1. Which of the following is not a characteristic of current liabilities? A) The
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Question
1. Which of the following is not a characteristic of current liabilities?
A) They are due within one year or within the operating cycle, whichever is longer
C) They may be replaced with a new short-term liability rather than being paid in cash.
D) All three of the above are characteristic of current liabilities
2. Choose the statement that correctly summarizes the tax advantage of raising money by issuing bonds instead of
common stock:
A) The amount paid by the corporation to redeem bonds at maturity date is deductible in computing income subject to corporate income tax.
B) Interest payments are deductible in determining income subject to corporate income tax; dividends are not deductible..
C) A corporation must pay tax on the sales price of stock issued, but is not taxed on the amount received when bonds are issued.
3. The current portion of long-term debt should be reported:
A) Separately in the long-term liabilities section of the balance sheet
B) In the long-term liabilities section of the balance sheet, along with the other long-term debt.
C) In the current liabilities section of the balance sheet.
6. The price at which a bond sells is equal to the:
B) Sum of the future interest payments, minus the maturity value of the bonds
C) Present value to investors of the future principal and interest payments.
D) Sum of the future interest payments, plus the maturity value of the bonds.
7. On November 1, Year 1, Placid Co. borrowed $100,000 from Bay Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately. How much interest expense will Placid recognize on this note in Year 2?
B) $6,000
C) $5,000
D) $4,000
10. Pension expense is
A) The present value of the estimated future pension benefits earned by employees as a result of their services during the period..
B) The amount funded to the pension in a given year.
D) The amount withdrawn from the pension fund to pay retirees during the period.
12. The amounts that a business withholds as taxes from an employee's earnings
B) Are deposited in an interest-bearing account until the employee is terminated
C) Represent miscellaneous revenue to the employer
D) Represent current liabilities to the employer
13. Harper Co. has outstanding $100 million of 5% bonds, due in 7 years, and callable at 102. The bonds were issued at par and are selling today at a market price of 92.
Refer to the above data. If Harper Co. retires $10 million of these bonds by purchasing them from bondholders at current market price, the company will report:
A) An $800,000 gain
B) A $200,000 loss
C) An unrealized gain.
15. Which of the following is an example of a contingent liability?
A. The liability for future warranty repairs on computers sold during the current period.
C. A lawsuit pending against a restaurant chain for improper storage of perishable food items
D. A liability for notes payable with interest included in the face amount
Explanation / Answer
c
b
c
b
c
d
b
a
d
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