Strayer University ACC 206 Midterm Exam (pdf) | 2026/2027 |
Accounting II Q&A | Accounting
1. Which of the following is a nonessential component of a liability?
A) The liability must be an unavoidable obligation
B) The obligation must be liquidated using cash, goods, or services that were
earned by the entity in the performance of its normal business operation
C) The liability is a present obligation that entails settlement by probable
future transfer or use of cash, goods, or services
D) The transaction or other event creating the obligation must have already
occurred
Correct Answer: The obligation must be liquidated using cash, goods, or
services that were earned by the entity in the performance of its normal
business operation
Rationale: A liability must represent a present obligation, result from a past
transaction, and require probable future transfer of assets or services.
However, it is not essential that the obligation be liquidated using assets
earned from normal operations . Liabilities can be settled through various
means, including transfers of assets not related to normal operations.
2. Which of the following statements about current liabilities is true?
A) They are liabilities that may be paid out of any asset pool accumulated by
the enterprise as long as payment is due within one year
B) They are void of notes payable, as notes are always long-term
C) They are liabilities that are due and payable on the balance sheet date
D) They are due within one year or one operating cycle, whichever is longer
Correct Answer: They are due within one year or one operating cycle,
whichever is longer
,Rationale: Current liabilities are obligations due within one year or the
operating cycle, whichever is longer . They are typically settled using current
assets and include accounts payable, notes payable, and accrued liabilities.
3. On November 1, 2020, JT Engineering signs a $150,000, 4 percent, one-
year note for which both principal and interest are payable on November 1,
2021. On the December 31, 2020 balance sheet, how should JT classify the
note and the related interest?
A) It should classify the note payable as a noncurrent liability and the
accrued interest as a current liability
B) It should classify the note payable as a noncurrent liability and the
accrued interest as a noncurrent liability
C) It should classify the note payable as a current liability and the accrued
interest as a current liability
D) It should classify the note payable as a current liability and the accrued
interest as a noncurrent liability
Correct Answer: It should classify the note payable as a noncurrent liability
and the accrued interest as a current liability
Rationale: The note is due on November 1, 2021, which is more than one
year from the December 31, 2020 balance sheet date, so the principal is a
noncurrent liability. However, the accrued interest for November and
December 2020 is payable within one year, making it a current liability .
4. On May 15, 2020, RL Enterprises issues a $312,000, six-month, zero-
interest-bearing note to Federal Bank. The present value of the note is
$300,000. Which of the following must be recorded as part of this
transaction?
A) A credit to Notes Payable of $300,000
B) A credit to Discount on Notes Payable of $12,000
C) A debit to Discount on Notes Payable of $12,000
,D) A debit to cash of $312,000
Correct Answer: A debit to Discount on Notes Payable of $12,000
Rationale: A zero-interest-bearing note is recorded at its present value
($300,000). The difference between face value ($312,000) and present value
($300,000) is recorded as a debit to Discount on Notes Payable . The entry is
Dr. Cash $300,000, Dr. Discount on Notes Payable $12,000, Cr. Notes Payable
$312,000.
5. Under which of the following circumstances should the currently maturing
portion of long-term debt be classified as a current liability?
A) If the debt is to be converted into capital stock
B) If the funds used to liquidate it are currently classified as a long-term
investment on the balance sheet
C) If the debt is to be refinanced on a long-term basis
D) If the classified portion will be liquidated within one year using current
assets
Correct Answer: If the classified portion will be liquidated within one year
using current assets
Rationale: The current portion of long-term debt should be classified as a
current liability if it will be paid using current assets within the next year . If
the debt is to be converted into stock or refinanced on a long-term basis, it
may be excluded from current liabilities.
6. If an enterprise intends to refinance a short-term obligation on a long-term
basis, which of the following conditions must it meet to exclude that
obligation from current liabilities?
, A) The enterprise must be able to demonstrate the ability and intent to
complete the refinancing
B) The interest rate on the long-term obligation is not above the prime rate
C) The enterprise has a contractual right to defer settlement of the liability
for at least one year
D) The enterprise must demonstrate that a negative effect on working
capital will result if it is not reclassified
Correct Answer: The enterprise must be able to demonstrate the ability and
intent to complete the refinancing
Rationale: To exclude a short-term obligation from current liabilities, the
enterprise must demonstrate both the ability and intent to refinance it on a
long-term basis . This typically requires an agreement with a lender that
gives the company a contractual right to defer settlement for at least one
year.
7. According to GAAP, which of the following must be used when calculating
compensated absences?
A) The estimated future rate
B) The current rate
C) The historical average rate
D) No specific rate is required
Correct Answer: The estimated future rate
Rationale: GAAP requires the use of the estimated future rate when
calculating compensated absences such as vacation and sick leave . This
ensures that liabilities reflect the expected cost of fulfilling the obligation.
