Act 210 Exam 3

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.

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.

Which of the following represents a characteristic of a liability?

A probable future sacrifice of economic benefits. Arising from present obligations to other entities. Resulting from past transactions or events. ALL of these are characteristics of a liability.

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 current ratio is:

Current assets divided by current liabilities.

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.

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.

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.

In each succeeding payment on an installment note:

The amount that goes to interest expense decreases.