1.Known liabilities of uncertain amounts should be : a) Reported on the income s
ID: 2435296 • Letter: 1
Question
1.Known liabilities of uncertain amounts should be :a) Reported on the income statement
b) Described in the notes to the financial statements
c) Ignored ; record them when paid
d) Estimated and accrued when they occur
2.On January 1,2010 , you borrowed $ 10,000 on a five –year , 8% note payable. At December 31, 2010 you should record a journal entry that includes which of the following ?
a) Note payable of $10,000
b) Nothing ; the note has already been recorded
c) Interest payable of $800
d) Cash receipt of $10,000
3.What is the term used to describe an unsecured bond?
a) Callable bond
b) Mortgage bond
c) Debenture bond
d) Serial bond
4.Bonds issued at a premium always have ;
A) Interest expense less than the interest payments.
B) Interest expense equal to interest payments
C) Interest expense greater that the interest payments
D) None of the above
5.A company recognizes a lease as a capital lease when:
a) The lease transfers title of the leased asset to the lessee at the end of the lease term .
b) The lease term is less than 75 % of the estimated useful life of the leased asset .
c) The lease has no option to purchase the asset at the end of lease term .
d) The present value of the lease payments is less than 90% of the market value of the leased asset.
6.The majority of a company's liabilities are estimated liabilities:
A) True
B) False
7.Notes payable would be an example of known liability:
A) True
B) False
8.A contingent liability arises because of a past events , but is dependent upon future event.
A) True
B) False
9.Which of the following would be considered an estimated liability?
a) Pending litigation
b) Sales tax payable
c) Notes payable
d) Warranties payable
10.Which of the following would be considered a contingent liability ?
A) Federal income tax payable
B) Pending litigation
C) Warranties payable
D) Contingency payable
11.Current liabilities are expected to be settled within :
a) 1 year
b) More than 1 year
c) 3 months
d) 6 months
12.A company receives a note payable for $3500 at 9 % for 45 days. How much interest (to the nearest cent ) will the customer owe using a 360-day year?
a) $ 315.00
b) $39.38
c) $38.84
d) $ 354.38
13.If a liability is not properly classified , it will have an effect on the :
a) Total dollars of liabilities
b) Both the quick and current ratio
c) Quick ratio
d) Current ratio
Explanation / Answer
Answer 1: b) Described in the notes to the financial statements
Reason: It is a part of contingent liability as the amount of liability is unknown. So, it will be shown as a footnote in financial statements.
Answer 2: c) Interest payable of $800
Explanation: Journal entry on December 31, 2010 will be:
Interest expense Debit $ 800*
Interest payable Credit $ 800
*$ 10,000 X 8% = $ 800
Answer 3: c) Debenture bond
Reason: Unsecured bonds also known as debenture bonds are generally issued against the general credit of the borrower. (Companies with good credit ratings use these bonds)
Answer 4: A) Interest expense less than the interest payments.
Reason: Interest expense less than the interest payments when bonds are issued at premium as the company offers bonds at a rate higher than market expected rate.
As per answering guidelines I am submitting answers for first 4 questions. For rest of the answers , post question sseparately.
Good luck.
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