On March 17, Grady Company agrees to accept a 60-day, 10%, $4,500 note from Alert Company to extend the due

Question 1

On March 17, Grady Company agrees to accept a 60-day, 10%, $4,500 note from Alert Company to extend the due date on an overdue account. What is the journal entry needed to record the transaction by Alert Company?

●      a. debit notes payable $4,500; credit accounts payable $4,500

●      Selected:b. debit accounts payable $4,500; credit notes payable $4,500This answer is correct.

●      c. debit accounts receivable $4,500; credit notes payable $4,500

●      d. debit cash $4,500; credit notes payable $4,500

Correct! The journal entry needed to record the transaction by Alert Company is debit accounts payable for $4,500 and credit notes payable for $4,500.

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Question 2

On December 1, Martin Company signed a 90-day, 6% note payable, with a face value of $5,000. What amount of interest expense is accrued at December 31 on the note?

●      a. $0

●      Selected:b. $25This answer is correct.

●      c. $50

●      d. $75

Correct! $25 is the amount of interest expense accrued at December 31 on the note.

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Question 3

A bank that is authorized to accept deposits of amounts payable to the federal government is a _____.

●      a. credit union

●      b. FDIC-insured bank

●      Selected:c. federal depository bankThis answer is correct.

●      d. national bank

Correct! A bank that is authorized to accept deposits of amounts payable to the federal government is a federal depository bank.

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Question 4

All of the following statements regarding liabilities are trueexcept which one?

●      a. A liability is a probable future payment of assets or services.

●      Selected:b. Unearned future wages to be paid to employees should be recorded as liabilities.This answer is correct.

●      c. For a liability to be reported, it must be a present obligation that results from a past transaction or event, and requires a future payment of assets or services.

Correct! A liability is a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events. This definition includes three critical factors: (a) a past transaction, (b) a present obligation, and (c) a future payment of assets or services. No liability is reported when one or more of these characteristics are absent. For example, most companies expect to pay future wages to employees, but these future payments are not liabilities because no past event, such as employee work, resulted in a present obligation.

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Question 5

FICA taxes include ______.

●      Selected:a. Social Security taxesThis answer is correct.

●      b. employee income taxes

●      c. unemployment taxes

●      d. all of the choices are correct

Correct! FICA taxes include Social Security taxes.