Face value of a note payable plus total interest is called:
face value
principal
maturity value
proceeds
2
Hatmaker Company signs a note payable for $3,500 at 9% for 45 days. How much interest (to the nearest cent) will the company owe using a 360-day year?
$ 38.84
$354.38
$ 39.38
$315.00
3
Bingo Corp signed a promissory note of $1,000 for one of its vendors in exchange for supplies. $100 cash payment is due upon signing the note and the term is that the balance and interest are due in 90 days at 12% (assume 360 days). Bingo will record the note in the book at the inception of the term as
Debit Accounts Receivable $1, 000; Credit Cash $100 and credit Notes Receivable $900
Debit Accounts Payable $1, 000; Credit Cash $100 and credit Notes Payable $900
Debit Supplies $1, 000; Credit Cash $100 and credit Notes Payable $900
None of the above
4
Archie’s had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be credited to Sales revenue?
$7,231.06
$6,758.00
$473.06
$458.00
5
A major difference between accounts payable and notes payable is that
Accounts payable are classified as current assets but notes payable are not
Notes payable are more formal than accounts payable
Notes payable are long-term assets but accounts payable are current assets
Notes payable charge interest but accounts payable do not
6
On June 20, 2013, ABC Services received $2,400 in advance from a customer for one month’s service. The journal entry to record the receipt of cash would be which of the following?
Debit Cash $2,400 and credit Service revenue $2,400
Debit Unearned service revenue $2,400 and credit Service revenue $2,400
Debit Cash $2,400 and credit Unearned service revenue $2,400
Debit Unearned service revenue $2,400 and credit Cash $2,400
7
Carter Company records sales on account of $950,500. The company operates in a state that imposes a 5% sales tax. Which of the following would be the amount of the Sales tax payable to the state?
$45,000
$50,500
$47,525
$55,000
8
Accounts payable is a(n)
Contingent liability
Estimated liability
Accrued liability
Known liability
1
All the following are true about an installment note for a borrower except
Installment notes are a series of payments to a lender
Installment notes are recorded by including a credit to cash
Installment notes are recorded by including a credit to notes payable
Installment notes are recorded by including a debit to cash
2
Accounts payable are
Amounts owed to suppliers for products and/or services purchased on credit
Paid within 30 days
Estimated liabilities
Long-term liabilities
4
The face amount of a promissory note is called the:
time of the note
discount of the note
principal of the note
interest rate of the note
6
The entry to accrue interest at year-end on a note payable would be
debit Interest Expense, credit Cash
debit Interest Expense, credit Notes Payable
debit Interest Expense, credit Interest Payable
8
On June 20, 2013, ABC Services received $2,400 in advance from a customer for one month’s service. The journal entry to record the receipt of cash would be which of the following?
Debit Cash $2,400 and credit Service revenue $2,400
Debit Cash $2,400 and credit Unearned service revenue $2,400
Debit Unearned service revenue $2,400 and credit Cash $2,400
Debit Unearned service revenue $2,400 and credit Service revenue $2,400
Lenient Auto signed a $45,000 8% 30-year installment note on November 1, 2013. The note requires semiannual payments of $750 plus interest on May 1 and November 1 of each year. How will Lenient Auto classify this loan on its December 31, 2013 Balance Sheet?
Current Portion of Long-term debt, $0; Long-term debt, $45,000
Current Portion of Long-term debt, $45,000; Long-term debt, $0
Current Portion of Long-term debt, $750; Long-term debt, $44,250
Current Portion of Long-term debt, $1,500; Long-term debt, $43,500
4
Bingo Corp signed a promissory note of $1,000 for one of its vendors in exchange for supplies. $100 cash payment is due upon signing the note and the term is that the balance and interest are due in 90 days at 12% (assume 360 days and that interest payable has been recorded). Bingo will record the transaction at the end of the term as
Debit Accounts Receivable $900; Credit Cash $900
Debit Notes Payable $900, Debit Interest payable $27; Credit Cash $927
Debit Accounts Payable $900, Debit Interest expense $27; Credit Cash $927
None of the above
5
The cost of borrowing money or the return on lending money is called
Notes payable
Interest
Liabilities
None of the above
A short-term note payable
Is a contingent liability
Is an estimated liability
Is a written promise to pay a specified amount on a definite future date within one year or the company’s operating cycle, whichever is longer
Is not a liability until the due date
8
Archie’s had sales of $6,758. The state sales tax rate is 7%. All sales are cash. What amount will be debited to Cash?
