Deck 8: Current Liabilities

Question 1

Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should Brian Inc. record?

A) Debit Cash, $8,000; Credit Notes Receivable, $8,000.
B) Debit Notes Receivable, $8,000; Credit Cash, $8,000.
C) Debit Cash, $8,000; Credit Notes Payable, $8,000.
D) Debit Notes Payable, $8,000; Credit Cash, $8,000.

Answer 1

C

Question 2

Brian Inc. borrowed $8,000 from First Bank and signed a promissory note. What entry should First Bank record?

A) Debit Cash, $8,000; Credit Notes Receivable, $8,000.
B) Debit Notes Receivable, $8,000; Credit Cash, $8,000.
C) Debit Cash, $8,000; Credit Notes Payable, $8,000.
D) Debit Notes Payable, $8,000; Credit Cash, $8,000.

Answer 2

B

Question 3

On November 1, 2012, New Morning Bakery signed a $200,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2013. New Morning Bakery should record which of the following adjusting entries at December 31, 2012?

A) Debit Interest Expense and credit Interest Payable, $2,000.
B) Debit Interest Expense and credit Cash, $2,000.
C) Debit Interest Expense and credit Interest Payable, $6,000.
D) Debit Interest Expense and credit Cash, $6,000.

Answer 3

A
Explanation: [($200,000 x 6%) x 2/12] = $2,000.

Question 4

On November 1, 2012, New Morning Bakery signed a $200,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2013. New Morning Bakery records the appropriate adjusting entry for the note on December 31, 2012. What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1, 2013?

A) $200,000.
B) $202,000.
C) $204,000.
D) $206,000.

Question 5

Liabilities are defined as:

A) Resources owed by an entity as a result of past transactions.
B) Resources owned by an entity as a result of past transactions.
C) Selling products and services to customers in the current period.
D) Costs of running the business in the current period.

Question 6

Which of the following is not a characteristic of a liability?

A) It represents a probable, future sacrifice of economic benefits.
B) It must be payable in cash.
C) It arises from present obligations to other entities.
D) It results from past transactions or events.

Question 7

Which of the following is not a current liability?

A) Accounts payable.
B) A note payable due in 2 years.
C) Current portion of long-term debt.
D) Sales tax payable.

Question 8

The Pita Pit borrowed $100,000 on November 1, 2012, and signed a six-month note bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2013. In connection with this note, The Pita Pit should report interest expense at December 31, 2012, in the amount of:

A) $0.
B) $1,000.
C) $2,000.
D) $6,000.

Question 9

The Pita Pit borrowed $100,000 on November 1, 2012, and signed a six-month note bearing interest at 12%. Principal and interest are payable in full at maturity on May 1, 2013. In connection with this note, The Pita Pit should report interest expense in 2013 for the amount of:

A) $0.
B) $4,000.
C) $2,000.
D) $6,000.

Question 10

Universal Travel, Inc. borrowed $500,000 on November 1, 2012, and signed a twelve-month note bearing interest at 6%. Principal and interest are payable in full at maturity on October 31, 2013. In connection with this note, Universal Travel, Inc. should record interest expense in 2013 in the amount of:

A) $8,000.
B) $30,000.
C) $5,000.
D) $25,000.

Question 11

Which of the following is not a liability?

A) Notes payable.
B) Current portion of long-term debt.
C) An unused line of credit.
D) Unearned revenue.

Question 12

On November 1, 2012, The Bagel Factory signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2013. The Bagel Factory should report interest payable at December 31, 2012, in the amount of:

A) $0.
B) $1,000.
C) $2,000.
D) $3,000.

Question 13

On December 1, 2012, Old World Deli signed a $300,000, 5%, six-month note payable with the amount borrowed plus accrued interest due six months later on June 1, 2013. Old World Deli should record which of the following adjusting entries at December 31, 2012?

A) Debit Interest Expense and credit Interest Payable, $7,500.
B) Debit Interest Expense and credit Cash, $7,500.
C) Debit Interest Expense and credit Interest Payable, $1,250.
D) Debit Interest Expense and credit Cash, $1,250.

