Question 1

A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to $294,000, what is the amount of the sales taxes owed to the taxing agency?
A) $280,000
B) $294,000
C) $14,700
D) $14,000

Accepted Answer

The answer of A retail store credited the Sales Revenue...

Question 2

Jim's Pharmacy has collected $600 in sales taxes during March. If sales taxes must be remitted to the state government monthly, what entry will Jim's Pharmacy make to show the March remittance?
A) Sales Tax Expense 600 
Cash 600
B) Sales Taxes Payable 600 
Cash 600
C) Sales Tax Expense 600 
Sales Taxes Payable 600
D) No entry required.

Accepted Answer

Sales taxes collected by Jim's Pharmacy are not an expense, but a liability owed to the state government. Therefore, the entry would be to credit Sales Taxes Payable for $600 and debit Cash for $600 to show the remittance of the sales taxes collected. Option A is incorrect because it records sales taxes as an expense instead of a liability owed. Option C records both an expense and a liability, which is unnecessary. Option D is incorrect as the remittance of sales taxes collected requires an entry to be made.

Question 3

Pickett Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 90,000 subscriptions in January at $15 each. What entry is made in January to record the sale of the subscriptions?
A) Subscriptions Receivable 1,350,000 Subscription Revenue 1,350,000
B) Cash 1,350,000 Unearned Subscription Revenue 1,350,000
C) Subscriptions Receivable 225,000 Unearned Subscription Revenue 225,000
D) Prepaid Subscriptions 1,350,000 Cash 1,350,000

Accepted Answer

The sale of the subscriptions results in Unearned Subscription Revenue (a liability account) because the company has not yet delivered the magazines to the customers. Cash is also received, which is recorded as an asset. Therefore, the correct entry is to debit Cash and credit Unearned Subscription Revenue. The amount to be credited is the total amount received ($15 x 90,000 = $1,350,000).

Question 4

Kelly Rice has a large consulting practice. New clients are required to pay one-half of the consulting fees up front. The balance is paid at the conclusion of the consultation. How does Rice account for the cash received at the end of the engagement?
A) Cash Unearned Service Revenue
B) Cash Service Revenue
C) Prepaid Service Fees Service Revenue
D) No entry is required when the engagement is concluded.

Accepted Answer

The initial payment is recorded as unearned revenue (liability) and the balance is recorded as service revenue (revenue). When the engagement is concluded, the cash received for the balance is recorded as Cash Service Revenue.

Question 5

A cash register tape shows cash sales of $3,500 and sales taxes of $210. The journal entry to record this information is
a. 
$\begin{array}{lrr}
  \text { Cash } &3,500\
 \text {  Sales Revenue} &&3,500\
\end{array}$

b. 
$\begin{array}{lrr}
  \text {Cash  } &3,710\
 \text {  Sales Tax Revenue } &&210\
\text { Sales Revenue  } &&3,500
\end{array}$

c. 
$\begin{array}{lrr}
  \text {Cash  } &3,500\
 \text { Sales Tax Revenue } &210\
\text {  Sales Revenue } &&3,710
\end{array}$

d. 
$\begin{array}{lrr}
  \text { Cash } &3,710\
 \text {   Sales Revenue} &&3,500\
\text {  Sales Tax Revenue} &&210
\end{array}$

Accepted Answer

The answer of A cash register tape shows cash sales...

Question 6

Sales taxes collected by a retailer are expenses
A) of the retailer.
B) of the customers.
C) of the government.
D) that are not recognized by the retailer until they are submitted to the government.

Accepted Answer

Sales taxes collected by a retailer are considered liabilities to the government but are expenses of the customers, as they are the ones who ultimately bear the cost. The retailer acts merely as a collector and remitter of these taxes to the government.

Question 7

Which one of the following is shown first under current liabilities by many companies as a matter of custom?
A) Accrued expenses
B) Current maturities of long-term debt
C) Sales taxes payable
D) Notes payable

Accepted Answer

The answer of Which one of the following is shown...

Question 8

The current ratio is
A) current assets plus current liabilities.
B) current assets minus current liabilities.
C) current assets divided by current liabilities.
D) current assets multiplied by current liabilities.

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. This gives an indication of a company's ability to pay off its short-term debts with its current assets.

Question 9

Any balance in an unearned revenue account is reported as a(n)
A) current liability.
B) long-term debt.
C) revenue.
D) unearned liability.

Accepted Answer

Any balance in an unearned revenue account represents a liability to the company. Since this liability will be satisfied within one year, it is considered a current liability. Therefore, the correct answer is A) current liability.

Question 10

Layton Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $29,400. If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?
A) $1,400
B) $1,470
C) $70
D) It cannot be determined.

Accepted Answer

The answer of Layton Company does not ring up sales...

Question 11

Advances from customers are classified as a(n)
A) revenue.
B) expense.
C) current asset.
D) current liability.

Accepted Answer

Advances from customers represent money that has been received from customers in advance of a product or service being provided. As the company has not yet earned this revenue, it is classified as a current liability on the balance sheet until the product or service has been delivered, at which point it becomes revenue.

