Financial Accounting Quiz: Accounts Payable And Accrued Liabilities
20 questions · exam conditions
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Accounts Payable And Accrued LiabilitiesQuestion 1 of 20

A U.S.-based company purchased goods on credit from a German supplier on November 15 for €50,000. The invoice is unpaid at the company's December 31 year-end. Relevant exchange rates are as follows:

  • November 15: $1.08 / €
  • December 31: $1.12 / €

What adjusting entry is required on December 31 to properly state the accounts payable liability?

Debit Foreign Exchange Loss $2,000; Credit Accounts Payable $2,000.
Debit Accounts Payable $2,000; Credit Foreign Exchange Gain $2,000.
Debit Inventory $2,000; Credit Accounts Payable $2,000.
No entry is required as the loss is unrealized until payment is made.
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Financial Accounting Quiz

Financial Accounting Quiz: Accounts Payable And Accrued Liabilities

Practice Accounts Payable And Accrued Liabilities in Financial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Accounts Payable And Accrued Liabilities, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A U.S.-based company purchased goods on credit from a German supplier on November 15 for €50,000. The invoice is unpaid at the company's December 31 year-end. Relevant exchange rates are as follows:

  • November 15: $1.08 / €
  • December 31: $1.12 / €

What adjusting entry is required on December 31 to properly state the accounts payable liability?

  1. Debit Foreign Exchange Loss $2,000; Credit Accounts Payable $2,000. (correct answer)
  2. Debit Accounts Payable $2,000; Credit Foreign Exchange Gain $2,000.
  3. Debit Inventory $2,000; Credit Accounts Payable $2,000.
  4. No entry is required as the loss is unrealized until payment is made.
Explanation: Liabilities denominated in a foreign currency must be re-measured at the balance sheet date using the current exchange rate.
  • Initial liability recorded on Nov. 15: €50,000 * $1.08/€ = $54,000.
  • Liability value on Dec. 31: €50,000 * $1.12/€ = $56,000. The liability has increased by $2,000. Since the company owes more U.S. dollars, it has incurred a foreign exchange loss. The entry is to debit Foreign Exchange Loss and credit Accounts Payable to increase the liability's carrying value.

Question 2

A company pays its 20 employees on a weekly basis every Friday. The standard work week is 40 hours. The company's fiscal year-end, December 31, falls on a Wednesday. The weekly payroll is $16,000 for regular hours. For the three days leading up to year-end (Monday-Wednesday), 5 employees worked an additional 4 hours of overtime each, at a rate of 1.5 times their regular pay. What amount should the company record as Salaries and Wages Payable on December 31?

  1. $9,600
  2. $10,800
  3. $10,200 (correct answer)
  4. $17,200
Explanation: The calculation requires two steps: accruing the regular pay and accruing the overtime pay.
  1. Accrued Regular Pay: The year ends on a Wednesday, so 3 out of 5 workdays have passed. Accrued regular wages are (3/5) * $16,000 = $9,600.
  2. Accrued Overtime Pay: First, find the regular hourly rate. $16,000 / (20 employees * 40 hours) = $20 per hour. The overtime rate is $20 * 1.5 = $30 per hour. Total overtime hours are 5 employees * 4 hours = 20 hours. Total overtime pay to accrue is 20 hours * $30/hour = $600.
  3. Total Accrual: Total Salaries and Wages Payable = $9,600 (regular) + $600 (overtime) = $10,200.

Question 3

On July 1, Year 1, a company issued a one-year, non-interest-bearing note with a face value of $200,000 in exchange for cash. The company received $185,185, which implies an effective interest rate of 8%. The company's fiscal year ends on December 31. Using the effective interest method, what amount should be recorded as interest expense for Year 1?

  1. $0
  2. $8,000
  3. $14,815
  4. $7,407 (correct answer)
Explanation: The initial cash received, 185,185,isthecarryingvalueofthenote.Thedifferencebetweenthefacevalueandthecarryingvalue(185,185, is the carrying value of the note. The difference between the face value and the carrying value (200,000 - $185,185 = $14,815) is the discount, which represents the total interest over the life of the note. Interest expense is calculated by multiplying the carrying value by the effective interest rate for the relevant period. For Year 1, the period is 6 months (July 1 to December 31). Interest Expense = Carrying Value * Effective Rate * Time Period = $185,185 * 8% * (6/12) = $7,407.40, which rounds to $7,407.

