Accounting Volume 2 Canadian 9th Edition By Horngren – Test Bank

Chapter 11 Current Liabilities and Payroll

Objective 11-1

1) Accrued interest on a note payable should be credited to interest payable.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount

2) Interest payable is a contra liability account and is deducted from the note payable on the balance sheet.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount

3) A $45,000, 10%, 90-day note payable comes to maturity. The amount to be paid at maturity including interest is $43,890.41.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Application
Objective: 11-1 Account for current liabilities of known amount

4) An unearned revenue arises when a company receives cash from its customers in advance of earning the revenue.
Answer: TRUE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount

5) Current portion of long-term debt refers to the amount of principle on a note payable that must be paid within a year.
Answer: TRUE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount

6) The entry to record unearned revenue received in advance includes a debit to unearned revenue and a credit to cash.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount
7) Sales tax payable is recorded as a debit when recording a sale of merchandise.
Answer: FALSE
Diff: 1 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount

8) The failure to record an accrued liability causes a company to overstate its net income.
Answer: TRUE
Diff: 3 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-1 Account for current liabilities of known amount

9) The only way to reduce a current liability is to pay out cash.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Comprehension
Objective: 11-1 Account for current liabilities of known amount

10) Operating lines of credit are popular because they do not carry any interest charges.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount

11) Interest must be accrued on all current notes payable. For long-term notes the interest is accrued at the maturity of the note.
Answer: FALSE
Diff: 2 Type: TF
Learning Outcome: A-12 Define and record current and contingent liabilities
Skill: Knowledge
Objective: 11-1 Account for current liabilities of known amount