Multiple Choice Answers

1. Where is interest expense listed on the income statement?
A. Other expense section
B. Cost of merchandise sold
C. Operating expenses
D. Interest expense is on the balance sheet, not the income statement.

2. Current liabilities are
A. due but not receivable for more than one year.
B. due but not payable for more than one year.
C. due and receivable within one year.
D. due and payable within one year.

3. The cost of a product warranty should be included as an expense in the
A. period the cash is collected for a product sold on account.
B. future period when the cost of repairing the product is paid.
C. period of the sale of the product.
D. future period when the product is repaired or replaced.

4. Which statement below is NOT a reason for a corporation to buy back its own stock?
A. Resale to employees
B. Bonus to employees
C. For supporting the market price of the stock
D. To increase the shares outstanding

5. In which section of the balance sheet would treasury stock be reported?
A. Fixed assets
B. Long-term liabilities
C. Stockholders’ equity
D. Intangible assets

6. The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the number of shares outstanding?
A. 5,000
B. 35,000
C. 45,000
D. 55,000

7. Which of the following would most likely be classified as a current liability?
A. Two-year notes payable
B. Bonds payable
C. Mortgage payable
D. Unearned rent

8. The market interest rate related to a bond is also called the
A. stated interest rate.
B. effective interest rate.
C. contract interest rate.
D. straight-line rate.

9. Which of the following accounts is reported in the noncurrent liabilities section of the corporate balance sheet?
A. Bonds Payable
B. Common Stock
C. Dividends Payable
D. Cash

10. If a corporation issues only one class of stock, it is called
A. common stock.
B. treasury stock.
C. no-par stock.
D. preferred stock.