31. Creditors are primary users of financial statements. What ratio based on a classified balance sheet can be used by creditors to evaluate a company's liquidity? How is this ratio calculated?
32. How is the current ratio calculated, and what is its significance in the Analyze of financial statement information?
33. How is the carrying value of a discount note payable computed?
34. What type of account is Discount on Notes Payable, and is the normal balance a debit or credit?
35. How does the going concern assumption affect accounting for notes payable?
A. It dictates that notes payable be reported at their face value.
B. It dictates that interest expense be accrued at the end of the accounting period.
C. It dictates that notes payable be reported at their net realizable value.
D. It dictates that interest expense be paid when the note matures.
36. Receivables are normally reported on the balance sheet at net realizable value. In contrast, payables are carried at face value. Which accounting principle requires this treatment of payables?
A. Materiality concept.
B. Monetary unit assumption.
C. Going concern assumption.
D. Matching concept.
37. The party who borrows money in a note payable is known as the
A. Maker.
B. Payee.
C. Issuer.
D. Both A and C.
38. Houston Co. borrowed $20,000 from Dallas Co. on March 1, 2016. Houston is to repay the principal and interest on March 1, 2017. The interest rate is 8%. If the year-end adjustment is properly recorded, what will be the effects of the accrual on Houston's 2016 financial statements?
A. Increase liabilities and increase expenses
B. Increase assets and increase revenues
C. Increase assets and increase liabilities
D. No effect
39. Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, 2016. The note carried a one-year term and a 12% rate of interest. The adjusting entry on Franklin's books to record accrued interest expense on December 31, 2016 will
A. Decrease assets and decrease retained earnings by $2,000.
B. Increase liabilities and decrease equity by $2,000.
C. Increase liabilities and decrease equity by $1,600.
D. Decrease equity and increase liabilities by $4,800.
40. West Company borrowed $10,000 on September 1, 2016 from the Valley Bank. West agreed to pay interest annually at the rate of 6% per year. The note issued by West carried an 18-month term. Based on this information the amount of interest expense appearing on West's 2016 income statement would be
A. $-0-.
B. $150.
C. $60.
D. $200.