Horngren’s Financial and Managerial Accounting, 6e (Miller-Nobles)
1) Current liabilities must be paid either in cash or with goods and services within one year or within the
entity’s operating cycle, if the cycle is longer than a year.
2) Any portion of a long-term liability that is due with the next year is reported as a current liability.
3) The IFRS definitions of current and long-term liabilities are much different than the U.S. GAAP
definitions.
4) Which of the following is a characteristic of a current liability?
A) It creates a present obligation for future payment of cash or services.
B) It cannot be settled with services.
C) It is an avoidable obligation.
D) It occurs because of a future transaction or event.
5) Amounts owed for products or services purchased on account are accounts receivable.
6) Because amounts owed for products or services on account are typically due in 60 days, they are
current liabilities.
7) Amounts owed for products or services purchased on account are called ________.
A) accounts payable
B) unearned revenue
C) accrued expense
D) warranty payable
8) Which of the following statements regarding Accounts Payable is incorrect?
A) The Accounts Payable account is decreased with a credit.
B) Accounts payable occur because the business receives the goods or services before payment has been
made.
C) Because accounts payable are typically due in 30 days, they are current liabilities.
D) Accounts payable represent debts owed to creditors.
9) Sales Tax Payable is usually calculated as a percentage of the amount of the sale.
10) Sales tax is an expense of the business.
11) Sales revenue for a sporting goods store amounted to $526,000 for the current period. All sales are on
account and are subject to a sales tax of 10%. Which of the following would be included in the journal
entry to record the sales transaction?
A) a debit to Sales Revenue for $526,000
B) a credit to Accounts Receivable for $526,000
C) a debit to Sales Tax Payable for $52,600
D) a debit to Accounts Receivable for $578,600
12) Which of the following would be included in the journal entry to record the payment of sales tax
payable?
A) a debit to Sales Tax Payable
B) a credit to Sales Tax Expense
C) a debit to Sales Tax Expense
D) a credit to Sales Tax Payable
13) Which of the following accounts is credited by the seller when tax is collected on retail sales?
A) Accounts Payable
B) Payroll Tax
C) Sales Tax Payable
D) Unearned Revenue
14) Venus Corp. sold goods, with a selling price of $17,221, for cash. The state sales tax rate is 8%. What
amount is credited to the Sales Revenue account? (Round calculations to the nearest dollar.)
A) $17,221
B) $18,599
C) $1378
D) $15,843
15) Mars Corp. had cash sales of $10,000. The state sales tax rate is 10.8%. What amount is debited to the
Cash account?
A) $10,000
B) $11,080
C) $1080
D) $1000
16) Barron, Inc. sold goods for $883,500 on account. The company operates in a state that imposes a 9%
sales tax. What is the amount of the sales tax payable to the state?
A) $79,515
B) $39,758
C) $19,879
D) $159,030
17) Restaurant Foods Corp. had cash sales of $598,000 during the month of August. Sales taxes of 6.5%
were collected on the sales. Prepare the journal entry to record the sales revenue and sales tax for the
month. Omit explanation.
18) Modern Age, Inc. made total cash sales in February of $666,000, which are subject to 7.5% sales tax.
Prepare the summary entry to record the transaction. Omit explanation.
19) Income tax payable represents the amount of taxes that a corporation owes but has not yet paid.
20) The federal government is the only entity that requires corporations to pay income tax on their net
income.
21) In regards to corporate income tax, which of the following statements is incorrect?
A) Federal income taxes are calculated on a corporate tax return.
B) Income Tax Expense is recorded when the federal income tax is incurred.
C) When the corporation makes payment for federal income taxes, the account Income Tax Payable is
credited.
D) The amount of income taxes that the corporation owes but has not yet paid is classified as a current
liability.
22) The amount of income taxes ________.
A) required by the federal government for a corporation is calculated on a Form 1120
B) is calculated on a Form 1040 for a corporation
C) the corporation owes, but has not yet paid, is recorded as a debit to the Income Tax Payable account
D) the corporation owes, but has not yet paid, is reported as a long-term liability on the balance sheet
23) Unearned revenues are current liabilities until they are earned.
24) Unearned revenue arises because the business receives goods or services before payment has been
made.
25) Cash received in advance of providing goods or performing services is recorded as ________.
A) Unearned Revenue
B) Accrued Revenue
C) Service Revenue
D) Uncollected Revenue
26) Which of the following liabilities is created when a company receives cash for services to be provided
in the future?
A) Unearned Revenue
B) Accrued Liability
C) Accounts Payable
D) Estimated Warranty Payable
27) Unearned revenue, for services to be performed in six months, appears on the balance sheet as
________.
A) long-term investments
B) current liabilities
C) current assets
D) long-term assets
28) On August 31, 2018, Allright Services received $3,500 in advance of performing the service. Which
journal entry is needed to record the receipt of cash?
A) Debit Unearned Revenue $3,500, and credit Cash $3,500.
B) Debit Cash $3,500, and credit Service Revenue $3,500.
C) Debit Unearned Revenue $3,500, and credit Service Revenue $3,500.
D) Debit Cash $3,500, and credit Unearned Revenue $3,500.
29) On April 1, 2019, Orbit Services received $8000 in advance of performing the services from a customer
for three months of service — April, May and June. What would be the journal entry to adjust the
accounts at the end of May? (Do not round any intermediate calculations, and round your final answer to
the nearest dollar.)
A) Debit Service Revenue $2667, and credit Unearned Revenue $2667.
B) Debit Unearned Revenue $5333, and credit Service Revenue $5333.
C) Debit Unearned Revenue $8000, and credit Service Revenue $8000.
D) Debit Service Revenue $5333, and credit Accounts Receivable $5333.
30) Solutions Services sells service plans for commercial computer maintenance. The price for each plan
is $1,350 per year, paid in advance. On October 1, 2018, a service plan was sold to a new customer for
cash, and the plan covers the period October 1, 2018 to September 30, 2019. Adjusting entries are made on
December 31 of each year. Prepare the journal entry for September 30, 2019. Round to two decimal
places. Omit explanation.
31) Jupiter Services sells service plans for commercial computer maintenance. The price for each service
plan is $1,650 per year, paid in advance. On October 1, 2018, a service plan was sold to a new customer
for cash. Prepare the journal entry to record this transaction. Omit explanation.
32) Management Services sells service plans for commercial computer maintenance. The price for each
plan is $1,350 per year, paid in advance. On October 1, 2019, a service plan was sold to a new customer
for cash, and the plan covers the period October 1, 2019 to September 30, 2020. Prepare the December 31,
2019 adjusting entry. Round to two decimal places. Omit explanation.
33) Short-term notes payable represent a written promise by the business to pay a debt, without the
addition of interest, within one year or less.
34) To compute the interest for notes payable, multiply principal times the annual rate of interest.