Question 1

The relationship of current assets to current liabilities is used in evaluating a company's

Accepted Answer

The relationship of current assets to current liabilities (current ratio) is a measure of a company's ability to pay its short-term debts. It indicates whether a company has enough current assets to cover its current liabilities.

Question 2

The entry to record the payment of an interest-bearing note at maturity after all interest expense has been recognized is

Accepted Answer

The answer of The entry to record the payment of...

Question 3

Most companies pay current liabilities

Accepted Answer

Current liabilities are expected to be paid within a year, and the most common way companies pay them is by using their current assets, such as cash and accounts receivable. Option B and D are incorrect because they suggest creating long-term liabilities or issuing notes payable, which are not appropriate for current liabilities. Option C is also incorrect because issuing stock does not directly relate to paying current liabilities.

Question 4

In most companies current liabilities are paid within

Accepted Answer

Current liabilities are typically expected to be paid off within one year or the operating cycle, whichever is longer. They are typically paid off using current assets such as cash, accounts receivable, and inventory. Option C accurately reflects this reality, as it includes both possibilities (i.e. one year or operating cycle) and specifies that payment is made using current assets. Option A is incorrect because it only accounts for the possibility of repayment within one year, and it suggests that other current liabilities would be created to accomplish this. Option B is also incorrect because it only accounts for the operating cycle, and it suggests that other current liabilities would be created to accomplish repayment. Option D is also incomplete because it only accounts for payments made using current assets and does not consider the possibility that some liabilities may not be able to be paid off within the operating cycle.

Question 5

Watunga County Bank agrees to lend Hoffman Granite Company $600000 on January 1. Hoffman Granite Company signs a $600000 8% 9-month note. What is the adjusting entry required if Hoffman Granite Company prepares financial statements on June 30? a. 
$\begin{array}{lrr}
  \text { Interest Expense } &24,000\
 \text {  Interest Payable } &&24,000\
\end{array}$

b.
$\begin{array}{lrr}
  \text {Interest Expense  } &24,000\
 \text {  Cash} &&24,000\
\end{array}$

c. 
$\begin{array}{lrr}
  \text {Interest Payable  } &24,000\
 \text {Cash  } &&24,000\
\end{array}$

d. 
$\begin{array}{lrr}
  \text {  Interest Payable} &24,000\
 \text { Interest Expense } &&24,000\
\end{array}$

Accepted Answer

The answer of Watunga County Bank agrees to lend Hoffman...

Question 6

The entry to record the proceeds upon issuing an interest-bearing note is a. Interest Expense 
Cash 
Notes Payable

b. Cash 
Notes Payable

c. Notes Payable 
Cash

d. Cash
 Notes Payable
 Interest Payable

Accepted Answer

The answer of The entry to record the proceeds upon...

Question 7

Watunga County Bank agrees to lend Hoffman Granite Company $600000 on January 1. Hoffman Granite Company signs a $600000 8% 9-month note. The entry made by Hoffman Granite on January 1 to record the proceeds and issuance of the note is a.
$\begin{array}{lll}
  \text {Interest Expense  } &36,000\
 \text {  Cash. } &564,000\
 \text {Notes Payable  } &&600,000
\end{array}$

b. 
$\begin{array}{lll}
  \text {  Cash} &600,000\
 \text { Notes Payable  } &&600,000
\end{array}$

c. 
$\begin{array}{lll}
  \text {  Cash } &600,000\
 \text { Interest Expense } &36,000\
 \text {Notes Payable  } &636,000
\end{array}$

d. 
$\begin{array}{lll}
 \text {  Cash } &600,000\
  \text {  Interest Expense} &36,000\
 \text {Notes Payable  } &&600,000\
 \text { Interest Payable } &&36,000
\end{array}$

Accepted Answer

The answer of Watunga County Bank agrees to lend Hoffman...