Question 14

Which of the following is not a reason why a company might prefer to report a liability as long-term rather than current?

A) It may cause the firm to appear less risky to investors and creditors.
B) It may increase interest rates on borrowing.
C) It may cause the company to appear more stable commanding a higher stock price for new stock listings.
D) It may reduce interest rates on borrowing.

Question 15

Given a choice, most companies would prefer to report a liability as long-term rather than current because:

A) It may cause the firm to appear less risky to investors and creditors.
B) It may reduce interest rates on borrowing.
C) It may cause the company to appear more stable commanding a higher stock price for new stock listings.
D) All of the other answers are true.

Question 16

On September 1, 2012, Daylight Donuts signed a $100,000, 9%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2013. Daylight Donuts records the appropriate adjusting entry for the note on December 31, 2012. In recording the payment of the note plus accrued interest at maturity on March 1, 2013, Daylight Donuts would

A) Debit Interest Expense, $3,000.
B) Debit Interest Expense, $1,500.
C) Debit Interest Payable, $1,500.
D) Debit Interest Expense, $4,500.

Question 17

On September 1, 2012, Daylight Donuts signed a $100,000, 9%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2013. Daylight Donuts should report interest payable at December 31, 2012, in the amount of:

A) $0.
B) $1,500.
C) $3,000.
D) $4,500.

Question 18

Universal Travel, Inc. borrowed $500,000 on November 1, 2012, and signed a twelve-month note bearing interest at 6%. Principal and interest are payable in full at maturity on October 31, 2013. In connection with this note, Universal Travel, Inc. should report interest payable at December 31, 2012, in the amount of:

A) $8,000.
B) $30,000.
C) $5,000.
D) $25,000.

Question 19

On November 1, 2012, The Bagel Factory signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2013. The Bagel Factory records the appropriate adjusting entry for the note on December 31, 2012. In recording the payment of the note plus accrued interest at maturity on May 1, 2013, The Bagel Factory would

A) Debit Interest Expense, $2,000.
B) Debit Interest Expense, $1,000.
C) Debit Interest Payable, $2,000.
D) Debit Interest Expense, $3,000.

Question 20

On December 1, 2012, Old World Deli signed a $300,000, 5%, six-month note payable with the amount borrowed plus accrued interest due six months later on June 1, 2013. Old World Deli records the appropriate adjusting entry for the note on December 31, 2012. What amount of cash will be needed to pay back the note payable plus any accrued interest on June 1, 2013?

A) $300,000.
B) $301,250.
C) $306,250.
D) $307,500.

Question 21

At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent:

A) Liabilities until the product or service is provided.
B) A component of stockholders' equity.
C) Long-term assets until the product or service is provided.
D) Revenue upon receipt of the advance payment.

Question 22

Action Travel has 10 employees each working 40 hours per week and earning $20 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the total payroll tax expense for the first week of January?

A) $612.
B) $1,224.
C) $916.
D) $304.

Question 23

Which of the following are not included in an employer's payroll tax expense?

A) Employer portion of FICA taxes.
B) Federal unemployment taxes.
C) State unemployment taxes.
D) State income taxes.

Question 24

Which of the following is not an employer payroll cost?

A) FICA taxes.
B) Federal and state unemployment taxes.
C) Federal and state income taxes.
D) Employer contributions to a retirement plan.

Question 25

Which of the following is not withheld from an employee's salary?

A) FICA taxes.
B) Federal and state unemployment taxes.
C) Federal and state income taxes.
D) Employee portion of health insurance.

Question 26

In December, 2011, Quebecor Printing received magazine subscriptions for 2012 from a customer, who paid $500 in cash. What would be the appropriate journal entry for this event?

A) Debit Cash, $500; credit Subscription Revenue, $500.
B) Debit Cash, $500; credit Unearned Revenue, $500.
C) Debit Subscription Revenue, $200; credit Cash, $200.
D) No journal entry is necessary.