Question 4

VWX Inc. sells products with a return policy allowing customers to return merchandise within 60 days for a full refund. Based on historical data, the company estimates that 5% of current month sales will be returned in subsequent periods. December 2024 sales were $200,000, and actual returns in December for prior period sales were $8,000. What is the net effect on December 2024 liabilities from these return transactions?

  1. Increase liabilities by $10,000
  2. Decrease liabilities by $8,000
  3. Increase liabilities by $18,000
  4. Increase liabilities by $2,000 (correct answer)
Explanation: When you encounter return policy questions, you need to track two separate liability effects: creating new liabilities for expected future returns and reducing existing liabilities when actual returns occur. For December 2024, you have two transactions affecting return liabilities. First, the $200,000 in December sales creates an obligation for estimated future returns. With a 5% return rate, you must record a liability of $200,000×0.05=10,000200,000 × 0.05 = 10,000 $ for expected returns on current month sales. Second, the $8,000 in actual returns represents customers returning previously purchased merchandise, which reduces the existing return liability that was established in prior periods. The net effect on liabilities is: increase of $10,000 (new liability) minus decrease of $8,000 (liability reduction) = $2,000 increase. Answer A (10,000increase)onlyconsidersthenewliabilityfromDecembersaleswhileignoringthereductionfromactualreturns.AnswerB(10,000 increase) only considers the new liability from December sales while ignoring the reduction from actual returns. Answer B (8,000 decrease) makes the opposite error—only accounting for the liability reduction from actual returns while missing the new liability creation. Answer C ($18,000 increase) incorrectly adds both amounts instead of netting them, showing a fundamental misunderstanding of how return liabilities work. Remember that return accounting always involves this dual effect: you simultaneously create liabilities for new sales and reduce liabilities for actual returns. Always calculate both components and determine the net impact on your balance sheet.

Question 5

A company operates in a municipality where the fiscal year runs from July 1 to June 30. On July 1, 20X1, the municipality assessed the company $36,000 in property taxes for the fiscal year ending June 30, 20X2. The entire tax amount is due and payable on March 1, 20X2. The company has a calendar year-end of December 31. As of December 31, 20X1, no payment has been made. What amount should the company report as Property Tax Payable on its December 31, 20X1 balance sheet?

  1. $36,000
  2. $18,000 (correct answer)
  3. $3,000
  4. $0
Explanation: The $36,000 property tax assessment covers a 12-month period from July 1, 20X1, to June 30, 20X2. According to the matching principle, the company must accrue the portion of the tax expense that relates to the current reporting period. By December 31, 20X1, six months of the assessment period have passed (July through December). Therefore, the accrued liability is for six months of tax: $36,000 * (6/12) = $18,000.

Question 6

At December 31, Year 1, a company made an adjusting entry to accrue $4,000 of wage expense. The company follows a strict policy of reversing all accrual-related adjusting entries at the beginning of the next period. On January 7, Year 2, the company paid total weekly wages of $10,000 in cash.

Given the company's policy, what is the journal entry to record the $10,000 wage payment on January 7, Year 2?

  1. Debit Wages Expense $6,000, Debit Wages Payable $4,000; Credit Cash $10,000.
  2. Debit Wages Expense $14,000; Credit Wages Payable $4,000, Credit Cash $10,000.
  3. Debit Wages Payable $4,000; Credit Cash $4,000.
  4. Debit Wages Expense $10,000; Credit Cash $10,000. (correct answer)
Explanation: The reversing entry on January 1, Year 2, would be: Debit Wages Payable $4,000 and Credit Wages Expense $4,000. This closes the payable account and creates a temporary credit balance in the expense account. When the payroll is paid on January 7, the bookkeeper can make the standard, simple entry to debit the full amount to Wages Expense and credit Cash. The resulting balance in Wages Expense will be a 6,000debit(6,000 debit (10,000 debit - $4,000 credit), which correctly reflects the wage expense incurred in Year 2.

Question 7

A company leases a warehouse under an agreement that requires a fixed monthly rent of $8,000 plus a variable amount equal to 1% of the company's monthly sales revenue. Rent for a given month is due on the 10th of the following month. For December, the company's sales revenue was $500,000. What is the required adjusting entry for rent on December 31?

