Question 1

On November 1, Greenfield Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000.If you assume 360 days in year, the November 30 adjusting entry will be:
A) Debit Interest Expense $550 and credit Cash $550.
B) Debit Discount on Notes Payable $1,100 and credit Interest Payable $1,100.
C) Debit Interest Expense $550 and credit Interest Payable $550.
D) Debit Interest Expense $550 and credit Notes Payable $550.

Accepted Answer

The adjusting entry on November 30 for Greenfield Corporation's note payable will be to accrue interest expense and interest payable for one month (30 days).

To calculate the interest expense, we can use the formula:

Interest expense = (Principal x Rate x Time) / 360

Principal = $55,000 
Rate = 12% 
Time = 30 days

Interest expense = ($55,000 x 0.12 x 30) / 360 = $550

Therefore, the adjusting entry will be to debit Interest Expense for $550 and credit Interest Payable for $550. This recognizes the expense for the month and the liability to pay interest at a later date. Option C is the correct choice.

Question 2

Marsh Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date.After one month, the company's total liability for this loan amounts to:
A) $91,800
B) $90,900
C) $90,450
D) $90,000

Accepted Answer

The interest expense for one month on a 12% six-month note payable can be calculated as follows:

($90,000 x 0.12) x (1/12) = $900

Thus, after one month, Marsh Corporation would owe the original principal of $90,000 plus the interest expense of $900, for a total liability of $90,900.

Question 3

Long-term assets are $5,000, current liabilities are $700, and long-term liabilities are $3,000.If the current ratio is 3 to 1, then current assets are
A) $9,000
B) $6,900
C) $4,300
D) $2,100

Accepted Answer

The answer of Long-term assets are $5,000, current liabilities are...

Question 4

Proctor Inc.has a weekly payroll of $8,000 for a 5-day workweek, Monday through Friday.If December 31, the last day of the accounting year, falls on Wednesday, Proctor would make an adjusting entry that would
A) increase wages expense $4,800.
B) decrease wages payable $4,800.
C) decrease cash $4,800.
D) increase wages payable $8,000.

Accepted Answer

The correct adjusting entry for Proctor Inc. would be to recognize the wages expense incurred but not yet paid for the three days of the workweek that have passed (Monday through Wednesday). Since the weekly payroll is $8,000 for a 5-day workweek, the daily payroll is $1,600 ($8,000 / 5). For three days, this amounts to $4,800 ($1,600 x 3), which should be recognized as an additional wages expense to accurately reflect the costs incurred during the year. This adjustment does not involve decreasing cash or wages payable directly but rather increases the wages expense to account for the accrued wages.

Question 5

Almost all current liabilities affect the operating category of the statement of cash flows, but one that does not affect cash provided by operating activities is
A) accounts payable.
B) interest payable.
C) notes payable.
D) taxes payable.

Accepted Answer

Notes payable typically affects financing activities on the statement of cash flows, not operating activities. The other options (accounts payable, interest payable, and taxes payable) generally involve operational transactions that affect cash flow from operating activities.

Question 6

On November 1, 2016, Brownsville Co.borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity.The interest on this loan is stated separately.At December 31, 2016, the adjusting entry for this note includes a:
A) Debit to Interest Expense for $3,200.
B) Credit to Notes Payable for $1,600.
C) Credit to Cash for $4,800.
D) Credit to Interest Payable for $1,600.

Accepted Answer

Since the note has a 12% annual interest rate, the amount of interest expense accrued from November 1 to December 31 (2 out of the 6 total months) is ($80,000 x 0.12 x 2/12) = $1,600. This means the adjusting entry should include a credit to Interest Payable for $1,600, indicating that the company owes this amount to the bank in interest for the loan. No entry is necessary for Notes Payable or Cash at this time.

Question 7

A company's weekly payroll amounts to $50,000 and payday for the week is every Friday.Employees work five days per week, Monday through Friday.The appropriate journal entry was recorded at the end of the accounting period, Monday, March 31, 2016.What amount is wages expense for April for the payday, Friday, April, 4, 2016?
A) $ -0-
B) $40,000
C) $10,000
D) $50,000

Accepted Answer

The weekly payroll is $50,000 for five days of work (Monday through Friday). Since the payday is Friday, April 4, 2016, and the accounting period ended on Monday, March 31, 2016, four days of wages (Tuesday, Wednesday, Thursday, and Friday of that week) fall into April. Therefore, the wages expense for April is 4/5 of the weekly payroll: $50,000 * (4/5) = $40,000.

