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Question(s) / Instruction(s):

All of the following are reported as current liabilities except

a.            notes payable.

b.            unearned revenues.

c.             accounts payable.

d.            bonds payable.


2.            The relationship between current liabilities and current assets is

a.            useful in determining the amount of a companys long-term debt.

b.            useful in determining income.

c.             useful in evaluating a companys liquidity.

d.            called the matching principle.


3.            Most companies pay current liabilities

a.            by issuing stock.

b.            by creating long-term liabilities.

c.             out of current assets.

d.            by issuing interest-bearing notes payable.


4.            From a liquidity standpoint, it is more desirable for a company to have current

a.            liabilities exceed long-term liabilities.

b.            assets equal current liabilities.

c.             liabilities exceed current assets.

d.            assets exceed current liabilities.


5.            In most companies, current liabilities are paid within

a.            one year through the creation of other current liabilities.

b.            one year out of current assets.

c.             the operating cycle through the creation of other current liabilities.

d.            the operating cycle out of current assets.


6.            The entry to record the issuance of an interest-bearing note credits Notes Payable for the notes

a.            cash realizable value.

b.            market value.

c.             face value.

d.            maturity value.


7.            As interest is recorded on an interest-bearing note, the Interest Expense account is

a.            increased; the Interest Payable account is increased.

b.            decreased; the Interest Payable account is increased.

c.             increased; the Notes Payable account is increased.

d.            increased; the Notes Payable account is decreased.


8.            Unearned Rental Revenue is

a.            a revenue account.

b.            reported as a current liability.

c.             debited when rent is received in advance.

d.            a contra account to Rental Revenue.


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

a.            not recorded because it is a tax paid by the customer.

b.            recorded as an operating expense.

c.             a miscellaneous revenue for the store.

d.            a current liability.


10.          Bonds that are secured by real estate are termed

a.            bearer bonds.

b.            mortgage bonds.

c.             serial bonds.

d.            debentures.


11.          A major disadvantage resulting from the use of bonds is that

a.            bondholders have voting rights.

b.            interest must be paid on a periodic basis.

c.             taxes may increase.

d.            earnings per share may be lowered.


12.          Which one of the following amounts increases each period when accounting for long-term notes payable?

a.            Cash payment

b.            Interest expense

c.             Principal balance

d.            Reduction of principal


13.          The entry to record an installment payment on a long-term note payable is

a)            Mortgage Notes Payable                              


b)            Interest Expense                           


c)            Bonds Payable 


d)            mortgage Notes Payable                              

Interest Expense                           





14.          Each of the following may be shown in a supporting schedule instead of the balance sheet except the

a)            current maturities of long-term debt.

b)            conversion privileges.

c)            interest rates.

d)            maturity dates.




15.          The discount on bonds payable or premium on bonds payable is shown on the balance sheet as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the appropriate addition or subtraction to bonds payable:

                Premium onBonds Payable         Discount onBonds Payable

a)                            Add                                                        Deduct


b)                            Deduct                                                 Add


c)                            Deduct                                                 Deduct


d)                            Add                                                        Add






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