1. A liability has three essential characteristics, which of the following is not one of them?

a. It is a present obligation that entails settlement by probable future transfer or use of cash, goods or services

b. The obligation must be liquidated using cash, goods, or services that were earned by the entity in the performance of their normal business operation

c. The liability must be an unavoidable obligation

d. The transaction or other event creating the obligation must have already occurred

2. Current liabilities are:

a. Liabilities that are due and payable on the balance sheet date

b. Liabilities that may be paid out of any asset pool accumulated by the enterprise as long as payment is due within one year

c. Due within one year or one operating cycle, whichever is longer

d. Void of notes payable, as notes are always long-term

3. On October 1, 2003, a company borrowed cash and signed a one-year, interest-bearing note on which both the principal and interest are payable n October 1, 2004. How will the note payable and the related interest be classified in the December 31, 2003, balance sheet?

Note Payable Accrued Interest

a. Current liability Noncurrent liability

b. Noncurrent liability Current liability

c. Current liability Current liability

d. Noncurrent liability Noncurrent liability

4. The Diana Co. issues a $208,000 6-month, zero-interest-bearing note to the Tang National Bank. The present value of the note is $200,000. The entry to record this transaction by Diana Co. would include:

a. A credit to Notes Payable of $200,000

b. A debit to Discount on Notes Payable of $8,000

c. A credit to Discount on Notes Payable of $8,000

d. A debit to Cash of