Financial Accounting Exam 3

A company's "operating cycle" refers to the time required for the company to

Spend cash to provide goods and services then collect from customers.

Identify characteristics of notes payable that are not commode to accounts payable-

Interest bearing Based on promissory note

A ____ 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.

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

Liability

An interest rate, unless otherwise specified, is typically a ___ rate.

Annual or yearly

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

Creates Interest expense on the income statement

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 note payable $5,000

Choose the correct formula for calculating interest-

Face amount x annual interest rate x fraction year

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

False

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

Schmidt Company borrows $10,000 form 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-

annual, 12 month rate

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

Return on Assets Formula

Net income divided by average total assets

Profit Margin Formula

Net income divided by net sales

Long-term Liability

Normally payable more than one year from now.

Current Liability

Normally payable within one year.

Which of the following are current liabilities-

Note payable due in 3 months Accounts payable Wages payable

Which of the following are long-term liabilities?

Note payable due in 3 years 20-year mortgage payable

The time it takes to spend cash to provide goods and services to a customer until collection of cash from that customer is referred to as the company's:

Operating Cycle

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 them the note matures on October 1, 2019 would include a debit to interest expense for

$600

Which of the following are essential characteristics of a liability?

A future sacrifice of an economic benefit it probable. The obligation results from a past event. The future sacrifice arises from a present obligation.

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

Blank 1: Account Blank 2: Note

A liability is a present responsibility to sacrifice ____ in the future due to a transactions or other event that happened in the ___.

Blank 1: Assets, resources, benefits, or asset Blank 2: Past

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

Issuing a note payable for cash results in a

Increase in assets and an increase in liabilities

We record interest expense in the period in which we

Incur it

What are the two classifications for liabilities?

Long-term Current

Asset Turnover Formula

Sales divided by average total assets