(Multiple Choice)

1. For the purpose of classifying liabilities as current or noncurrent, the term operating cycle refers to

a. the average time period between business recessions.

b. the time period between date of sale and the date the related revenue is collected.

c. a period of one year.

d. the time period between purchase of merchandise and the conversion of this merchandise back to cash.

2. Failure to accrue interest expense results in

a. an overstatement of net income and an understatement of liabilities.

b. an understatement of net income and an overstatement of liabilities.

c. an overstatement of net income and an overstatement of liabilities.

d. an understatement of net income and an understatement of liabilities.

3. Mega Planes Warehouse operates in a state with a 6.5% sales tax. For convenience, Mega Planes Warehouse credits Sales Revenue for the total amount (selling price plus sales tax) collected from each customer. If Mega Planes Warehouse fails to make an adjustment for sales taxes,

a. net income will be understated and liabilities will be understated.

b. net income will be overstated and liabilities will be overstated.

c. net income will be understated and liabilities will be overstated.

d. net income will be overstated and liabilities will be understated.

4. What kind of account is Unearned Revenue?

a. Revenue account

b. Expense account

c. Liability account

d. Asset account

5. An end-of-period adjusting entry that debits Unearned Revenue most likely will credit

a. a revenue.

b. an asset.

c. an expense.

d. a liability.

6. Myron, Inc., manufactures and sells computer monitors with a three-year warranty. Warranty costs are expected to average 7% of sales during the warranty period. The following table shows the sales and actual warranty payments during the first two years of operations:

Based on these facts, what amount of warranty liability should Myron, Inc., report on its balance sheet at December 31, 2013?
a. $47,700
b. $57,300
c. $105,000
d.$42,500

Year 2012 2013 SalesWarranty Payments S650,000 850,000 S 5,200 42.500