Accounting Test 5 (Ch. 9-10)
$800 (Cash) + $1,700 (Accounts Receivable) + $ 2,300 (Inventory) = $4,800/$1,400 (Current Liabilities) = 4 to 1
A company has $800 in cash, $1,700 in accounts receivable, and $2,300 in inventory. If current liabilities are $1,400, then the current ratio would be
$800 (Cash) + $1,700 (Accounts Receivable) = $,2,500/$1,400 (Current Liabilities) = 1.79 (rounded) to 1
A company has $800 in cash, $1,700 in accounts receivable, and $2,300 in inventory. If current liabilities are $1,400, then the quick ratio would be
the holder can convert the bond into common stock at a future time
A convertible bond is one where
should be treated as part of operating income
A gain on bond redemption
current liabilities are obligations that will be satisfied within one year, current liabilities are normally recorded at face value, and current liabilities finance the working capital of the company.
All of the following statements about current liabilities are true:
long term liability
An eight-year lease obligation appears on the balance sheet of Chi Company. How would it most likely be classified on the balance sheet?
income taxes payable
An example of a current liability that must be accrued is
market rate of interest was less than the face rate at the time of issue.
Bonds are sold at a premium if the
they can be converted into stock at a future time.
Convertible bonds are attractive to investors because
companies can use accounting methods that minimize net income for tax purposes and other methods that maximize net income for reporting to shareholders.
Deferred income taxes arise because
The future value will decrease.
For a given single sum invested at 7% for four years, how will the future value be affected if the compounding period is changed from quarterly to annually?
The face amount of the bonds, the stated rate of interest, the market rate of interest, and the bond life
Frenchy Co. wishes to issue $500,000 of 10-year, 5% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 4%. What information is needed in order to determine the selling price?
$5,000
If a company purchases $5,000 worth of inventory with terms of 3/15, n/45 on April 1 and pays June 25, then the amount paid to the seller would be
a $1,000 bond sold for $1,030 ($1,000 x 1.03 = $1,030)
If bonds are issued at 103, this means that
200 airplanes x $500 = $100,00 $100,00 × 0.03 or 3% = $3,000
In 2017, Acme Co. sold 200 radio-controlled airplanes at $500 each. The airplanes carry a four-year warranty for defects. Acme estimates that repair costs will average 3% of the total selling price. The estimated warranty liability at the beginning of the year was $1,500. Claims actually incurred during the year to honor their warranty totaled $3,900.
$200,000 (that is, the principal)
On January 1, 2017, Delta Corp., Inc. issued $200,000, 10-year bonds for $263,000. The bonds pay interest on June 30 and December 31. The face rate is 6%, and the market rate is 4%. At the maturity date, besides an interest payment, Delta would repay the bondholders
present value of the stream of interest payments and the present value of the maturity amount.
The bond issue price is determined by calculating the
current liability
The current portion of long-term debt is a balance sheet item for Beta Company. How would it most likely be classified on the balance sheet?
liability
The landlord records the security deposit she collects from the tenant as a(n)
Principal x interest rate x number of periods = $3,000 x .08 x 6 = $240 x 6 = $1,440
The total amount of simple interest calculated annually on a $3,000 note payable in six years at 8% is
face rate of interest is less than the market rate of interest
When bonds are sold for less than the face amount, this means that the
The face amount of the bonds, the face rate of interest on the bonds, and the length of the interest period, annually or semiannually
When determining the amount of interest to be paid on a bond, which of the following information is necessary?
Taxes payable, salaries payable, and accounts payable
Which of the following accounts are classified as a current liabilities?
The lessee can purchase the property for $1 at the end of the lease term. (This is called a "bargain purchase.")
Which of the following lease conditions would result in a capital lease to the lessee?
Classification of current liabilities is important because of the liquidity concept.
Which of the following statements is true of liabilities?
Firms issue bonds in very large single issues, the denomination of the bond is usually referred to as the face value, and bonds that are not backed by specific collateral of the issuing company are known as debenture bonds.
Which of the following statements is true with respect to bonds?
Most bonds are term bonds, meaning that the entire principal amount will mature on a single date.
Which of the following statements regarding bonds payable is true?
Lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash; accounting recognizes two types of leases—operating leases and capital leases; and if a lessor classifies a lease as a capital lease, then the lessee records a lease liability on its balance sheet..
Which of the following statements regarding leases is true:
The bonds do not all mature on the same date.
Which of the following statements regarding serial bonds is true?
A decrease in a current liability from the beginning to the end of the year is accompanied by a decrease of cash.
Which of the following statements regarding the inclusion of liabilities on the statement of cash flows is true?
Coupon rate, face rate, and stated rate
Which of the following terms describe the interest rate printed on the bond certificate?
a future value
You are interested in accumulating $8,000 so that you can take a European trip in four years. If you try to solve for the amount that you need to invest each year, earning 5% interest compounded annually, the $8,000 represents