Accounting II Q&A | Accounting
1. Which of the following is a nonessential component of a liability?
A) The liability must be an unavoidable obligation
B) The obligation must be liquidated using cash, goods, or services that were
earned by the entity in the performance of its normal business operation
C) The liability is a present obligation that entails settlement by probable
future transfer or use of cash, goods, or services
D) The transaction or other event creating the obligation must have already
occurred
Correct Answer: The obligation must be liquidated using cash, goods, or
services that were earned by the entity in the performance of its normal
business operation
Rationale: A liability must represent a present obligation, result from a past
transaction, and require probable future transfer of assets or services.
However, it is not essential that the obligation be liquidated using assets
earned from normal operations . Liabilities can be settled through various
means, including transfers of assets not related to normal operations.
2. Which of the following statements about current liabilities is true?
A) They are liabilities that may be paid out of any asset pool accumulated by
the enterprise as long as payment is due within one year
B) They are void of notes payable, as notes are always long-term
C) They are liabilities that are due and payable on the balance sheet date
D) They are due within one year or one operating cycle, whichever is longer
Correct Answer: They are due within one year or one operating cycle,
whichever is longer
,Rationale: Current liabilities are obligations due within one year or the
operating cycle, whichever is longer . They are typically settled using current
assets and include accounts payable, notes payable, and accrued liabilities.
3. On November 1, 2020, JT Engineering signs a $150,000, 4 percent, one-
year note for which both principal and interest are payable on November 1,
2021. On the December 31, 2020 balance sheet, how should JT classify the
note and the related interest?
A) It should classify the note payable as a noncurrent liability and the
accrued interest as a current liability
B) It should classify the note payable as a noncurrent liability and the
accrued interest as a noncurrent liability
C) It should classify the note payable as a current liability and the accrued
interest as a current liability
D) It should classify the note payable as a current liability and the accrued
interest as a noncurrent liability
Correct Answer: It should classify the note payable as a noncurrent liability
and the accrued interest as a current liability
Rationale: The note is due on November 1, 2021, which is more than one
year from the December 31, 2020 balance sheet date, so the principal is a
noncurrent liability. However, the accrued interest for November and
December 2020 is payable within one year, making it a current liability .
4. On May 15, 2020, RL Enterprises issues a $312,000, six-month, zero-
interest-bearing note to Federal Bank. The present value of the note is
$300,000. Which of the following must be recorded as part of this
transaction?
A) A credit to Notes Payable of $300,000
B) A credit to Discount on Notes Payable of $12,000
C) A debit to Discount on Notes Payable of $12,000
,D) A debit to cash of $312,000
Correct Answer: A debit to Discount on Notes Payable of $12,000
Rationale: A zero-interest-bearing note is recorded at its present value
($300,000). The difference between face value ($312,000) and present value
($300,000) is recorded as a debit to Discount on Notes Payable . The entry is
Dr. Cash $300,000, Dr. Discount on Notes Payable $12,000, Cr. Notes Payable
$312,000.
5. Under which of the following circumstances should the currently maturing
portion of long-term debt be classified as a current liability?
A) If the debt is to be converted into capital stock
B) If the funds used to liquidate it are currently classified as a long-term
investment on the balance sheet
C) If the debt is to be refinanced on a long-term basis
D) If the classified portion will be liquidated within one year using current
assets
Correct Answer: If the classified portion will be liquidated within one year
using current assets
Rationale: The current portion of long-term debt should be classified as a
current liability if it will be paid using current assets within the next year . If
the debt is to be converted into stock or refinanced on a long-term basis, it
may be excluded from current liabilities.
6. If an enterprise intends to refinance a short-term obligation on a long-term
basis, which of the following conditions must it meet to exclude that
obligation from current liabilities?
, A) The enterprise must be able to demonstrate the ability and intent to
complete the refinancing
B) The interest rate on the long-term obligation is not above the prime rate
C) The enterprise has a contractual right to defer settlement of the liability
for at least one year
D) The enterprise must demonstrate that a negative effect on working
capital will result if it is not reclassified
Correct Answer: The enterprise must be able to demonstrate the ability and
intent to complete the refinancing
Rationale: To exclude a short-term obligation from current liabilities, the
enterprise must demonstrate both the ability and intent to refinance it on a
long-term basis . This typically requires an agreement with a lender that
gives the company a contractual right to defer settlement for at least one
year.
7. According to GAAP, which of the following must be used when calculating
compensated absences?
A) The estimated future rate
B) The current rate
C) The historical average rate
D) No specific rate is required
Correct Answer: The estimated future rate
Rationale: GAAP requires the use of the estimated future rate when
calculating compensated absences such as vacation and sick leave . This
ensures that liabilities reflect the expected cost of fulfilling the obligation.