Question 27

Union Apparel has sales including sales taxes for the month of $551,200. If the sales tax rate is 6%, what are Union Apparel's sales for the month?

A) $500,000.
B) $518,128.
C) $520,000.
D) $551,200.

Question 28

Mike Gundy is a college football coach making a salary of $2,400,000 a year ($200,000 per month). Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum. Assuming the FICA maximum base amount is $106,800, through what month will Social Security be withheld?

A) Social Security will be withheld only in January.
B) Social Security will be withheld through the entire year.
C) Social Security will be withheld through the month of March.
D) Social Security will be withheld through the month of June.

Question 29

Which of the following is true regarding FICA taxes?

A) FICA taxes are paid only by the employee.
B) FICA taxes are paid only by the employer.
C) FICA taxes are paid in equal amounts by the employee and the employer.
D) FICA taxes are paid in different amounts by the employee and the employer.

Question 30

Region Jet has a $50 million liability at December 31, 2012, of which $10 million is payable in 2013. In its December 31, 2012 balance sheet, the company reports the $50 million debt as

A) A $50 million current liability on the balance sheet.
B) A $50 million long-term liability on the balance sheet.
C) A $10 million current liability and a $40 million long-term liability on the balance sheet.
D) A $40 million current liability and a $10 million long-term liability on the balance sheet.

Question 31

Which of the following are included in an employer's payroll tax expense?

A) Employer portion of FICA taxes.
B) Federal unemployment taxes.
C) State unemployment taxes.
D) All of the other answers are correct

Question 32

Suppose you buy lunch for $8.39 that includes a 5% sales tax. How much did the restaurant charge you for the lunch (excluding any tax) and how much do they owe for sales tax?

A) $8.39 for lunch and $0.42 for sales tax.
B) $8.39 for lunch and no sales tax.
C) $8.81 for lunch and $0.42 for sales tax.
D) $7.99 for lunch and $0.40 for sales tax.

Question 33

When a company collects sales tax from a customer, the event is recorded by:

A) A debit to Sales Tax Expense and a credit to Sales Tax Payable.
B) A debit to Cash and a credit to Sales Tax Payable.
C) A debit to Sales Tax Payable and a credit to Sales Tax Expense.
D) A debit to Sales Tax Payable and a credit to Cash.

Question 34

When a company delivers a product or service for which a customer has previously paid, the company records the following:

A) A debit to a revenue account and a credit to a liability account.
B) A debit to a revenue account and a credit to an asset account.
C) A debit to an asset account and a credit to a revenue account.
D) A debit to a liability account and a credit to a revenue account.

Question 35

Large, highly-rated firms sometimes sell commercial paper

A) To borrow funds at a lower rate than through a bank.
B) To borrow funds when they cannot obtain a loan from a bank.
C) Because they can't borrow anywhere else.
D) To improve their credit rating.

Question 36

Action Travel has 10 employees each working 40 hours per week and earning $20 an hour. Federal income taxes are withheld at 15% and state income taxes at 6%. FICA taxes are 7.65% and unemployment taxes are 3.8% of the first $7,000 earned per employee. What is the actual direct deposit of payroll for the first week of January?

A) $5,404.
B) $5,708.
C) $4,792.
D) $8,000.

Question 37

The sale of gift cards by a company is a direct example of:

A) Unearned revenues.
B) Sales tax payable.
C) Current portion of long-term debt.
D) Deferred taxes.

Question 38

Sales taxes collected by a company on behalf of the state and local government are recorded by:

A) A debit to an expense account.
B) A credit to a revenue account.
C) A debit to a revenue account.
D) A credit to a liability account.

Question 39

The current portion of long-term debt should be

A) Reported as a current liability on the balance sheet.
B) Reported as a long-term liability on the balance sheet.
C) Combined with the rest of the long-term debt on the balance sheet.
D) Paid immediately.

Question 40

Mike Gundy is a college football coach making a salary of $2,400,000 a year ($200,000 per month). Employers are required to withhold a 6.2% Social Security tax up to a maximum base amount and a 1.45% Medicare tax with no maximum. Assuming the FICA maximum base amount is $106,800, how much will be withheld during the year for the coach's Social Security and Medicare.

