Accounting 201 - Chapter 10 Quiz

T/F A $60,000, 8%, 9-month note payable requires an interest payment of $3,600 at maturity.

True

T/F Unearned revenues should be classified as Other Revenues and Gains on the Income Statement.

False

T/F With an interest-bearing note, the amount of cash received upon issuance of the note generally exceeds the note's face value.

False

T/F Working capital is current assets divided by current liabilities.

False

The entry to record the issuance of an interest-bearing note credits Notes Payable for the note's a. maturity value b. market value c. face value d. cash realizable value

c. face value

T/F A current liability must be paid out of current earnings.

False

T/F A note payable must always be paid before an account payable.

False

All of the following are reported as current liabilities EXCEPT: a. accounts payable b. bonds payable c. notes payable d. unearned revenues

b. bonds payable

A current liability is a debt that can reasonably be expected to be paid a. within one year or the operating cycle, whichever is longer b. between 6 months and 18 months c. out of currently recognized revenues d. out of cash currently on hand

a. within one year or the operating cycle, whichever is longer

The relationship between current liabilities and current assets is a. useful in determining income b. useful in evaluating a company's liquidity c. called the matching principle d. useful in determining the amount fo a company's long-term debt

b. useful in evaluating a company's liquidity

T/F Current maturities of long-term debt refers to the amount of interest on a note payable that must be paid in the current year.

False

T/F During the month, a company sells goods for a total of $108,000, which includes sales taxes of $8,000; therefore the company should recognize $100,000 in sales revenues and $8,000 in Sales Tax Expense.

False

T/F Interest expense on a not payable is only recorded at maturity.

False

T/F Metropolitan Symphony sells 200 season tickets for $50,000 that represents a five concert season. The amount of Unearned Ticker Revenue after the second concert is $20,000.

False

T/F Most notes are not interest bearing.

False

T/F The higher the sales tax rate, the more profit a retailer can earn.

False

T/F The relationship between current liabilities are current assets is important in evaluating a company's ability to pay off its long-term debt.

False

T/F A company whose current liabilities exceed its current assets may have a liquidity problem.

True

T/F Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.

True

T/F FICA taxes withheld and federal income taxes withheld are mandatory payroll deductions.

True

T/F Interest expense is reported under Other Expenses and Losses in the income statement.

True

T/F Note payable usually require the borrower to pay interest.

True

T/F Notes payable are often used instead of accounts payable.

True

T/F The current ratio permits analysts to compare the liquidity of different sized companies.

True

Most companies pay current liabilities a. out of current assets b. by issuing interest-bearing notes payable c. by issuing stock d. by creating long-term liabilities

a. out of current assets

From a liquidity standpoint, it is more desirable for a company to have current a. assets equal current liabilities b. liabilities exceed current assets c. assets exceed current liabilities d. liabilities exceed long-term liabilities

c. assets exceed current liabilities

Liabilities are classified on the balance sheet as a current or a. deferred b. unearned c. long-term d. accrued

c. long-term

In most companies, current liabilities are paid within, a. one year through the creation of other current liabilities. b. the operating cycles through the creation of other current liabilities. c. one year or the operating cycle out of current assets. d. the operating cycle out of current assets.

c. one year or the operating cycle out of current assets.

The relationship of current assets to current liabilities is used in evaluating a company's a. operating cycle b. revenue-producing ability c. short-term debt paying ability d. long-range solvency

c. short-term debt paying ability

Which of the following is usually NOT an accrued liability? a. Interest payable b. Wages payable c. Taxes payable d. Notes payable

d. Notes payable