Ch 9 MC

1.44 to 1

A company's classified balance sheet shows current assets of $8,650 and current liabilities of $6,000. What is the company's current ratio?

Increase liabilities and decrease equity by $2,000

Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. How will the adjusting entry, dated December 31, Year 1, to record accrued interest expense impact the elements of the financial statements?

Increase liabilities and increase expenses

Houston Co. borrowed $20,000 from Dallas Co. on March 1, Year 1. Houston issued a note payable that had a one-year term and the annual interest rate is 8%. How will the necessary adjustment, dated December 31, Year 1, affect the elements of the Year 1 financial statements?

It dictates that notes payable be reported at their face value.

How does the going concern assumption affect accounting for notes payable?

Asset source transaction

Issuing a note payable is a(n):

Liquidity

What is the current ratio used to evaluate?

Liquidity

Which of the following terms describes the ability to generate short-term cash flows?