Chapter 8 Financial Accounting

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?

450,000 10,000,000 x 0.06 x 9/12=450,000

When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as:

A debit to a liability and a credit to a revenue account.

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest payable for the year ended December 31, 2021?

Answer: 1.5 million 100 million x 0.06 x 3/12= 1,500,000

The current ratio is:

Current assets divided by current liabilities.

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should First State Bank record?

Debit Notes Receivable, $5,000; Credit Cash, $5,000.

Interest expense is recorded in the period in which:

The interest is incurred.

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

one; one

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. What is the amount of interest expense to report in 20X2?

Answer: 8,000 Amount of interest expense for year 2021 = 200000*0.12*2/12 = 4000 Amount of interest expense for year 2022 = 200000*0.12*4/12 = 8000

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 report the following adjusting entry at December 31, 20X1:

Answer: Debit interest expense and credit interest payable, $4,000. 200,000 x 0.12 x 2/12=4,000

Which of the following is not included in calculating the acid-test ratio?

Inventory

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest expense for the year ended December 31, 2022?

Answer: 4.5 million 100 million x 0.06 x 9/12= 4,500,000

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as:

A debit to an asset and a credit to a liability account.

If Speedy Travel, Inc. borrows $50 million on September 1 for one year at 9% interest, how much interest expense should it record by December 31 of that same year?

Answer: 1.5 million 50,000,000 x 0.09 x 4/12= 1,500,000

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account?

Answer: 2,000 10,000-8,000=2,000

Which of the following is reported as a current liability?

Current portion of long-term debt.

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?

Debit Cash, $5,000; Credit Notes Payable, $5,000.