Question 1

Which of the following is not usually associated with bonds?

Accepted Answer

The term "maturity rate" is not typically associated with bonds. Bonds are usually associated with terms like coupon rate, maturity value, and face amount.

Question 2

When a supplier makes a downward adjustment in the amount owed by a creditor, the creditor will:

Accepted Answer

When a supplier makes a downward adjustment, the creditor reduces the accounts payable, reflecting the reduced liability, and decreases an asset like inventory to account for the lower cost of goods.

Question 3

The payment of a current liability will:

Accepted Answer

D

Question 4

Interest on a Note Payable is most appropriately accrued:

Accepted Answer

Interest on a Note Payable is accrued at the end of each accounting period to match the expense with the period in which it is incurred, according to the accrual basis of accounting.

Question 5

A magazine publisher has an account called "Unearned Subscription Revenue." The transaction that causes the balance of this account to decrease is:

Accepted Answer

When magazines are mailed to subscribers, the publisher earns the revenue, thus decreasing the "Unearned Subscription Revenue" account as the obligation to deliver the magazines is fulfilled.

Question 6

The purpose of reporting Current Maturities of Long-Term debt is to:

Accepted Answer

The purpose of reporting Current Maturities of Long-Term debt includes all the options: reporting the portion of long-term debt due within the next year as a current liability, reclassifying it from noncurrent to current on the balance sheet, and ensuring proper classification of liabilities.

Question 7

A working capital loan will generally:

Accepted Answer

The answer of A working capital loan will generally:
...

Question 8

Many current liabilities are affected by accrual accounting entries.This happens because:

Accepted Answer

Accrual accounting requires recognizing expenses and the related liabilities when they are incurred, even if they have not yet been paid, which affects current liabilities.

Question 9

Cassady, Inc.borrowed $25,000 for 3 months at an APR of 10%.The amount of interest paid on this loan was:

Accepted Answer

The amount of interest paid on a loan is calculated as follows:Interest = Principal x Rate x TimeIn this case, the principal is $25,000, the rate is 10%, and the time is 3 months.Therefore, the interest paid is:Interest = $25,000 x 0.10 x 3/12 = $625

Question 10

The current liability for Wages Payable (or Accrued Payroll)represents the:

Accepted Answer

The answer of The current liability for Wages Payable (or...

Question 11

A transaction that is likely to cause an increase in a current liability is:

Accepted Answer

Accrual of interest expense increases current liabilities because it recognizes interest that is owed but not yet paid.

Question 12

When borrowing money, the most important objective of the borrower should be to:

Accepted Answer

Minimizing the APR (Annual Percentage Rate) is crucial because it represents the true cost of borrowing, including interest and fees, and affects the total amount paid over the life of the loan.

Question 13

Computing a borrower's effective interest rate is another application of which of the following concepts?

Accepted Answer

The effective interest rate is calculated using the present value concept, which involves discounting future cash flows to determine their value in today's terms.

Question 14

Current maturities of long-term debt:

Accepted Answer

Current maturities of long-term debt are classified as current liabilities, which helps in determining the working capital by showing the obligations due within the next year.

Question 15

A loan discount is:

Accepted Answer

A loan discount refers to the interest amount that is subtracted from the loan principal at the time the loan is issued, meaning the borrower receives less than the face value of the loan but repays the full amount.

Question 16

Which of the following is a true statement regarding interest calculation methods?

Accepted Answer

When a loan is given on a discount-basis, the borrower receives less than the face value of the loan, leading to a higher APR compared to the simple interest rate.

Question 17

The financial leverage characteristic of long-term debt results in:

Accepted Answer

Financial leverage through long-term debt increases the potential return on equity (ROE) by using borrowed funds to generate more earnings, assuming the return on investment exceeds the cost of debt.

Question 18

The adjusting entry to accrue Interest Expense results in:

Accepted Answer

An adjusting entry to accrue interest expense increases the Interest Expense account to reflect the cost incurred during the period, even though it has not yet been paid.

Question 19

Bonner's, Inc.borrowed $36,000 for 4 months on a discount basis.The lender used an interest rate of 8% to calculate the discount.The amount of cash Bonner's, Inc.actually had available to use from this loan was:

Accepted Answer

The loan is on a discount basis, meaning the interest is deducted upfront. The interest for 4 months is calculated as $36,000 * 8% * (4/12) = $960. Therefore, the cash available is $36,000 - $960 = $35,040.

Question 20

An Accounts Payable normally results from which of the following transactions?

Accepted Answer

Accounts Payable typically arises from purchasing goods and services from suppliers on credit, which is a common business transaction.

Quiz 7: Accounting for and Presentation of Liabilities