Question 1

On September 1, Joe's Painting Service borrows $150,000 from National Bank on a 4-month, $150,000, 6% note. The entry by Joe's Painting Service to record payment of the note and accrued interest on January 1 is

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Question 2

The interest charged on a $90,000, 3-month note payable, at the rate of 8%, would be

Accepted Answer

The formula for calculating interest is: 
Interest = principal x rate x time

In this case, the principal is $90,000, the rate is 8%, and the time is 3 months (which we need to express as a fraction of a year):
3 months ÷ 12 months/year = 0.25

Plugging these values into the formula, we get: 
Interest = $90,000 x 0.08 x 0.25 
Interest = $1,800

Therefore, the interest charged on the note payable is $1,800.

Question 3

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?

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Question 4

The interest charged on a $70,000, 2-month note payable, at the rate of 6%, would be

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Question 5

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:

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

Question 6

Sales taxes collected by the retailer are recorded as a(n)

Accepted Answer

Sales taxes collected by the retailer are not revenue because the retailer is not earning money on the tax; it is simply collecting it on behalf of the state government. It is also not an expense because the retailer is not paying the tax themselves, but rather, passing it on to the consumer. Instead, sales taxes are recorded as a liability, because the retailer is responsible for holding onto the tax collected until it is paid to the government.

Question 7

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?

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

Question 8

On October 1, 2017, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2018, the entry to record the payment of the note on July 1, 2018, will include a:

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Question 9

On October 1, 2018, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. If the Pennington Company is preparing financial statements at December 31, 2018, the adjusting entry for accrued interest will include a:

Accepted Answer

The adjusting entry for accrued interest on December 31, 2018, will include a debit to Interest Expense and a credit to Interest Payable.

To calculate interest expense, we need to find the number of months between October 1, 2018, and December 31, 2018. That is 3 months (October, November, December).

Interest expense = $90,000 x 10% x 3/12 = $2,250

Therefore, the adjusting entry will be:

Debit Interest Expense $2,250
Credit Interest Payable $2,250

Option A is incorrect because it only credits Notes Payable, which is not affected by accrued interest.
Option C is incorrect because it only credits Interest Payable, but does not debit Interest Expense.
Option D is incorrect because it calculates interest expense using 9 months instead of 3 months, which results in an overstatement of interest expense.

Question 10

The interest charged on a $400,000, 90-day note payable, at the rate of 8%, would be

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Question 11

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?

Accepted Answer

Let the sales for the month be x.

Then,

Total receipts = Sales + Sales Tax
$20,670 = x + 0.06x (since the sales tax rate is 6%)

$20,670 = 1.06x

x = $19,500

Therefore, Valerie's sales for the month are $19,500, which is option C.

Question 12

A cash register tape shows cash sales of $1,800 and sales taxes of $126. The journal entry to record this information is

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Question 13

On January 1, 2018, 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, 2018, is

Accepted Answer

The portion of the notes payable due within one year of the balance sheet date ($225,000) should be classified as a current liability. The remaining portion of the notes payable ($675,000) should be classified as long-term debt. Therefore, the proper balance sheet presentation on December 31, 2018, is current liabilities of $225,000 and long-term debt of $675,000, for a total notes payable balance of $900,000.

Question 14

On September 1, Joe's Painting Service borrows $150,000 from National Bank on a 4-month, $150,000, 6% note. What entry must Joe's Painting Service make on December 31 before financial statements are prepared?

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The answer of On September 1, Joe's Painting Service borrows...

Question 15

A company receives $371, of which $21 is for sales tax. The journal entry to record the sale would include a

Accepted Answer

The company receives $371 in cash, so a debit to Cash for $371 is recorded.

Question 16

On January 1, 2018, 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, 2018, is

Accepted Answer

The $150,000 due within the next year is classified as a current liability, while the remaining $450,000 is classified as long-term debt. Therefore, the proper balance sheet presentation on December 31, 2018, is current liabilities of $150,000 and long-term debt of $450,000.

Question 17

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

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Question 18

The interest charged on a $50,000, 60-day note payable, at the rate of 6%, would be

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Question 19

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?

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Question 20

Ed's Bookstore has collected $750 in sales taxes during April. If sales taxes must be remitted to the state government monthly, what entry will Ed's Bookstore make to show the April remittance?

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The answer of Ed's Bookstore has collected $750 in sales...

Quiz 10: Liabilities