  1. Debit Rent Expense $8,000; Credit Accrued Rent Payable $8,000.
  2. Debit Rent Expense $5,000; Credit Accrued Rent Payable $5,000.
  3. Debit Rent Expense $13,000; Credit Accrued Rent Payable $13,000. (correct answer)
  4. No entry is required because the payment is not due until January.
Explanation: The company must accrue the full amount of rent expense incurred in December, even though it will be paid in January. The total expense has two components:
  1. Fixed portion: $8,000
  2. Variable portion: 1% of $500,000 sales = $5,000 Total accrued rent expense and payable for December = $8,000 + $5,000 = $13,000. The adjusting entry debits Rent Expense and credits Accrued Rent Payable for this amount.

Question 8

A company's controller is reviewing accounts to prepare a December 31 year-end adjusting entry for utility expenses. The last bill received and paid was for November, in the amount of $6,200. The December bill has not yet been received. The controller notes that the facility was closed for the last week of December, a period that normally accounts for 25% of monthly usage. Based on this information, what is the most reasonable estimate to record for Accrued Utilities Payable?

  1. $6,200
  2. $1,550
  3. $4,650 (correct answer)
  4. $0
Explanation: The company must accrue an estimated liability for utilities used in December. Simply using the prior month's bill ($6,200) would be a possible estimate, but more information is available. Since the facility was closed for a period representing 25% of normal usage, it is reasonable to adjust the estimate downwards. The estimated usage is 100% - 25% = 75% of November's usage. The accrued liability should be $6,200 * 0.75 = $4,650.

Question 9

A magazine publisher sells annual subscriptions for $180. On April 1 of the current year, the company sold 1,000 new subscriptions and collected the full amount in cash. The company recorded the entire amount as Unearned Subscription Revenue. What is the correct balance for Unearned Subscription Revenue from these sales on the company's December 31 year-end balance sheet?

  1. $180,000
  2. $135,000
  3. $45,000 (correct answer)
  4. $0
Explanation: The initial liability (Unearned Revenue) recorded on April 1 was 1,000 subscriptions * $180 = 180,000.Thisrevenueisearnedovera12−monthperiod.ByDecember31,ninemonthshavepassed(AprilthroughDecember).Theportionofrevenueearnedis(180,000. This revenue is earned over a 12-month period. By December 31, nine months have passed (April through December). The portion of revenue earned is (180,000 / 12 months) * 9 months = $135,000. The remaining liability for the unexpired portion of the subscriptions is the initial amount less the earned portion: $180,000 - $135,000 = $45,000. This represents the service to be provided for the remaining 3 months (January-March).

Question 10

On December 28, a company purchased new equipment for $120,000 and raw materials inventory for $30,000 from the same vendor. The purchase terms for the entire amount are 1/15, n/45. The company uses the gross method of recording purchases. The company also paid $4,000 in cash to an independent shipping company for freight charges on the equipment. What amount should be recorded as a credit to Accounts Payable on December 28?

  1. $154,000
  2. $150,000 (correct answer)
  3. $148,500
  4. $120,000
Explanation: Accounts Payable should be credited for the total amount owed to the vendor for the purchase on credit. This includes the cost of the equipment (120,000)andtheinventory(120,000) and the inventory (30,000), for a total of $150,000. Because the company uses the gross method, the potential cash discount is not considered at the time of purchase. The freight charge of $4,000 was paid in cash to a third-party shipper and therefore does not affect the amount owed to the vendor (Accounts Payable).

Question 11

On December 26, a company purchased inventory on credit for $80,000 with terms of 2/10, n/30. The company uses the net method to account for purchase discounts and has a fiscal year-end of December 31. The invoice remains unpaid at year-end. What is the journal entry to record this purchase?

  1. Debit Inventory $80,000; Credit Accounts Payable $80,000.
  2. Debit Inventory $78,400; Credit Accounts Payable $78,400. (correct answer)
  3. Debit Inventory $80,000; Credit Purchase Discounts $1,600, Credit Accounts Payable $78,400.
  4. Debit Inventory $78,400, Debit Interest Expense $1,600; Credit Accounts Payable $80,000.
Explanation: Under the net method, the purchase is recorded at its net amount, assuming the discount will be taken. The discount is 2% of $80,000, which is $1,600. The net purchase price is $80,000 - $1,600 = $78,400. The journal entry is to debit Inventory and credit Accounts Payable for this net amount. If the company later fails to take the discount, the lost discount is recorded as an expense.