A) $34,800.
B) $41,422.
C) $183,600.
D) None of these amounts is correct

Question 41

Footnote disclosure is required for material potential losses when the loss is at least reasonably possible:

A) Only if the amount is known.
B) Only if the amount is known or reasonably estimable.
C) Unless the amount is not reasonably estimable.
D) Even if the amount is not reasonably estimable.

Question 42

United Supply has a $5 million liability at December 31, 2012, of which $1 million is payable in each of the next five years. United Supply reports the liability on the balance sheet as:

A) a $5 million current liability.
B) a $5 million long-term liability.
C) a $1 million current liability and a $4 million long-term liability.
D) a $4 million current liability and a $1 million long-term liability.

Question 43

Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program. The average repair cost is $75 per phone. For 2012, Talks-A-Lot has sold 750 cell phones and has repaired 30 of them as of December 31, 2012. What amount of warranty liability should be reported at December 31, 2012?

A) $2,250.
B) $3,375.
C) $5,625.
D) None, all expected returns from warranties have been receiveD.[(750 x 10%) x $75] = $5,625.

Question 44

Gain contingencies usually are recognized in a company's income statement when:

A) The gain is certain.
B) The amount can be reasonably estimated.
C) The gain is reasonably possible and the amount can be reasonable estimated.
D) The gain is probable and the amount can be reasonably estimated.

Question 45

Young Company is involved in a lawsuit. The liability which could arise as a result of this lawsuit should be recorded on the books if the probability of Young owing money as a result of the lawsuit is:

A) Remote and the amount can be reasonably estimated.
B) Probable and the amount can be reasonably estimated.
C) Reasonably possible and the amount can be reasonably estimated.
D) Probable and the amount cannot be reasonably estimated.

Question 46

Carpenter Inc. estimates warranty expense at 2% of sales. Sales during the year were $4 million and warranty expenditures were $44,000. What was the balance in the Warranty Liability account at the end of the year?

A) $44,000.
B) $80,000.
C) $36,000.
D) $480,000.

Question 47

Bears Inc. sells football helmets to local schools and warrants all of its products for one year. While no helmets sold in 2012 have been returned to them yet, based upon previous years, Bears Inc. estimates that 3% of its products will need repairs or be replaced within the next year. What effect would this warranty have on assets, liabilities, and stockholders' equity in 2012?

A) A decrease in assets and decrease in stockholders' equity.
B) No journal entry is necessary until products under warranty are returned.
C) An increase in stockholders' equity and a decrease in liabilities.
D) A decrease in stockholders' equity and an increase in liabilities.

Question 48

A contingent liability should be disclosed in a note to the financial statements rather than being recorded if:

A) The likelihood of a loss is remote.
B) The incurrence of a loss is reasonably possible.
C) The incurrence of a loss is probable.
D) The likelihood of a loss is eighty percent.

Question 49

When a gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be:

A) Reported in the income statement and disclosed.
B) Offset against stockholders' equity.
C) Disclosed, but not recognized in the income statement.
D) Reported in the income statement, but not disclosed.

Question 50

A contingent liability should be accrued on a company's financial statements only if the likelihood of a loss occurring is:

A) At least remotely possible and the amount of the loss is known.
B) At least reasonably possible and the amount of the loss is known.
C) At least reasonably possible and the amount of the loss can be reasonably estimated.
D) Probable and the amount of the loss can be reasonably estimated.

Question 51

Which of the following is true regarding the relationship between net income reported in the income statement and taxable income reported to the Internal Revenue Service (IRS)?

A) Net income and taxable income are always the same amount.
B) Net income and taxable income are rarely the same amount.
C) Net income is always larger than taxable income.
D) Taxable income is always larger than net income.

Question 52

Ogden Motors, Inc. is involved in a lawsuit. It is reasonably possible that the jury will find in favor of the plaintiff and Ogden will owe ten million dollars. What is the appropriate reporting of this lawsuit and what is the effect on the balance sheet?

