ACCT 201 Exam 3
formula for calculating interest
Face amount x annual interest rate x fraction of the year
the following may be classified as contingent liabilities
Future litigation losses Frequent flier program awards Product warranties
the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay
Health insurance paid by the employee Federal income taxes Employee contributions to retirement plans
Depreciation is a process of cost _______, and not a process of valuation.
allocation
An interest rate, unless otherwise specified, is typically a(n) _________ rate
annual
Under US GAAP, a contingent liability should
be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated not be reported if the loss is remote and unable to be estimated be reported on the balance sheet if the loss will probably occur and can be reasonably estimated
The two types of financing are
debt and equity
Financing with ____ requires borrowing, whereas financing with _____ requires issuing shares of stock.
debt; equity
The declaration and payment of a cash dividend ultimately causes a(n):
decrease in stockholders' equity. decrease in Cash. decrease in Retained earnings.
The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n):
decrease in stockholders' equity. increase in liabilities.
the following are examples of fringe benefits provided by employers to their employees
payment of insurance premiums on employees behalf contributions to retirement and other savings accounts reduced or no-cost company-provided services
Periodic payments on installment notes typically include
portion answers
Straight-line and declining balance methods allocate the cost of a long-term asset based on ________, while an activity-based method allocates the cost of an asset based on its
time; use
A(n) ______ is the exclusive right to manufacture a product or use a process granted for a period of ______ years.
patent; 20
activity-based depreciation=
(cost - residual value)/estimated total production
Which of the following are included in the duties of the board of directors?
Appoint officers to manage the corporation. Establish corporate policies.
characteristics of notes payable that are not common to accounts payable
Based on promissory note Interest bearing
Notes payable is classified as a liability that has this effect:
Creates interest expense on the income statement
On October 1, 2018, Logan Corporation signed a 6-month, 8% interest-bearing promissory note for $10,000. The journal entry required at December 31, 2018 would include which of the following?
Debit interest expense $200
the following are not required payroll withholdings
State unemployment tax (SUTA) Federal unemployment tax (FUTA) Charitable contributions
Which of the following are typically shown in an amortization schedule related to an installment notes payable?
The carrying value of the note at the end of the period The cash paid each payment period The carrying value of the note at the beginning of the period
Which of the following are typically shown in an amortization schedule related to an installment notes payable requiring period payment of interest and principal?
The cash paid each payment period Interest expense based on the beginning period carrying value and the effective rate of the loan The carrying value of the note at the end of the period The decrease in the carrying value of the note
A(n) _______ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash
accounts
Allocating the cost of intangible assets to expense is referred to as
amortization
A corporation that wishes to borrow from the general public rather than a bank will issue
bonds
the double-declining-balance=
book value at beginning of year x 2/estimated service life
The feature that distinguishes loss ________ from other liabilities is the uncertain outcome.
contingencies
A transaction or event in which the outcome is uncertain is referred to as a(n)
contingency
the following voluntary contributions by employees may employers deduct from their employees' pay
contributions toward retirement funds employee investments in retirement
____ bonds are retired when the bondholder exchanges them for the issuing company's stock
convertible
Which of the following are correct regarding bonds?
credit lease payable $25,000 debit lease asset $25,000
The portion ________ of long-term debt is the amount that will be paid within the next year.
current
__________ financing refers to borrowing money from creditors
debt
Internally developed goodwill should be capitalized as an asset.
false
Using the declining balance method, depreciation will be
higher in earlier years, but lower in later years
Loans requiring periodic payments of interest and principle are referred to as ________ notes
installment
The amount of money paid into a company by its owners is referred to as
invested capital
Improved cash flows is a common advantage of acquiring equipment through .
leasing
______ has grown into the most popular method of external financing of corporate assets in America.
leasing
A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a
liability
________ bonds are supported by a specific asset the issuer pledges as collateral.
secured
The cost of land improvements are capitalized separately from land because land improvements tend to have a ________ useful life
short
An IPO:
stands for initial public offering. is when a private company goes public.
Shareholders' equity is another common term for _________equity.
stockholders'
Straight-line deprecation=
the depreciable cost/the estimated service life of the asset
A contingent liability is an existing _________ situation that might result in a loss depending on the outcome of a future event
uncertain
Most bonds issued today are __
unsecured
Shareholders influence a company by
voting for the board of directors
For a manufacturer, the most commonly reported contingent liabilities relate to product
warranty
Current assets minus current liabilities equals
working capital
A business that incorporates must file a document with the state, which includes a description of the business activities, the shares to be issued, and the composition of the board of directors. Which of the following terms are used to describe this document?
Articles of incorporation Corporate charter
Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?
Cost of driveways Cost of sidewalks Cost of lawn sprinkler system
the following are employer payroll costs
Employer portion of Medicare tax Federal and state unemployment taxes
Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?
Title insurance Costs to remove an old building Grading the land Legal fees to secure title Commissions
Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides ________
benefits
the following payroll-related costs are incurred by employees
employee investments in retirement plans federal and state income tax
Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $110 in cash per share affects the accounting equation by: (Select all that apply.)
increasing total stockholders' equity. increasing additional paid-in capital. increasing total assets.
Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $100 cash per share affects the accounting equation by:
increasing total stockholders' equity. increasing total assets.
two classifications for liabilities
long-term, current
Issuing a note payable for cash results in a(n) _____
increase in assets, increase in liabilities
On September 1, 2018, Kale Corporation signed a 6-month, 12% interest-bearing promissory note for $100,000. The journal entry required at December 31, 2018 would include which of the following?
Debit interest expense $4,000