$7,231.06
$866.06
$473.06
$6,758.00
When a company issues a promissory note, the entry will include a credit to Note Payable for the
face value of the note
face value of the note minus interest to pay
face value of the note plus interest to pay
maturity value of the note
We R Kids purchased playground equipment for 12,000 on credit and issued a 120-day note bearing interest at 9 percent a year as evidence of the debt. To record this transaction, the accountant would
Debit equipment for $12,000, debit Interest Expense for $360, and credit Notes Payable for $12,360
Debit equipment for $12,360, credit Interest Expense for $360, and credit Notes Payable for $12,000
Debit equipment for $12,000 and credit Notes Payable for $12,000
Debit equipment for $12,000 and credit Accounts Payable for $12,000
Vacation benefits are an example of:
accounts to be created
estimated liabilities, contingent liabilities
a pension plan
a reconciliation of petty cash
2
The matching principle requires businesses to record Warranty Expense: (choose 2)
incurred when the company makes a sale
with its accounts payable
in the same period the company records revenue related to said warranty
with a check number
P
3
Warranty obligations are estimated based on: (choose 2)
historical experience of anticipated product defects
the customer’s age and gender
material and labors estimates for repair
the suppliers
4
Contingent liabilities are: (choose 2)
set values used for the matching principle
potential liabilities that may not actually occur in the future
accrued when they are likely to occur & can be reasonably estimated
the same thing as estimated liabilities
5
Two examples of an “estimated liability” are: (choose 2)
Supplier information
Employee benefits
Income taxes
Account to be debited
5
The obligation a company has to the purchaser of its product or service is: (choose 2)
to keep records of competing products or services
an estimate of obligation
its names of suppliers
a warranty liability
7
Accounting for liabilities is important for a company to remain in compliance with: (choose 2)
GAAP
IRR
JIT
IFRS
8
An estimated liability is:
accrued overtime
a known obligation of uncertain amount that can be estimated, an obligation with no set value that will be determined in the future
the same as a payroll
the estimation of a business’ liability
7
A co-signed ‘note Payable’ is an example of a (an):
account to be credited
form of financial statement
assets
estimated current liability
8
Two types of classification of “Contingent Liability” are: (choose 2)
“Unreasonable”
“Unlikely”
“Probably”
“Remote”
1
Good management of current liabilities can do which of the following?
Helps deplete the cash fund
Helps increase a company’s debt
Helps improve cash flow
Helps maintain good supplier relations
2
Which current liability is generally listed first on the balance sheet?
Notes payable
Accounts payable
Current portions of long-term debt
Accrued payables
3
Which of the following statements is true about liabilities?
They must involve an outflow of cash
They must be certain
They may have to be estimated
They must be for a specific amount
4
Which of the following is associated with cash received in advance for services to be performed in the future?
Estimated warranty payable
Unearned revenue
Accounts payable
Accrued expense
5
Which of the following statements is false about liabilities?
They can be classified as either current or long-term
They are recorded when paid
They are generally valued at the amount of money needed to pay the debt or reported at the fair market value of the goods or services to be delivered
Disclosures in the notes to the financial statements are required for most liabilities
6
Unearned revenue is initially recognized with a:
Credit to revenue
Credit to unearned revenue
Debit to unearned revenue
Debit to revenue payable
7
Which of the following would be included in the journal entry to record the payment of accrued sales tax?
A debit to Sales tax expense
A debit to Sales tax payable
A credit to Sales tax payable
A credit to Sales tax expense
8
Payroll liabilities include taxes paid to the federal, state, or local government what else might qualify for a current liability related to payroll?
FICA (Federal Insurance Contribution Act) contributions or Social Security
Health insurance
Retirement benefits
Unemployment insurance
9
Sales revenue for a sporting goods store amounted to $215,000 for the current period. All sales are on account and are subject to a sales tax of 7%. Which of the following would be included in the journal entry to record these sales?
A debit to Sales tax payable for $15,050
A credit to Accounts receivable for $215,000
A debit to Accounts receivable for $230,050
A debit to Sales revenue for $215,000
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10
Notes payable is:
A business expense
A current liability
An estimated liability
A contingent liability
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11
Amounts received in advance from customers for future products or services are called
Income
Assets
Liabilities
Revenues
12
Which of the following is true regarding the treatment of accounts payable, sales tax payable, and unearned revenues?
Both GAAP and IFRS treat these accounts as known liabilities
IFRS treats them as known liabilities, while GAAP treats these accounts as contingent liabilities
Both GAAP and IFRS treat these accounts as estimated liabilities
GAAP treats them as estimated liabilities, while IFRS treats these accounts as contingent liabilities
2
Which of the following correctly describes Interest payable?
Interest payable is shown on the balance sheet as a current liability.
Interest payable is shown on the income statement as an operating expense.
Interest payable is shown on the balance sheet as a long-term liability.
Interest payable is shown on the balance sheet as a current asset.
3
Which of the following is true for a liability to exist?
An obligation to pay cash in the future must exist.
The identity of the party must be known.
The exact amount must be known.
A past transaction or event must have occurred.
