Acc Exam 2 Study Guide

The formula to compute annual straight-line depreciation is:

(Cost minus salvage value) divided by the useful life in periods.

The correct times interest earned computation is:

(net income + interest expense + income taxes) / interest expense

The depreciation method that produces more depreciation expense during the early years of an asset's life and less expense in the later years is a(n):

Accelerated depreciation method.

Changes in accounting estimates are:

Accounted for in current and future periods.

Land improvements are:

Additions to land that have limited useful lives

The Premium on Bonds Payable account is a(n):

Adjunct liability account.

Par value of a stock refers to the:

Amount assigned per share by the corporation in its charter.

an employer's federal unemployment taxes (FUTA) are reported:

Annually

In order to be reported, liabilities:

Are at times estimated if the exact amount is not known.

Revenue expenditures

Are costs that do not materially increase a plant asset's life or capabilities.

Extraordinary repairs:

Are expenditures that extend an asset's useful life beyond its original estimate.

Betterments:

Are expenditures that make a plant asset more efficient or productive.

Another name for a capital expenditure is:

Balance sheet expenditure.

An advantage of bonds is:

Bonds do not affect owner control

A disadvantage of bond financing is:

Bonds pay periodic interest and require the repayment of par value at maturity.

The total cost of an asset minus accumulated depreciation is called:

Booke value

Bonds that give the issuer the option to retire them at a stated dollar amount before maturity are known as:

Callable bonds

short-term notes payable

Can be issued in return for money borrowed from a bank.

Which of the following does not apply to unearned revenues?

Classified as a long-term asset.

Bonds that can be exchanged for a fixed number of shares of the issuing corporation's stock are known as:

Convertible bonds

Liabilities that are due within one year (or the company's operating cycle if longer) are:

Current liabilities.

A company's total liabilities divided by its total equity is called the:

Debt-to-equity ratio.

The depreciation method which uses a depreciation rate that is a multiple of the straight-line rate is called:

Declining-balance depreciation

Which of the following can occur when the amount of income before taxes that the corporation reports on its income statement differs from the amount of income reported on its income tax return?

Deferred income tax liability

The annual Federal unemployment tax return is:

Form 940

Holding a copyright:

Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.

Owning a patent:

Gives the owner exclusive rights to manufacture and sell a patented item or to use a process for 20 years.

secured bonds

Have specific assets of the issuer pledged as collateral.

To capitalize an expenditure is to:

Increase an asset account

Which of the following statements is true?

Interest on bonds is tax deductible

An estimated liability:

Is a known obligation of an uncertain amount that can be reasonably estimated

The modified accelerated cost recovery cost recovery system (MACRS)

Is not acceptable for financial reporting

The board of directors of a corporation:

Is responsible for overseeing corporate activities

Retained earnings:

Is the cumulative net income (and loss) not distributed as dividends to its stockholders.

Depreciation:

Is the process of allocating the cost of a plant asset to expense while it is in use.

Intangible assets do not include:

Land held as an investment

Obligations due after one year (or the company's operating cycle if longer) are reported as:

Long-term liabilities.

Which of the following is not a relevant factor in computing depreciation?

Market value

Prior period adjustments to financial statements can result from:

Material math errors.

The least amount that the buyers of stock must contribute to the corporation or be at risk to pay creditors at a future date is called the:

Minimum legal capital

The calculation of total asset turnover is:

Net sales divided by average total assets

A class of stock for which there is no minimum legal capital is called:

No-par stock

Stated value stock is:

No-par stock that has an assigned "stated" value per share.

The costs to start a corporation, including legal fees, promoters' fees, and payments for a charter, are called:

Organization expenses.

Stockholders' equity consists of which of the following?

Paid-in (or contributed) capital and retained earnings.

Which of the following is not classified as a plant asset?

