Accounting, 9e (Horngren)
Chapter 10 Current Liabilities and Payroll
Learning Objective 10-1
1) If a note payable has installments due within a year, the entire note is treated as a current liability.
Answer: FALSE
Diff: 1
LO: 10-1
EOC Ref: E10-9
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2) Amounts owed for products or services purchased on account are contingent liabilities.
Answer: FALSE
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
3) Unearned revenue is an obligation to provide goods or services to the customer.
Answer: TRUE
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
4) Notes payable are considered short-term if they are due within the current operating cycle.
Answer: TRUE
Diff: 1
LO: 10-1
EOC Ref: E10-9
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
5) An accrued expense is an expense that has been incurred, but has not yet been paid.
Answer: TRUE
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
1
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
,6) When a note is payable in installments, the installments must be separately recorded in two different accounts—
Short-term notes payable and Long-term notes payable—depending on the due dates of the installments.
Answer: TRUE
Diff: 2
LO: 10-1
EOC Ref: E10-8
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
7) Which of the following is an amount for products or services purchased on account?
A) Accounts payable
B) Unearned revenue
C) Accrued expense
D) Estimated warranty payable
Answer: A
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
8) Which of the following is a characteristic of a current liability?
A) A current liability is a liability that is due within 30 days.
B) A current liability is a liability that is due within one year or one operating cycle, whichever is longer.
C) A current liability is a liability that is due within 10 days.
D) A current liability is a liability that is due in longer than a one-year period, or one operating cycle.
Answer: B
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
9) Which of the following occurs when a company records accrued interest expense on a note payable?
A) Interest expense is credited.
B) Note payable is credited.
C) Cash is debited.
D) Interest payable is credited.
Answer: D
Diff: 2
LO: 10-1
EOC Ref: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
,10) Which of the following correctly describes the unearned revenue account?
A) The unearned revenue account represents revenue that has been collected, but not yet earned.
B) The unearned revenue account represents revenue that has been earned and collected.
C) The unearned revenue account represents revenue that has been earned, but not yet collected.
D) The unearned revenue account represents revenue that has neither been earned nor collected.
Answer: A
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
11) Which of the following is a liability created when a company receives cash for services to be provided in the
future?
A) Unearned revenue
B) Accrued liability
C) Service revenue
D) Estimated warranty payable
Answer: A
Diff: 2
LO: 10-1
EOC Ref: P10-15A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
12) Sales revenue for a sporting goods store amounted to $215,000 for the current period. All sales are on account
and are subject to a sales tax of 7%. Which of the following would be included in the journal entry to record these
sales?
A) A debit to Sales revenue for $215,000
B) A credit to Accounts receivable for $215,000
C) A debit to Sales tax payable for $15,050
D) A debit to Accounts receivable for $230,050
Answer: D
Explanation: D) Calculation: $215,000 + ($215,000 × 7%) = $230,050
Diff: 2
LO: 10-1
EOC Ref: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
13) Which of the following would be included in the journal entry to record the payment of accrued sales tax?
A) A debit to Sales tax payable
B) A credit to Sales tax expense
C) A debit to Sales tax expense
D) A credit to Sales tax payable
Answer: A
Diff: 2
LO: 10-1
EOC Ref: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
3
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
, 14) Which of the following correctly describes Interest payable?
A) Interest payable is shown on the balance sheet as a current liability.
B) Interest payable is shown on the income statement as an operating expense.
C) Interest payable is shown on the balance sheet as a current asset.
D) Interest payable is shown on the balance sheet as a long-term liability.
Answer: A
Diff: 1
LO: 10-1
EOC Ref: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
15) Where does Unearned subscription revenue appear on the balance sheet?
A) Under Long-term investments
B) Under Current liabilities or Long-term liabilities
C) Under Current assets or Long-term investments
D) Under Long-term assets
Answer: B
Diff: 1
LO: 10-1
EOC Ref: P10-15A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
16) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of accrued interest
on December 31, 2015?
A) $200
B) $267
C) $133
D) $800
Answer: B
Explanation: B) Calculation: $20,000 × 8% × 2/12 = $267
Diff: 2
LO: 10-1
EOC Ref: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
17) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of interest expense
recorded in the year 2016?
A) $800
B) $133
C) $200
D) $267
Answer: B
Explanation: B) Calculation: $20,000 × 8% × 1/12= $133
Diff: 2
LO: 10-1
EOC Ref: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
4
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 10 Current Liabilities and Payroll
Learning Objective 10-1
1) If a note payable has installments due within a year, the entire note is treated as a current liability.
