accounting final quizzes

a bond issuing at 101.25 means that the bond

sold for 1,012.50

plant assets are depreciated because

the accrual basis of accounting requires matching of costs to revenues

depreciation is

an effort to achieve proper matching of the cost of operating assets with related revenues

when is a liability for dividends created

at the date of declaration

what is the impact on the accounting equation of recording a payment to a supplier on account?

both assets and liabilities decrease

what is the impact on the accounting equation of recording the issuance of a short term note payable

both assets and liabilities increase

what is cash ratio?

cash + marketable securities / current liabilities (i.e. 200 cash + 400 MS / 400 CL)

a group sold 200,000 of 10 year bonds for 190,000. the face rate on the bonds was 8% and interest is paid annually on december 31. what entry would be made on december 31 when the interest is paid

debit interest expense credit discount on bonds payable credit cash

a company issued bonds in the amount 1,000,000 with a stated rate of 8%. if the interest is paid semiannually and the bonds are due in 10 years what would be the total amount of interest paid over the life of the bonds

1,000,000 x .08 x 10 = 800,000

what will be the book value in 10 years of a building purchased for 900,000 that is being depreciated over 40 years with an estimated residual value of 100,000

900,000-100,000 = 800,000 --> 800,000 x .25 = 200,000 --> 900,000-200,000 = 700,000

the discount on bonds payable account is shown on the balance sheet as

a contra liability valuation account that reduces the bond to market value at the issue date

the premium on bonds payable account is shown on the balance sheet as

a separate valuation account that increases the bond liability to market value at the issue date

when a corporation issues a small stock dividend, which of the following is false? a) cash decreases b) total stockholders equity remains the same c) the capital stock accounts increase d) retained earnings is decreased

a) cash decreases

par value represents the

arbitrary amount that establishes a minimum price for the stock when it is first issued

which of the following lease conditions would result in capital lease to the lessee a) the lessee will return the property to the lessor at the end of the lease term b) the lessee can purchase the property for $1 at the end of the lease term c) the fair market value of the property at the inception of the lease is 20,000 the present value of the lease payments is 17,600 d) the lease term is 70% of the property's economic life

b) the lessee can purchase the property for $1 at the end of the lease term

how to figure out what gain or loss will be reported after accumulated depreciation

cost - how much sold for - accumulated depreciation = loss of ______

what is current ratio?

current assets over current liabilities (i.e. 14,000 in CA / 2000 is accounts payable and 2,000 in unearned sales rev)

common stock usually has all of the following features except a) voting rights b) preemptive right c) residual claim to net assets d) conversion privilege

d) conversion privilege

the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset

depreciation

what is the impact on the accounting equation of recording the accrual of wages expense

liabilities increase and stockholders equity decreases

long term debt generally includes

obligations that extend beyond one year

the bond issue price is determined by calculating the

present value of the stream of interest payments and the present value of the maturity amount

when will bonds sell at a discount

the stated rate of interest is less than the yield(market) rate of interest at the time of issue

which of the following is true for a corporation that issues 1,000 shares of $2 par common stock at $5 per share

total stockholders equity will increase by $5,000

research and development costs are

treated as an expense when incurred

an example of a current liability that must be accrued is

wages payable

current assets are 200,000, long term assets are 300,000, current liabilities are 100,000, long term liabilities are 200,000 paid in capital is 150,000 and retained earnings total 50,000, what is the debt to total assets ratio?

.6 or .6 to 1 (total liabilities / total assets so 200,000/500,000)

how much amortization expense should be recorded at the end of the FIRST YEAR if a patent is purchased for 100,000 and has useful life of 5 years and legal life of 20 years

1/5 of purchasing cost

what will be the increase in the paid in capital in excess of par account if a corporation issues 20,000 shares of $1 par common stock for $6 per share

100,000

if a corporation declares a 2-for-1 stock split which of the following is true? a) the amount of stockholders equity is double as a result of the split b) the amount of capital stock is doubled as a result of the split c)the price of each will be doubled as a result of the split d) a stockholder who previously held 100 shares will have 200 shares after the split

d) a stockholder who previously held 100 shares will have 200 shares after the split

the effect of recording depreciation for the year is a

decrease in assets and a decrease in net income

assets classified as PPE are reported at

each assets original cost minus depreciation since acquisition

if bonds were initially issued at a discount, the carrying value of the bonds on the issuers books will

increase as the bonds approach their maturity date

when bonds are issued by a company, the accounting entry shows an

increase in assets and an increase in liabilities

a manufacturing companies weekly payroll is 80,000 for a 5 day work week beginning each monday. the last time salaries and wages were recorded was friday december 26th what adjustment is needed on december 31st?

increase wages expense by 48,000 (3/5 x 80,000)

bonds sell at a premium when the

market rate of interest is less than the stated interest rate at the time of issue

dividends in arrears are required to be reported in

the footnotes accompanying the financial statements

when do liabilities arise

liabilities arise from past activities that require some future sacrifice of economic benefits

a current liability includes obligations which must be repaid

within one year or wishing the operating cycle, whichever is longer

which of the following terms does not describe the interest rate printed on the bond certificate

yield(market) rate

on the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called

accumulated depreciation

which of the following statements is true with regard to equity capital? a) the number of shares actually in the hands of stockholders are called outstanding shares b) it is unusual for corporations to have more than one class of stock outstanding at any point in time c) preferred stock represents the shares of stock that have been permanently retired d) outstanding shares represent the maximum number of shares that can be issued by a corporation

a) the number of shares actually in the hands of stockholders are called outstanding shares

how much warranty expense should be accrued if 800 washers were sold at 350 each and carry a 2 year warranty of repairs that will average of 2% of sales

800 x 350 x .02

the total amount of interest that will be paid on a 5 year 90,000 note payable at 11% simple annual interest is

