Receiving payment prior to delivering goods or services causes a current liability to be incurred

1.Receiving payment prior to delivering goods or services causes a current liability to be incurred.

a.True

b.False

2.All long-term liabilities eventually become current liabilities.

a.True

b.False

3.For a current liability to exist, the liability must be due usually within a year and must be paid out of current assets.

a.True

b.False

4.The borrower issues a note payable to a creditor.

a.True

b.False

6.Interest expense is reported in the operating expense section of the income statement.

a.True

b.False

7.An interest-beating note is a loan in which the lender deducts interest from the amount loaned before the money isadvanced to the borrower.

a.True

b.False

8.The amount borrowed is equal to the face amount of the note on an interest bearing note payable.

a.True

b.False

9.The amount of money a borrower receives from the lender is called the discount rate.

a.True

b.False

10.The proceeds of a discounted note are equal to the face value of the note.

a.True

b.False

The Correct Answer and Explanation is :

Correct Answers:

1. True
2. True
3. True
4. True
5. (Missing from the question list)
6. False
7. False
8. True
9. False
10. False

Explanation:

1. Receiving payment prior to delivering goods or services causes a current liability to be incurred (True).
   When a company receives advance payment before delivering goods or services, it creates an obligation to fulfill that order, making it a liability. This liability is recorded as unearned revenue, a current liability, until the goods or services are provided.
2. All long-term liabilities eventually become current liabilities (True).
   Long-term liabilities, such as bonds payable and long-term loans, have portions that become due within the next year. When these portions reach their maturity period within a year, they are classified as current liabilities.
3. For a current liability to exist, the liability must be due usually within a year and must be paid out of current assets (True).
   Current liabilities are obligations due within a year and are typically settled using current assets, such as cash or accounts receivable.
4. The borrower issues a note payable to a creditor (True).
   A note payable is a formal written agreement where the borrower acknowledges a debt obligation to a creditor. This document specifies the amount borrowed, repayment terms, and interest.
5. Interest expense is reported in the operating expense section of the income statement (False).
   Interest expense is a financial cost related to borrowing and is reported in the non-operating section of the income statement, not under operating expenses.
6. An interest-bearing note is a loan in which the lender deducts interest before advancing money (False).
   This describes a discounted note, not an interest-bearing note. In an interest-bearing note, the borrower receives the full loan amount and pays interest separately.
7. The amount borrowed is equal to the face amount of the note on an interest-bearing note payable (True).
   In an interest-bearing note, the borrower receives the face value and pays interest at agreed intervals.
8. The amount of money a borrower receives from the lender is called the discount rate (False).
   The discount rate refers to the interest deducted upfront in a discounted note, but the actual money received is called the proceeds.
9. The proceeds of a discounted note are equal to the face value of the note (False).
   In a discounted note, interest is deducted in advance, meaning the borrower receives less than the face value.