Current Liabilities Overview

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Questions and Answers

All of the following are reported as current liabilities except:

Bonds payable (correct)

Accounts payable

Unearned revenues

Notes payable

The relationship between current liabilities and current assets is useful in evaluating a company's:

Non-current debt

Liquidity (correct)

Matching principle

Income

Most companies pay current liabilities:

By issuing interest-bearing notes payable

Out of current assets (correct)

By issuing stock

By creating noncurrent liabilities

A current liability is a debt that can reasonably be expected to be paid:

Within one year or the operating cycle, whichever is longer Signup and view all the answers

Liabilities are classified on the statement of financial position as current or:

Noncurrent Signup and view all the answers

From a liquidity standpoint, it is more desirable for a company to have current:

Assets exceed current liabilities Signup and view all the answers

The relationship of current assets to current liabilities is used in evaluating a company's:

Short-term debt paying ability Signup and view all the answers

Which of the following is usually not an accrued liability?

Unearned revenues Signup and view all the answers

What is the correct calculation for cash paid on an interest-bearing note with a principal of £125,000 and an interest rate of 8% for 3 months?

£127,500 Signup and view all the answers

When is interest expense on an interest-bearing note recognized?

Over the life of the note Signup and view all the answers

Which entry correctly records the payment of an interest-bearing note at maturity after recognizing all interest?

Notes Payable, Interest Payable, Cash Signup and view all the answers

How are sales taxes collected by a retailer recorded?

Crediting Sales Taxes Payable Signup and view all the answers

Unearned Rent Revenue is classified as what?

Current liability Signup and view all the answers

Sales taxes collected by retailers are recorded as a(n):

Liability Signup and view all the answers

What account is debited when rent is received in advance?

Unearned Rent Revenue Signup and view all the answers

What is the formula used to calculate cash received from a note payable?

(Principal x Interest Rate x Fraction of a year) + Principal Signup and view all the answers

How much interest is charged on a $50,000 note payable at a rate of 6% over 60 days?

$500 Signup and view all the answers

What is the interest charged on a HK$400,000 note payable at 8% over 90 days?

HK$8,000 Signup and view all the answers

What is the calculated interest on a £100,000 note payable at a rate of 6% over 2 months?

£1,000 Signup and view all the answers

How is interest on a note payable typically categorized in financial statements at the end of the accounting period?

As a credit to Interest Payable Signup and view all the answers

If Dakota Company issued an €800,000, 10%, nine-month note on October 1, 2020, what is the interest due by December 31, 2020?

€30,000 Signup and view all the answers

What is the interest amount for a HK$225,000 note payable at an 8% interest rate over 3 months?

HK$4,500 Signup and view all the answers

What would be the adjustment needed for accrued interest on a note payable for financial reporting?

Debit Interest Expense Signup and view all the answers

Sales taxes collected by a retailer are reported as which type of liability?

Current liabilities Signup and view all the answers

If a retailer's total receipts for the month are €45,990 including a 5% sales tax, what are the actual sales?

€43,800 Signup and view all the answers

What is included in the journal entry when recording cash sales of HK$5,000 and sales taxes of HK$300?

Cash, Sales Revenue, and Sales Taxes Payable Signup and view all the answers

What method would you use to find the sales amount from total receipts including sales tax?

Divide the total receipts by (1 + sales tax rate) Signup and view all the answers

During March, Carver's Pharmacy collected how much in sales taxes?

$900 Signup and view all the answers

Which of the following best describes how a retailer should treat sales taxes collected from customers?

As a liability to the government Signup and view all the answers

What accounting entry reflects total cash sales and sales taxes collected?

Cash increases while liabilities increase Signup and view all the answers

In accounting, how are sales taxes treated prior to being submitted to the government?

As a liability Signup and view all the answers

What journal entry will Carver's Pharmacy make to show the March sales tax remittance?

Sales Taxes Payable.......................................................... 900 Cash.......................................................................... 900 Signup and view all the answers

What amount must Dailey Company remit to the state for February's sales taxes based on €48,150 in receipts and a 7% tax rate?

€3,150 Signup and view all the answers

How is an unearned revenue balance reported on the financial statements?

Current liability Signup and view all the answers

What journal entry does Southern Foodie Company make to record the sale of subscriptions in January?

Cash.................................................................................. 2,400,000 Unearned Subscription Revenue............................... 2,400,000 Signup and view all the answers

What is the final sales tax amount calculated for Dailey Company's total receipts in February?

€3,150 Signup and view all the answers

What will happen if Carver's Pharmacy does not properly record their sales tax remittance?

They may overstate their liabilities. Signup and view all the answers

If Dailey Company's receipts do not separately account for sales taxes, how can they determine the sales tax owed?

Multiply total receipts by the sales tax rate. Signup and view all the answers

What is the classification of the amount recorded under 'Unearned Subscription Revenue'?

