accounting exam 3

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as the reduction in principal for the first full month?

$2,542

If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 20X1?

$450,000

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as:

A debit to an asset and a credit to a liability account.

Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record:

A gain of $5,000.

Depreciation in accounting is the:

Allocation of an asset's cost to an expense over time.

Which of the following is not a current liability?

An unused line of credit

The acid-test ratio is

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

The current ratio is:

Current assets divided by current liabilities.

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. Which of the following is recorded at the time of the purchase?

Debit Treasury Stock for $32,000.

The disadvantages of a corporation compared to a sole proprietorship or partnership include:

Double taxation.

Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the borrowing of cash to be paid back in five years affect each ratio?

Increase the current ratio and increase the acid-test ratio.

The statement of stockholders' equity

Summarizes the changes in the balance in each stockholders' equity account over a period of time.

In each succeeding payment on an installment note:

The amount that goes to interest expense decreases.

On March 15, American Eagle declares a quarterly cash dividend of $0.080 per share payable on April 13 to all stockholders of record on March 30. Required:Record American Eagle's declaration and payment of cash dividends for its 219 million shares. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions (i.e. $5.5 should be entered as 5,500,000).)

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A company, is trying to decide between the following two alternatives to finance its new $25 million gaming center: Issue $25 million, 6% note. Issue 1 million shares of common stock for $25 per share.

issue note

Suppose that Neuman Exploration Tours has filed a lawsuit against a competitor for an alleged trademark violation. At the end of the year, Neuman's attorney estimates that the company will likely win the lawsuit and be awarded between $1.5 and $2 million, with the most likely amount being $1.8 million. How much should Neuman record as a gain?

$0

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Additional Paid-in Capital for:

$1,600,000

The advantages of a corporation compared to a sole proprietorship or partnership include:

Limited liability.

In its first three years of operations, a company has net income of $2,000; $5,000; and $8,000. It also pays dividends of $1,000 in the second year, and $3,000 in the third year. What is the balance of Retained Earnings at the end of the third year?

$11,000

Suppose a company declares a dividend of $0.50 per share. At the time of declaration, the company has 100,000 shares issued and 90,000 shares outstanding. On the declaration date, Dividends would be recorded for

$45,000

Bryer Co. purchases all of the assets and liabilities of Stellar Co. for $1,500,000. The fair value of Stellar's assets is $2,000,000, and its liabilities have a fair value of $1,200,000. The book value of Stellar's assets and liabilities are not known. For what amount would Bryer record goodwill associated with the purchase?

700.000 Explanation: Good will: Purchase price - Fair value of identifiable net assets Fair value of identifiable net assets : 2,000,000-1,200,000=800,000 Good will : 1,500,000-800,000=700,000

A long-term asset is recorded at the:

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

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?

Debit Cash, $5,000; Credit Notes Payable, $5,000.

Which of the following correctly describes the nature of depreciation?

Depreciation represents the allocation of the cost of property, plant, and equipment over its service life.

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

Disclosed but not reported as a liability.

Which of the following stages of equity financing would come last for most public companies?

Initial public offering

Which of the following statements regarding liabilities is true?

Liabilities represent probable future sacrifices of benefits.

Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the purchase of office supplies for cash affect each ratio?

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

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

Ordinary repairs and maintenance

Which of the following represents a characteristic of a liability?

Resulting from past transactions or events, Arising from present obligations to other entities, A probable future sacrifice of economic benefits.

If a company issues par-value stock, the amount credited to common stock will be:

The par value per share times the number of shares issued.

1. Environmental Printing is being sued for $9.4 million by Addamax. Plaintiff alleges that the defendants formed an unlawful joint venture and drove it out of business. The case is expected to go to trial later this year. The likelihood of payment is reasonably possible. Environmental Printing is the plaintiff in an $7.4 million lawsuit filed against a competitor in the high-end color-printer market. Environmental Printing expects to win the case and be awarded between $4.9 and $7.4 million. Environmental Printing recently became aware of a design flaw in one of its ink-jet printers. A product recall appears probable. Such an action would likely cost the company between $340,000 and $740,000.

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