chapter 8&9 review

Current liabilities: - May include contingent liabilities. - Are preferred by most companies over long-term liabilities. - Can be satisfied only with the payment of cash. - Include obligations payable within one year or one operating cycle, whichever is shorter.

• May include contingent liabilities.

• Are preferred by most companies over long-term liabilities.

• Can be satisfied only with the payment of cash.

• Include obligations payable within one year or one operating cycle, whichever is shorter.

On November 1, a company signed a $200,000, 12%, six-month note payable. What adjusting entry should be made on December 31?

• Debit Interest Expense and credit Cash, $12,000.

• Debit Interest Expense and credit Cash, $4,000.

• Debit Interest Expense and credit Interest Payable, $12,000.

• Debit Interest Expense and credit Interest Payable, $4,000.

Express Jet borrows $100 million on October 1 at 6% interest. What amount is reported as interest payable on December 31?

• $1.5 million.

• $0.

• $4.5 million.

• $6 million.

We record interest expense on a note payable in the period in which:

• We pay cash for interest.

• We incur interest.

• We pay cash and incur interest.

• We pay cash or incur interest.

When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as:

• A debit to an asset and a credit to a revenue account.

• A debit to a revenue and a credit to a liability account.

• A debit to a revenue and a credit to an asset account.

• A debit to a liability and a credit to a revenue account.

If a loss is remote, a contingent liability should be:

• Neither disclosed nor reported as a liability.

• Disclosed but not reported as a liability.

• Disclosed and reported as a liability.

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year? 

• $720.

• $400.

• $320.

• $0.

A contingent liability that is probable and can be reasonably estimated must be:

• Not disclosed.

• Recorded.

• Paid.

• Disclosed.

How does borrowing cash to be repaid in 5 years affect the current and acid-test ratios?

• Decrease the current ratio and decrease the acid-test ratio.

• No change to the current ratio and decrease the acid-test ratio.

• Increase the current ratio and decrease the acid-test ratio.

• Increase the current ratio and increase the acid-test ratio.

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as the reduction in principal for the second month?

• $3,042.

• $2,555.

• $2,542.

• $2,529.