ACCT Exam 4
The discount on a bond payable becomes A. additional interest expense over the life of the bonds. B. a reduction in interest expense over the life of the bonds. C. additional interest expense in the year the bonds are sold. D. a reduction of interest expense in the year the bonds mature.
additional interest expense over the life of the bonds.
A contingent liability should be recorded in the accounts A. if the amount can be reasonably estimated. B. if the amount is due in cash within one year. C. if the related future event will probably occur. D. both b and c. E. both a and c.
both a and c. if the amount can be reasonably estimated. if the related future event will probably occur.
Lindle Corporation borrows cash by signing a $60,000, 6%, nine-month note on December 1 with its local bank. The total cash paid for interest (only) at the maturity of the note by Lindle will be: A. $1,800. B. $3,600. C. $2,700. D. $300.
$2700 60,000x0,06x9/12
Which of the following items is most likely a short-term liability? A. Bonds payable B. Accounts payable C. Deferred income taxes D. Finance lease covering 30-year term
Accounts payable
Connors Company paid $700 cash to make a repair on equipment it sold under a one-year warranty in the prior year. The entry to record the payment will debit: Accrued Warranty Payable and credit Cash. Repair Expense and credit Cash. Warranty Expense and credit Cash. Operating Expense and credit Cash.
Accrued Warranty Payable and credit Cash.
Which of the following statements is false? A. All contingent liabilities should be reported as liabilities on the financial statements, even those that are unlikely to occur. B. A contingent liability is a potential obligation that depends on the future outcome of past events. C. A contingent liability should be disclosed in the notes to the financial statements if there is a reasonable possibility that a loss (or expense) will occur. D. A contingent liability should be accrued if the loss is probable and the amount of the loss can be reasonably estimated.
All contingent liabilities should be reported as liabilities on the financial statements, even those that are unlikely to occur.
What is accounts payable turnover? A measure of the number of times a year a company is able to pay its accounts payable. Purchases on account divided by average accounts payable. A measure of liquidity. All of the listed answers are correct.
All of the listed answers are correct.
Which of the following is not a liability? Accrued vacation pay Accrued warranties payable Allowance for bad debts Income taxes payable
Allowance for bad debts
Which type of lease will not increase a company's assets or long-term liabilities? A. A finance lease B. A lease for an asset of a specialized nature with no alternative use at the end of the lease term C. A one-year operating lease D. A lease that transfers ownership of the asset to the lessee by the end of the lease term
A one-year operating lease
The carrying value of Bonds Payable equals A. Bonds Payable minus Premium on Bonds Payable. B. Bonds Payable plus Accrued Interest. C. Bonds Payable plus Discount on Bonds Payable. D. Bonds Payable minus Discount on Bonds Payable.
Bonds Payable minus Discount on Bonds Payable.
All of the following are reported as current liabilities except:
Bonds payable due in 18 months.
Gravel Corporation borrowed $250 comma 250,000 from a bank on January 1, 2019, by signing a 10%, six-month note. The journal entry made by Gravel on January 1, 2019, will debit A. Cash for $250,000 and credit Notes Payable for $250,000. B. Cash for $225,000 credit Notes Payable for $225,000. C. Interest Expense for $25,000 and credit Cash for $25,000. D. Interest Expense for $25,000 and credit Interest Payable for $25,000.
Cash for $250,000 and credit Notes Payable for $250,000.
What type of account is Discount on Bonds Payable and what is its normal balance? A. Contra liability; Debit B. Contra liability; Credit C. Adjusting account; Credit D. Reversing account; Debit
Contra liability; Debit
What kind of account is Unearned Revenue? A. Asset account B. Expense account C. Revenue account D. Liability account
Liability account
Phoebe Corporation signed a six-month note payable on October 23, 2018. What accounts relating to the note payable will be reported on its financial statements for the fiscal year ending December 31, 2018? A. Interest receivable will be reported on the balance sheet and notes payable will be reported on the income statement. B. Notes payable, interest payable, and interest expense will be reported on the balance sheet. C. Notes payable and interest payable will be reported on the balance sheet. D. Notes payable will be reported on the balance sheet and interest payable will be reported on the income statement.
Notes payable and interest payable will be reported on the balance sheet.
The current pay period ends on Friday, January 2, yet the company's fiscal year-end is on Wednesday, December 31. If the company does not make the proper adjusting entry to accrue payroll expenses at year-end, what would be the impact? A. Stockholders' equity will be understated. B. Assets will be understated. C. Liabilities will be overstated. D. Operating income will be overstated.
Operating income will be overstated.
Edger & Company has an accounts payable turnover of 5.6, while Salerno Industries has an accounts payable turnover of 8.9. Which company is moreliquid? Edger & Company. Salerno Industries. Both are equally liquid. Unknown because accounts payable turnover is not a measure of liquidity.
Salerno Industries.
Dart Corporation's leverage ratio increased from 2.5 in 2017 to 3.0 in 2020. Without looking at the financial statements, which statement best describes what may have occurred? A. The company incurred new debt financing in 2020, making it more profitable. B. The company incurred new equity financing in 2020, but it may or may not have been more profitable. C. The company incurred new equity financing in 2020, making it less profitable. D. The company incurred new debt financing in 2020, but it may or may not have been more profitable.
The company incurred new debt financing in 2020, but it may or may not have been more profitable.
Accounts payable turnover for Blue Industries increased from 10 to 12 during 2018. Which of the following statements best describes what this means? The company paid its accounts payable more slowly in 2018, signaling a weaker liquidity position. Inventory turned over faster in 2018, meaning sales increased. The company paid its accounts payable more quickly in 2018, signaling a stronger liquidity position. Not enough information is provided to form a conclusion.