Liability Signup and view all the answers

Study Notes

Current Liabilities Defined

Current Liabilities are debts that are expected to be paid within one year or the operating cycle, whichever is longer
Current Liabilities are used to evaluate a company's liquidity, or the ability to pay short-term obligations
Current Liabilities are typically paid out of current assets, which are assets that can be converted to cash within the same timeframe
When a company's current liabilities exceed current assets, this is a cause for concern and can lead to a liquidity crisis should they have trouble obtaining financing

Current Liabilities Examples

Accounts Payable: Short-term debts that arise from credit purchases, including purchases of inventory and supplies
Notes Payable: Formal written promises to pay a specific amount of money within one year or the operating cycle
Unearned Revenues: Revenues received in advance from customers for goods or services not yet delivered
Sales Taxes Payable: Sales taxes collected from customers and held in trust until remitted to the government

Interest-Bearing Notes

Interest expense is usually accrued over the life of a note payable
Interest expense is calculated by multiplying the principal of the note by the interest rate and the fraction of a year that the note was outstanding

Unearned Revenue

Unearned revenue is a liability account representing income that has been received but not yet earned
This account is used to track revenue that has been collected in advance for services or products not yet delivered
As services are performed or products are delivered, the unearned revenue account is credited (decreased) and the earned revenue account is debited (increased).
Unearned revenue accounts are normally categorized as current liabilities

Sales Taxes

Sales taxes collected by a retailer are considered a liability, and are usually reported as a separate current liability called "Sales Taxes Payable" on the balance sheet
Sales taxes are typically remitted to the state or local government on a periodic basis, usually monthly
Retailers are required to collect and remit sales taxes from customers, even though they are not recognized as revenue until submitted to the government

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Description

This quiz covers the definition and examples of current liabilities, focusing on their importance in evaluating a company's liquidity. You'll learn about accounts payable, notes payable, unearned revenues, and sales taxes payable, and how these liabilities impact financial health.

Current Liabilities Overview

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Questions and Answers

All of the following are reported as current liabilities except:

The relationship between current liabilities and current assets is useful in evaluating a company's:

Most companies pay current liabilities:

A current liability is a debt that can reasonably be expected to be paid:

Liabilities are classified on the statement of financial position as current or:

From a liquidity standpoint, it is more desirable for a company to have current:

The relationship of current assets to current liabilities is used in evaluating a company's:

Which of the following is usually not an accrued liability?

What is the correct calculation for cash paid on an interest-bearing note with a principal of £125,000 and an interest rate of 8% for 3 months?

When is interest expense on an interest-bearing note recognized?

Which entry correctly records the payment of an interest-bearing note at maturity after recognizing all interest?

How are sales taxes collected by a retailer recorded?

Unearned Rent Revenue is classified as what?

Sales taxes collected by retailers are recorded as a(n):

What account is debited when rent is received in advance?

What is the formula used to calculate cash received from a note payable?

How much interest is charged on a $50,000 note payable at a rate of 6% over 60 days?

What is the interest charged on a HK$400,000 note payable at 8% over 90 days?

What is the calculated interest on a £100,000 note payable at a rate of 6% over 2 months?

How is interest on a note payable typically categorized in financial statements at the end of the accounting period?

If Dakota Company issued an €800,000, 10%, nine-month note on October 1, 2020, what is the interest due by December 31, 2020?

What is the interest amount for a HK$225,000 note payable at an 8% interest rate over 3 months?

What would be the adjustment needed for accrued interest on a note payable for financial reporting?

Sales taxes collected by a retailer are reported as which type of liability?

If a retailer's total receipts for the month are €45,990 including a 5% sales tax, what are the actual sales?

What is included in the journal entry when recording cash sales of HK$5,000 and sales taxes of HK$300?

What method would you use to find the sales amount from total receipts including sales tax?

During March, Carver's Pharmacy collected how much in sales taxes?

Which of the following best describes how a retailer should treat sales taxes collected from customers?

What accounting entry reflects total cash sales and sales taxes collected?

In accounting, how are sales taxes treated prior to being submitted to the government?

What journal entry will Carver's Pharmacy make to show the March sales tax remittance?

What amount must Dailey Company remit to the state for February's sales taxes based on €48,150 in receipts and a 7% tax rate?

How is an unearned revenue balance reported on the financial statements?

What journal entry does Southern Foodie Company make to record the sale of subscriptions in January?

What is the final sales tax amount calculated for Dailey Company's total receipts in February?

What will happen if Carver's Pharmacy does not properly record their sales tax remittance?

If Dailey Company's receipts do not separately account for sales taxes, how can they determine the sales tax owed?

What is the classification of the amount recorded under 'Unearned Subscription Revenue'?

Study Notes

Current Liabilities Defined

Current Liabilities Examples

Interest-Bearing Notes

Unearned Revenue

Sales Taxes

Studying That Suits You

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