ACT test 3 learnsmart

what payroll withholdings are subtracted from gross pay to arrive at net pay?

Federal income tax, health insurance paid for by the employee, and employee contribution to retirement plans are used to reach net pay (all factors that are decided by the employee)

additional benefits such as health insurance paid for by the employer

Fringe benefits

When are gain contingencies accrued?

Gain contingencies are not accrued.

Company's overall position and ability to obtain cash in the normal course of business

Liquidity

Formula for return on asset

Net income/average total assets

Net pay for employees =

gross earnings - social security- medicare - federal income tax - state income tax

when an employer withholds an item such as charitable contributions from an employees pay, the employer must record them as a____________

liability until the amount is paid to the organization

Liabilities are classified as:

long term and current

What kind of account is a premium on a bonds payable?

long term liability

A _____________ bond is backed by a lien on specified real estate owned by the issuer

mortgage

Return on equity =

net income/shareholders equity

What transaction will increase working capital?

receipt of cash on a long term notes payable

callable bonds

the issuing company can pay off the bonds at any time

which of the following dividends has no effect on total owners equity?

stock dividend

the issuer of a 5% common stock dividend to common stockholders should debit stock dividends for an equal amount to the _______________ value of shared issued

MARKET value of shares issued

price earnings ratio:

Market value per share/earnings per share

Estimating warranties and recognizing warranty expense and it's related liability is an application of the ___________ principle.

Matching

Formula for return on income

Net income/ average total shareholders equity

what are some possible benefits of leasing an asset rather than purchasing it?

-tax savings -improvement of cash flow -lower periodic payment on the asset

effect of stockholders equity: declare a cash dividend

Decrease stockholders equity

Payout ratio:

Dividends (common)/net income

Which of the following could be classified as contingent liabilities? - product warranties - unearned revenue - frequent flier program awards - future litigation losses - deposits from customers

Product warranties, frequent flier program awards, and future litigation losses are contingent liabilities

what kind of account is a treasury stock?

contra equity

purpose of the statement of stockholders equity:

report the changes and the sources of the changes in stockholder equity accounts

What items are in the numerator of the quick ratio?

Current investments, cash, and accounts recieveable

You must (credit/debit) retained earnings to increase the account

CREDIT

2 types of financing:

Equity and Debt

A bank would be more inclined to offer Long term/Short Term loans?

Short term

T//F the debt to equity ratio indicates the extent to which a company relies on creditors to provide a resource for the company

TRUE

T/F Some States allow corporations to issue no-par value common stock

TRUE

T/F no journal entry is required on the date of record

TRUE

date of record

a list of shareholders that are entitled to receive a dividend is made

declaration date

board of directors officially approves the dividend

frequent reason for a stock split is to

cause the market price per share to decline (Disney does this)

What is the formula for the current ratio?

current assets divided by current liabilities

formula for the acid test or quick ratio is quick assets divided by _____________

current liabilities

what kind of liability is the current portion of long term debt?

current liability

This bond is secured by the faith and credit standing of the user

debenture

Which of the following are long term liabilities? - notes payable in 3 years -wages payable -common stock -20 yr mortgage payable

Notes payable in 3 years and 20 yr mortgage payable are long term liabilities

The times interest earned formula is calculated as:

Earnings before interest and taxes/interest expense

T/F If a state has an unemployment tax no FUTA tax needs to be paid

FALSE

T/F Sales tax is recorded on the income statement because it is a cost of making the sale

FALSE

poppy corporation has a current ratio of 2.0 and a quick ratio of 1.6. poppy purchases additional inventory for cash. What happens to the current ratio?

It stays the same because there is a trade-off between cash and additional inventory

When estimating loss due to litigation you should accrue loss of Minimal/maximum amount unless there is a number present within the range of the two numbers

Minimal. if there is a number within the range you will accrue that amount

term

bond issue that matures on a single date

callable bonds can be redeemed at the choice of the _________

bond issuer

a corporation that wishes to borrow from the general public rather than a bank will issue

bonds

convertible bonds

bonds that can be exchanged for shares of stock in the issuing company

serial bonds

bonds that mature in installment

FICA tax is paid by

both the employee and employer

Capital lease

rights and risk of ownership are retained by the lessor

debt to equity ratio:

total liabilities/total stockholders equity

Debentures

unsecured bonds

Which of these payroll taxes are paid only by the employer?

SUTA and FUTA

Which of the following are current liabilities? - notes payable due in 23 months -wages payable - accounts receivable - note payable due in 3 months - accounts payable

Wages Payable, note payable in 3 months, and accounts payable are current liabilities

what lease is essentially a purchase of an asset with debt financing?

capital lease

a _____________ balance in retained earnings indicates an accumulated deficit

debit

date on which a cash dividend becomes a liability?

declaration date

when taxable income is less than net income for financial accounting purposes, what occurs?

deferred tax liability

2 preferences over common stock that preferred stock has:

dividends and distribution of assets if the corporation is dissolved

Effect of stockholders equity: Issued preferred stock for cash at par value

increase in stockholders equity

Specific promises made to bondholders are described in a document called bond ____________

indenture

advantage of financing with debt:

interest is tax deductable

What information does the times interest earned ratio provide to investors and creditors?

it provides the creditor with an indication of the ability of the debtor to pay the interest on its debts

What is a primary reason why financial statement users asses a company's liquidity?

lack of liquidity can lead to the bankruptcy of a company that otherwise may have been successful

par value is also referred to as

legal capital

a corporation will issue bonds when the interest on the bond plus the bond issue cost is ________________

less than the interest payment for a bank loan

What are the two classifications of liabilities?

long term and current

Effect of stockholders equity: Completed a 2 for 1 stock split in which the $10 par value common stock was changed to $5 par value stock

no effect of Stockholders equity

Effect of stockholders equity: Paid a cash dividend that had been declared in a previous month

no effect on Stockholders equity

effect on stock holders equity: declare a 2 for one stock split

no effect on stockholders equity

an end of period adjusting entry that debits unearned revenue will most likely credit a(n) ___________ account

revenue

conversion right

right of a stockholder to exchange his preferred stock for another class of stock

redemption right

right of the preferred stockholder to have his stock repurchased by the corporation for cash

when should a corporation record a liability for dividends in arrears on its cumulative preferred stock?

when dividends have been declared

current assets minus current liabilities is:

working capital