Question 12

At its December 31 year-end, a company has two notes payable outstanding. Details are as follows:

  • A $60,000, 8% note issued on September 1. Interest is payable annually each September 1.
  • A $90,000, 6% note issued on November 1. Interest is payable semi-annually each May 1 and November 1.

What is the total amount of interest the company should record as an accrued liability on its December 31 balance sheet?

  1. $2,500 (correct answer)
  2. $1,600
  3. $900
  4. $10,200
Explanation: Accrued interest must be calculated for each note from its last interest date to year-end.
  • For the 8% note: Interest accrued is for 4 months (September, October, November, December). Accrued Interest = $60,000 * 8% * (4/12) = $1,600.
  • For the 6% note: Interest accrued is for 2 months (November, December). Accrued Interest = $90,000 * 6% * (2/12) = $900.
  • Total Accrued Interest Liability = $1,600 + $900 = $2,500.

Question 13

A company sells a product that requires a special shipping container. Customers pay a $10 refundable deposit for each container. During the year, the company shipped 5,000 units and collected deposits. Customers returned 3,800 containers and received refunds. The company's experience indicates that 10% of the containers shipped will never be returned. What is the balance of the Customer Deposits Payable liability account at year-end?

  1. $7,000 (correct answer)
  2. $12,000
  3. $5,000
  4. $17,000
Explanation: The liability is based on the number of containers outstanding, not historical return rates for recognizing the initial liability.
  1. Initial liability from deposits collected: 5,000 containers * $10/deposit = $50,000.
  2. Reduction in liability from refunds: 3,800 containers * $10/deposit = $38,000.
  3. At some point, the company determines that some deposits are forfeited. The 10% non-return rate applies to the 5,000 containers shipped, so 500 containers are expected to not be returned. The liability for these can be removed and recognized as revenue. Liability reduction = 500 * $10 = $5,000.
  4. Ending Liability = $50,000 - $38,000 - $5,000 = $7,000. This represents the 700 containers still outstanding and expected to be returned (5,000 shipped - 3,800 returned - 500 never returned = 700).

Question 14

A company sells products with a three-year warranty. The company estimates that warranty costs will equal 4% of sales revenue. During Year 1, the company had sales of $3,000,000 and incurred actual warranty repair costs of $50,000. What is the company's estimated warranty liability at the end of Year 1?

  1. $120,000
  2. $2,880,000
  3. $50,000
  4. $70,000 (correct answer)
Explanation: Under the accrual method, the total estimated warranty expense is recognized in the year of the sale.
  1. Total estimated warranty expense for Year 1 sales: $3,000,000 * 4% = $120,000. This amount is credited to the Estimated Warranty Liability account.
  2. Actual warranty costs incurred during the year reduce the liability. The liability account is debited for $50,000.
  3. The ending balance in the Estimated Warranty Liability account is the initial accrual less the actual costs paid: $120,000 - $50,000 = $70,000.

Question 15

A company entered into a non-cancelable contract on October 31 to purchase 10,000 units of a specific raw material at a fixed price of $12 per unit, with delivery scheduled for the following March. At its December 31 year-end, the market price of this material had dropped to $10 per unit. What entry, if any, should the company record on December 31 related to this purchase commitment?

  1. No entry is necessary until the materials are delivered and title has passed.
  2. Debit Inventory $100,000 and Credit Accounts Payable $100,000.
  3. Debit Unrealized Holding Loss $20,000 and Credit Estimated Liability on Purchase Commitment $20,000. (correct answer)
  4. A description of the commitment should be included in the footnotes, but no liability is recorded.
Explanation: When a loss on a non-cancelable purchase commitment is probable and can be reasonably estimated, the loss and a corresponding liability should be recognized in the period the price decline occurs. The contract price is 10,000 units * $12/unit = $120,000. The market price at year-end is 10,000 units * $10/unit = $100,000. The expected loss is $120,000 - $100,000 = $20,000. This loss should be accrued with a debit to a loss account and a credit to a liability account.

Question 16

A company has a $1,000,000 bond payable classified as long-term debt, maturing in five years. The bond indenture requires the company to maintain a debt-to-equity ratio of no more than 1.5. At the December 31 balance sheet date, the company's debt-to-equity ratio was 1.7, a violation of the agreement. The lender has not waived the violation, giving it the right to demand immediate repayment. How should the bond payable be reported on the December 31 balance sheet?