Answer: FALSE
Diff: 1
LO: 10-1
EOC Ref: E10-9
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2) Amounts owed for products or services purchased on account are contingent liabilities.
Answer: FALSE
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
3) Unearned revenue is an obligation to provide goods or services to the customer.
Answer: TRUE
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
4) Notes payable are considered short-term if they are due within the current operating cycle.
Answer: TRUE
Diff: 1
LO: 10-1
EOC Ref: E10-9
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
5) An accrued expense is an expense that has been incurred, but has not yet been paid.
Answer: TRUE
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
1
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
,6) When a note is payable in installments, the installments must be separately recorded in two different accounts—
Short-term notes payable and Long-term notes payable—depending on the due dates of the installments.
Answer: TRUE
Diff: 2
LO: 10-1
EOC Ref: E10-8
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
7) Which of the following is an amount for products or services purchased on account?
A) Accounts payable
B) Unearned revenue
C) Accrued expense
D) Estimated warranty payable
Answer: A
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
8) Which of the following is a characteristic of a current liability?
A) A current liability is a liability that is due within 30 days.
B) A current liability is a liability that is due within one year or one operating cycle, whichever is longer.
C) A current liability is a liability that is due within 10 days.
D) A current liability is a liability that is due in longer than a one-year period, or one operating cycle.
Answer: B
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
9) Which of the following occurs when a company records accrued interest expense on a note payable?
A) Interest expense is credited.
B) Note payable is credited.
C) Cash is debited.
D) Interest payable is credited.
Answer: D
Diff: 2
LO: 10-1
EOC Ref: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
2
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
,10) Which of the following correctly describes the unearned revenue account?
A) The unearned revenue account represents revenue that has been collected, but not yet earned.
B) The unearned revenue account represents revenue that has been earned and collected.
C) The unearned revenue account represents revenue that has been earned, but not yet collected.
D) The unearned revenue account represents revenue that has neither been earned nor collected.
Answer: A
Diff: 1
LO: 10-1
EOC Ref: Accounting Vocabulary
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
11) Which of the following is a liability created when a company receives cash for services to be provided in the
future?
A) Unearned revenue
B) Accrued liability
C) Service revenue
D) Estimated warranty payable
Answer: A
Diff: 2
LO: 10-1
EOC Ref: P10-15A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
12) Sales revenue for a sporting goods store amounted to $215,000 for the current period. All sales are on account
and are subject to a sales tax of 7%. Which of the following would be included in the journal entry to record these
sales?
A) A debit to Sales revenue for $215,000
B) A credit to Accounts receivable for $215,000
C) A debit to Sales tax payable for $15,050
D) A debit to Accounts receivable for $230,050
Answer: D
Explanation: D) Calculation: $215,000 + ($215,000 × 7%) = $230,050
Diff: 2
LO: 10-1
EOC Ref: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
13) Which of the following would be included in the journal entry to record the payment of accrued sales tax?
A) A debit to Sales tax payable
B) A credit to Sales tax expense
C) A debit to Sales tax expense
D) A credit to Sales tax payable
Answer: A
Diff: 2
LO: 10-1
EOC Ref: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
3
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
, 14) Which of the following correctly describes Interest payable?
A) Interest payable is shown on the balance sheet as a current liability.
B) Interest payable is shown on the income statement as an operating expense.
C) Interest payable is shown on the balance sheet as a current asset.
D) Interest payable is shown on the balance sheet as a long-term liability.
Answer: A
Diff: 1
LO: 10-1
EOC Ref: P10-15A
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
15) Where does Unearned subscription revenue appear on the balance sheet?
A) Under Long-term investments
B) Under Current liabilities or Long-term liabilities
C) Under Current assets or Long-term investments
D) Under Long-term assets
Answer: B
Diff: 1
LO: 10-1
EOC Ref: P10-15A
AACSB: Content/Knowledge
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
16) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of accrued interest
on December 31, 2015?
A) $200
B) $267
C) $133
D) $800
Answer: B
Explanation: B) Calculation: $20,000 × 8% × 2/12 = $267
Diff: 2
LO: 10-1
EOC Ref: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
17) A $20,000, 3-month, 8% note payable was issued on November 1, 2015. What is the amount of interest expense
recorded in the year 2016?
A) $800
B) $133
C) $200
D) $267
Answer: B
Explanation: B) Calculation: $20,000 × 8% × 1/12= $133
Diff: 2
LO: 10-1
EOC Ref: E10-9
AACSB: Analytic Skills
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement, Reporting
4
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