Question 8

There are some liabilities, such as income tax payable, for which the amounts must be estimated.Failure to estimate these amounts and record them would be a violation of the
A) matching principle
B) convention of conservation
C) practice of consistency
D) concept of historical cost

Accepted Answer

The matching principle requires that expenses associated with generating revenue in a given accounting period should be recognized in that same period. Estimating and recording income tax payable ensures that expenses related to income taxes are matched with the revenue earned in the same accounting period. Failure to estimate and record income tax payable would violate the matching principle. The convention of conservation, practice of consistency, and concept of historical cost do not relate to the issue of estimating and recording income tax payable.

Question 9

If a company purchases $3,000 worth of inventory with terms of 1/15, n30 and pays within 15 days, then the amount paid to the seller would be
A) $2,550
B) $2,970
C) $3,000
D) $3,030

Accepted Answer

The terms 1/15, n30 mean that the buyer can take a 1% discount if they pay within 15 days. Therefore, the amount paid is $3,000 - ($3,000 * 0.01) = $3,000 - $30 = $2,970.

Question 10

Executive, Inc.has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday.If December 31, the last day of the accounting year, falls on Thursday, Executive would make an adjusting entry that would
A) increase Wages Expense $8,000.
B) decrease Wages Payable $2,000.
C) decrease Cash $8,000.
D) increase Wages Payable $2,000.

Accepted Answer

The answer of Executive, Inc.has a weekly payroll of $10,000...

Question 11

Interest payable on a loan becomes a liability:
A) When the borrowed money is received.
B) When the note payable is issued.
C) At the maturity date.
D) As it accrues.

Accepted Answer

Interest payable on a loan becomes a liability as it accrues, which means over time as the interest expense is incurred. It is not recognized as a liability at the point of receiving the borrowed money or issuing the note payable, as the interest has not yet accrued. It also doesn't happen all at once at the maturity date, as interest is typically paid or accrued periodically throughout the life of the loan.

Question 12

An example of a current liability that must be accrued is
A) accounts payable.
B) current maturity of long-term debt.
C) revenue received in advance.
D) income taxes payable.

Accepted Answer

Income taxes payable is a current liability that must be accrued. This means that a company must estimate the amount of income taxes it will owe for the current year and record that amount as a liability even though the exact amount may not be known yet. This is done to ensure that the company properly reflects its financial position and obligations.

Question 13

On November 1, 2016, Brownsville Co.borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity.The interest on this loan is stated separately.At December 31, 2016, Brownsville Co.'s overall liability for this loan amounts to:
A) $84,800
B) $80,000
C) $81,600
D) $83,200

Accepted Answer

The interest on the loan can be calculated by multiplying the principal amount by the annual interest rate and the time period:
$80,000 x 12% x 6/12 = $4,800

Therefore, the total amount due at maturity (which includes both the principal and interest) is:
$80,000 + $4,800 = $84,800

At December 31, 2016, which is halfway through the loan term, Brownsville Co. would owe:
$80,000 + ($80,000 x 12% x 6/12) = $80,000 + $4,800 = $81,600

So the correct answer is C.

Question 14

On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note.If the company's fiscal year ends as of December 31, Lawrence should make an entry to increase
A) interest expense, $4,200.
B) notes payable, $1,050.
C) interest payable, $1,050.
D) prepaid interest, $3,150.

Accepted Answer

Interest for three months (October to December) is calculated as $60,000 * 7% * (3/12) = $1,050. This amount represents the interest expense incurred but not yet paid by the year-end, thus increasing interest payable.

Question 15

If current assets amount to $62,000, total assets $350,000, current liabilities $31,000, and total liabilities $125,000, then the current ratio is
A) 0.5 to 1
B) 2.0 to 1
C) 2.8 to 1
D) 3.0 to 1

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. In this case, it is $62,000 / $31,000 = 2.0 to 1.

Question 16

On May 1, the Chris Company borrowed $30,000 from the Third Street Bank on a 1-year, 6% note.If the company keeps its records on a calendar year, an entry is needed on December 31 to increase
A) Interest Expense, $600.
B) Interest Expense, $1,800.
C) Interest Payable, $900.
D) Interest Payable, $1,200.

Accepted Answer

The answer of On May 1, the Chris Company borrowed...

