acct test 3

what is an example of a current liability?

a note payable that is due in 8 months

the amount of a current liability reported on the balance sheet for interest payable includes

all interest currently owed related to amounts borrowed in past transactions

what is necessary when an accrual basis accounting matches an expense period before it is actually paid?

an adjusting entry to record the accrued expense and corresponding liability

on the balance sheet how does a company report plant assets?

by subtracting residual value from the original cost of the plant asset

how do you calculate the current ratio?

current assets/current liabilities

federal income taxes payable is a ___

current liability

the current maturity of a long term debt is a

current liability

The effect of recording depreciation for the year is a(n)

decrease in assets and a decrease in net income

what would not be reported in the property, plant, and equipment section of the balance sheet?

depreciation expense - buildings

what is payroll taxes?

employers withhold taxes from employees paychecks and also owe a portion of taxes for having employees

T/F an expenditure that does not increase the future economic benefits of the asset is referred to as a capital expenditure

false

T/F an impairment is a temporary decline in the future benefit or service potential of an asset

false

T/F if new equipment purchased during the year is reported on the balance sheet at dec 31 as a long term asset, there will be no related item on the income statement

false

T/F plant assets, current assets, property, plant, and equipment, and fixed assets are all tangible assets

false

T/F research and development costs should be added to the cost of patents

false

T/F when a company sells goods or provides services for a customer but the customer intends to pay later, the company must record a current liability

false

T/F when making lending decisions, lenders generally are not interested in the company's operating assets

false

a probably loss from a lawsuit that can be reasonably estimated should be...

reported on the balance sheet as a current liability

what are warranties?

represent some guarantee repair of replacement of a product within a period of time

what are operating assets?

resources that have lived and we expect to use those resources in our normal business in order to make money

what are costs incurred to keep plant assets in normal operating condition called

revenue expenditures

T/F when a company uses past experience to estimate the amount of likely warranty claims in the future, a current liability account must be created

true

What is depletion?

when you expense a natural resource over time

what is amortization?

when you expense an asset without a definite life over time

How should intangible assets be disclosed on the balance sheet?

Net of the costs already amortized

T/F one reason management may choose the straight line method of depreciation is because it is easy to compute

True

T/F to revise depreciation expense, the accountant should compute depreciation expense using the assets remaining book value and useful life and it's new residual value

True

T/F the estimated cost of parts and labor required to satisfy warranty claims should be recorded as a current liability in the period the products are sold

true

T/F the reason some major intangible assets are not in the financial statements is because they cannot be measured

true

intangibles w/ indefinite lives are reviewed for ____

impairment

what are intangible assets?

long lived assets w no physical substance, represents benefits in the future and initially recorded using historical cost basis

what is accumulated depreciation?

measure the total amount of the asset used up

what is depreciation expense?

measures what was used up during the period

what is sales tax?

merchants collect these from customers and remit to the taxing authority

what is notes payable?

note that is due within the next year or operating cycle, classified as a current obligation

what is the impact on the balance sheet of removing the equipment account and it's related accumulated depreciation account?

reduces total assets

what is the impact on the account equation of recording a note payable in exchange for the account payable?

there is no net impact, as there are corresponding increases and decreases in liability accounts

contingent liabilities must be recorded in the accounting records if ...

they are probable and the amount can be reasonable estimated