ACCT 2100 Chap 7 Practice Quiz

# ACCT 2100 Chap 7 Practice Quiz - ACCT 2100 Chap 7 Practice...

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ACCT 2100 Chap 7 Practice Quiz CORRECT What type of transaction is the issuance of a note payable? A) Asset Use B) Asset Exchange C) Asset Source D) Claims Exchange Feedback: When a company issues a note, it receives an asset (cash). This increases the amount of cash that the company has available to it. At the same time, a claim (note payable) is created. This is a liability because it is held by an entity that is outside the company. Because an asset is created or increased, the transaction is an asset source. LO: LO 1 CORRECT Wrayan Corp. borrowed \$150,000 from the First National Bank on August 1, 2009. The note carried a 6% annual rate of interest and required repayment of principal plus interest on January 31, 2010. What amount of interest expense would be recorded as of December 31, 2009? A) \$750 B) \$3,750 C) \$9,000 D) \$3,000 Feedback: Interest is calculated by using the following equation: Principal x Interest Rate x Time = Interest. Interest is owed for periods in which the borrower has the use of the funds borrowed. In this example, the time period is 5 months because the funds were borrowed on August 1, and the period ended December 31. This is 5 months out of 12. Therefore, Interest owed for the period August to December of 2009 is \$3,750 (150,000 x 6% x 5/12). LO: LO 1 CORRECT The Little Ducky Toy Store sells toys designed for infants and toddlers in a major Midwestern city where the sales tax is 11.25%. Sales tax is required to be collected on all sales. Little Ducky experienced the following events in 2011: Sales, all cash, were \$635,000 Cost of Goods Sold was \$486,000 Recorded Operating Expense of \$35,500 Given the information above, what is 1) sales tax expense, and 2) income for 2011? A) \$ 0 / \$113,000 B) \$71,437.50 / \$77,562.50 C) \$71,437.50 / \$42,062.50 D) \$ 0 / \$113,500 Feedback: In most governmental jurisdictions, sales taxes are levied on sales that are made to end users.

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