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Finance
Finance MCQs
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All of the following are reported as current liabilities except
accounts payable.
bonds payable.
notes payable.
unearned revenues.
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The relationship between current liabilities and current assets is
useful in determining income.
useful in evaluating a company’s liquidity.
called the matching principle.
useful in determining the amount of a company's long-term debt.
?
Most companies pay current liabilities
out of current assets.
by issuing interest-bearing notes payable.
by issuing stock.
by creating long-term liabilities.
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A current liability is a debt that can reasonably be expected to be paid
within one year.
between 6 months and 18 months.
out of currently recognized revenues.
out of cash currently on hand.
?
Liabilities are classified on the balance sheet as current or
deferred
unearned
long-term.
accrued
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From a liquidity standpoint, it is more desirable for a company to have current
assets equal current liabilities.
liabilities exceed current assets.
assets exceed current liabilities.
liabilities exceed long-term liabilities.
?
The relationship of current assets to current liabilities is used in evaluating a company's
operating cycle.
revenue-producing ability.
short-term debt paying ability.
long-range solvency.
?
Which of the following is usually not an accrued liability?
Interest payable
Wages payable
Taxes payable
notes payable
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In most companies, current liabilities are paid within
one year through the creation of other current liabilities.
the operating cycle through the creation of other current liabilities.
one year out of current assets.
the operating cycle out of current assets.
?
The entry to record the issuance of an interest-bearing note credits Notes Payable for the note's
maturity value.
market value.
face value.
cash realizable value.
?
With an interest-bearing note, the amount of assets received upon issuance of the note is generally
equal to the note's face value.
greater than the note's face value.
less than the note's face value.
equal to the note’s maturity value.
?
A note payable is in the form of
a contingency that is reasonably likely to occur.
a written promissory note.
an oral agreement.
a standing agreement.
?
The entry to record the proceeds upon issuing an interest-bearing note is
Interest Expense Cash Notes Payable
Cash Notes Payable
Notes Payable Cash
Cash Notes Payable Interest Payable
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Interest expense on an interest-bearing note is
always equal to zero.
accrued over the life of the note.
only recorded at the time the note is issued.
only recorded at maturity when the note is paid.
?
The entry to record the payment of an interest-bearing note at maturity after all interest expense has been recognized is
Notes Payable Interest Payable Cash
Notes Payable Interest Expense Cash
Notes Payable Cash
Notes Payable Cash Interest Payable
?
Sales taxes collected by a retailer are recorded by
crediting Sales Taxes Revenue.
debiting Sales Taxes Expense.
crediting Sales Taxes Payable.
debiting Sales Taxes Payable.
?
Unearned Rental Revenue is
a contra account to Rental Revenue.
a revenue account.
reported as a current liability.
debited when rent is received in advance.
?
Sales taxes collected by the retailer are recorded as a(n)
revenue
liability
expense
asset
?
The interest charged on a $100,000 note payable, at the rate of 8%, on a 90-day note would be
$8,000.
$4,444.
$2,000.
$667.
?
The interest charged on a $100,000 note payable, at the rate of 6%, on a 60-day note would be
$6,000.
$3,333.
$1,500.
$1,000.
?
The interest charged on a $50,000 note payable, at the rate of 8%, on a 3-month note would be
$4,000.
$2,000.
$1,000.
$667.
?
The interest charged on a $50,000 note payable, at the rate of 6%, on a 2-month note would be
$3,000.
$1,500.
$750.
$500.
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On October 1, 2010, Pennington Company issued a $40,000, 10%, nine-month interest-bearing note. If the Pennington Company is preparing financial state...
credit to Notes Payable of $1,000.
debit to Interest Expense of $1,000
credit to Interest Payable of $2,000.
debit to Interest Expense of $1,500.
?
On October 1, 2010, Pennington Company issued a $40,000, 10%, nine-month interest-bearing note. Assuming interest was accrued in June 30, 2011, the en...
debit to Interest Expense of $1,000.
credit to Cash of $40,000
debit to Interest Payable of $3,000.
debit to Notes Payable of $43,000.
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Crawford Company has total proceeds (before segregation of sales taxes) from sales of $4,770. If the sales tax is 6%, the amount to be credited to the...
$4,770.
$4,484.
$5,056.
$4,500.
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Reliable Insurance Company collected a premium of $15,000 for a 1-year insurance policy on May 1. What amount should Reliable report as a current liab...
