Question 1

Sales taxes collected by a retailer are reported as
A)contingent liabilities.
B)revenues.
C)expenses.
D)current liabilities.

Accepted Answer

Sales taxes collected by a retailer are reported as current liabilities because they are owed to the government and are expected to be paid within the next operating cycle or year.

Question 2

Reliable Insurance Company collected a premium of $36,000 for a 1-year insurance policy on May 1. What amount should Reliable report as a current liability for Unearned Insurance Revene at December 31?
A)$0.
B)$12,000.
C)$24,000.
D)$36,000.

Accepted Answer

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

Question 3

Any balance in an unearned revenue account is reported as a(n)
A)current liability.
B)long-term debt.
C)revenue.
D)unearned liability.

Accepted Answer

Unearned revenue is money received in advance for goods or services that the company has not yet provided. As a result, it represents a current liability because the company owes the customer the goods or services they paid for, but have not yet received. When the company fulfills its obligation by providing the goods or services, the liability is converted into revenue. So, any balance in an unearned revenue account is reported as a current liability on the company's balance sheet.

Question 4

Hilton Company issued a four-year interest-bearing note payable for $600,000 on January 1, 2014. Each January the company is required to pay $150,000 on the note. How will this note be reported on the December 31, 2015 balance sheet?
A)Long-term debt, $600,000.
B)Long-term debt, $450,000.
C)Long-term debt, $300,000; Long-term debt due within one year, $150,000.
D)Long-term debt, $450,000; Long-term debt due within one year, $150,000.

Accepted Answer

By December 31, 2015, two payments of $150,000 each would have been made, reducing the long-term debt to $300,000. The next $150,000 payment due within one year is classified separately as "Long-term debt due within one year."

Question 5

A company receives $265, of which $15 is for sales tax. The journal entry to record the sale would include a
A)debit to Sales Tax Expense for $15.
B)credit to Sales Taxes Payable for $15.
C)debit to Sales Revenue for $265.
D)debit to Cash for $250.

Accepted Answer

The answer of A company receives $265, of which $15...

Question 6

On October 1, 2015, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. If the Pennington Company is preparing financial statements at December 31, 2015, the adjusting entry for accrued interest will include a:
A)credit to Notes Payable of $2,250.
B)debit to Interest Expense of $2,250
C)credit to Interest Payable of $4,500.
D)debit to Interest Expense of $3,375.

Accepted Answer

The interest on the note is calculated as follows:

Principal ($90,000) x Annual Interest Rate (10%) x Time in Fraction of a Year (3/12) = $2,250

Since the note was issued on October 1 and the financial statements are being prepared on December 31, only three months of interest have accrued.

Therefore, the adjusting entry on December 31 would involve debiting Interest Expense for $2,250 and crediting Interest Payable for $2,250. The entry would not involve Notes Payable as the principal amount of the note has not changed.

Question 7

The amount of sales tax collected by a retail store when making sales is
A)a miscellaneous revenue for the store.
B)a current liability.
C)not recorded because it is a tax paid by the customer.
D)recorded as an operating expense.

Accepted Answer

Sales tax is collected by the retail store on behalf of the state government. It represents a current liability because the store owes this amount to the government and must remit it on a regular basis. It is not considered miscellaneous revenue for the store or an operating expense because it does not represent an increase or decrease in the store's revenue or expenses. It is also not recorded as an expense, but rather as a liability until it is remitted to the government.

Question 8

Julie's Boutique has total receipts for the month of $31,920 including sales taxes. If the sales tax rate is 5%, what are Julie's sales for the month?
A)$30,324
B)$30,400
C)$33,516
D)It cannot be determined.

Accepted Answer

Let X be the sales for the month.
Then, 1.05X = $31,920
X = $30,400
Therefore, Julie's sales for the month were $30,400.

Question 9

Crawford Company has total proceeds (before segregation of sales taxes) from sales of $7,155. If the sales tax is 6%, the amount to be credited to the account Sales Revenue is:
A)$7,155.
B)$6,726.
C)$7,584.
D)$6,750.

Accepted Answer

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

Question 10

On January 1, 2015, Howard Company, a calendar-year company, issued $900,000 of notes payable, of which $225,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2015, is
A)Current Liabilities, $900,000.
B)Long-term Debt, $900,000.
C)Current Liabilities, $450,000; Long-term Debt, $450,000.
D)Current Liabilities, $225,000; Long-term Debt, $675,000.

Accepted Answer

The portion of the notes payable due within one year (January 1, 2016) should be classified as current liabilities, which is $225,000 ($900,000 ÷ 4 years = $225,000). The remaining portion of the notes payable ($675,000) is classified as long-term debt. Therefore, the proper balance sheet presentation on December 31, 2015 is Current Liabilities of $225,000 and Long-term Debt of $675,000.

Question 11

Layton Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $29,400. If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?
A)$1,400
B)$1,470
C)$70
D)It cannot be determined.

Accepted Answer

The answer of Layton Company does not ring up sales...

Question 12

On January 1, 2015, Donahue Company, a calendar-year company, issued $600,000 of notes payable, of which $150,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2015, is
A)Current Liabilities, $600,000.
B)Long-term Debt , $600,000.
C)Current Liabilities, $150,000; Long-term Debt, $450,000.
D)Current Liabilities, $450,000; Long-term Debt, $150,000.

