Multiple-Choice Questions

1. Liabilities are recognized:

a. In exchange for goods.

b. In exchange for services.

c. In exchange for borrowing money.

d. All of the above.

2. When reporting liabilities on a balance sheet, in theory, what measurement should be used?

a. Future value of the present outflow

b. Present value of the present outflow

c. Future value of the future outflow

d. Present value of the future outflow

3. Kinsella Seed borrowed $200,000 on October 1, 2008, at 10 percent interest.

The interest and principal are due on September 30, 2009. What journal entry should be recorded on December 31, 2008?

a. Debit Interest Payable 5,000; credit Interest Expense 5,000.

b. Debit Interest Receivable 20,000; credit Interest Expense 20,000.

c. Debit Interest Expense 5,000; credit Interest Payable 5,000.

d. No entry is necessary.

4. Kinsella Seed borrowed $200,000 on October 1, 2008, at 10 percent interest.

The interest and principal are due on September 30, 2009. What journal entry should be made with respect to the interest payment on September 30, 2009?

a. Debit Interest Expense 15,000; debit Interest Payable 5,000; credit Cash 20,000.

b. Debit Interest Expense 15,000; credit Cash 15,000.

c. Debit Interest Expense 20,000; credit Cash 20,000.

d. Debit Cash 20,000; credit Interest Expense 15,000; credit Interest Payable 5,000.

5. Which of the following is not a current liability?

a. Bonds payable due in five years

b. Unearned revenue

c. Sales tax

d. Accounts payable

6. Which of the following is not an example of an accrued payable?

a. Wages payable

b. Accounts payable

c. Property taxes payable

d. Interest payable

7. Kramerica, Inc., sold 200 oil drums to Thompson Manufacturing for $100 each. In addition to the $100 sale price per drum, there is a $2 per drum federal excise tax and a 10 percent state sales tax. What journal entry should be made to record this sale?

a. Debit Accounts Receivable 20,000; debit Tax Expense 2,400; credit Federal Excise Tax Payable $400; credit State Sales Tax Payable 2,000; credit Revenue 20,000.

b. Debit Accounts Receivable 22,400; credit Federal Excise Tax Payable $400; credit State Sales Tax Payable 2,000; credit Revenue 20,000.

c. Debit Accounts Receivable 22,400; credit Revenue 22,400.

d. Debit Accounts Receivable 20,000; credit Revenue 20,000.

8. All of the following represent taxes commonly collected by businesses from customers except:

a. State sales tax

b. Federal excise tax

c. Local sales tax

d. Unemployment tax