Multiple choice

1. By not accruing warranty expense,

A. reported expenses will be overstated, and reported liabilities will be understated.

B. reported liabilities will be understated, and net income will be overstated.

C. reported liabilities will be overstated, and net income will be understated.

D. reported expenses will be understated, and net income will be understated.

2. A company receives a note payable for $3,500 at 9% for 45 days. How much interest (to the nearest cent) will the customer owe using a 360-day year?

A. $39.38 

B. $315.00 

C. $38.84 

D. $354.38

3.Which of the following would be considered a contingent liability?

A. Accounts payable obligation

B. Pending legal action

C. Sales tax obligation

D. Mortgage obligation

4. Which of the following would be considered a cash equivalent?

A. Time deposits 

B. Money orders

C. Checks

D. Currency