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Practice questions about liabilities

A transaction that is likely to cause an increase in a current liability is:
a. payment of accrued wages.
b. accrual of interest expense.
c. depreciation of equipment.
d. accrual of bad debts expense.

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.

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.

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

The financial leverage characteristic of long-term debt results in:
a. a reduction of the risk that creditors will not be paid.
b. a magnification of ROE relative to what it would be without long-term debt.
c. a magnification of ROI relative to what it would be without long-term debt.
d. the deductibility, for income tax purposes, of dividends to stockholders.

The market value of a bond is the sum of the present value of future interest payments and the present value of the amount to be repaid at maturity, discounted at:
a. the market rate.
b. the coupon rate.
c. the dividend rate.
d. the prime rate.

When a company issues a bond at a discount:
a. the company will pay less than the face amount of the bond at its maturity.
b. the company will pay more than the face amount of the bond at its maturity.
c. the company's interest expense will be less than the interest paid each year.
d. the company's interest expense will be more than the interest paid each year.
Which of the following is true regarding bond discounts and/or premiums?
a. Bond discount is amortized but bond premium is not.
b. Bond premium is amortized but bond discount is not.
c. Neither bond discount nor premium is amortized.
d. Both bond discount and premium are amortized

The long-term liability for deferred income taxes arises because:
a. some book income will never be subject to income tax.
b. some expenses are deducted for tax purposes before they are deducted for book purposes.
c. income tax rates change from year to year.
d. the company has not paid income taxes currently due.

The liability for product warranty claims is an example of a liability that:
a. has been calculated using estimates.
b. has been recorded in the process of matching revenue and expense.
c. also resulted in a reduction of net income.
d. all of these.

Solution Preview

Liability practice MC questions
A transaction that is likely to cause an increase in a current liability is:
a. payment of accrued wages.
b. accrual of interest expense.
c. depreciation of equipment.
d. accrual of bad debts expense.

B = interest payable. A decreases CL. C and D change contra asset accounts (accumulated depreciation and allowance for bad debts).

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.

Discounted loans means the interest is taken from the proceeds and that raises the effective interest rate. D. There is no such thing as "delayed" or "undiscounted" basis.

Interest on a note payable is most appropriately accrued: ...

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