1. Which of the following is not a reason why a company might prefer to report a liability as
long-term rather than current?
2. Given a choice, most companies would prefer to report a liability as long-term rather than
current because:
3. Which of the following is not a current liability?
4. Which of the following is not a characteristic of a liability?
5. Which of the following is not a liability?
6. Liabilities are defined as:
7. Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry
should Brian Inc. record?
8. Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry
should First Bank record?
9. On November 1, 2012, The Bagel Factory signed a $100,000, 6%, six-month note payable
with the amount borrowed plus accrued interest due six months later on May 1, 2013. The
Bagel Factory should report interest payable at December 31, 2012, in the amount of:
10. On November 1, 2012, The Bagel Factory signed a $100,000, 6%, six-month note payable
with the amount borrowed plus accrued interest due six months later on May 1, 2013. The
Bagel Factory records the appropriate adjusting entry for the note on December 31, 2012. In
recording the payment of the note plus accrued interest at maturity on May 1, 2013, The
Bagel Factory would
11. On September 1, 2012, Daylight Donuts signed a $100,000, 9%, six-month note payable
with the amount borrowed plus accrued interest due six months later on March 1, 2013.
Daylight Donuts should report interest payable at December 31, 2012, in the amount of:
12. On September 1, 2012, Daylight Donuts signed a $100,000, 9%, six-month note payable
with the amount borrowed plus accrued interest due six months later on March 1, 2013.
Daylight Donuts records the appropriate adjusting entry for the note on December 31, 2012.
In recording the payment of the note plus accrued interest at maturity on March 1, 2013,
Daylight Donuts would
13. On December 1, 2012, Old World Deli signed a $300,000, 5%, six-month note payable
with the amount borrowed plus accrued interest due six months later on June 1, 2013. Old
World Deli should record which of the following adjusting entries at December 31, 2012?
14. On December 1, 2012, Old World Deli signed a $300,000, 5%, six-month note payable
with the amount borrowed plus accrued interest due six months later on June 1, 2013. Old
World Deli records the appropriate adjusting entry for the note on December 31, 2012. What
amount of cash will be needed to pay back the note payable plus any accrued interest on June
1, 2013?
15. On November 1, 2012, New Morning Bakery signed a $200,000, 6%, six-month note
payable with the amount borrowed plus accrued interest due six months later on May 1, 2013.
New Morning Bakery should record which of the following adjusting entries at December 31,
2012?
16. On November 1, 2012, New Morning Bakery signed a $200,000, 6%, six-month note
payable with the amount borrowed plus accrued interest due six months later on May 1, 2013.
New Morning Bakery records the appropriate adjusting entry for the note on December 31,
2012. What amount of cash will be needed to pay back the note payable plus any accrued
interest on May 1, 2013?
17. The Pita Pit borrowed $100,000 on November 1, 2012, and signed a six-month note
bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2013.
In connection with this note, The Pita Pit should report interest expense at December 31,
2012, in the amount of:
18. The Pita Pit borrowed $100,000 on November 1, 2012, and signed a six-month note
bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2013.
In connection with this note, The Pita Pit should report interest expense in 2013 for the
amount of:
19. Universal Travel, Inc. borrowed $500,000 on November 1, 2012, and signed a twelve-
month note bearing interest at 6%. Principal and interest are payable in full at maturity on
October 31, 2013. In connection with this note, Universal Travel, Inc. should report interest
payable at December 31, 2012, in the amount of:
20. Universal Travel, Inc. borrowed $500,000 on November 1, 2012, and signed a twelve-
month note bearing interest at 6%. Principal and interest are payable in full at maturity on
October 31, 2013. In connection with this note, Universal Travel, Inc. should record interest
expense in 2013 in the amount of:
21. Large, highly-rated firms sometimes sell commercial paper
22. Which of the following is not an employer payroll cost?
23. Which of the following is not withheld from an employee’s salary?
25. Which of the following are not included in an employer’s payroll tax expense?
26. Which of the following are included in an employer’s payroll tax expense?
27. Mike Gundy is a college football coach making a salary of $2,400,000 a year ($200,000
per month). Employers are required to withhold a 6.2% Social Security tax up to a maximum
base amount and a 1.45% Medicare tax with no maximum. Assuming the FICA maximum
base amount is $106,800, how much will be withheld during the year for the coach’s Social
Security and Medicare.
28. Mike Gundy is a college football coach making a salary of $2,400,000 a year ($200,000
per month). Employers are required to withhold a 6.2% Social Security tax up to a maximum
base amount and a 1.45% Medicare tax with no maximum. Assuming the FICA maximum
base amount is $106,800, through what month will Social Security be withheld?
29. Action Travel has 10 employees each working 40 hours per week and earning $20 an
hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are
7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the
actual direct deposit of payroll for the first week of January?
30. Action Travel has 10 employees each working 40 hours per week and earning $20 an
hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are
7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the
total payroll tax expense for the first week of January?
31. In December, 2011, Quebecor Printing received magazine subscriptions for 2012 from a
customer, who paid $500 in cash. What would be the appropriate journal entry for this event?
32. At times, businesses require advance payments from customers that will be applied to the
purchase price when goods are delivered or services provided. These customer advances
represent:
33. The sale of gift cards by a company is a direct example of:
34. When a company delivers a product or service for which a customer has previously paid,
the company records the following:
35. Sales taxes collected by a company on behalf of the state and local government are
recorded by:
36. When a company collects sales tax from a customer, the event is recorded by:
37. Suppose you buy lunch for $8.39 that includes a 5% sales tax. How much did the
restaurant charge you for the lunch (excluding any tax) and how much do they owe for sales
tax?
38. Union Apparel has sales including sales taxes for the month of $551,200. If the sales tax
rate is 6%, what are Union Apparel’s sales for the month?
39. The current portion of long-term debt should be
40. Region Jet has a $50 million liability at December 31, 2012, of which $10 million is
payable in 2013. In its December 31, 2012 balance sheet, the company reports the $50 million
debt as
41. United Supply has a $5 million liability at December 31, 2012, of which $1 million is
payable in each of the next five years. United Supply reports the liability on the balance sheet
as:
42. Which of the following is true regarding the relationship between net income reported in
the income statement and taxable income reported to the Internal Revenue Service (IRS)?
43. If management can estimate the amount of loss that will occur due to litigation against the
company, and the likelihood of the loss is reasonably possible, a contingent liability should
be
44. If management can estimate the amount of loss that will occur due to litigation against the
company, and the likelihood of the loss is probable, a contingent liability should be
45. Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations.
Higgins’ legal counsel believes it is probable that Higgins will settle the lawsuit for an
estimated amount in the range of $100,000 to $200,000, with all amounts in the range
considered equally likely. How should Higgins report this litigation?
46. Away Travel filed suit against West Coast Travel seeking damages for copyright
violations. West Coast Travel’s legal counsel believes it is reasonably possible that West
Coast Travel will settle the lawsuit for an estimated amount in the range of $100,000 to
$200,000, with all amounts in the range considered equally likely. How should West Coast
Travel report this litigation?
47. Away Travel filed suit against West Coast Travel seeking damages for copyright
violations. Away Travel’s legal counsel believes it is probable (but not certain) that Away
Travel will win the lawsuit for an estimated amount in the range of $100,000 to $200,000,
with all amounts in the range considered equally likely. How should Away Travel report this
litigation?
48. Young Company is involved in a lawsuit. The liability which could arise as a result of this
lawsuit should be recorded on the books if the probability of Young owing money as a result
of the lawsuit is: