ACC 201 Exam #3

If Express Jet borrows $100 million on October 1, 2018, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 2018?

$1.5 million.

Region Jet has a $50 million liability at December 31, 2018, of which $10 million is payable in 2019. In its December 31, 2018 balance sheet, the company reports the $50 million debt as a:

$10 million current liability and a $40 million long-term liability on the balance sheet.

Kansas enterprises purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five-year life, with a residual value of $5,000 at the end of five years. Using the straight-line method, depreciation expense for 2019 and the book value at December 31, 2019 would be:

$11,000 and $38,000

The total payroll of Rock Adventures in January is $18,000. The federal and state income taxes withheld are $3,780. FICA taxes are 7.65% and unemployment taxes are 3.8%. What is the actual direct deposit of payroll for January?

$12,843

Union apparel has sales including sales taxes for the month of $551,200. If the sales tax rate is 6%, how much does Union Apparel owe for sales tax?

$31,200

At the beginning of 2018, Angel Corporation began offering 1-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2018 were $180 million. Five percent of the units sold were returned in 2018 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2018 income statement is:

7.2 million

Which of the following leases is essentially the purchase of an asset with debt financing?

A capital lease

Lincoln County retires a $50 million bond issue when the carrying value of the bonds is $48 million, but the market value of the bonds is $54 million. Lincoln County will record the retirement as:

A debit of $6 million to Loss due to early extinguishment.

Equipment originally costing $95,000 has accumulated depreciation of $30,000. If it sells the equipment for $55,000, the company should record:

A loss of $10,000

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will settle the lawsuit for an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation?

As a liability for $75,000 with disclosure of the range.

The book value of an asset is equal to the:

Asset's cost less accumulated depreciation.

The mixture of liabilities and stockholders' equity a business uses is called its:

Capital structure

When bonds are issued at a discount, what happens to the carrying value and interest expense over the life of the bonds?

Carrying value and interest expense increase

Interest expense on bonds payable is calculated as

Carrying value times the market interest rate.

The acid-test ratio is:

Cash, current investments, and accounts receivable divided by current liabilities.

We normally record a long-term asset at the:

Cost of the asset plus all costs necessary to get the asset ready for use.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be

Disclosed but not reported as a liability.

when bonds are issued at a premium price and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

Greater than the interest expense

Which of the following statements regarding liabilities is not true?

Liabilities result from future transactions.

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life?

Long service life, high residual value, and straight-line depreciation.

In accounting, goodwill

May be recorded when the company purchases another business.

Current liabilities:

May include contingent liabilities.

Assuming a current ratio of 1.00 and an acid-test ratio of 0.75, how will the purchase of inventory with cash affect each ratio?

No change to the current ratio and decrease the acid-test ratio

The return on assets is equal to the:

Profit margin times asset turnover

Convertible bonds

Provide potential benefits to both the issuer and the investor.

Which of the following is not a primary source of corporate debt financing?

Receivables

Which of the following expenditures should be recorded as an expense?

Repairs and maintenance that maintain current benefits

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as:

Sales tax payable.

Research and development costs generated internally:

Should be expensed.

The balance in the Accumulated Depreciation account represents:

The amount charged to depreciation expense since the acquisition of the plant asset.

Which of the following ratios measures financial leverage?

The debt to equity ratio

Which of the following statements is true regarding the amortization of intangible assets?

The expected residual value of most intangible assets is zero.

When bonds are retired before their maturity date:

The issuing company may report a non-operating gain or loss.

Which of the following is true for bonds issued at a discount?

The market interest rate is greater than the stated interest rate.

The price of a bond is equal to

The present value of the face amount plus the present value of the stated interest payments

Which of the following intangible assets may or may not be amortized depending on whether it has a finite or indefinite life?

Trademarks

Which of the following is not deducted from an employee's salary?

Unemployment taxes.

We record interest expense on a note payable in the period in which:

We incur interest

Abbott company purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no residual value. The computer was depreciated by the straight-line method and was sold at the end of the fourth year of use for $3,000 cash. Abbott should record:

a gain of $1,000

Serial bonds are:

bonds that mature in installments

Young company is involved in a lawsuit. The liability that could arise as a result of this lawsuit should be recorded on the books if the probability of Young owing money as a result of the lawsuit is:

probable and the amount is reasonably estimable.