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130 Long term borrowings and Interest
This quiz focuses on testing knowledge related to loans, journal entries for borrowing money from a bank, terms associated with borrowing money such as principal and interest, and understanding the concept of interest expenses in a business context.
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Which of the following terms is used to describe the amount of money borrowed from a bank or other financial institution?
(a) Payable
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Add RecommendationAdd TagsView All Assigned Tags(b) Interest
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Add RecommendationAdd TagsView All Assigned Tags(c) Fee
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Add RecommendationAdd TagsView All Assigned Tags(d) Loan
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A business has a bank loan and a bank overdraft which are presented in the statement of financial position as
(a) Non-current liabilities for both items
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Add RecommendationAdd TagsView All Assigned Tags(b) Non-current assets for both items
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Add RecommendationAdd TagsView All Assigned Tags(c) Non-current liability and current liability respectively
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Add RecommendationAdd TagsView All Assigned Tags(d) Non-current assets and current assets respectively
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(a) DR Cash in hand CR Loan
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Add RecommendationAdd TagsView All Assigned Tags(b) DR Cash at bank CR Loan from bank
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Add RecommendationAdd TagsView All Assigned Tags(c) DR Loan from bank CR Cash at bank
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Add RecommendationAdd TagsView All Assigned Tags(d) DR Cash at bank CR Trade payable – bank
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a) DR Cash at bank; CR Bank Loan
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Add RecommendationAdd TagsView All Assigned Tags(b) DR Bank Loan; CR Cash at Bank
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Add RecommendationAdd TagsView All Assigned Tags(c) DR Bank Loan; CR Machinery
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Add RecommendationAdd TagsView All Assigned Tags(d) DR Machinery; CR Bank Loan
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(a) The cost of borrowing money
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Add RecommendationAdd TagsView All Assigned Tags(b) The cost of lending money
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Add RecommendationAdd TagsView All Assigned Tags(c) The cost of not having money
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Add RecommendationAdd TagsView All Assigned Tags(d) The cost of making money
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a) DR Cash at bank; CR Bank Loan
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Add RecommendationAdd TagsView All Assigned Tags(b) DR Bank Loan; CR Cash at Bank
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Add RecommendationAdd TagsView All Assigned Tags(c) DR Machinery; CR Bank Loan
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Add RecommendationAdd TagsView All Assigned Tags(d) DR Bank Loan; CR Machinery
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A business with a financial year that ends on 31 December obtains a loan on 1 October. For how long is the interest expense incurred for the year?
(a) One month
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Add RecommendationAdd TagsView All Assigned Tags(b) Two months
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Add RecommendationAdd TagsView All Assigned Tags(c) Three months
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Add RecommendationAdd TagsView All Assigned Tags(d) Four months
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What accounting theory supports the recognition of interest expense incurred whether or not it has been paid?
a) Matching principle
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Add RecommendationAdd TagsView All Assigned Tags(b) Revenue recognition principle
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Add RecommendationAdd TagsView All Assigned Tags(c) Objectivity principle
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Add RecommendationAdd TagsView All Assigned Tags(d) Accrual basis of accounting
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The journal entries to record the interest on loan that has been incurred but not yet paid are:
(a) DR Interest expense; CR Loan
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Add RecommendationAdd TagsView All Assigned Tags(b) DR Loan; CR Interest expense payable
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Add RecommendationAdd TagsView All Assigned Tags(c) DR Interest expense; CR Cash at bank
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Add RecommendationAdd TagsView All Assigned Tags(d) DR Interest expense; CR Interest expense payable
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Ta-Da Trading has a financial year ending 31 December. On 1 April 2024, the business took a 20-year mortgage loan of $500,000 that will be repaid equally starting 31 March 2025. The statement of financial position as at 31 December 2024 will have a current liability called ______________ with an amount for ________________
(a) Bank overdraft $25,000
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Add RecommendationAdd TagsView All Assigned Tags(b) Current portion of long-term borrowings $25,000
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Add RecommendationAdd TagsView All Assigned Tags(c) Interest expense payable $25,000
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Add RecommendationAdd TagsView All Assigned Tags(d) Short-term borrowings $25,000
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A business took a one-year bank loan of $1,200 at an interest rate of 12% per annum. At the end of the one year, calculate how much the business needs to repay in terms of principal and interest respectively.
