Multiple Choice Questions
50.Assets that have been pledged as security for a loan:
A. Are reported as liabilities on the balance sheet.
B. Must be sold when the loan matures.
C. Become the property of the lender until the loan is paid in full.
D. Are disclosed in the notes to the financial statements.
51.All of the following are examples of current liabilities
except:
A. Accounts payable.
B. Pledged assets.
C. Unearned revenue.
D. Income taxes payable.
52.The two basic characteristics of estimated liabilities are:
A. Probable and reasonably estimated.
B. Known to exist and amount unable to be determined until a later date.
C. Probable and non-interest bearing.
D. Known to exist and interest bearing.
53.If a business ceases operations and liquidates, which of the following will be paid
last?
A. Owners.
B. General creditors.
C. Employees.
D. Creditors who have collateral for their loans.
54.A measure of a company's liquidity is:
A. Assets divided by liabilities.
B. The current ratio.
C. The dollar amount of liabilities that bear interest.
D. The dollar amount of assets used as collateral for a loan.
55.On October 1, 2015, Master's Co. borrows $500,000 from its bank for five years at an annual interest rate of 10%. According to the terms of the loan, the principal amount will not be due for five years. Interest is to be paid monthly on the first day of each month, beginning November 1, 2015. With respect to this borrowing, Master's December 31, 2015, balance sheet included only a long-term note payable of $500,000. As a result:
A. The December 31, 2015, financial statements are accurate.
B. Liabilities are understated by $12,500 accrued interest payable.
C. Liabilities are understated by $4,167 accrued interest payable.
D. Liabilities are understated by the amount of interest for the five-year term of the note that has not yet been paid.
56.Interest payable on a loan becomes a liability:
A. When the note payable is issued.
B. As it accrues.
C. At the maturity date.
D. When the borrowed money is received.
57.On November 1, Metro Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. The November 30 adjusting entry will be: (assume 360 days in year)
A. Debit Interest Expense $550 and credit Notes Payable $550.
B. Debit Interest Expense $550 and credit Interest Payable $550.
C. Debit Discount on Notes Payable $1,100 and credit Interest Payable $1,100.
D. Debit Interest Expense $550 and credit Cash $550.
On November 1, Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately.
58.Refer to the information above. How much must Noble pay South Bank on May 1, Year 2, when the note matures?
A. $80,000.
B. $89,600.
C. $84,800.
D. $82,400.
59.Refer to the information above. How much interest expense will Noble recognize on this note in Year 2?
A. $9,600.
B. $4,800.
C. $2,400.
D. $3,200.