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| 1 | |
Current liabilities are those obligations due within a year or the company's operating cycle, whichever is longer. |
| | A) | True |
| | B) | False |
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| 2 | |
Improper classification and reporting of a current liability as long-term can mislead decision makers. |
| | A) | True |
| | B) | False |
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| 3 | |
Sales Tax Payable is the liability account used to record a seller's Sales Tax Expense not yet remitted to the government. |
| | A) | True |
| | B) | False |
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| 4 | |
A debt guarantee can lead to a potential contingent liability. |
| | A) | True |
| | B) | False |
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| 5 | |
An increase in the times interest earned ratio from 4.5 to 7.5 in light of income that is stable from year to year would be viewed favorably by analysts. |
| | A) | True |
| | B) | False |
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| 6 | |
The times interest earned ratio is calculated by dividing total interest expense by total sales for the period. |
| | A) | True |
| | B) | False |
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| 7 | |
When the end of an accounting period occurs between the signing of a note payable and its maturity date, the revenue recognition principle requires an adjusting entry to record the accrued interest on the note. |
| | A) | True |
| | B) | False |
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| 8 | |
Even though there are 365 days in a year (366 in a leap year), companies commonly compute interest using a 360-day year. |
| | A) | True |
| | B) | False |
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| 9 | |
On December 31, the accrued interest for a $10,000, 12%, 60-day note payable dated December 16 will total $50. |
| | A) | True |
| | B) | False |
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| 10 | |
The accrued interest on December 31 for a $10,000, 12%, 60-day note payable dated December 1 totals $100. The interest expense recorded on January 30, when the note is paid in full, will total $100. |
| | A) | True |
| | B) | False |
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| 11 | |
Payroll deductions are commonly called withholdings. |
| | A) | True |
| | B) | False |
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| 12 | |
Salary Expense is debited for the amount of the net wages payable to employees. |
| | A) | True |
| | B) | False |
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| 13 | |
A single liability can be divided between current and non-current portions. |
| | A) | True |
| | B) | False |
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| 14 | |
Federal unemployment taxes are an example of a payroll deduction. |
| | A) | True |
| | B) | False |
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| 15 | |
A warranty is an example of an estimated liability. |
| | A) | True |
| | B) | False |
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| 16 | |
Which of the following is true about current liabilities? |
| | A) | They are also called short-term liabilities |
| | B) | They are obligations due within a year or the company's operating cycle, whichever is longer. |
| | C) | They are expected to be paid with current assets or by creating other liabilities |
| | D) | All of the above |
| | E) | None of the above |
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| 17 | |
Which of the following is not one of the crucial factors include in the definition of a liability? |
| | A) | A past transaction or event |
| | B) | A present obligation |
| | C) | An obligation of a known amount |
| | D) | A future payment of assets or services |
| | E) | All of the above are crucial factors in the definition of a liability. |
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| 18 | |
Which of the following questions must be addressed when accounting for liabilities? |
| | A) | When to pay? |
| | B) | How much to pay? |
| | C) | Whom to pay? |
| | D) | All of the above |
| | E) | None of the above |
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| 19 | |
Which of the following is not an example of a known current liability? |
| | A) | Accounts payable |
| | B) | Sales tax payable |
| | C) | Unearned revenues |
| | D) | Payroll liabilities |
| | E) | Vacation Benefits |
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| 20 | |
When should a contingent liability be recorded on the face of the financial statements? |
| | A) | When the future event is probable and can be reasonably estimated |
| | B) | When the future event is remote |
| | C) | When the future event is reasonably possible and can be reasonably estimated |
| | D) | All of the above |
| | E) | None of the above |
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| 21 | |
Which of the following is not a contingent liability? |
| | A) | Product warranty |
| | B) | Debt guarantee |
| | C) | Potential legal claim arising from a lawsuit claiming slander |
| | D) | Potential legal claim arising from a lawsuit claiming property damage |
| | E) | None of the above |
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| 22 | |
The following information is available from the company's financial statements: cash $40,000, net income $450,000, interest expenses $40,000, depreciation expense $30,000, and income tax expense $20,000. What is the times interest earned? |
| | A) | 11.25 |
| | B) | 12.75 |
| | C) | 13.00 |
| | D) | 14.50 |
| | E) | None of the above |
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| 23 | |
At the end of the year, accrued but unpaid interest on a note payable equals $10,000. Which of the following adjusting entry would be recorded as a result? |
| | A) | Debit the Prepaid Interest account, credit the Interest Expense account for $10,000 |
| | B) | Debit the Interest Expense account, credit the Prepaid Interest account for $10,000 |
| | C) | Debit the Interest Payable account, credit the Interest Expense account for $10,000 |
| | D) | Debit the Interest Expense account, credit the Interest Payable account for $10,000 |
| | E) | No adjusting entry is required; the related interest is not yet due. |
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| 24 | |
A $10,000, 9% 90-day note payable is signed on December 1, 2005. What is the amount of accrued, but unpaid interest relating to this note at December 31? |
| | A) | $75 |
| | B) | $225 |
| | C) | $750 |
| | D) | $2,250 |
| | E) | $10,000 |
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| 25 | |
A $40,000 note is signed on December 26, 2008 and is due in 120 days. What is the maturity date of this note? |
| | A) | March 24 |
| | B) | March 25 |
| | C) | March 26 |
| | D) | April 25 |
| | E) | April 26 |
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| 26 | |
Which of the following is not an employee payroll tax? |
| | A) | Employee federal income taxes |
| | B) | Employee state income taxes |
| | C) | State Unemployment Taxes (SUTA) |
| | D) | Federal Insurance Contribution Act taxes (FICA) |
| | E) | None of the above |
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| 27 | |
Which of the following taxes would not be included in payroll tax expense of an employer? |
| | A) | Federal unemployment taxes |
| | B) | Employer FICA taxes |
| | C) | Federal and state income tax |
| | D) | State unemployment taxes |
| | E) | None of the above |
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| 28 | |
The recording of a product warranty expense in the year the merchandise under warranty is sold is supported by which principle(s) or concept? |
| | A) | Recognition principle |
| | B) | Full disclosure and matching principles |
| | C) | Realization principle |
| | D) | Business entity concept |
| | E) | Materiality principle |
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| 29 | |
A television manufacturer offers a warranty on its sales of new televisions. During December, new television sales totaled $205,000. Past experience shows that warranty expense averages about 4% of the annual sales. What adjusting journal entry should be recorded on December 31 relating to the warranty? |
| | A) | Debit Warranty Expense for $8,200; Credit Estimated Warranty Liability for $8,200 |
| | B) | Debit Estimated Warranty Liability for $8,200; Credit Warranty Expense for $8,200 |
| | C) | Debit Warranty Expense for $8,200; Credit Television Parts Inventory for $8,200 |
| | D) | Debit Warranty Expense for $8,200; Credit Accounts Payable for $8,200 |
| | E) | No entry needed on December 31. |
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| 30 | |
An employer offers a bonus to its employees equal to 4% of the company's annual net income (to be equally shared by all). The company's expected annual net income is $700,000. What is the amount of the company's bonus expense? |
| | A) | $26,923 |
| | B) | $28,000 |
| | C) | $29,077 |
| | D) | Cannot be determined |
| | E) | None of the above |
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