Question

2 p QUESTION 2 Emma Swan Company borrowed $24,000 from Bank of Storybrook on December 1, 2016, and signed a 90 day, 8% Notes Payable. If Emma Swan's accounting period ends on December 31, 2016, which of the following will not be tru e for Emma Swan Company? O A. On March 1, 2017, Emma Swan will debit Interest Expense for $320 OB. On December 31, 2016, Emma Swan will debit Interest Expense for $160 O C. On March 1, 2017, Emma Swan will debit Interest Payable for $320 O D. On December 31, 2016, Emma Swan will credit Interest Payable for $160 QUESTION 3 J, Knolls Company has a current ratio of 3.10. Which of the following events would cause its current ratio to increase? A. Purchase of office supplies on account B. Purchase of equipment on account C. Payment of an account payable D. Collection of an account receivable

Answer 1

2.

Interest expense to be recorded on December 31, 2016 = 24,000 x 8% x 1/12

= $160

Interest expense to be recorded on March 1 , 2017 = 24,000 x 8% x 2/12

= $320

On December 31, 2016 interest expense will be debited and interest payable will be credited by $160.

On March 1, 2017 interest expense will be debited by $320 and interest payable will be debited by $160

Correct option is C.

3.

Current ratio = 3.10

Due to payment of an accounts payable, current ratio will increase. When an accounts payable is paid, both the current assets and current liabilities decrease by the same amount and hence current ratio increases.

Correct option is C.

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