A) Record; decrease stockholders' equity and increase liabilities.
B) Record; increase stockholders' equity and decrease liabilities.
C) Disclose; no effect on the balance sheet.
D) Disclose; decrease stockholders' equity and decrease liabilities.

Question 53

Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation?

A) As a liability for $100,000 with disclosure of the range.
B) As a liability for $150,000 with disclosure of the range.
C) As a liability for $200,000 with disclosure of the range.
D) As a disclosure only. No liability is reporteD.When no amount within a range of potential losses appears more likely than others, the liability is recorded at the minimum amount in the range.

Question 54

Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals are faulty and will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the Warranty Liability at the end of the year?

A) $0.
B) $16,000.
C) $7,000.
D) $6,750.

Question 55

If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be

A) Disclosed, but not reported as a liability.
B) Disclosed and reported as a liability.
C) Neither disclosed nor reported as a liability.
D) Reported as a liability, but not disclosed.

Question 56

Away Travel filed suit against West Coast Travel seeking damages for copyright violations. West Coast Travel's legal counsel believes it is reasonably possible that West Coast Travel will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should West Coast Travel report this litigation?

A) As a liability for $100,000 with disclosure of the range.
B) As a liability for $150,000 with disclosure of the range.
C) As a liability for $200,000 with disclosure of the range.
D) As a disclosure only. No liability is reporteD.A contingent liability is not recorded if the likelihood of loss is only reasonably possible.

Question 57

Away Travel filed suit against West Coast Travel seeking damages for copyright violations. Away Travel's legal counsel believes it is probable (but not certain) that Away Travel will win the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Away Travel report this litigation?

A) As a receivable for $100,000 with disclosure of the range.
B) As a receivable for $150,000 with disclosure of the range.
C) As a receivable for $200,000 with disclosure of the range.
D) As a disclosure only. No receivable is reporteD.A contingent gain is not recorded until the gain is certain.

Question 58

If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is probable, a contingent liability should be

A) Disclosed, but not reported as a liability.
B) Disclosed and reported as a liability.
C) Neither disclosed nor reported as a liability.
D) Reported as a liability, but not disclosed.

Question 59

At the beginning of 2012, Angel Corporation began offering a 1-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2012 were $180 million. Five percent of the units sold were returned in 2012 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2012 income statement is:

A) $5.3 million.
B) $7.2 million.
C) $9.0 million.
D) $27.0 million.

Question 60

Amplify, Inc. was sued by Sound City for $50,000. Sound City feels very confident that it will win the case and will be awarded the full amount. Amplify, Inc. feels it is probable that it will lose the case and pay Sound City the full amount. Which of the following is correct?

A) Amplify, Inc. would record a loss and contingent liability for $50,000.
B) Sound City would record a gain and lawsuit receivable for $50,000.
C) Sound City would record nothing.
D) Both a. and c. are correct.

Question 61

Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under a contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:

A) When the equipment is sold.
B) When the repairs are performed.
C) When payments are made to the service firm.
D) Evenly over the life of the warranty.

Question 62

Which of the following is a contingency that should be recorded?

A) The company is being sued and a loss is reasonably possible and reasonably estimable.
B) The company deducts life insurance premiums from employees' paychecks.
C) The company offers a two-year warranty and the expenses can be reasonably estimated.
D) It is probable that the company will receive $100,000 in settlement of a lawsuit.

Question 63

Which of the following statements regarding liquidity ratios is false?

A) A high current ratio generally indicates the ability to pay current liabilities on a timely basis.
B) A high acid-test ratio generally indicates the ability to pay current liabilities on a timely basis.
C) All current assets are due within one year and therefore have essentially equal liquidity.
D) As a rule of thumb, a current ratio of 1 or higher often reflects an acceptable level of liquidity.

Question 64

Which of the following statements regarding liquidity ratios is true?

