ACTY 2100: SB 8.1

Which of the following are long-term liabilities?

Note payable due in 3 years 20-year mortgage payable

Which of the following are current liabilities?

Taxes payable Deferred revenues Accounts payable

Which of the following are current liabilities?

Wages payable Note payable due in 3 months Accounts payable

A(n) _____________ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash. (Enter only one word.)

accounts

An interest rate, unless otherwise specified, is typically a(n) rate.

annual

Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The 6% interest rate is a(n)

annual, 12 month rate.

Rhodes borrowed $5,000 by signing a 5-year note with an interest rate of 8%. On the date the note is signed, Rhodes should

credit notes payable $5,000.

Liabilities are classified as

current and long-term.

On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. The entry ABC would record at maturity, assuming all year-end (December 31) adjusting entries were made correctly, would include a ______.

debit to Interest payable of $1,000 credit to Cash of $52,250 debit to Interest expense of $1,250 debit to Notes payable of $50,000

Obtaining a note payable for cash results in a(n) ______.

increase in assets and an increase in liabilities

We record interest expense in the period in which we

incur it

Jingle Company signs a 6-month, $20,000 note. Stated interest rate is 8% payable at the maturity date. Interest incurred on the note is calculated as

$20,000 x 0.08 x 6/12

Volker Company signs a 3-month, $10,000 note. Stated interest rate is 12% payable at the maturity date. Interest incurred on the note is:

$300

On October 1, 2018, Perry Corporation signed a 12-month, 8% interest-bearing promissory note for $10,000. Assume that all appropriate adjusting journal entries were made at 12/31. The journal entry required when the note matures on October 1, 2019 would include a debit to interest expense for

$600

Jingle Company signs a 6-month, $20,000 note. Stated interest rate is 8% payable at the maturity date. Interest incurred on the note is:

$800

A(n) payable results from an agreement with a supplier to pay within 30 to 60 days, whereas a(n) payable is a signed contract that promises to pay a specific amount with interest at a specific maturity date.

Accounts Notes

Identify characteristics of notes payable that are not common to accounts payable.

Based on promissory note Interest bearing

A of is an informal agreement that permits a company to borrow up to a prearranged amount without having to follow formal loan procedures.

Blank 1: line Blank 2: credit

Notes payable is classified as a liability that has which of the following effects?

Creates interest expense on the income statement

What are the two classifications for liabilities?

Current Long-term

On October 1, 2018, Logan Corporation signed a 6-month, 8% interest-bearing promissory note for $10,000. The journal entry required at December 31, 2018 would include which of the following?

Debit interest expense $200

On September 1, 2018, Kale Corporation signed a 6-month, 12% interest-bearing promissory note for $100,000. The journal entry required at December 31, 2018 would include which of the following?

Debit interest expense $4,000

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2019. The journal entry on November 1, 2018 would include which of the following?

Debit to Cash $100,000 Credit to Note Payable $100,000

Choose the correct formula for calculating interest.

Face amount x annual interest rate x fraction of the year

True or false: Current liabilities are always payable within one year.

False

On December 1, Milka Inc. borrows $500,000 from the bank. Interest of 6% is due in six months. On December 31, Milka recognizes interest. As a result of this journal entry, Milka's balance sheet reports:

interest payable for one month

A(n)______________ is a probable future sacrifice of economic benefits arising from present obligations to transfer assets or provide services as a result of past transactions or events. (Enter one word per blank)

liability

A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a(n

liability.

Gladys Company signs an agreement under which Gladys may borrow up to $100,000 at a 6% annual interest rate whenever the company needs cash. This agreement is commonly referred to as a

line of credit

A company purchases inventory or supplies and promises to pay within 30 to 45 days. No formal agreement is signed. This transaction is recorded as a(n)

accounts payable.

Interest expense is recorded in the period when it is ________________

incurred

On December 1, Milka Inc. borrows $500,000 from the bank. Interest of 6% is due in six months. On December 31, Milka recognizes interest. As a result of this journal entry, Milka's income statement reports:

interest expense for one month