Question 12

Valerie's Salon has total receipts for the month of $20,670 including sales taxes. If the sales tax rate is 6%, what are Valerie's sales for the month?
A) $19,637
B) $21,910
C) $19,500
D) It cannot be determined.

Accepted Answer

Let x be the sales for the month.
According to the problem: 
x + 6% of x = $20,670
x + 0.06x = $20,670
1.06x = $20,670
x = $19,500
Therefore, Valerie's sales for the month were $19,500, which is Option C.

Question 13

Hardy Company has current assets of $95,000, current liabilities of $100,000, long-term assets of $180,000 and long-term liabilities of $80,000. Hardy Company's working capital and its current ratio are:
A) $85,000 and .95:1.
B) -$5,000 and 1.95:1.
C) $5,000 and .95:1.
D) -$5,000 and .95:1.

Accepted Answer

The answer of Hardy Company has current assets of $95,000,...

Question 14

Oakley Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $42,800. If the sales tax rate is 7%, what amount must be remitted to the state for February's sales taxes?
A) $2,996
B) $2,800
C) $4,280
D) It cannot be determined.

Accepted Answer

The answer of Oakley Company does not ring up sales...

Question 15

Sales taxes collected by a retailer are reported as
A) contingent liabilities.
B) revenues.
C) expenses.
D) current liabilities.

Accepted Answer

Sales taxes collected by a retailer are reported as current liabilities because they are owed to the government and are expected to be paid within the next operating cycle or year.

Question 16

The current portion of long-term debt should
A) be paid immediately.
B) be reclassified as a current liability.
C) be classified as a long-term liability.
D) not be separated from the long-term portion of debt.

Accepted Answer

The current portion of long-term debt represents the amount of principal that is due within the next year. Therefore, it should be reclassified as a current liability on the balance sheet.

Question 17

Hilton Company issued a four-year interest-bearing note payable for $600,000 on January 1, 2014. Each January the company is required to pay $150,000 on the note. How will this note be reported on the December 31, 2015 balance sheet?
A) Long-term debt, $600,000.
B) Long-term debt, $450,000.
C) Long-term debt, $300,000; Long-term debt due within one year, $150,000.
D) Long-term debt, $450,000; Long-term debt due within one year, $150,000.

Accepted Answer

The answer of Hilton Company issued a four-year interest-bearing note...

Question 18

The amount of sales tax collected by a retail store when making sales is
A) a miscellaneous revenue for the store.
B) a current liability.
C) not recorded because it is a tax paid by the customer.
D) recorded as an operating expense.

Accepted Answer

Sales tax collected by a retail store is a liability as the store is collecting it on behalf of the government and eventually has to remit it to the government. It is not a revenue for the store nor an operating expense, and it is not recorded as a miscellaneous item in financial statements.

Question 19

Working capital is
A) current assets plus current liabilities.
B) current assets minus current liabilities.
C) current assets divided by current liabilities.
D) current assets multiplied by current liabilities.

Accepted Answer

Working capital is the difference between current assets and current liabilities.

Question 20

Julie's Boutique has total receipts for the month of $31,920 including sales taxes. If the sales tax rate is 5%, what are Julie's sales for the month?
A) $30,324
B) $30,400
C) $33,516
D) It cannot be determined.

Accepted Answer

We can use reverse percentage formula to find out the sales amount before taxes.

Let the sales amount before tax be x.

then,

105% of x = 31,920

1.05x = 31,920

x = 31,920 / 1.05

x = 30,400

Therefore, the answer is B.

Quiz 10: Liabilities

A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to $294,000, what is the amount of the sales taxes owed to the taxing agency?

Jim's Pharmacy has collected $600 in sales taxes during March. If sales taxes must be remitted to the state government monthly, what entry will Jim's Pharmacy make to show the March remittance?

Pickett Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 90,000 subscriptions in January at $15 each. What entry is made in January to record the sale of the subscriptions?

Kelly Rice has a large consulting practice. New clients are required to pay one-half of the consulting fees up front. The balance is paid at the conclusion of the consultation. How does Rice account for the cash received at the end of the engagement?

Sales taxes collected by a retailer are expenses

Which one of the following is shown first under current liabilities by many companies as a matter of custom?

The current ratio is

Any balance in an unearned revenue account is reported as a(n)

Layton Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $29,400. If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?

Advances from customers are classified as a(n)

Valerie's Salon has total receipts for the month of $20,670 including sales taxes. If the sales tax rate is 6%, what are Valerie's sales for the month?

Hardy Company has current assets of $95,000, current liabilities of $100,000, long-term assets of $180,000 and long-term liabilities of $80,000. Hardy Company's working capital and its current ratio are:

Oakley Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $42,800. If the sales tax rate is 7%, what amount must be remitted to the state for February's sales taxes?

Sales taxes collected by a retailer are reported as

The current portion of long-term debt should

Hilton Company issued a four-year interest-bearing note payable for $600,000 on January 1, 2014. Each January the company is required to pay $150,000 on the note. How will this note be reported on the December 31, 2015 balance sheet?

The amount of sales tax collected by a retail store when making sales is

Working capital is

Julie's Boutique has total receipts for the month of $31,920 including sales taxes. If the sales tax rate is 5%, what are Julie's sales for the month?