The company paid its accounts payable more quickly in 2018, signaling a stronger liquidity position.
The journal entry on the maturity date to record the retirement of bonds with a face value of $1,500,000 that were issued at a $70,000 discount includes A. a debit to Bonds Payable for $1,500,000. B. a debit to Discount on Bonds Payable for $70,000. C. a credit to Cash for $1,570,000. D. all of the above.
a debit to Bonds Payable for $1,500,000.
Bonds with an 8% stated interest rate were issued when the market rate of interest was 5%. This bond was issued at A. face value. B. a premium. C. par value. D. a discount.
a premium.
An end-of-period adjusting entry that debits Unearned Revenue most likely will credit A. an expense. B. a liability. C. a revenue. D. an asset.
a revenue.
When the effective-interest method is used, the amount of bond discount amortized each interest period is equal to the A. face value of the bond times the stated interest rate. B. amount of interest expense plus the cash paid for interest. C. face value of the bond times the market interest rate at the date of issue. D. amount of interest expense less the cash paid for interest.
amount of interest expense less the cash paid for interest.
Failure to accrue interest expense results in A. an overstatement of net income and an understatement of liabilities. B. an overstatement of net income and an overstatement of liabilities. C. an understatement of net income and an understatement of liabilities. D. an understatement of net income and an overstatement of liabilities.
an overstatement of net income and an understatement of liabilities.
The leverage ratio is equal to average total ________ divided by average _______ . A. assets; common stockholders' equity B. long-term debt; common stockholders' equity C. debt; total assets D. debt; common stockholders' equity
assets; common stockholders' equity
The carrying value on bonds equals Bonds Payable A. minus Premium on Bonds Payable. B. plus Discount on Bonds Payable. C. minus Discount on Bonds Payable. D. plus Premium on Bonds Payable. E. both a and b. F. both c and d.
both c and d. minus Discount on Bonds Payable. plus Premium on Bonds Payable.
When a company retires bonds early, the gain or loss on the retirement is the difference between the cash paid and the A. face value of the bonds. B. carrying value of the bonds. C. original selling price of the bonds. D. maturity value of the bonds.
carrying value of the bonds.
Potential liabilities that depend on future events arising out of past events are called A. long-term liabilities. B. current liabilities. C. contingent liabilities. D. estimated liabilities.
contingent liabilities.
Corporate bonds that can be exchanged for shares of the corporation's common stock if certain conditions are met are called A. equity bonds. B. exchangeable bonds. C. callable bonds. D. convertible bonds.
convertible bonds.
Notes payable due in six months are reported as: current liabilities on the income statement contra-assets on the income statement long-term liabilities on the balance sheet current liabilities on the balance sheet
current liabilities on the balance sheet
Nicholas Corporation accrues the interest expense on a short-term note payable at the end of its fiscal year. Due to this transaction: current liabilities will increase and current assets will increase. current liabilities will increase and stockholders' equity will decrease. current liabilities will increase and stockholders' equity will increase. current liabilities will decrease and stockholders' equity will decrease.
current liabilities will increase and stockholders' equity will decrease.
Saylor Company sold inventory with a selling price of $5,300 to customers for cash. It also collected sales taxes of $265. The journal entry to record this information includes a A. credit to Sales Tax Expense $265. B. credit to Sales Revenue $5,565. C. debit Sales Tax Payable $265. D. debit to Cash of $5,565.
debit to Cash of $5,565.
If bonds are issued at a discount and the effective-interest method is used, the amount of interest expense A. remains the same over the term of the bonds. B. is less than the cash interest payment. C. increases each period as the bonds approach maturity. D. decreases each period as the bonds approach maturity.
increases each period as the bonds approach maturity.
Amortizing the discount on bonds payable A. increases the recorded amount of interest expense. B. reduces the carrying value of the bond liability. C. is necessary only if the bonds were issued at more than face value. D. reduces the semiannual cash payment for interest.
increases the recorded amount of interest expense.
The Discount on Bonds Payable account A. is a contra account to Bonds Payable. B. is expensed at the bond's maturity. C. is a miscellaneous revenue account. D. is an expense account.
is a contra account to Bonds Payable.
Tennis Shoe Warehouse operates in a state with a 6.5% sales tax. For convenience, Tennis Shoe Warehouse credits Sales Revenue for the total amount (selling price plus sales tax) collected from each customer. If Tennis Shoe Warehouse fails to make an adjustment for sales taxes, A. net income will be understated and liabilities will be overstated. B. net income will be overstated and liabilities will be overstated. C. net income will be understated and liabilities will be understated. D. net income will be overstated and liabilities will be understated.
net income will be overstated and liabilities will be understated.
Maridell's Fashions has a debt that has been properly reported as a long-term liability up to the present year (2018). Some of this debt comes due in 2018. If Maridell's Fashions continues to report the current position as a long-term liability, the effect will be to A. overstate the current ratio. B. understate the debt ratio. C. overstate net income. D. understate total liabilities.
overstate the current ratio.
For the purpose of classifying liabilities as current or non-current, the term operating cycle refers to: a period of one year the time period between the date the sale is made and the date the related revenue is collected the average period between business recessions the time period between the purchase of merchandise and the conversion of this merchandise back to cash
the time period between the purchase of merchandise and the conversion of this merchandise back to cash
he debt ratio is calculated by dividing: A. total debt by total assets. B. total assets by long-term liabilities. C. total assets by total debt. D. long-term liabilities by total assets.
total debt by total assets.
When a company receives cash from customers before earning the revenue, _________ will be credited. A. estimated cash B. unearned revenue C. accounts receivable D. accounts payable
unearned revenue