QUESTION 1

An example of a current liability that must be accrued at the end of a fiscal period

is:

Select one:

Accounts payable

Interest receivable

Notes payable

Wages payable

QUESTION 2

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On October 1, Smith & Sons borrowed $60,000 from Bank of America on a 6

month, 7 percent note. If the company's fiscal year ends on December 31 and

no adjusting entries have been made since the initial journal entry on October 1,

Smith & Sons should make a year-end adjusting entry involving a debit to:

Select one:

Interest expense for $2,100

Interest payable for $2,100

Interest expense for $1,050

Interest payable for $1,050

Interest expense for $700

Interest payable for $700

QUESTION 3

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A customer has sued Smith & Sons for an injury sustained while shopping at a

company outlet. The company’s management determined that it is possible that

the customer will win the lawsuit and estimated that the possible lawsuit award

might be as high as $1,000,000. Smith & Sons should:

Select one:

Record a liability in the company’s financial statements.

Record a liability and a loss in the company’s financial statements.

Do not record a liability in the financial statements but disclose the information
in a note to the company’s financial statements.

Neither record a liability in the company’s financial statements nor disclose
the information in a note to its financial statements.

QUESTION 4

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Cave Creek Harley Davidson sells motorcycles. During the first year of

operations, the company sold 3,000 motorcycles, each with a 3 year warranty.

The company estimates that 10 percent of the motorcycles sold will need

warranty repair work at an average cost of $600 per motorcycle. In the second

year of operations, Cave Creek HD performed warranty work on the motorcycles

sold in the first year at a total cost of $30,000. When Cave Creek HD performs

the repairs in the second year, they will debit the Warranty Expense account for:

Select one:

$30,000

$50,000

$0

$20,000

QUESTION 5

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Italian Garden Restaurant sold $20,000 of gift cards in May. These gift cards

may be used anytime before their expiration on May 31 of the following year. In

May, when the gift cards are sold, Italian Garden will credit:

Select one:

Unearned Revenue for $20,000

Cash for $20,000

Prepaid Revenue for $20,000

Accrued Revenue for $20,000

QUESTION 6

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General Mills sells cereal and other food items to Safeway. General Mills mails

out 1,000,000 coupons to consumers on January 1 for $0.50 off a box of cereal.

Based on past experience with this type of coupon, General Mills estimates that

five percent of the coupons will be redeemed at Safeway. How much of a

“coupon liability” will General Mills record on January 1 when the coupons are

mailed?

Select one:

$500,000

$100,000

$ 25,000

$0

QUESTION 7

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Which of the following is not considered to be a contingent liability?

Select one:

Environmental clean-up costs

Pending lawsuit award

Credit guarantee

Notes payable

QUESTION 8

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Smith & Sons reported net income of $15,000, income tax expense of $3,000,

and interest expense of $1,000. What is the company’s times-interest-earned

ratio?

Select one:

19

18

15

3

QUESTION 9

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Smith & Sons reported current assets of $15,000, quick assets of $10,000, and

current liabilities of $5,000. What is the company’s current ratio?

Select one:

1/3

1/2

2

3