File: ch10, Chapter 10: Reporting and Analyzing Liabilities
Multiple Choice
1. The time period for classifying a liability as current is one year or the operating cycle, whichever is:
a)
longer.
b)
shorter.
c)
probable.
d)
possible.
Ans: a
Response A: Correct!
Response B: Liabilities are classified as current if they will be paid with current assets within one year
or the current operating cycle, whichever is longer, not shorter.
Response C: Liabilities are classified as current if they will be paid with current assets within one year
or the current operating cycle, whichever is longer, not probable.
Response D: Liabilities are classified as current if they will be paid with current assets within one year
or the current operating cycle, whichever is longer, not possible.
2. To be classified as a current liability, a debt must be expected to be paid:
a)
out of existing current assets.
b)
by creating other current liabilities.
c)
within 2 years.
d)
Either a) or b).
Ans: d
Response A: This answer is correct but d is a better answer.
Response B: This answer is correct but d is a better answer.
Response C: The expected time period for payment of a current liability is one year or the current
operation cycle, whichever is longer.
Response D: Correct!
3. Corricten Company borrows $88,500 on September 1, 2007, from Harrington State Bank by signing
an $88,500, 12%, oneyear note. What is the accrued interest at December 31, 2007?
a)
$2,655.
b)
$3,540.
c)
$4,425.
d)
$10,620.
Ans: b
Response A: This answer results from using three months instead of four in the interest calculation.
Accrued interest at December 31, 2007, is $3,540.
It is computed as follows: $88,500 X 12% X 4/12 =
$3,540.
Response B: Correct!
Response C: This answer results from the using five months instead of four in the interest calculation.
Accrued interest at December 31, 2007, is $3,540.
It is computed as follows: $88,500 X 12% X 4/12
=
$3,540.
Response D: This answer results from using a full year instead of four months in the interest calculation.
Accrued interest at December 31, 2007, is $3,540.
It is computed as follows: $88,500 X 12% X 4/12
=
$3,540.
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View Full Document4. Andre Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%,
what is the amount to be credited to Sales?
a)
$4,000.
b)
$4,300.
c)
$4,289.25.
d)
The correct answer is not given.
Ans: b
Response A: If total sales was $4,000 and $4,515 was collected for sales and sales tax, the implied sales
tax rate is 12.9%. The amount to be credited to Sales can be computed by dividing total proceeds from
sales by one plus the sales tax rate of 5%. The computation is as follows: $4,515/1.05 = $4,300.
Response B: Correct!
Response C: This answer results from multiplying the total proceeds from sales times the sales tax rate
and subtracting the result from total proceeds from sales. If the business figures out sales tax payable in
this manner, they will be paying a greater amount of sales tax than their actual obligation. The amount to
be credited to Sales can be computed by dividing total proceeds from sales by one plus the sales tax rate
of 5%. The computation is as follows: $4,515/1.05 = $4,300.
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 Spring '07
 BRUSH
 Debt, Interest

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