Chapter 8 Sample Test Questions

Which of the following represents a characteristic of a liability? A probable future sacrifice of economic benefits. Arising from present obligations to other entities. Resulting from past transactions or events. All of these are characteristics of a liability.

All of these are characteristics of a liability.

If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 20X1?

April 1st to Dec 31st >> 9 mos. interest. $10 mil x 6% int. = 600,000 $600,000 x 3/4 = $450,000

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should record the following adjusting entry at December 31, 20X1:

Debit Interest Expense $4,000 Credit Interest payable $4,000 $200,000 x 12% = $24,000 $24,000 x 1/6 mo. = $4,000

Which of the following is not a necessary characteristic of a liability? It must be payable in cash. It results from past transactions or events. It represents a probable, future sacrifice of economic benefits. It arises from present obligations to other entities.

It must be payable in cash.

Which of the following is not a current liability? Notes payable due in six months. An unused line of credit. Current portion of long-term debt. Deferred revenue with services to be provided to a customer in nine months.

an unused line of credit

In n most cases, current liabilities are payable within ____ year(s), and long-term liabilities are payable more than ____ year(s) from now.most cases, current liabilities are payable within ____ year(s), and long-term liabilities are payable more than ____ year(s) from now.

one; one