# Result in overstated total liabilities and owner’s equity 8

July 30, 2019
###### . determine the difference between the monthly payments on a \$120,000 home at 61∕2% and at 8% for 25 years
July 30, 2019

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 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

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

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

An estimated liability

A contingent liability

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