$0.
$5,000.
$10,000.
$15,000.
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A company receives $132, of which $12 is for sales tax. The journal entry to record the sale would include a
debit to Sales Tax Expense for $12.
credit to Sales Tax Payable for $12.
debit to Sales for $132.
debit to Cash for $120.
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A company receives $174, of which $14 is for sales tax. The journal entry to record the sale would include a
debit to Sales Tax Expense for $14.
debit to Sales Tax Payable for $14.
debit to Sales for $174.
debit to Cash for $174.
?
A retail store credited the Sales account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the...
$300,000
$315,000
$15,750
$15,000
?
On January 1, 2010, Howard Company, a calendar-year company, issued $600,000 of notes payable, of which $150,000 is due on January 1 for each of the n...
Current Liabilities, $600,000.
Long-term Debt, $600,000.
Current Liabilities, $300,000; Long-term Debt, $300,000.
Current Liabilities, $150,000; Long-term Debt, $450,000.
?
On January 1, 2010, Donahue Company, a calendar-year company, issued $400,000 of notes payable, of which $100,000 is due on January 1 for each of the ...
Current Liabilities, $400,000.
Long-term Debt , $400,000.
Current Liabilities, $100,000; Long-term Debt, $300,000.
Current Liabilities, $300,000; Long-term Debt, $100,000.
?
Layton Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $18,900. If the sales tax rate is ...
$900
$945
$45
It cannot be determined.
?
Valerie's Salon has total receipts for the month of $16,430 including sales taxes. If the sales tax rate is 6%, what are Valerie's sales for...
$15,444.20
$17,415.80
$15,500.00
It cannot be determined.
?
The amount of sales tax collected by a retail store when making sales is
a miscellaneous revenue for the store.
a current liability.
not recorded because it is a tax paid by the customer.
recorded as an operating expense.
?
A retail store credited the Sales account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the...
$180,000
$189,000
$9,450
$9,000
?
Advances from customers are classified as a(n)
revenue.
expense
current asset.
current liability.
?
The current portion of long-term debt should
be paid immediately.
be reclassified as a current liability.
be classified as a long-term liability.
not be separated from the long-term portion of debt.
?
Sales taxes collected by a retailer are expenses
of the retailer.
of the customers.
of the government.
that are not recognized by the retailer until they are submitted to the government.
?
Sales taxes collected by a retailer are reported as
contingent liabilities.
revenues
expenses
current liabilities.
?
Which one of the following is shown first under current liabilities by many companies as a matter of custom?
Accrued expenses
Current maturities of long-term debt
Sales taxes payable
Notes payable and accounts payable
?
Working capital is
current assets plus current liabilities.
current assets minus current liabilities.
current assets divided by current liabilities.
current assets multiplied by current liabilities.
?
The current ratio is
current assets plus current liabilities.
current assets minus current liabilities.
current assets divided by current liabilities.
current assets multiplied by current liabilities.
?
Hardy Company has current assets of $90,000, current liabilities of $100,000, long-term, assets of $180,000 and long-term liabilities of $80,000. Hard...
$90,000 and .90:1.
-$10,000 and 1.50:1.
$10,000 and .90:1.
-10,000 and .90:1.
?
Madden Electric began operations in 2010 and provides a one year warranty on the products it sells. They estimate that 10,000 of the 200,000 units sol...
warranty expense of $12,000 for 2010.
warranty expense of $60,000 for 2010.
estimated warranty liability of $60,000 on December 31, 2010.
no warranty obligation on December 31, 2010, since this is only a contingent liability.
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Lincoln Company sells 600 units of a product that has a one-year warranty on parts. The average cost of honoring one warranty contract is $50. During ...
credit to Estimated Warranty Liability for $3,000.
credit to Estimated Warranty Liability for $4,500.
debit to Warranty Expense for $1,500.
debit to Warranty Expense for $4,500.
?
A contingent liability need only be disclosed in the financial statement notes when the likelihood of the contingency is
reasonably possible.
probable
remote
unlikely
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If a contingent liability is reasonably estimable and it is reasonably possible that the contingency will occur, the contingent liability
should be recorded in the accounts.
should be disclosed in the notes accompanying the financial statements.
should not be recorded or disclosed in the notes until the contingency actually happens.
must be paid for the amount estimated.
?
