Quiz – Ch 10

1. On October 1, Eli's Carpet Service borrows £125,000 from First Bank on a 3-month,
£125,000, 8% note. The entry by Eli's Carpet Service to record payment of the note
and accrued interest on January 1 is
a. Notes Payable ........................................................................ 127,500
Cash .............................................................................. 127,500
b. Notes Payable ........................................................................ 125,000
Interest Payable ..................................................................... 2,500
Cash .............................................................................. 127,500
c. Notes Payable ........................................................................ 125,000
Interest Payable ..................................................................... 10,000
Cash .............................................................................. 135,000
d. Notes Payable ........................................................................ 125,000
Interest Expense .................................................................... 2,500
Cash .............................................................................. 127,500

2. On September 1, Bud's Painting Service borrows €150,000 from Highlands Bank on a 4-

month, €150,000, 6% note. What entry must Bud's Painting Service make on
December 31 before financial statements are prepared?
a. Interest Payable ..................................................................... 3,000
Interest Expense ........................................................... 3,000
b. Interest Expense .................................................................... 9,000
Interest Payable ............................................................ 9,000
c. Interest Expense .................................................................... 3,000
Interest Payable ............................................................ 3,000
d. Interest Expense .................................................................... 3,000
Notes Payable ............................................................... 3,000
3. Any balance in an unearned revenue account is reported as a(n)
a. current liability.
b. long-term debt.
c. revenue.
d. unearned liability.

4. Mackenzie Insurance Company collected a premium of €15,000 for a 1-year insurance

policy on May 1. What amount should Mackenzie report as a current liability for
Unearned Insurance Revenue at December 31?
a. €0.
b. €5,000.
c. €10,000.
d. €15,000.

5. A retail store does not segregate sales and the amount of sales tax on sales. If the sales
tax rate is 5% and the register total amounted to $262,500, what is the amount of the
sales taxes owed to the taxing agency?
a. $250,000
b. $262,500
c. $13,125
d. $12,500
6. On January 1, 2020, Key Company, a calendar-year company, issued £250,000 of notes
payable, of which £62,500 is due on January 1 for each of the next four years. The
proper balance sheet presentation on December 31, 2020, is
a. Current Liabilities, £250,000.
b. Long-term Debt , £250,000.
c. Current Liabilities, £62,500; Non-current Debt, £187,500.
d. Current Liabilities, £187,500; Non-current Debt, £62,500.

7. A cash register tape shows cash sales of HK$3,000 and sales taxes of HK$240. The journal
entry to record this information is
a. Cash............................................................................................................... 3,240
Sales Revenue ...................................................................................................... 3,240
b. Cash............................................................................................................... 3,240
Sales Taxes Payable .............................................................................................. 240
Sales Revenue ...................................................................................................... 3,000
c. Cash............................................................................................................... 3,000
Sales Tax Expense....................................................................................... 240
Sales Revenue ...................................................................................................... 3,240
d. Cash............................................................................................................... 3,240
Sales Revenue ...................................................................................................... 3,000
Sales Tax Revenue ................................................................................................. 240

8. Which of the following statements concerning current liabilities is incorrect?

a. Current liabilities include unearned revenues.
b. A company that has more current liabilities than current assets may have liquidity
issues.
c. Current liabilities include prepaid expenses.
d. A current liability is a debt that a company expects to pay within one year or the
operating cycle whichever is longer.

9. Landfall Navigation began operations in 2020 and provides a one year warranty on the
products it sells. They estimate that 20,000 of the 400,000 units sold in 2020 will be
returned for repairs and that these repairs will cost $8 per unit. The cost of repairing
16,000 units presented for service in 2020 was $128,000. Landfall should report
a. warranty expense of $32,000 for 2020.
b. warranty expense of $160,000 for 2020.
c. warranty liability of $160,000 on December 31, 2020.
d. no warranty obligation on December 31, 2020, since this is only a provision.
10. Wang Company sells 1,200 units of a product that has a one-year warranty on parts. The
average cost of honoring one warranty contract is HK$60. During the year 60 contracts
are honored at a cost of HK$3,600. It is estimated that 120 contracts will be honored in
the following year. The adjusting entry at the end of the current year will include a
a. credit to Warranty Liability for HK$7,200.
b. credit to Warranty Liability for HK$10,800.
c. debit to Warranty Expense for HK$3,600.
d. debit to Warranty Expense for HK$10,800.