Use the Following to Answer Questions

question 103

Multiple Choice

Use the following to answer questions
Seattle Company issued a $90,000 face value discount note payable to the First Federal Bank on September 1,2016.The note carried a one-year term and a 4% discount rate.
-As a result of the recognition of interest expense on December 31,2016,

• A)liabilities will increase and retained earnings will decrease.
• B)assets and liabilities will decrease.
• C)assets will increase and retained earnings will increase.
• D)liabilities will increase and assets will decrease.

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Definitions:

Long-term Loss

A financial loss realized on the sale or exchange of an asset held for more than one year, affecting capital gains tax calculations.

Adjusted Basis

The original cost of property plus any improvements, or minus depreciation or losses, used to calculate capital gains or losses for tax purposes.

FMV

Fair Market Value, the price at which property would sell between a willing buyer and seller in an arm's length transaction.

Gift Tax

A federal tax on the transfer of property by gift from one individual to another with the donor being primarily responsible for paying the tax.