  1. As a non-current liability, with footnote disclosure of the covenant violation.
  2. As a non-current liability, because the stated maturity date is more than one year away.
  3. Partly as a current liability and partly as a non-current liability based on expected cash flows.
  4. As a current liability, because the debt is now callable on demand. (correct answer)
Explanation: When a debt covenant is violated at the balance sheet date, and the violation makes the long-term obligation callable on demand by the creditor, the entire amount of the obligation must be reclassified as a current liability. The classification is based on the conditions existing at the balance sheet date, and at that date, the company does not have an unconditional right to defer settlement for at least twelve months.

Question 17

A company provides employees with 15 days of paid vacation per year. Vacation days vest and can be carried over. At the beginning of the year, the accrued vacation liability was $45,000, representing 300 unused days. During the year, employees earned 2,000 vacation days and used 1,900 vacation days. The average employee pay rate was $150/day at the beginning of the year and rose to $160/day by the end of the year. What is the Accrued Vacation Liability to be reported on the year-end balance sheet?

  1. $62,400
  2. $64,000 (correct answer)
  3. $60,000
  4. $16,000
Explanation: First, determine the number of unused vacation days at year-end. Unused days = Beginning days + Earned days - Used days = 300 + 2,000 - 1,900 = 400 days. Second, the liability for these unused days must be valued at the current rate of pay at the balance sheet date. Year-end liability = 400 days * $160/day = $64,000.

Question 18

At its December 31 year-end, a company is reviewing two outstanding purchase invoices. The company has not yet recorded either transaction.

  • Invoice A: $40,000 of goods purchased from a supplier. The terms were FOB shipping point. The goods were shipped on December 29 and arrived at the company's warehouse on January 3.
  • Invoice B: $60,000 of goods purchased from another supplier. The terms were FOB destination. The goods were shipped on December 30 and arrived on January 5.

Based on the information provided, what adjusting journal entry should the company make on December 31 to correctly state its liabilities?

  1. Debit Inventory $100,000; Credit Accounts Payable $100,000.
  2. Debit Inventory $60,000; Credit Accounts Payable $60,000.
  3. Debit Inventory $40,000; Credit Accounts Payable $40,000. (correct answer)
  4. No adjusting entry is needed until the goods are physically received.
Explanation: For Invoice A, the terms are FOB shipping point, which means legal title to the goods passed to the buyer when the goods were shipped on December 29. Therefore, the company owned the inventory as of December 31 and should record the inventory and the corresponding accounts payable. For Invoice B, the terms are FOB destination, meaning title does not pass until the goods are received by the buyer, which occurred in January. Therefore, this transaction should not be recorded in the year ending December 31. The correct entry is to record only the purchase related to Invoice A.

Question 19

A retailer's cash register summary for the month of December shows total receipts of $472,500. This amount includes a 5% sales tax levied by the state. The company is responsible for remitting the collected sales tax to the state in the following month. What amount should the company record as Sales Tax Payable for December?

  1. $23,625
  2. $22,500 (correct answer)
  3. $450,000
  4. $472,500
Explanation: The total receipts of $472,500 represent the sales revenue plus the 5% sales tax on that revenue. Let S be the sales revenue. Then S + 0.05S = $472,500, which means 1.05S = $472,500. Solving for S gives S = $472,500 / 1.05 = $450,000. The sales tax payable is the difference between the total receipts and the sales revenue: $472,500 - $450,000 = $22,500. Alternatively, once sales revenue is found, the tax is $450,000 * 5% = $22,500.

Question 20

On December 15, 2024, ABC Corporation received an invoice for $12,000 for consulting services performed in November 2024. The invoice terms are 2/10, n/30. ABC plans to pay on December 24, 2024. What journal entry should ABC record on December 15, 2024?

  1. Debit Consulting Expense $12,000; Credit Accounts Payable $12,000 (correct answer)
  2. Debit Consulting Expense $11,760; Credit Accounts Payable $11,760
  3. Debit Consulting Expense $12,000; Credit Cash $11,760; Credit Purchase Discounts $240
  4. Debit Accrued Expenses $12,000; Credit Accounts Payable $12,000
Explanation: The correct answer is A. When recording the initial liability, the full invoice amount of $12,000 should be recorded as Accounts Payable, regardless of potential discounts. The discount is recorded only when payment is made within the discount period. Choice B incorrectly records the net amount initially. Choice C incorrectly records payment entries when only recording the liability. Choice D uses the wrong expense account since this should be Consulting Expense, not Accrued Expenses.