Explaining account discount on notes payable

Question

1. Current liabilities are obligations which will be paid:

a. With cash.
b. Within one year.
c. Within one year or the operating cycle, whichever is shorter.
d. Within one year or the operating cycle, whichever is longer.
e. Both (a) and (b).

 

2. Upscale Department Stores records all sales at amounts which include a 5% sales tax. In November, total recorded sales were $735,000. Portion of these sales which must be recorded as tax liability is:

a. $0
b. $35,000
c. $36,750
d. $70,000

 

3. Account Discount on Notes Payable:

a. Generally has a credit balance and is added to Notes Payable account on the balance sheet.
b. Is used only when a note has a stated interest rate.
c. Contains future interest expense that will be incurred over the life of a note.
d. Contains an amount to be amortized over the life of a note by a transfer to Interest Revenue.
e. Is classified as current asset.

 

4. On November 1, Tango, Inc., bought a machine for $12.000 and issued inpayment a one-year note payable for $13.200. On December 31, company's fiscal year-end, proper entry would be:

 

a	Interest Expense	200
	Discount on Notes Payable		200
b	Machinery	200
	Interest Expense		200
c	Discount on Notes Payable	200
	Interest expense		200
d	Notes Payable	200
	Discount on Notes Payable		200

 

5. Sales taxes payable:

a. Is an estimated liability.
b. Is a contingent liability.
c. Is a current liability for retailers.
d. Is a business expense.
e. Is a long-term liability.