Question 8

The entry to record the issuance of an interest-bearing note credits Notes Payable for the note's

Accepted Answer

When an interest-bearing note is issued, the company incurs a liability in the form of Notes Payable. The face value of the note represents the amount borrowed by the company, and is therefore the amount credited to Notes Payable. The maturity value is the sum of the face value plus any interest owed at maturity, but this amount is not relevant when the note is initially issued. Market value and cash realizable value are not applicable to this transaction.

Question 9

On October 1 Eli's Carpet Service borrows $125000 from First District Bank on a 3-month $125000 8% note. What entry must Eli's Carpet Service make on December 31 before financial statements are prepared? 
a. 
$\begin{array}{lrr}
  \text { Interest Payable } &2,500\
 \text { Interest Expense  } &&2,500\
\end{array}$

b.
$\begin{array}{lrr}
  \text {  Interest Expense } &10,000\
 \text {Interest Payable  } &&10,000\
\end{array}$

c.
$\begin{array}{lrr}
  \text {  Interest Expense } &2,500\
 \text { Interest Payable } &&2,500\
\end{array}$

d. 
$\begin{array}{lrr}
  \text {  Interest Expense } &2,500\
 \text {  Notes Payable } &&2,500\
\end{array}$

Accepted Answer

The answer of On October 1 Eli's Carpet Service borrows...

Question 10

Which of the following is usually not an accrued liability?

Accepted Answer

Notes payable is not usually an accrued liability. It is a liability that arises from a written agreement to borrow or purchase goods and services on credit with a stated interest rate and repayment terms. Accrued liabilities, on the other hand, are expenses that have been incurred but not yet paid, such as interest payable, wages payable, and taxes payable.

Question 11

Liabilities are classified on the balance sheet as current or

Accepted Answer

Liabilities on the balance sheet are classified as either current or long-term. Current liabilities are obligations due within one year, while long-term liabilities are obligations due over a period of more than one year. Deferred, unearned, and accrued are terms that may be used to describe specific types of liabilities, but they do not represent classifications on the balance sheet.

Question 12

Interest expense on an interest-bearing note is

Accepted Answer

Interest expense is accrued over the life of the note because interest accrues as time passes, based on the interest rate and the principal balance of the note. It is not only recorded at the time of issuance or only at maturity when the note is paid. Hence, options C and D can be eliminated. Option A is incorrect because if a note is interest-bearing, it indicates that interest will be charged on the principal amount, so interest expense will not be equal to zero.

Question 13

A note payable is in the form of

Accepted Answer

A note payable is a written promissory note between the borrower and the lender, which states the borrower's promise to pay a certain amount of money with interest at a specific date or on demand.

Question 14

A current liability is a debt that can reasonably be expected to be paid

Accepted Answer

According to generally accepted accounting principles (GAAP), a current liability is a debt that is expected to be paid within one year or the operating cycle, whichever is longer. This means that the liability is due within a relatively short period of time (usually within one year) or within the normal operating cycle of the business, which can be longer than one year for some industries. The other options are not accurate definitions of a current liability according to GAAP.

Question 15

With an interest-bearing note the amount of assets received upon issuance of the note is generally

Accepted Answer

An interest-bearing note is issued at its face value, which is the amount that the debtor agrees to repay upon maturity. This amount includes the principal amount borrowed plus accrued interest at a predetermined rate. Therefore, the amount of assets received upon issuance of the note is equal to the note's face value.

Question 16

On October 1 Eli's Carpet Service borrows $125000 from First National Bank on a 3-month $125000 8% note. The entry by Eli's Carpet Service to record payment of the note and accrued interest on January a. 
$\begin{array}{lrr}
  \text {Notes Payable  } &127,500\
 \text {  Cash } &&127,500\
\end{array}$

b. 
$\begin{array}{lrr}
  \text { Notes Payable } &125,000\
 \text {  Interest Payable} &2,500\
 \text {   Cash} &&127,500
\end{array}$

c.
$\begin{array}{lrr}
  \text {Notes Payable  } &125,000\
 \text {  Interest Payable} &10,000\
 \text { Cash  } &&135,000
\end{array}$

d.
$\begin{array}{lrr}
  \text {  Notes Payable} &125,000\
 \text { Interest Expense  } &2,500\
 \text {  Cash } &&127,500
\end{array}$

Accepted Answer

The answer of On October 1 Eli's Carpet Service borrows...