The accounting for warranty cost is based on the matching principle, which requires that the estimated cost of honoring warranty contracts should be r...
when the product is brought in for repairs.
in the period in which the product was sold.
at the end of the warranty period.
only if the repairs are expected to be made within one year.
?
If a liability is dependent on a future event, it is called a
potential liability.
hypothetical liability.
probabilistic liability.
contingent liability.
?
Current maturities of long-term debt
require an adjusting entry.
are optionally reported on the balance sheet.
can be properly classified during balance sheet preparation, with no adjusting entry required.
are not considered to be current liabilities.
?
A contingency that is remote
should be disclosed in the financial statements.
must be accrued as a loss.
does not need to be disclosed.
is recorded as a contingent liability.
?
The accounting for warranty costs is based on the
going concern principle.
matching principle.
conservatism principle.
objectivity principle.
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Warranty expenses are reported on the income statement as
administrative expenses.
part of cost of goods sold.
contra-revenues.
selling expenses.
?
Shaw Company sells 2,000 units of its product for $500 each. The selling price includes a one-year warranty on parts. It is expected that 3% of the un...
$3,000
$2,000
$1,000
$15,000
?
Shaw Company sells 2,000 units of its product for $500 each. The selling price includes a one-year warranty on parts. It is expected that 3% of the un...
$2,000
$3,000
$1,000
It cannot be determined.
?
Which of the following items would not be identified if a contingent liability were disclosed in a financial statement footnote?
The nature of the item
The expected outcome of the future event
A numerical probability of the expected loss
The amount of the contingency, if known
?
Disclosure of a contingent liability is usually made
parenthetically, in the body of the balance sheet.
parenthetically, in the body of the income statement.
in a note to the financial statements.
in the management discussion section of the financial statement.
?
Current liabilities generally appear
after long-term debt on the balance sheet.
in decreasing order of magnitude on the balance sheet.
in order of maturity on the balance sheet.
in increasing order of magnitude on the balance sheet.
?
The total compensation earned by an employee is called
take-home pay.
net pay.
net earnings.
gross earnings.
?
Which one of the following payroll taxes does not result in a payroll tax expense for the employer?
FICA tax
Federal income tax
Federal unemployment tax
State unemployment tax
?
Assuming a FICA tax rate of 8% on the first $100,000 in wages, and a federal income tax rate of 20% on all wages, what would be an employee's net...
$110,000
$79,200
$88,000
$80,000
?
Most companies involved in interstate commerce are required to compute overtime at
the worker's regular hourly wage.
1.25 times the worker's regular hourly wage.
1.5 times the worker’s regular hourly wage.
2.5 times the worker's regular hourly wage.
?
Jan Goll has worked 44 hours this week. She worked in excess of 8 hours each day. Her regular hourly wage is $15 per hour. What are Jan's gross w...
$660
$690
$990
$720
?
FICA taxes do not provide workers with
life insurance.
supplemental retirement.
employment disability.
medical benefits.
?
Employee payroll deductions include each of the following except
federal unemployment taxes.
federal income taxes.
FICA taxes.
insurance, pension plans, and union dues.
?
The journal entry to record the payroll for a period will include a credit to Wages and Salaries Payable for the gross
amount less all payroll deductions.
amount of all paychecks issued.
pay less taxes payable.
pay less voluntary deductions.
?
The amount of income taxes withheld from employees is dependent on each of the following except the
employee's gross earnings.
employee’s net pay.
length of the pay period.
number of allowances claimed by the employee.
?
The periodicity assumption assumes that:
a transaction can only affect one period of time.
estimates should not be made if a transaction affects more than one time period.
adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations.
the economic life of a business can be divided into artificial time periods.
?
One of the accounting concepts upon which adjustments for prepayments and accruals are based is:
expense recognition.
cost
monetary unit.
economic entity.
?
An accounting time period that is one year in length is called:
a fiscal year.
an interim period.
the time period assumption.
a reporting period.
?
Adjustments would not be necessary if financial statements were prepared to reflect net income from:
monthly operations.
fiscal year operations.
interim operations.
lifetime operations.
?
Management usually wants ________ financial statements and the IRS requires all businesses to file _________ tax returns.
annual, annual
monthly, annual
quarterly, monthly
monthly, monthly
?
Expenses are recognized when:
they contribute to the production of revenue.
they are paid.
they are billed by the supplier.
the invoice is received.
