FIN 534 Quiz 2

Question 1

All of the following are reported as current liabilities except

unearned revenues.

accounts payable.

notes payable.

bonds payable.

Question 2 

The relationship between current liabilities and current assets is

useful in evaluating a company's liquidity.

useful in determining income.

called the matching principle.

useful in determining the amount of a company's long-term debt.

Question 3 

Most companies pay current liabilities

by creating long-term liabilities.

out of current assets.

by issuing interest-bearing notes payable.

by issuing stock.

Question 4 

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

assets exceed current liabilities.

assets equal current liabilities.

liabilities exceed long-term liabilities.

liabilities exceed current assets.

Question 5 

In most companies, current liabilities are paid within

one year out of current assets.

one year through the creation of other current liabilities.

the operating cycle through the creation of other current liabilities.

the operating cycle out of current assets.

Question 6 

The entry to record the issuance of an interest-bearing note credits Notes Payable for the note's

face value.

maturity value.

cash realizable value.

market value.

Question 7 

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

increased; the Notes Payable account is increased.

increased; the Interest Payable account is increased.

increased; the Notes Payable account is decreased.

decreased; the Interest Payable account is increased.

Question 8 

Unearned Rental Revenue is

reported as a current liability.

debited when rent is received in advance.

a revenue account.

a contra account to Rental Revenue.

Question 9 

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

a miscellaneous revenue for the store.

a current liability.

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

recorded as an operating expense

Question 10 

Bonds that are secured by real estate are termed

bearer bonds.

mortgage bonds.

serial bonds.


Question 11 

A major disadvantage resulting from the use of bonds is that

taxes may increase.

interest must be paid on a periodic basis.

earnings per share may be lowered.

bondholders have voting rights.

Question 12 

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

Cash payment

Principal balance

Reduction of principal

Interest expense

Question 13 

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

Mortgage Notes Payable

Interest Expense


Mortgage Notes Payable


Bonds Payable


Interest Expense


Question 14 

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

current maturities of long-term debt.

interest rates.

conversion privileges.

maturity dates.

Question 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

Deduct Deduct

Add Add

Deduct Add

Add Deduct



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