A) A low current ratio generally indicates the ability to pay current liabilities on a timely basis.
B) A low acid-test ratio generally indicates the ability to pay current liabilities on a timely basis.
C) All current assets are due within one year and therefore have essentially equal liquidity.
D) A high working capital generally indicates the ability to pay current liabilities on a timely basis.

Question 65

Delta, Northwest, and United Airlines have all, at one time, filed for bankruptcy.

Question 66

The current ratio is

A) Current assets divided by current liabilities.
B) Cash and short-term investments divided by current liabilities.
C) Cash, short-term investments, and accounts receivable divided by current liabilities.
D) Cash, short-term investments, accounts receivable, and inventory divided by current liabilities.

Question 67

Assuming a current ratio of 1.0 and an acid-test ratio of 0.80, how will the borrowing of cash by issuing a six-month note payable affect each ratio?

A) Increase the current ratio and increase the acid-test ratio.
B) No change to the current ratio and increase the acid-test ratio.
C) Decrease the current ratio and decrease the acid-test ratio.
D) Decrease the current ratio and increase the acid-test ratio.

Question 68

Skypt Co. is involved in a lawsuit and sued by Quart Co. for $500,000. Skypt feels it is probable that it will lose the lawsuit. What should Skypt Co. and Quart Co. record or disclose concerning the lawsuit?

A) Skypt Co. should record a $500,000 contingent liability; Quart Co. should record a $500,000 contingent gain.
B) Skypt Co. should record a $500,000 contingent liability; Quart Co. should not record or disclose a contingent gain.
C) Skypt Co. should disclose a $500,000 contingent liability; Quart Co. should disclose a $500,000 contingent gain.
D) Skypt Co. should not record or disclose a contingent liability; Quart Co. should record a $500,000 contingent gain.

Question 69

A company's liquidity refers to its:

A) Ability to collect accounts receivable.
B) Ability to sell inventory efficiently.
C) Ability to generate profits from operations.
D) Ability to pay currently maturing debts.

Question 70

Which of the following is true regarding the relationship between the current ratio and the acid-test ratio?

A) The current ratio will always be equal to or larger than the acid-test ratio for a specific company.
B) The acid-test ratio will always be equal to or larger than the current ratio for a specific company.
C) Either the current ratio or the acid-test ratio could be larger for a specific company.
D) One ratio will always exceed 1.0, while the other will always be less than 1.0.

Question 71

Given a choice, most companies would prefer to report a liability as current rather than long-term, because doing so may cause the firm to appear less risky.

Question 72

Assuming a current ratio of 1.2 and an acid-test ratio of 0.80, how will the purchase of inventory with cash affect each ratio?

A) Increase the current ratio and increase the acid-test ratio.
B) No change to the current ratio and decrease the acid-test ratio.
C) Decrease the current ratio and decrease the acid-test ratio.
D) Decrease the current ratio and increase the acid-test ratio.

Question 73

We record interest expense in the period in which we pay it, rather than in the period we incur it.

Question 74

The acid-test ratio is

A) Current assets divided by current liabilities.
B) Cash and short-term investments divided by current liabilities.
C) Cash, short-term investments, and accounts receivable divided by current liabilities.
D) Cash, short-term investments, accounts receivable, and inventory divided by current liabilities.

Question 75

In a classified balance sheet, we categorize all liabilities as current.

Question 76

When a company borrows cash from a bank promising to repay the amount borrowed plus interest, the borrower reports its liability as notes payable.

Question 77

Interest is stated in terms of a percentage rate to be applied to the face value of the loan.

Question 78

Working capital is

A) Current assets divided by current liabilities.
B) Current assets minus current liabilities.
C) Cash, short-term investments, and accounts receivable divided by current liabilities.
D) Cash, short-term investments, and accounts receivable minus current liabilities.

Question 79

Commonly, current liabilities are payable within one year, and long-term liabilities are payable more than one year from now.

Question 80

Which of the following measures of liquidity does not control for the relative size of the company?

A) Working capital.
B) Current ratio.
C) Acid-test ratio.
D) They all control for the relative size of the company.