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Exam 9: Accounting for Current Liabilities and Payroll

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Question 31

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How does the going concern assumption affect accounting for notes payable?

A) It dictates that notes payable be reported at their face value.
B) It dictates that interest expense be accrued at the end of the accounting period.
C) It dictates that notes payable be reported at their net realizable value.
D) It dictates that interest expense be paid when the note matures.

E) All of the above
F) A) and B)

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Question 32

Multiple Choice

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Use the information on January 1,Year 1 to determine the effect of the following entry on the current ratio of Menendez Company: How will this transaction affect the current ratio?

A) It have no effect on the current ratio.
B) It will cause the current ratio to increase.
C) It will cause the current ratio to decrease.
D) It will potentially affect the current ratio,but the direction of the change cannot be determined without more information.

E) A) and B)
F) B) and C)

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Question 33

Multiple Choice

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Which of the following statements is true regarding discount notes?

Employers must withhold unemployment taxes from employee salaries.

In September of Year 1,Hansen Company issued a note payable to borrow money from its bank.Principal and interest on the note would come due in June Year 2.Interest expense on this note must be accrued at the end of Year 1 for the period from issuance of the note to the last day of the accounting period.

On October 1,Year 1,Harrison Company borrowed money by issuing a $24,000 face value discount note to its bank.The note had an 8% discount rate and had a one-year term to maturity.On that date,Harrison recorded a Discount on Notes Payable in the amount of $1,920.

Monthly remittance of sales tax due has no effect on the income statement,but reduces cash flow from operating activities.

Which of the following is a claims exchange transaction?

When do the effects of warranty obligations affect the statement of cash flows?

Which of the following is not an item deducted from salary expense to arrive at net pay?

[The following information applies to the questions displayed below.] In December Year 1, Lucas Corporation sold merchandise for $10,000 cash. Lucas estimated that the warranty obligation relating to this sale is $700. On February 12, Year 2, Lucas paid cash of $550 to settle a related warranty claim by this customer. -Which of the following summarizes the effect of the payment of cash to settle the warranty claim in Year 2 on the elements of the financial statements?

Independent contractors must be individuals who are employed by another company.

[The following information applies to the questions displayed below.] Riley Company borrowed $36,000 on April 1, Year 1 from Titan Bank. The note issued by Riley carried a one-year term and a 7% annual interest rate. Riley earned cash revenues of $1,700 during Year 1 and $1,400 during Year 2. Assume no other transactions. -Based on this information alone,what amount of cash flow from operating activities would appear on the Year 2 statement of cash flows?

Issuing a note payable is a(n) :

Recording an adjusting entry for product warranties is a claims exchange transaction.

What is the effect of the accrual of interest expense on the elements of the financial statements?

Indicate whether each of the following is true or false.Perez Company borrowed money from its bank in July Year 1.The accrual of interest on the loan at the end of Year 1: ________ a)reduces cash flows. ________ b)involves recognition of interest expense. ________ c)does not affect income for Year 1. ________ d)involves recognition of a liability. ________ e)records a cash payment for interest.

[The following information applies to the questions displayed below.] Seattle Company issued a $90,000 face value discount note payable to First Federal Bank on September 1, Year 1. The note had a 4% discount rate and a one-year term. -What is the amount of interest expense appearing on the Year 1 income statement?

A company with a high current ratio should be concerned that it is not maximizing its earnings potential.

Which of the following happens as a result of selling $130 of merchandise to a customer for $200 cash in a state where the sales tax rate is 4%?