Accepted Answer

The amount due to be paid within the next year should be classified as current liabilities, which is $150,000. The remaining $450,000 will be due in more than one year and should be classified as long-term debt. Therefore, the proper balance sheet presentation on December 31, 2015, would be Current Liabilities of $150,000 and Long-term debt of $450,000.

Question 13

A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to $294,000, what is the amount of the sales taxes owed to the taxing agency?
A)$280,000
B)$294,000
C)$14,700
D)$14,000

Accepted Answer

The answer of A retail store credited the Sales Revenue...

Question 14

Advances from customers are classified as a(n)
A)revenue.
B)expense.
C)current asset.
D)current liability.

Accepted Answer

Advances from customers represent payments received from customers prior to providing goods or services. These payments are a liability because the company owes the customer the goods or services that have been paid for. As the goods or services are delivered, the liability is reduced and revenue is recognized. Therefore, advances from customers are classified as a current liability.

Question 15

The current portion of long-term debt should
A)be paid immediately.
B)be reclassified as a current liability.
C)be classified as a long-term liability.
D)not be separated from the long-term portion of debt.

Accepted Answer

The current portion of long-term debt represents the portion which is due to be paid within the next year. As per accounting standards, current liabilities are those which are expected to be settled within the next 12 months. Therefore, the current portion of long-term debt needs to be reclassified as a current liability.

Question 16

On October 1, 2014, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2015, the entry to record the payment of the note on July 1, 2015, will include a:
A)debit to Interest Expense of $2,250.
B)credit to Cash of $90,000
C)debit to Interest Payable of $6,750.
D)debit to Notes Payable of $96,750.

Accepted Answer

The interest for nine months is $90,000 * 10% * (9/12) = $6,750. Since interest was accrued on June 30, 2015, the entry to record the payment on July 1, 2015, would include a debit to Interest Payable for $6,750 to remove the liability.

Question 17

Valerie's Salon has total receipts for the month of $20,670 including sales taxes. If the sales tax rate is 6%, what are Valerie's sales for the month?
A)$19,637
B)$21,910
C)$19,500
D)It cannot be determined.

Accepted Answer

To find Valerie's sales for the month, we need to divide the total receipts by 1 plus the sales tax rate (since the total receipts include the sales tax).

$20,670 ÷ 1.06 = $19,500

Therefore, Valerie's sales for the month are $19,500.

Question 18

Oakley Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $42,800. If the sales tax rate is 7%, what amount must be remitted to the state for February's sales taxes?
A)$2,996
B)$2,800
C)$4,280
D)It cannot be determined.

Accepted Answer

The answer of Oakley Company does not ring up sales...

Question 19

A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to $630,000, what is the amount of the sales taxes owed to the taxing agency?
A)$600,000
B)$630,000
C)$31,500
D)$30,000

Accepted Answer

The answer of A retail store credited the Sales Revenue...

Question 20

Sales taxes collected by a retailer are expenses
A)of the retailer.
B)of the customers.
C)of the government.
D)that are not recognized by the retailer until they are submitted to the government.

Accepted Answer

Sales taxes collected by a retailer are considered liabilities to the government but are expenses of the customers, as they are the ones who ultimately bear the cost. The retailer acts merely as a collector and remitter of these taxes to the government.

Quiz 10: Liabilities

Sales taxes collected by a retailer are reported as

Reliable Insurance Company collected a premium of $36,000 for a 1-year insurance policy on May 1. What amount should Reliable report as a current liability for Unearned Insurance Revene at December 31?

Any balance in an unearned revenue account is reported as a(n)

Hilton Company issued a four-year interest-bearing note payable for $600,000 on January 1, 2014. Each January the company is required to pay $150,000 on the note. How will this note be reported on the December 31, 2015 balance sheet?

A company receives $265, of which $15 is for sales tax. The journal entry to record the sale would include a

On October 1, 2015, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. If the Pennington Company is preparing financial statements at December 31, 2015, the adjusting entry for accrued interest will include a:

The amount of sales tax collected by a retail store when making sales is

Julie's Boutique has total receipts for the month of $31,920 including sales taxes. If the sales tax rate is 5%, what are Julie's sales for the month?

Crawford Company has total proceeds (before segregation of sales taxes) from sales of $7,155. If the sales tax is 6%, the amount to be credited to the account Sales Revenue is:

On January 1, 2015, Howard Company, a calendar-year company, issued $900,000 of notes payable, of which $225,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2015, is

Layton Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $29,400. If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?

On January 1, 2015, Donahue Company, a calendar-year company, issued $600,000 of notes payable, of which $150,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2015, is

A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to $294,000, what is the amount of the sales taxes owed to the taxing agency?

Advances from customers are classified as a(n)

The current portion of long-term debt should

On October 1, 2014, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2015, the entry to record the payment of the note on July 1, 2015, will include a:

Valerie's Salon has total receipts for the month of $20,670 including sales taxes. If the sales tax rate is 6%, what are Valerie's sales for the month?

Oakley Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $42,800. If the sales tax rate is 7%, what amount must be remitted to the state for February's sales taxes?

A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to $630,000, what is the amount of the sales taxes owed to the taxing agency?

Sales taxes collected by a retailer are expenses