?
Which of the following is not generally an accounting time period?
A week.
A month.
A quarter.
A year.
?
The revenue recognition principle dictates that revenue should be recognized in the accounting records:
when cash is received.
when the performance obligation is satisfied.
at the end of the month.
in the period that income taxes are paid.
?
In a service-type business, revenue is recognized:
at the end of the month.
at the end of the year.
when the service is performed.
when cash is received.
?
The expense recognition principle matches:
customers with businesses.
expenses with revenues.
assets with liabilities.
creditors with businesses.
?
Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1...
August 31
August 1
September 5
September 6
?
A company spends $20 million dollars for an office building. Over what period should the cost be written off?
When the $20 million is expended in cash.
All in the first year.
After $20 million in revenue is earned.
None of these answer choices are correct.
?
The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that:
assets should be matched with liabilities.
efforts should be matched with accomplishments.
dividends should be matched with stockholder investments.
cash payments should be matched with cash receipts.
?
Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?
Cost principle.
Periodicity principle.
Revenue recognition principle.
Expense recognition principle.
?
A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The...
December 5
December 10
November 30
December 1
?
A furniture factory's employees work overtime to finish an order that is sold on January 31. The office sends a statement to the customer in earl...
January
February
the period when the workers receive their checks.
either January or February depending on when the pay period ends.
?
Which is not an application of revenue recognition?
Recording revenue as an adjusting entry on the last day of the accounting period.
Accepting cash from an established customer for services to be performed over the next three months.
Billing customers on June 30 for services completed during June.
Receiving cash for services performed.
?
Why do generally accepted accounting principles require the application of the revenue recognition principle?
Failure to apply the revenue recognition principle could lead to a misstatement of revenue.
It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve.
Recording revenue when cash is received is an objective application of the revenue recognition principle.
Accounting software has made the revenue recognition easy to apply.
?
On April 1, 2013, nPropel Corporation paid $48,000 cash for equipment that will be used in business operations. The equipment will be used for four ye...
Depreciation principle.
No principle has been violated.
Cash principle.
Expense recognition principle.
?
Under the cash basis of accounting:
revenue is recognized when services are performed.
expenses are matched with the revenue that is produced.
cash must be received before revenue is recognized.
a promise to pay is sufficient to recognize revenue.
?
Under the accrual basis of accounting:
cash must be received before revenue is recognized.
net income is calculated by matching cash outflows against cash inflows.
events that change a company’s financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.
?
Using accrual accounting, expenses are recorded and reported only:
when they are incurred whether or not cash is paid.
when they are incurred and paid at the same time.
if they are paid before they are incurred.
if they are paid after they are incurred.
?
A small company may be able to justify using a cash basis of accounting if they have:
sales under $1,000,000.
no accountants on staff.
few receivables and payables.
all sales and purchases on account.
?
Which statement is correct?
As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.
The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.
The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
As long as management is ethical, there are no problems with using the cash basis of accounting.
?
La More Company had the following transactions during 2013: • Sales of $4,500 on account • Collected $2,000 for services to be performed...
$2,875
$4,875
$4,625
$2,625
?
La More Company had the following transactions during 2013. • Sales of $4,500 on account • Collected $2,000 for services to be performed...
$5,175
$675
$4,925
$425
?
Wang Company had the following transactions during 2013: • Sales of $10,800 on account • Collected $4,800 for services to be performed i...
$8,300
$13,100
$12,500
$7,700
?
Wang Company had the following transactions during 2013: • Sales of $10,800 on account • Collected $4,800 for services to be performed i...
$1,100
$2,300
$12,500
$1,700
?
Given the data below for a firm in its first year of operation, determine net income under the cash basis of accounting. Revenue earned $16,000 Acco...
$6,500
$11,000
$4,700
$6,950
?
Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting. Revenue earned $16,000 A...
$8,750
$11,000
$6,500
$9,200
?
Given the data below for a firm in its first year of operation, determine net income under the cash basis of accounting. Cash received from customers...
$22,000
$31,000
$24,000
$15,000
?
Under the cash basis of accounting, an amount received from a customer in advance of providing the services would be reported as a(n):
revenue
liability
expense
prepaid expense.
?
Which of the following would be unethical?
Recording accrued salaries and wages expense.
Recording accrued interest revenue.
Recording backdated revenue.
Recording prepaid expense adjustments.