Question 17

From a liquidity standpoint it is more desirable for a company to have current

Accepted Answer

Current assets exceeding current liabilities indicates that a company has enough short-term assets to cover its short-term liabilities. This is a positive sign from a liquidity perspective as it suggests that the company can meet its immediate financial obligations without relying on external sources of funding. Option A is also acceptable; however, having a higher amount of current assets than current liabilities is a more desirable scenario than just breaking even. Option B and D are both unfavorable as they suggest that a company may struggle to meet its short-term obligations and may require additional financing.

Question 18

When an interest-bearing note matures the balance in the Notes Payable account is

Accepted Answer

When an interest-bearing note matures, the balance in the Notes Payable account represents the principal amount borrowed. The total amount repaid by the borrower includes both this principal and the accrued interest, making the repayment amount greater than the Notes Payable balance.

Question 19

As interest is recorded on an interest-bearing note the Interest Expense account is

Accepted Answer

When interest is recorded on an interest-bearing note, the Interest Expense account is increased to reflect the amount of interest incurred. At the same time, the Interest Payable account is also increased because the company now owes additional interest. The Notes Payable account is not directly affected by the recording of interest, as it represents the total amount of the note and not the interest portion. Therefore, neither option A nor B is correct. Option D is also incorrect, as the recording of interest would not decrease the Interest Payable account.

Question 20

Watunga County Bank agrees to lend Hoffman Granite Company $600000 on January 1. Hoffman Granite Company signs a $600000 8% 9-month note. What entry will Hoffman Granite make to pay off the note and interest at maturity assuming that interest has been accrued to September 30? a.
$\begin{array}{ll}
\text { Notes Payable. } & 636,000 \
\text { Cash} && 636,000 \\end{array}$

b.
$\begin{array}{ll} \text { Notes Payable. } & 600,000 \
 \text { Interest Payable} & 36,000 \
\text { Cash} && 636,000
& \\end{array}$

c.
$\begin{array}{ll}\text { Interest Expense. } & 36,000 \
\text { Notes Payable } & 600,000 \
\text { Cash} && 636,000 \\end{array}$

d. 
$\begin{array}{ll}\text { Interest Payable. } & 24,000 \
 \text { Notes Payable  } & 600,000 \
 \text { Interest Expense } & 12,000 \
\text { Cash} && 636,000
\end{array}$

Accepted Answer

The answer of Watunga County Bank agrees to lend Hoffman...

Quiz 11: Current Liabilities and Payroll Accounting

The relationship of current assets to current liabilities is used in evaluating a company's

The entry to record the payment of an interest-bearing note at maturity after all interest expense has been recognized is

Most companies pay current liabilities

In most companies current liabilities are paid within

The entry to record the proceeds upon issuing an interest-bearing note is a. Interest Expense Cash Notes Payable b. Cash Notes Payable c. Notes Payable Cash d. Cash Notes Payable Interest Payable

The entry to record the issuance of an interest-bearing note credits Notes Payable for the note's

Which of the following is usually not an accrued liability?

Liabilities are classified on the balance sheet as current or

Interest expense on an interest-bearing note is

A note payable is in the form of

A current liability is a debt that can reasonably be expected to be paid

With an interest-bearing note the amount of assets received upon issuance of the note is generally

From a liquidity standpoint it is more desirable for a company to have current

When an interest-bearing note matures the balance in the Notes Payable account is

As interest is recorded on an interest-bearing note the Interest Expense account is