(a) $1,200 + $144 = $1,344
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Add RecommendationAdd TagsView All Assigned Tags(b) $1,200 + $320 = $1,520
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Add RecommendationAdd TagsView All Assigned Tags(c) $1,200 + $488 = $1,688
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Add RecommendationAdd TagsView All Assigned Tags(d) $1,200 + $1,373 = $2,573
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D’light Trading’s financial year ends on 31 December.
On 1 July 2025 D’light Trading took a $80,000 loan at 8% interest per annum.
Interest payment is to be made on 30 June 2026.
The interest expense incurred for the year ended
31 December 2025 is
(a) $6,400
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Add RecommendationAdd TagsView All Assigned Tags(b) $3,200
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Add RecommendationAdd TagsView All Assigned Tags(c) $1,600
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Add RecommendationAdd TagsView All Assigned Tags(d) $8,000
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a) DR Interest expense payable; CR Cash at Bank
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Add RecommendationAdd TagsView All Assigned Tags(b) DR Cash at bank; CR Interest expense payable
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Add RecommendationAdd TagsView All Assigned Tags(c) DR Interest expense; CR Interest expense payable
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Add RecommendationAdd TagsView All Assigned Tags(d) DR Interest revenue; CR Cash at Bank
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Lian Hong obtained a bank loan of $200 000 from Standard Bank on 1 July 2026 to expand his business. The loan is repayable over four years and the interest rate on the outstanding amount is 5% per annum.
Both the repayment of the loan and payment of interest are to be made on 30 June, starting from 2027. The financial year of Lian Hong ends on
31 December.
What is the interest expense and interest payable for Lian Hong’s bank loan for 31 December 2027?
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a) Interest expense: $8,750; Interest payable: $3750
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Add RecommendationAdd TagsView All Assigned Tagsb) Interest expense: $3,750; Interest payable: $5,000
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Add RecommendationAdd TagsView All Assigned Tagsc) Interest expense: $8,750; Interest payable: $5,000
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Add RecommendationAdd TagsView All Assigned Tagsd) Interest expense: $5,000; Interest payable: $8,750
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You got a score of %%YOURSCORE%% out of %%TOTALSCORE%%
It appears you may be struggling to grasp fundamental accounting theories like the Matching Theory and the Accrual Basis of Accounting Theory.
You will need much practice in order to distinguish between bank loans and bank overdrafts and make errors in preparing journal entries for new loans, loan repayments, interest expenses, and interest payable.
When presenting financial statements, you will need to work on preparing an accurate extract of the Statement of Financial Position and the Statement of Financial Performance, particularly regarding the presentation of loans, interest payable, and interest expenses.
You will need much practice in order to distinguish between bank loans and bank overdrafts and make errors in preparing journal entries for new loans, loan repayments, interest expenses, and interest payable.
When presenting financial statements, you will need to work on preparing an accurate extract of the Statement of Financial Position and the Statement of Financial Performance, particularly regarding the presentation of loans, interest payable, and interest expenses.
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You got a score of %%YOURSCORE%% out of %%TOTALSCORE%%
You show a satisfactory comprehension of accounting concepts related to long-term borrowings management, accounting theories, and accounting for transactions.
While you may have some gaps in understanding specific details like reclassifying portions of liabilities as current liabilities, you demonstrate a basic grasp of the material. In presenting financial information, you may need to refine your skills to accurately display long-term borrowings, interest expenses, and interest payable in the financial statements.
While you may have some gaps in understanding specific details like reclassifying portions of liabilities as current liabilities, you demonstrate a basic grasp of the material. In presenting financial information, you may need to refine your skills to accurately display long-term borrowings, interest expenses, and interest payable in the financial statements.
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You got a score of %%YOURSCORE%% out of %%TOTALSCORE%%
Well done! You demonstrated a comprehensive understanding of accounting theories such as the Matching Theory and the Accrual Basis of Accounting Theory.
You accurately differentiate between bank loans and bank overdrafts, and proficiently prepare journal entries for new loans, loan repayments, interest expenses, and interest payable.
In presenting the financial statements, you adeptly prepare an extract of the Statement of Financial Position and the Statement of Financial Performance, showcasing the proper presentation of long-term borrowings, interest payable, and interest expenses.
You accurately differentiate between bank loans and bank overdrafts, and proficiently prepare journal entries for new loans, loan repayments, interest expenses, and interest payable.
In presenting the financial statements, you adeptly prepare an extract of the Statement of Financial Position and the Statement of Financial Performance, showcasing the proper presentation of long-term borrowings, interest payable, and interest expenses.
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