Patent

Companies with few employees often pay their employees with checks drawn on the company's regular bank account, while companies with many employees often use a special bank account to pay employees. This special bank account is known as a(n):

Payroll bank account

The right of common stockholders to purchase their proportional share of any common stock later issued by a corporation is called the:

Preemptive right

a payroll register does not include:

Prior year's earnings

The total amount of cash and other assets that a corporation receives from its stockholders in exchange for its stock is:

Referred to as paid-in capital

Sinking fund bonds:

Require the issuer to set aside assets to pay bonds at maturity

Prior period adjustments are reported in the:

Statement of retained earnings.

Plant assets are defined as:

Tangible assets used in a company's operations that have a useful life of more than one accounting period.

Amortization is:

The allocation of the cost of an intangible asset to expense over its estimated useful life.

The meaning of goodwill in accounting is:

The amount by which a company's value exceeds the value of its individual assets and liabilities.

If an issuer sells bonds at a premium:

The carrying value decreases from the issue price to the par value over the bond's term.

If a company uses a special payroll bank account:

The company draws one check for total payroll on the regular bank account and deposits it in the payroll bank account.

The term inadequacy refer to:

The inability of a plant asset to meet its demands.

Depletion:

The process of allocating the cost of a natural resource to the period when it is consumed.

The term, obsolescence, as it relates to the useful life of an asset, refers to:

The process of becoming outdated and no longer used.

A leasehold is:

The rights the lessor grants to the lessee under the terms of a lease.

Which of the following pertaining to ordinary repairs is false?

They extend the useful life of an asset beyond its original estimate by several years.

Which of the following pertaining to known liabilities is false?

They may depend on a future event occurring.

gross pay is:

Total compensation earned by an employee before any deductions

The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called:

Units-of-production depreciation

A contingent liability is:

a potential obligation that depends on a future event arising from a past transaction or event

Accounts Payable are:

amounts owed to suppliers for products or services purchased on credit

employee payroll taxes:

are an added expense beyond the wages and salaries earned by employees

The number of shares that a corporation's charter allows it to sell is referred to as:

authorized stock

The legal contract between the bond issuer and the bondholders is called a(n):

bond indenture

Bonds that give the issuer the option of retiring them at a stated dollar amount before maturity are:

callable bonds

When all authorized shares of a corporation's stock have the same rights and characteristics, the stock is called:

common stock

the wages bracket withholding table is used:

computed federal income taxes withheld

The Discount on Bonds Payable account is:

contra liability

The cost of land would not include:

cost of parking lot lighting

Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker for collection, are called:

coupon bonds

The employer should record payroll deduction as:

current liabilities

sales taxes payable is reported as an:

current liability

Time interest earned is calculated by:

dividing income before interest expense and income taxes by interest expenses

a bank that is authorized to accept deposits of amounts payable to the federal government is a:

federal depository bank

FICA requires that each employer file a:

form 941

the Wages and tax statement given to each employee annually is:

form W-2

A liability requiring a series of payments to the lender is referred to as a(n):

installment note

When a note comes due, the difference between the amount borrowed and the amount repaid is:

interest

a short-term note payable:

is a written promise to pay a specified amount on a stated future date within one year

the rate that a state assigns based on a company's stability in employing workers is the:

merit rating

A legal agreement that helps protect a lender if a borrower does not make required payments on notes or bonds is called a(n):

mortgage

Bonds issued in the names and addresses of their holders are called:

registered bonds

contingent liabilities are recorded or disclosed in the Finacial Statement notes unless they are:

remote (very likey)

Bonds that mature at more than one date and thus are usually repaid over a number of periods are known as:

serial bonds

FICA taxes (Federal Insurance Contributions Act) include:

social security and Medicare taxes

The depreciation method that charges the same amount of expense to each period of the asset's useful life is called:

straight-line depreciation

The party that has the right to exercise a call option on callable bonds is:

the bond issuer

The useful life of a plant asset is:

the length of time it is productively used in a company's operations

The carrying value of bonds at maturity always equals:

the par value of the bond

Market value per share is:

the price at which a stock is bought and sold

Which of the following does not result in an estimated liability?

unearned revenues

Federal Unemployment Taxes (FUTA) are:

unemployment taxes

One characteristic of plant assets is that they are:

used in operations

a table that shows the amount Of federal income tax to be withheld from an employee's growth pay is the:

wage bracket withholding table