35) When borrowing cash from a bank, the business is required to sign a promissory note stating that the
business will pay the principal plus interest at a specified maturity date.
36) When a business records accrued interest expense on a note payable, ________.
A) Interest Expense is credited
B) Note Payable is credited
C) Cash is debited
D) Interest Payable is credited
37) Which of the following correctly describes the accounting treatment for interest payable?
A) It is shown on the balance sheet as a current liability.
B) It is shown on the income statement as an operating expense.
C) It is shown on the balance sheet as a current asset.
D) It is shown on the balance sheet as a long-term liability.
38) A $49,000, three-month, 12% note payable was issued on December 1, 2018. What is the amount of
accrued interest on December 31, 2018? (Do not round any intermediate calculations, and round your
final answer to the nearest dollar.)
A) $490
B) $708
C) $354
D) $823
39) A $45,000, two-month, 9% note payable was issued on December 1, 2018. What is the amount of
interest expense recorded in the year 2019? (Round the final calculation to the nearest dollar.)
A) $4050
B) $338
C) $675
D) $45,675
40) A $54,000, four-month, 12% note payable was issued on October 1, 2018. Which of the following
would be included in the journal entry required on the note’s maturity date by the borrower? (Do not
round any intermediate calculations, and round your final answer to the nearest dollar.)
A) a credit to Note payable for $56,160
B) a credit to Cash for $54,000
C) a debit to Interest expense for $540
D) a debit to Interest payable for $540
41) Norwood, Inc. signs a $11,000, 8.5%, six-month note dated November 1, 2018. The interest expense
recorded for this note in 2018 will be ________. (Do not round any intermediate calculations, and round
your final answer to the nearest dollar.)
A) $935
B) $156
C) $468
D) $312
42) Fleetwood, Inc. signed a three-year note payable for $59,000 at 7% annual interest. What is the interest
expense for 2019 if the note was signed on August 1, 2019? (Do not round any intermediate calculations,
and round your final answer to the nearest dollar.)
A) $2065
B) $1721
C) $12,390
D) $4130
43) Which of the following accounts will be credited by the borrower when a promissory note is issued?
A) Note Payable
B) Note Receivable
C) Interest Payable
D) Cash
44) The journal entry for accrued interest on a note payable includes ________.
A) a debit to Interest Expense and credit to Cash
B) a debit to Interest Expense and credit to Interest Payable
C) a debit to Interest Payable and credit to Cash
D) a credit to Interest Expense and debit to Notes Payable
45) At the maturity of a note payable, a borrower will pay ________.
A) the principal plus interest
B) the principal amount only
C) the interest amount only
D) the principal minus interest
46) Maywood, Inc. recently signed a $350,000, six-month note on August 22, 2019. The interest rate is 7%.
How much interest will be due at maturity?
A) $10,208
B) $24,500
C) $12,250
D) $8167
47) On July 1, 2018, Sanchez, Inc. purchased merchandise inventory for $350,000 by signing a note
payable. The note is for 6 months and bears interest at a rate of 8%. Prepare the journal entry for this
transaction, using a perpetual inventory system. Omit explanation.
48) On June 30, 2019, Development, Inc. purchased merchandise inventory for $500,000 by signing a six–
month, 8% note payable. Prepare the journal entry for the payment of the note on December 30, 2019.
Omit explanation.
49) On September 1, 2018, Tri-Cities, Inc. borrowed $125,000 by signing a nine-month, 7.2% note payable.
Prepare the journal entry to accrue interest expense on December 31, 2018. Omit explanation.
50) On October 1, 2019, Norway, Inc. borrowed $225,000 by signing a nine-month, 8% note payable.
Interest was accrued on December 31, 2019. Prepare the journal entry on July, 1, 2020, the date the note
was paid. Omit explanation.
51) If a long-term debt is paid in installments, the business will report the current portion of the note
payable as a current liability.
52) A journal entry is prepared to reclassify the current portion of a note payable.
53) The current portion of notes payable is the amount of the principal that is payable more than one year
from the balance sheet date.
54) The current portion of long-term notes payable is ________.
A) the amount of principal that will be paid within five years
B) typically included with the long-term liabilities on the balance sheet
C) recorded as an adjusting entry
D) reclassified as current for reporting purposes on the balance sheet
55) On December 31, 2018, Barry’s, Inc. borrowed $500,000 by signing a five-year, 8% note payable. The
note is payable in five yearly installments of $100,000 plus interest, due at the end of every year beginning
on December 31, 2019. What amount represents the current portion of Long-term Notes Payable at
December 31, 2018?
56) On December 31, 2018, Globe, Inc. borrowed $500,000 by signing a five-year, 8% note payable. The
note is payable in five yearly installments of $100,000 plus interest, due at the end of every year beginning
on December 31, 2019. Which portion is classified as the long-term portion of Notes Payable at December
31, 2018?
1) Benefits are extra compensation items that are not paid directly to an employee.
2) Retirement compensation is a benefit because the employer sets aside money for the employee’s future
retirement.
3) Mario worked 48 hours during the work week. He earns wages of $18 per hour for straight time (40
hours). The company pays time-and-half for overtime. Mario‘s gross pay is $864.
4) Peter earns $14.50 per hour for straight time (40 hours), and the company pays him time-and-a-half for
overtime. He worked 46 hours at his job during the first week of March 2018. What was Peter‘s gross pay
for the week?
A) $667.00
B) $671.50
C) $710.50
D) $1000.50
5) ________ is a pay amount stated at an hourly rate.
A) Salary
B) Wage
C) Commission
D) Bonus
6) ________ is pay stated as a percentage of a sale amount.
A) Salary
B) Wage
C) Commission
D) Bonus
7) Which of the following is pay over and above base salary, usually paid for exceptional performance?
A) FICA
B) benefits
C) wages
D) bonuses
8) Extra compensation items that are not paid directly to an employee are called ________.
A) bonuses
B) benefits
C) wages
D) commissions