Question 1

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 $420,000, what is the amount of the sales taxes owed to the taxing agency?
A) $400,000
B) $420,000
C) $21,000
D) $20,000

Accepted Answer

The sales revenue includes both the sales price and the sales tax. If $420,000 is the total, then the sales price is $420,000 / 1.05 = $400,000. The sales tax is 5% of $400,000, which is $20,000.

Question 2

On October 1, Sam's Painting Service borrows $100,000 from National Bank on a 3-month, $100,000, 4% note. The entry by Sam's Painting Service to record payment of the note and accrued interest on January 1 is
A) Notes Payable 101,000 Cash 101,000
B) Notes Payable 100,000 Interest Payable 1,000
Cash 101,000
C) Notes Payable 100,000 Interest Payable 4,000
Cash 104,000
D) Notes Payable 100,000 Interest Expense 1,000
Cash 101,000

Accepted Answer

The note is for $100,000 with a 4% annual interest rate. For 3 months, the interest is $1,000 (100,000 * 4% * 3/12). The entry includes paying off the note and the accrued interest.

Question 3

The interest charged on a $70,000 note payable, at the rate of 6%, on a 60-day note would be
A) $4,200.
B) $2,100.
C) $1,050.
D) $700.

Accepted Answer

The interest on a note is calculated using the formula: Interest = Principal x Rate x Time. Here, the principal is $70,000, the rate is 6% (or 0.06), and the time is 60 days out of 365 days in a year. So, Interest = $70,000 x 0.06 x (60/365) = $700.

Question 4

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 collected is considered a liability because the store is collecting it on behalf of the government and will eventually need to remit it. This liability is typically recorded in a separate account, such as "Sales Tax Payable."

Question 5

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 rent that has been collected in advance but has not yet been earned by the landlord. It is not a contra account to Rent Revenue, which is a revenue account. It is also not debited when rent is received in advance, but rather credited as a liability.

Question 6

The interest charged on a $250,000 note payable, at the rate of 6%, on a 90-day note would be
A) $15,000.
B) $7,500.
C) $3,750.
D) $1,250.

Accepted Answer

The interest is calculated using the formula: Interest = Principal x Rate x Time. Here, Principal = $250,000, Rate = 6% per annum, and Time = 90/365 years. So, Interest = $250,000 x 0.06 x (90/365) = $3,750.

Question 7

On January 1, 2014, Ermler Company, a calendar-year company, issued $1,000,000 of notes payable, of which $250,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2014, is
A) Current liabilities, $1,000,000.
B) Long-term debt , $1,000,000.
C) Current liabilities, $500,000; Long-term Debt, $500,000.
D) Current liabilities, $250,000; Long-term Debt, $750,000.

Accepted Answer

The $250,000 due within the next year is classified as a current liability, while the remaining $750,000 due in subsequent years is classified as long-term debt.

Question 8

West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. What is the adjusting entry required if Drake Builders Company prepares financial statements on March 30?
A) Interest Expense 6,000 Interest Payable 6,000
B) Interest Expense 6,000 Cash 6,000
C) Interest Expense 3,000 Interest Payable 3,000
D) Interest Payable 3,000 Interest Expense 3,000

Accepted Answer

The interest for 3 months (January to March) is calculated as $200,000 x 6% x (3/12) = $3,000. The adjusting entry records this interest expense and payable.

Question 9

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 recorded by crediting Sales Taxes Payable. This is because the retailer owes the collected sales tax to the state or local government and is therefore recording a liability.

Question 10

The interest charged on a $250,000 note payable, at the rate of 6%, on a 60-day note would be
A) $15,000.
B) $7,500.
C) $3,750.
D) $2,500.

Accepted Answer

The interest is calculated using the formula: Interest = Principal x Rate x Time. Here, Principal = $250,000, Rate = 6% per annum, and Time = 60/365 years. So, Interest = $250,000 x 0.06 x (60/365) = $2,500.

Question 11

As interest is recorded on an interest-bearing note, the Interest Expense account is
A) increased; the Notes Payable account is increased.
B) increased; the Notes Payable account is decreased.
C) increased; the Interest Payable account is increased.
D) decreased; the Interest Payable account is increased.

Accepted Answer

As interest is recorded on an interest-bearing note, the Interest Expense account is increased, as it is an expense incurred by the company. However, the Notes Payable account remains unchanged. The Interest Payable account is also increased, as the company now owes more interest to the lender. Therefore, option C is the correct answer.

Question 12

Interest expense on an interest-bearing note is
A) always equal to zero.
B) accrued over the life of the note.
C) only recorded at the time the note is issued.
D) only recorded at maturity when the note is paid.

Accepted Answer

Interest expense on an interest-bearing note is accrued over the life of the note, meaning it is recorded gradually as time passes and the interest accumulates. It is not only recorded at the time of issuance or at maturity when the note is paid. Therefore, option A, C, and D are incorrect.

