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Principles of Accounting, Volume 1: Financial Accounting

Multiple Choice

Principles of Accounting, Volume 1: Financial AccountingMultiple Choice
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1.

LO 12.1Which of the following is not considered a current liability?

  1. Accounts Payable
  2. Unearned Revenue
  3. the component of a twenty-year note payable due in year 20
  4. current portion of a noncurrent note payable
2.

LO 12.1A company regularly purchases materials from a manufacturer on credit. Payments for these purchases occur within the company’s operating cycle. They do not include interest and are established with an invoice outlining purchase details, credit terms, and shipping charges. Which current liability situation does this best describe?

  1. sales tax payable
  2. accounts payable
  3. unearned revenue
  4. income taxes payable
3.

LO 12.1The following is selected financial data from Block Industries:

Cash $20,000, Accounts receivable 13,400, Equipment 10,650, Prepaid expenses 5,000, Accounts payable 12,300, Unearned revenue 7,500, Long-term notes payable 10,000, Common stock 18,000, Revenue 11,700, Sales tax payable 6,000, Interest expense 4,500, Depreciation expense 1,000.

How much does Block Industries have in current liabilities?

  1. $19,800
  2. $18,300
  3. $12,300
  4. $25,800
4.

LO 12.1A ski company takes out a $400,000 loan from a bank. The bank requires eight equal repayments of the loan principal, paid annually. Assume no interest is paid or accumulated on the loan until the final repayment. How much of the loan principal is considered a current portion of a noncurrent note payable in year 3?

  1. $50,000
  2. $150,000
  3. $100,000
  4. $250,000
5.

LO 12.2Nido Co. has a standing agreement with a supplier for purchasing car parts. The terms of the agreement are 3/15, n/30 from the invoice date of September 1. The company makes a purchase on September 1 for $5,000 and pays the amount due on September 13. What amount does Nido Co. pay in cash on September 13?

  1. $5,000
  2. $4,850
  3. $150
  4. $4,250
6.

LO 12.2A client pays cash in advance for a magazine subscription to Living Daily. Living Daily has yet to provide the magazine to the client. What accounts would Living Daily use to recognize this advance payment?

  1. unearned subscription revenue, cash
  2. cash, subscription revenue
  3. subscription revenue, unearned subscription revenue
  4. unearned subscription revenue, subscription revenue, cash
7.

LO 12.2Lime Co. incurs a $4,000 note with equal principal installment payments due for the next eight years. What is the amount of the current portion of the noncurrent note payable due in the second year?

  1. $800
  2. $1,000
  3. $500
  4. nothing, since this is a noncurrent note payable
8.

LO 12.3Which of the following best describes a contingent liability that is likely to occur but cannot be reasonably estimated?

  1. reasonably possible
  2. probable and estimable
  3. probable and inestimable
  4. remote
9.

LO 12.3Blake Department Store sells television sets with one-year warranties that cover repair and replacement of television parts. In the month of June, Blake sells forty television sets with a per unit cost of $500. If Blake estimates warranty fulfillment at 10% of sales, what would be the warranty liability reported in June?

  1. $1,000
  2. $2,000
  3. $500
  4. $20,000
10.

LO 12.3What accounts are used to record a contingent warranty liability that is probable and estimable but has yet to be fulfilled?

  1. warranty liability and cash
  2. warranty expense and cash
  3. warranty liability and warranty expense, cash
  4. warranty expense and warranty liability
11.

LO 12.3Which of the following best describes a contingent liability that is unlikely to occur?

  1. remote
  2. probable and estimable
  3. reasonably possible
  4. probable and inestimable
12.

LO 12.4Which of the following accounts are used when a short-term note payable with 5% interest is honored (paid)?

  1. short-term notes payable, cash
  2. short-term notes payable, cash, interest expense
  3. interest expense, cash
  4. short-term notes payable, interest expense, interest payable
13.

LO 12.4Which of the following is not a characteristic of a short-term note payable?

  1. Payment is due in less than a year.
  2. It bears interest.
  3. It can result from an accounts payable conversion.
  4. It is reported on the balance sheet under noncurrent liabilities.
14.

LO 12.4Sunlight Growers borrows $250,000 from a bank at a 4% annual interest rate. The loan is due in three months. At the end of the three months, the company pays the amount due in full. How much did the company remit to the bank?

  1. $250,000
  2. $10,000
  3. $252,500
  4. $2,500
15.

LO 12.4Marathon Peanuts converts a $130,000 account payable into a short-term note payable, with an annual interest rate of 6%, and payable in four months. How much interest will Marathon Peanuts owe at the end of four months?

  1. $2,600
  2. $7,800
  3. $137,800
  4. $132,600
16.

LO 12.5An employee earns $8,000 in the first pay period. The FICA Social Security Tax rate is 6.2%, and the FICA Medicare tax rate is 1.45%. What is the employee’s FICA taxes responsibility?

  1. $535.50
  2. $612
  3. None, only the employer pays FICA taxes
  4. $597.50
  5. $550
17.

LO 12.5Which of the following is considered an employer payroll tax?

  1. FICA Medicare
  2. FUTA
  3. SUTA
  4. A and B only
  5. B and C only
  6. A, B, and C
18.

LO 12.5Employees at Rayon Enterprises earn one day a month of vacation compensation (twelve days total each year). Vacation compensation is paid at an hourly rate of $45, based on an eight-hour work day. Rayon’s first pay period is January. It is now April 30, how much vacation liability has accumulated if the company has four employees and no vacation compensation has been paid?

  1. $1,440
  2. $4,320
  3. $5,760
  4. $7,200
19.

LO 12.5An employee and employer cost-share health insurance. If the employee covers three-fourths of the cost and the employer covers the rest, what would be the employee’s responsibility if the total premium was $825?

  1. $618.75
  2. $206.25
  3. $412.50
  4. $275
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