Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

ANALYSIS OF MULTIPLE-CHOICE TYPE QUESTIONS

1. Question

   (L.O. 1) A current liability is an obligation that:

   1. was paid during the current period.
   2. will be reported as an expense within the year or operating cycle that follows the balance sheet date, whichever is longer.
   3. will be converted to a long-term liability within the next year.
   4. is expected to require the use of current assets or the creation of another current liability to liquidate it.

   Approach and Explanation: Before you read the answer selections, write down the definition for current liability. Compare each answer selection with your definition. A current liability is an obligation which will come due within one year and whose liquidation is reasonably expected to require the use of existing resources properly classifiable as current assets or the creation of other current liabilities. (Solution = d.)

2. Question

   (L.O. 1) Included in Jurassick Company's liability accounts at December 31, 2014, was the following:

   12% note payable issued in 2004 for cash and due in May 2015	$200,000
   Sales taxes payable	16,000
   Interest payable	11,000
   Federal income tax withholdings	6,000

   How much of the above should be included in the current liability section of Jurassick's balance sheet at December 31, 2014?

   1. $27,000.
   2. $33,000.
   3. $227,000.
   4. $233,000.

   Explanation: All of the obligations will become due within a year of the balance sheet date and will require the use of current assets to liquidate them ($200,000 + $16,000 + $11,000 + $6,000 ...