Question 17

All of the following statements are true except:
A) U.S.standards do not require a classified balance sheet.
B) IFRS require companies to present classified balance sheets.
C) Under IFRS, an unclassified balance sheet based on the order of liquidity is acceptable only when it provides more reliable information than a classified one.
D) U.S.standards require a classified balance sheet with liabilities in order by size or by order of liquidity.

Accepted Answer

The answer of All of the following statements are true...

Question 18

Employees earn $6,000 per day, work five days per week, Monday through Friday, and get paid every Friday.If the previous payday was January 26 and the accounting period ends on January 31, what amount is the ending balance in the wages payable account?
A) $18,000
B) $6,000
C) $30,000
D) None of these choices.

Accepted Answer

The employees earn $6,000 per day and work five days a week. Since the last payday was January 26, they worked three days (January 29, 30, and 31) before the accounting period ended on January 31. Therefore, the wages payable for these three days is 3 days x $6,000/day = $18,000.

Question 19

A bank loaned York Construction Company $35,000 on a 1-year, 6% note, but deducted the interest in advance.The journal entry made by York to record receipt of the cash would include an
A) increase in Cash for $35,000.
B) decrease in Notes Payable for $32,900.
C) increase in Discount on Notes Payable for $2,100.
D) increase in Interest Revenue for $2,100.

Accepted Answer

The correct answer is C because when a bank deducts interest in advance on a loan, the borrower records the interest as a "Discount on Notes Payable." This discount reduces the carrying amount of the note payable and is amortized over the life of the note. The interest deducted in advance ($35,000 * 6% = $2,100) is not recorded as Interest Revenue by the borrower but as a discount on the liability.

Question 20

An invoice received from a supplier for $8,000 on January 1 with terms 1/15, n/30 means that the company should pay
A) $7,920 before the end of January.
B) either $7,920 before January 16 or $8,000 before the end of the month.
C) $8,000 between January 2 and January 16.
D) $6,800 before January 16.

Accepted Answer

The terms 1/15, n/30 mean that the buyer can take a 1% discount if they pay within 15 days, or they can pay the full amount within 30 days. Therefore, the company can either pay $7,920 (1% discount from $8,000) before January 16 or pay the full amount of $8,000 before the end of January.

Quiz 9: Current Liabilities, Contingencies, and the True Value of Money

On November 1, Greenfield Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000.If you assume 360 days in year, the November 30 adjusting entry will be:

Marsh Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date.After one month, the company's total liability for this loan amounts to:

Long-term assets are $5,000, current liabilities are $700, and long-term liabilities are $3,000.If the current ratio is 3 to 1, then current assets are

Proctor Inc.has a weekly payroll of $8,000 for a 5-day workweek, Monday through Friday.If December 31, the last day of the accounting year, falls on Wednesday, Proctor would make an adjusting entry that would

Almost all current liabilities affect the operating category of the statement of cash flows, but one that does not affect cash provided by operating activities is

On November 1, 2016, Brownsville Co.borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity.The interest on this loan is stated separately.At December 31, 2016, the adjusting entry for this note includes a:

There are some liabilities, such as income tax payable, for which the amounts must be estimated.Failure to estimate these amounts and record them would be a violation of the

If a company purchases $3,000 worth of inventory with terms of 1/15, n30 and pays within 15 days, then the amount paid to the seller would be

Executive, Inc.has a weekly payroll of $10,000 for a 5-day workweek, Monday through Friday.If December 31, the last day of the accounting year, falls on Thursday, Executive would make an adjusting entry that would

Interest payable on a loan becomes a liability:

An example of a current liability that must be accrued is

On November 1, 2016, Brownsville Co.borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity.The interest on this loan is stated separately.At December 31, 2016, Brownsville Co.'s overall liability for this loan amounts to:

On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note.If the company's fiscal year ends as of December 31, Lawrence should make an entry to increase

If current assets amount to $62,000, total assets $350,000, current liabilities $31,000, and total liabilities $125,000, then the current ratio is

On May 1, the Chris Company borrowed $30,000 from the Third Street Bank on a 1-year, 6% note.If the company keeps its records on a calendar year, an entry is needed on December 31 to increase

All of the following statements are true except:

Employees earn $6,000 per day, work five days per week, Monday through Friday, and get paid every Friday.If the previous payday was January 26 and the accounting period ends on January 31, what amount is the ending balance in the wages payable account?

A bank loaned York Construction Company $35,000 on a 1-year, 6% note, but deducted the interest in advance.The journal entry made by York to record receipt of the cash would include an

An invoice received from a supplier for $8,000 on January 1 with terms 1/15, n/30 means that the company should pay