1, 2013, Pennington Company issued an €80,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2014, the entry to record the payment of the note on July 1, 2014, will include a
A) debit to Interest Expense of €2,000.
B) credit to Cash of €80,000
C) debit to Interest Payable of €6,000.
D) debit to Notes Payable of €86,000.

Accepted Answer

The answer of On October 1, 2013, Pennington Company issued...

Question 13

A company receives $176, of which $16 is for sales tax. The journal entry to record the sale would include a
A) debit to Sales Tax Expense for $16.
B) credit to Sales Taxes Payable for $16.
C) debit to Sales Revenue for $176.
D) debit to Cash for $160.

Accepted Answer

The answer of A company receives $176, of which $16...

Question 14

London Bank and Trust agrees to lend the Beckham Company £3,000,000 on January 1, 2014. Beckham Company signs a £3,000,000, 6%, 9-month note. Assuming that monthly accruals are not made, what adjusting entry is required if Beckham Company prepares financial statements on June 30?

Accepted Answer

The answer of London Bank and Trust agrees to lend...

Question 15

The interest charged on a ¥150,000,000 note payable, at the rate of 6%, on a 60-day note would be
A) ¥9,000,000.
B) ¥5,000,000.
C) ¥2,250,000.
D) ¥1,500,000.

Accepted Answer

The answer of The interest charged on a ¥150,000,000 note...

Question 16

Unearned Rent Revenue is
A) a contra-account to Rent Revenue.
B) a revenue account.
C) reported as a current liability.
D) debited when rent is received in advance.

Accepted Answer

Unearned Rent Revenue is reported as a current liability because it represents funds received in advance for services (rent) that have not yet been rendered. It will be recognized as revenue once the services are provided. Therefore, it is not a revenue account, and it is not a contra-account to Rent Revenue. It is also not debited when rent is received in advance, but rather credited.

Question 17

London Bank and Trust agrees to lend the Beckham Company £3,000,000 on January 1, 2014. Beckham Company signs a £3,000,000, 6%, 9-month note. The entry made by Beckham Company on January 1 to record the proceeds and issuance of the note is

Accepted Answer

The answer of London Bank and Trust agrees to lend...

Question 18

Ski Quarterly typically sells subscriptions on an annual basis, and publishes four times a year in January, April, July and October. The magazine sells 70,000 subscriptions in January at CHF20 each. If Ski Quarterly publishes a quarterly financial statement at March 31, the adjusting journal entry to recognize revenue will include
A) a debit to Cash for CHF466,667.
B) a debit to Subscription Revenue for CHF466,667
C) a debit to Unearned Subscription Revenue for CHF350,000.
D) a credit to Prepaid Subscriptions for CHF350,000.

Accepted Answer

Since Ski Quarterly sells annual subscriptions, they receive the cash up front, but the revenue needs to be recognized over the course of the year. Therefore, at the end of the first quarter (March 31), only 3 months of revenue - or 3/12 of the total subscription revenue - have been earned. This means that CHF350,000 (3/4 of CHF466,667) needs to be deferred as unearned subscription revenue until it is earned in the following quarters. The adjusting journal entry to recognize this would be a debit to Unearned Subscription Revenue for CHF350,000.

Question 19

Reliable Insurance Company collected a premium of $24,000 for a 1-year insurance policy on May 1. What amount should Reliable report as a current liability for Unearned Service Revenue at December 31?
A) $0.
B) $8,000.
C) $16,000.
D) $24,000.

Accepted Answer

The answer of Reliable Insurance Company collected a premium of...

Question 20

Monique's Boutique has total receipts for the month of May of €30,250 including sales taxes. If the sales tax rate is 10%, what amount of sales revenue did the boutique earn in May (rounded to the nearest €)?
A) €33,275.
B) €30,250.
C) €27,500.
D) Cannot be determined from the information given.

Accepted Answer

The total receipts include the sales revenue and the sales tax. To find the sales revenue, we need to divide the total receipts by 1 plus the tax rate: 
Sales Revenue = Total Receipts / (1+Tax Rate) = 30,250 / 1.10 = €27,500. Therefore, the correct answer is C.

Quiz 10: Liabilities

Crawford Company has total proceeds (before segregation of sales taxes) from sales of $7,950. If the sales tax is 6%, the amount to be credited to Sales Revenue is:

On October 1, 2013, Pennington Company issued an €80,000, 10%, nine-month interest-bearing note. If Pennington Company is preparing financial statements at December 31, 2013, the adjusting entry for accrued interest will include a

The interest charged on a ¥300,000,000 note payable, at the rate of 8%, on a 3-month note would be

London Bank and Trust agrees to lend the Beckham Company £3,000,000 on January 1, 2014. Beckham Company signs a £3,000,000, 6%, 9-month note. What entry will Beckham Company make to pay off the note and interest at maturity assuming that no interest has been accrued since June 30?

Ski Quarterly typically sells subscriptions on an annual basis, and publishes four times a year in January, April, July and October. The magazine sells 70,000 subscriptions in January at CHF20 each. What entry is made in January to record the sale of the subscriptions?

In what order are current liabilities typically listed on the statement of financial position?

Harrods Company receives £220, of which £20 is for sales tax. The journal entry to record the sale would include a

The interest charged on a ¥150,000,000 note payable, at the rate of 8%, on a 90-day note would be

Sales taxes collected by a retailer are recorded by

The interest charged on a ¥300,000,000 note payable, at the rate of 6%, on a 2-month note would be

On October 1, 2013, Pennington Company issued an €80,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2014, the entry to record the payment of the note on July 1, 2014, will include a

A company receives $176, of which $16 is for sales tax. The journal entry to record the sale would include a

London Bank and Trust agrees to lend the Beckham Company £3,000,000 on January 1, 2014. Beckham Company signs a £3,000,000, 6%, 9-month note. Assuming that monthly accruals are not made, what adjusting entry is required if Beckham Company prepares financial statements on June 30?

The interest charged on a ¥150,000,000 note payable, at the rate of 6%, on a 60-day note would be

Unearned Rent Revenue is

London Bank and Trust agrees to lend the Beckham Company £3,000,000 on January 1, 2014. Beckham Company signs a £3,000,000, 6%, 9-month note. The entry made by Beckham Company on January 1 to record the proceeds and issuance of the note is

Reliable Insurance Company collected a premium of $24,000 for a 1-year insurance policy on May 1. What amount should Reliable report as a current liability for Unearned Service Revenue at December 31?

Monique's Boutique has total receipts for the month of May of €30,250 including sales taxes. If the sales tax rate is 10%, what amount of sales revenue did the boutique earn in May (rounded to the nearest €) ?