4
Obligations due to be paid within one year or within the company’s operating cycle, whichever is longer, are:
Current liabilities
Operating cycle liabilities
Revenues
Bills
8
Which of the following correctly describes the unearned revenue account?
The unearned revenue account represents revenue that has been earned and collected.
The unearned revenue account represents revenue that has been earned, but not yet collected.
The unearned revenue account represents revenue that has been collected, but not yet earned.
The unearned revenue account represents revenue that has neither been earned nor collected.
9
Which of the following is a liability created when a company receives cash for services to be provided in the future?
Service revenue
Unearned revenue
Accrued liability
Estimated warranty payable
11
Accounts payable is:
A contingent liability
An estimated liability
A current liability
A business expense
12
Which of the following is not an example of a certainly determinable liability?
Sales tax payable
Income taxes payable
Unearned revenues
Payroll taxes payable
2
Which of the following is a characteristic of a current liability?
A current liability is a liability that is due within 30 days
A current liability is a liability that is due in longer than a one-year period, or one operating cycle
A current liability is a liability that is due within one year or one operating cycle, whichever is longer
A current liability is a liability that is due within 10 days
1
Employers are required to ____________ in Medicare tax as the employee.
withhold 25%
withhold 50%
contribute double the amount
contribute the same percentage
2
Payroll liabilities are based on:
the amount earned before any deductions, the employee’s gross earnings
the same thing as estimated liabilities
set values used for the matching principle
t-accounts that are simplified
3
Medicare tax is:
a care tax
an employee withholding, an employer expense
a use tax
a voluntary deduction
4
An employees’ gross earnings minus all withholdings is called:
Complete pay
Take home amount, net pay
Benefits
An Accrual account
5
__________ Accounts are set up to track liability or employee payroll. (choose 2)
Contingent
Liability
Accrual
Payroll
2
Payroll is the process of:
Paying employees
Creating accounts
Organizing accounts payable
Forming a pension plan
4
_______ is referred to as FICA.
Life insurance
Social Security tax
Federal tax
Income tax
7
Employees are responsible for paying a social security tax of _____%, which is withheld from their wages.
5
3.5
1.45
6.2
8
Employers are required to withhold federal income tax from an employees’ gross paycheck based on: (choose 2)
IRS regulations
employees’ number of dependents
marital status
age
1
The federal government requires employers to pay an unemployment tax (of ): (choose 2)
With a maximum of 5.4% subtracted from the federal rate
$7,000
$5,400
6.0 %
2
Who pays Social Security and Medicare taxes? (choose 2)
Corporate
Headquarters
Employees
Employers
3
When an employer chooses to match or contribute to retirement accounts, these moneys are: (choose 2)
Considered liabilities
Recorded as benefits
Reduced accordingly after being paid
Deducted from an accrual account
4
Employers are required to pay payroll taxes per the: (choose 2)
State Unemployment Tax Act
Securities and Exchange Commission
International Finance Standards Board
Federal Unemployment Tax Act
5
Employers with reserves in the unemployment fund will: (choose 2)
Pay less than those with small or no reserve
Contribute to an employees’ earnings
Pay lower tax rates
Be more likely to allow unemployment cases
3
Employer’s contribution of social security is based on ___________ of an employees’ wages. (choose 2)
The first $50,000
The first $113,700
The first $100,000
6.2%
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4
Paid sick days and holidays are:
Required
Implied
Benefits
Taken out of retirement planning
6
Unemployment tax rates are determined:
By the state
By The federal Reserve
Based on Social Security earnings
By corporate offices
1
Which of the following is an amount for products or services purchased on account?
Unearned revenue
Estimated warranty payable
Accrued expense
Accounts payable
8
Employers are required to make provisions for: (choose 2)
FICA
Medicare
Sick days
Holiday planning
4
The employer’s portion of SS and Medicare taxes are recorded as _________________ until the amounts are remitted.
benefits
accrued accounts
receivables
a current liability
6
A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of accrued interest on December 31, 2015?
$133
$267
$200
$800
4
Best in Town Fence had sales on account of $7,200 which were subject to state sales tax of 7%. The entry to record the sales would be to
Debit Accounts receivable, $7,704; credit Sales revenue, $7,200; credit Sales tax payable, $504
Debit Accounts receivable, $7,200; debit Sales tax payable, $504; credit Sales revenue, $7,704
Debit Accounts receivable, $7,200; credit Sales revenue, $7,200
Debit Accounts receivable, $7,704; credit Sale revenue, $7,704
11
ABC Company signed a 5-year note payable for $80,000 at 9% annual interest. What is the interest expense for December 31, 2012 if the note was signed on May 1, 2012?
$2,400
$7,200
$36,000
$4,800
7
Failure to record a liability can
Result in understated net income
Result in overstated net income
Have no effect on net income
Result in overstated total liabilities and owner’s equity
8
Sales taxes payable is
A current liability
A business expense
An estimated liability
A contingent liability