Question 13

West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. What entry will Drake Builders Company make to pay off the note and interest at maturity assuming that interest has been accrued to June 30?
A) Notes Payable 206,000 Cash 206,000
B) Notes Payable 200,000 Interest Payable 6,000
Cash 206,000
C) Interest Expense 6,000 Notes Payable 200,000
Cash 206,000
D) Interest Payable 3,000 Notes Payable 200,000
Interest Expense 3,000
Cash 206,000

Accepted Answer

The correct entry is to debit Notes Payable for $200,000, debit Interest Payable for $6,000, and credit Cash for $206,000. This entry records the payment of the note and the interest expense incurred over the six-month period.

Question 14

A company receives $261, of which $21 is for sales tax. The journal entry to record the sale would include a 
A)debit to Sales Taxes Expense for $21.
B) debit to Sales Taxes Payable for $21.
C) debit to Sales Revenue for $261.
D) debit to Cash for $261.

Accepted Answer

The company receives $261 in cash, so the journal entry should include a debit to Cash for $261 to reflect the increase in cash.

Question 15

On October 1, Sam's Painting Service borrows $100,000 from National Bank on a 3-month, $100,000, 4% note. What entry must Sam's Painting Service make on December 31 before financial statements are prepared?
A) Interest Payable 1,000 Interest Expense 1,000
B) Interest Expense 4,000 Interest Payable 4,000
C) Interest Expense 1,000 Interest Payable 1,000
D) Interest Expense 1,000 Notes Payable 1,000

Accepted Answer

The interest for 3 months is calculated as $100,000 * 4% * (3/12) = $1,000. Therefore, the entry should record $1,000 as both Interest Expense and Interest Payable.

Question 16

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 $252,000, what is the amount of the sales taxes owed to the taxing agency?
A) $240,000
B) $252,000
C) $12,600
D) $12,000

Accepted Answer

The sales revenue includes both the sales price and the sales tax. If $252,000 is the total, then $252,000 = Sales + 0.05(Sales). Solving for Sales gives $240,000, and the sales tax is 5% of $240,000, which is $12,000.

Question 17

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 Taxes 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 sales tax collected is a liability until it is paid to the government, so it is credited to Sales Taxes Payable.

Question 18

The interest charged on a $70,000 note payable, at the rate of 6%, on a 90-day note would be
A) $4,200.
B) $2,100.
C) $1,050.
D) $700.

Accepted Answer

The interest for a 90-day note is calculated using the formula: Interest = Principal x Rate x Time. Here, Principal = $70,000, Rate = 6% (or 0.06), and Time = 90/365 (since it's a 90-day note). Therefore, Interest = $70,000 x 0.06 x (90/365) = $1,050.

Question 19

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 is the portion of a company's long-term debt that is due to be paid within the next year. As such, it is classified as a current liability on the balance sheet.

Question 20

The interest charged on a $250,000 note payable, at the rate of 6%, for a year would be
A) $15,000.
B) $7,500.
C) $3,750.
D) $1,250.

Accepted Answer

The interest for a year is calculated as Principal x Rate = $250,000 x 0.06 = $15,000.

Quiz 10: Reporting and Analyzing Liabilities

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 $420,000, what is the amount of the sales taxes owed to the taxing agency?

On October 1, Sam's Painting Service borrows $100,000 from National Bank on a 3-month, $100,000, 4% note. The entry by Sam's Painting Service to record payment of the note and accrued interest on January 1 is

The interest charged on a $70,000 note payable, at the rate of 6%, on a 60-day note would be

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

Unearned Rent Revenue is

The interest charged on a $250,000 note payable, at the rate of 6%, on a 90-day note would be

On January 1, 2014, Ermler Company, a calendar-year company, issued $1,000,000 of notes payable, of which $250,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2014, is

West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. What is the adjusting entry required if Drake Builders Company prepares financial statements on March 30?

Sales taxes collected by a retailer are recorded by

The interest charged on a $250,000 note payable, at the rate of 6%, on a 60-day note would be

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

Interest expense on an interest-bearing note is

West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. What entry will Drake Builders Company make to pay off the note and interest at maturity assuming that interest has been accrued to June 30?

A company receives $261, of which $21 is for sales tax. The journal entry to record the sale would include a

On October 1, Sam's Painting Service borrows $100,000 from National Bank on a 3-month, $100,000, 4% note. What entry must Sam's Painting Service make on December 31 before financial statements are prepared?

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 $252,000, what is the amount of the sales taxes owed to the taxing agency?

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

The interest charged on a $70,000 note payable, at the rate of 6%, on a 90-day note would be

The current portion of long-term debt should

The interest charged on a $250,000 note payable, at the rate of 6%, for a year would be