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 $294,000, what is the amount of the sales taxes owed to the taxing agency?

Accepted Answer

A) $280,000 
B) $294,000 
C) $14,700 
D) $14,000

Question 2

Hernandez Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1, 2015, at 98. The journal entry to record the issuance will show a

Accepted Answer

A) debit to Cash of $2,000,000. 
B) credit to Discount on Bonds Payable for $40,000. 
C) credit to Bonds Payable for $2,040,000. 
D) debit to Cash for $1,960,000.

Question 3

Which of the following is not an advantage of issuing bonds instead of common stock?

Accepted Answer

A) Stockholder control is not affected. 
B) Earnings per share on common stock may be lower. 
C) Income to common stockholders may increase. 
D) Tax savings result.

Question 4

Notes payable usually require the borrower to pay interest.

Accepted Answer

A) True 
 B)False

Question 5

Notes payable are often used instead of accounts payable.

Accepted Answer

A) True 
 B)False

Question 6

Employee payroll deductions include each of the following except

Accepted Answer

A) federal unemployment taxes. 
B) federal income taxes. 
C) FICA taxes. 
D) insurance and pensions.

Question 7

A corporation recognizes a gain or loss

Accepted Answer

A) only when bonds are converted into common stock. 
B) only when bonds are redeemed before maturity. 
C) when bonds are redeemed at or before maturity. 
D) when bonds are converted into common stock and when they are redeemed before maturity.

Question 8

A current liability must be paid out of current earnings.

Accepted Answer

A) True 
 B)False

Question 9

The current ratio is

Accepted Answer

A) current assets plus current liabilities. 
B) current assets minus current liabilities. 
C) current assets divided by current liabilities. 
D) current assets multiplied by current liabilities.

Question 10

Any balance in an unearned revenue account is reported as a(n)

Accepted Answer

A) current liability. 
B) long-term debt. 
C) revenue. 
D) unearned liability.

Question 11

A corporation issues $500,000, 8%, 5-year bonds on January 1, 2015, for $479,000. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2015's adjusting entry is

Accepted Answer

A) $44,200. 
B) $40,000. 
C) $35,800. 
D) $4,200.

Question 12

A current liability is a debt the company reasonably expects to pay from existing current assets within

Accepted Answer

A) one year. 
B) the operating cycle. 
C) one year or the operating cycle, whichever is longer. 
D) one year or the operating cycle, whichever is shorter.

Question 13

203. Either the straight-line method or the effective-interest method of amortization will always result in

Accepted Answer

A) the same amount of interest expense being recognized over the term of the bonds. 
B) the same amount of interest expense being recognized each year. 
C) more interest expense being recognized than if premium or discounts were not amortized. 
D) the same carrying value each year during the term of the bonds.

Question 14

On October 1, 2014, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2015, the entry to record the payment of the note on July 1, 2015, will include a:

Accepted Answer

A) debit to Interest Expense of $2,250. 
B) credit to Cash of $90,000 
C) debit to Interest Payable of $6,750. 
D) debit to Notes Payable of $96,750.

Question 15

When authorizing bonds to be issued, the board of directors does not specify the

Accepted Answer

A) total number of bonds authorized to be sold. 
B) contractual interest rate. 
C) selling price. 
D) total face value of the bonds.

Question 16

Which one of the following payroll taxes does not result in a payroll tax expense for the employer?

Accepted Answer

A) FICA tax 
B) Federal income tax 
C) Federal unemployment tax 
D) State unemployment tax

Question 17

Winter Company purchased a building on January 2 by signing a long-term $630,000 mortgage with monthly payments of $5,400. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

Accepted Answer

A) debit to the Cash account for $5,400. 
B) credit to the Cash account for $5,250. 
C) debit to the Interest Expense account for $5,250. 
D) credit to the Mortgage Payable account for $5,400.

Question 18

A $600,000 bond was retired at 98 when the carrying value of the bond was $590,000. The entry to record the retirement would include a

Accepted Answer

A) gain on bond redemption of $10,000. 
B) loss on bond redemption of $10,000. 
C) loss on bond redemption of $2,000. 
D) gain on bond redemption of $2,000.

Question 19

209. Silk Company issued $500,000 of 7%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 9%. The effective-interest method of amortization is to be used. Interest is paid annually. The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a

Accepted Answer

A) debit to Interest Expense for $35,000. 
B) credit to Cash for $38,867. 
C) credit to Discount on Bonds Payable for $3,867. 
D) debit to Interest Expense for $45,000.

Question 20

248. The market price of a bond is the

Accepted Answer

A) present value of its principal amount at maturity plus the present value of all future interest payments. 
B) principal amount plus the present value of all future interest payments. 
C) principal amount plus all future interest payments. 
D) present value of its principal amount only.

Exam 10: 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 $294,000, what is the amount of the sales taxes owed to the taxing agency?

Hernandez Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1, 2015, at 98. The journal entry to record the issuance will show a

Which of the following is not an advantage of issuing bonds instead of common stock?

Notes payable usually require the borrower to pay interest.

Notes payable are often used instead of accounts payable.

Employee payroll deductions include each of the following except

A corporation recognizes a gain or loss

A current liability must be paid out of current earnings.

The current ratio is

Any balance in an unearned revenue account is reported as a(n)

A corporation issues $500,000, 8%, 5-year bonds on January 1, 2015, for $479,000. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2015's adjusting entry is

A current liability is a debt the company reasonably expects to pay from existing current assets within

203. Either the straight-line method or the effective-interest method of amortization will always result in

On October 1, 2014, Pennington Company issued a $90,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2015, the entry to record the payment of the note on July 1, 2015, will include a:

When authorizing bonds to be issued, the board of directors does not specify the

Which one of the following payroll taxes does not result in a payroll tax expense for the employer?

Winter Company purchased a building on January 2 by signing a long-term $630,000 mortgage with monthly payments of $5,400. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

A $600,000 bond was retired at 98 when the carrying value of the bond was $590,000. The entry to record the retirement would include a

248. The market price of a bond is the