Multiple Choice Questions
29.How does the going concern assumption affect accounting for notes payable?
A. It dictates that interest expense be accrued at the end of the accounting period.
B. It dictates that notes payable be reported at their face value.
C. It dictates that notes payable be reported at their net realizable value.
D. It dictates that interest expense be paid when the note matures.
30.Receivables are normally reported on the balance sheet at net realizable value. In contrast, payables are carried at face value. Which accounting principle requires this treatment of payables?
A. Materiality concept.
B. Going concern assumption.
C. Monetary unit assumption.
D. Matching concept.
31.The party who borrows money in a note payable is known as the
A. Maker.
B. Issuer.
C. Payee.
D. Both A and B.
32.Hamm Co. borrowed $10,000 from Townsend Co. on March 1, 2013. Hamm is to repay the principal and interest on March 1, 2014. The interest rate is 8%. If the year-end adjustment is properly recorded, what will be the effects of the accrual on Hamm’s 2013 financial statements?
A. Increase assets and increase liabilities
B. Increase assets and increase revenues
C. Increase liabilities and increase expenses
D. No effect
33.Fallon Company issued a $20,000 note to the Capital Bank on August 1, 2013. The note carried a one-year term and a 12% rate of interest. The adjusting entry on Fallon’s books to record accrued interest expense on December 31, 2013 will
A. Decrease assets and decrease retained earnings by $1,000.
B. Increase liabilities and decrease equity by $800.
C. Increase liabilities and decrease equity by $1,000.
D. Decrease equity and increase liabilities by $2,400.
34.Warren Company borrowed $20,000 on September 1, 2013 from the National Bank. Warren agreed to pay interest annually at the rate of 6% per year. The note issued by Warren carried an 18-month term. Based on this information the amount of interest expense appearing on Warren’s 2013 income statement would be
A. $-0-.
B. $400.
C. $120.
D. $300.
Munson Company issued an interest-bearing note payable with a face amount of $6,000 and a stated interest rate of 8% to the Capital Bank on August 1, 2013. The note carried a one-year term.
35.The amount of cash flow from operating activities on the 2013 statement of cash flows would be:
A. $480.
B. $200.
C. $6,000.
D. zero.
36.Based on this information alone, the amount of total liabilities appearing on Munson’s 2013 balance sheet would be:
A. $6,180
B. $6,200
C. $6,480
D. $6,000
Ramon Company borrowed $18,000 on April 1, 2013 from the Lone Star Bank. The note issued by Ramon carried a one year term and a 7% annual interest rate. Ramon earned cash revenue of $850 in 2013 and $700 in 2014. Assume no other transactions.
37.The amount of net income on the 2014 income statement would be:
A. $315.
B. $385.
C. $(95).
D. $945.
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