ACCOUNTING EXAM 3 CH. 8 REVIEW

When a company collects sales taxes, the debit is to Cash and the credit is to Sales Tax Payable.

• True

• False

Accounts payable are amounts the company owes to suppliers of merchandise or services that it has bought on credit.

• True

• False

Sales taxes collected from customers by the seller are not an expense. Instead, they represent current liabilities payable to the government.

• True

• False

The adjusting entry to record a contingent liability requires a debit to a loss (or expense) account and a credit to a liability.

• True

• False

If the likelihood of loss is remote, disclosure of a contingency usually is not required.

• True

• False

If the likelihood of a loss is reasonably possible rather than probable, we record no entry, but make full disclosure in a note to the financial statements to describe the contingency.

• True

• False

In a classified balance sheet, we categorize all liabilities as current.

• True

• False

When a company borrows cash from a bank promising to repay the amount borrowed plus interest, the borrower reports its liability as notes payable.

• True

• False

Interest is stated in terms of an annual percentage rate to be applied to the face value of the loan.

• True

• False

Given a choice, most managers would choose to record an obligation as long-term rather than current.

• True

• False