A. payment of accrued wages.
B. accrual of interest expense.
C. depreciation of equipment.
D. accrual of bad debts expense.
2. The payment of a current liability will:
A. decrease net income.
B. decrease working capital.
C. increase working capital.
D. not affect working capital.
3. A working capital loan will generally:
A. not have an interest rate.
B. require that interest (if any) be paid monthly.
C. not affect working capital.
D. be classified as a long-term liability.
4. Computing a borrower’s effective interest rate is another application of which of the following concepts?
A. Present value concept.
B. Current value concept.
C. Periodic interest concept.
D. None of the above.
5. Which of the following is a true statement regarding interest calculation methods?
A. Interest is calculated on either a straight basis or a delayed basis.
B. Interest is calculated on either a straight basis or an undiscounted basis.
C. If a borrower receives a loan on a discount basis, the APR will be less than the simple interest.
D. If a borrower receives a loan on a discount basis, the APR will be more than the simple interest rate.
6. A loan discount is:
A. a loan used to purchase a bond at a discount.
B. a discount market interest rate on a loan.
C. the same as a bond discount.
D. none of the above.
7. Cassady, Inc. borrowed $5,000 for 3 months at an APR of 10%. The amount of interest paid on this loan was:
8. Orpah, Inc. borrowed $12,000 for 4 months on a discount basis. The lender used an interest rate of 8% to calculate the discount. The amount of cash Orpah, Inc. actually had available to use from this loan was:
9. When borrowing money, the most important objective of the borrower should be to:
A. minimize monthly payments.
B. minimize the APR.
C. avoid borrowing on a discount basis.
D. make the maturity date as far in the future as possible.
10. Interest on a note payable is most appropriately accrued:
A. when the note is signed.
B. as of the end of each accounting period during which the note is a liability.
C. when principal payments on the note are made.
D. when the interest is paid.
11. Current maturities of long-term debt:
A. reflect overdue installments of bonds payable.
B. are classified with long-term debt.
C. represent cash that has been set aside for debt payments due within a year.
D. permit a more accurate determination of working capital.
12. The purpose of reporting Current Maturities of Long-Term debt is:
A. to report any portion of a long-term borrowing that is to be paid in the upcoming accounting period.
B. to reclassify a portion of debt from the concurrent section of the balance sheet to the current section of the balance sheet.
C. to properly classify liabilities.
D. all of the above.
13. When a supplier makes a downward adjustment in the amount owed by a creditor, the creditor will:
A. reduce the amount of the account payable to the supplier, and decrease an asset such as inventory.
B. increase the amount of the account payable to the supplier, and decrease an asset such as inventory.
C. reduce the amount of the account payable to the supplier, and increase cash.
D. reduce the amount of the account payable to the supplier, and decrease cash.
14. A magazine publisher has an account called “unearned subscription revenue”. The transaction that causes the balance of this account to decrease is:
A. cash is received from new subscribers.
B. magazines are printed for the publisher.
C. magazines are mailed to subscribers.
D. subscriptions are sold to new subscribers.
15. The adjusting entry to accrue interest expense results in:
A. an increase in interest expense.
B. a decrease in interest expense.
C. a decrease in cash.
D. a decrease in interest payable.