90,000 x .11 x 5 = 49,500

which of the following accounts would not be reported in the PPE section of a balance sheet? a) accumulated depreciation - buildings b) buildings c)depreciation expense - buildings d) land

c) depreciation expense -- buildings

which of the following sets of factors is needed to calculate depreciation on plant and equipment a)the assets acquisition cost, replacement cost,and its estimated residual value b)the estimated residual value of the asset, its replacement cost, and its market value c)the assets replacement cost, its estimated life, and its estimated residual value d) the estimated life of the asset, its acquisition cost and its estimated residual value

d) the estimated life of the asset, its acquisition cost, and tis estimated residual value

treasury shares represent the

number of previously issued shares that have been repurchased by the corporation

which of the following statements is true regarding a corporations purchase of treasury stock a) the cost of treasury stock is a reduction in stockholders equity b) dividends must still be paid on treasury stock because it is still issued c) treasury stock is reported as an asset because it is considered an investment in the company's own stock d) treasury stock is no longer considered issued once it is back in the hands of the issuer

a) the cost of treasury stock is a reduction in stockholders equity

which of the following is not classified as a current liability account a) accounts payable b) note payable, due in 2 years c)salaries and wages payable d) income taxes payable

b) note payable, due in 2 years

which of the following is not a reason to revise the amount of depreciation expense? a) a change in estimated useful life b) permanent decline of an assets fair market value below book value c) change in estimated residual value d) incurrence of a capital expenditure associated with a plant asset

b) permanent decline of an assets fair market value below book value

when a corporation issues a stock dividend, which of the following is true? a) cash decreases b) total stockholders equity remains the same c) total stockholders equity decreases d) retained earnings is increased

b) total stockholders equity remains the same

goodwill can be recorded as an asset when a

business is purchased and payment is made in excess of the value of the net assets

which of the following is one of the elements of stockholders equity? a) net income b) dividends payable c) retained earnings d) loss on the sale of equipment

c) retained earnings

which of the following statements regarding leases is false a) lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash b) accounting recognizes 2 types of leases operating and capital leases c) if a lessor classifies a lease as a capital lease, then the lessor records a lease liability on its balance sheet d) if a lease is classified as an operating lease, the lessee records an asset on its balance sheet

d) if a lease is classified as an operating lease, the lessee records an asset on its balance sheet

which of the following statements regarding bonds payable is true? a) generally bonds are issued in denominations of 100 b) when an issuing company's bonds are traded in the secondary market, the company will receive part of the proceeds when the bonds are sold from the first purchaser to the second purchaser c) a debenture bond is backed by specific assets of the issuing company d) the interest rate in the bond contract is called the stated rate

d) the interest rate in the bond contract is called the stated rate

GAAP requires that research and development costs to develop a new product should be

expensed in the period incurred

the current portion of long term debt would appear on the balance sheet as

current liability

on october 1st a company borrowed 60,000 from a bank on a 1 year 7% note if the company's fiscal year ends on december 31st, a year end adjusting entry to increase____

interest payable by 1,050 (3/12 x 60,000 x .07)

land is not depreciated because it

will provide future benefits for a company for an unlimited period of time

issued shares represent the

number of shares that the corporation has sold

suppose a corporation issues 5,000 shares of $1 par common stock for $30 per share. in addition to the increase in cash, what effect does this transaction have on the accounting equation?

paid-in capital in excess of par increases $145,000

which of the following statements regarding contingent liability is true a) if they are probable and estimable then they should be recorded even before the outcome of the future event b) if they are probable and estimable then they should be disclosed in the notes to the financial statements c) the accounting principle that determines whether a contingent liability is to be recorded is that of historical cost d) contingencies that are not estimable should not be recorded or disclosed in the financial statements even if they are probable

a) if they are probable and estimable then they should be recorded even before the outcome of the future event

which of the following would appear on the balance sheet as a current liability? a) probable loss in the amount of 4 million from a pending law suit b) a possible loss in the amount of 4 million from a pending law suit c) a probable loss from a pending lawsuit, the amount of which is not yet determinable d) a lawsuit for 4 million for which the likelihood of loss is remote

a) probable loss in the amount of 4 million from a pending law suit

the balance in the retained earnings account represents

accumulated earnings that have not been distributed to stockholders

which of the following is an intangible asset a) oil b) goodwill c) retained earnings d) accounts receivable

b) goodwill

which of the following statements regarding accounts payable is false? a) accounting for accounts payable is really just the flip side of accounts receivable b) accounts payable arise when a business purchases goods or services on credit c) accounts payable arise when a business promises to purchase goods or services in the future d) accounts payable seldom require the payment of interest

c) accounts payable arise when a business promises to purchase goods or services in the future

which of the following statements is true pertaining to participation preferred stock? a) its issuance provides no flexibility to the issuing company because its terms always mandate a regular annual dividend b) there is a legal requirement for a corporation to declare a regular annual dividend c) it includes the right to share in dividends in excess of the regular, annual dividend d) it includes the right to participate in management decisions through voting privileges

c) it includes the right to share in dividends in excess of the regular, annual dividend

when a corporation declares a cash dividend, which of the following is true a) cash decreases b) liabilities decrease c) stockholders' equity decreases d) no entry is necessary

c) stockholders' equity decreases

what is quick ratio?

cash + marketable securities + accounts receivable / current liabilities (i.e. 200 cash + 500 AR / 400 current liabilities)

many stockholders choose to invest in preferred stock because

dividends are distributed to preferred stockholders before common stockholders

operating assets with no physical properties are called

intangible assets

authorizes stock represents the

maximum number of shares that can be issued for each class of stock

the accounting life of intangible assets is determined by

their legal lives or useful lives whichever is shorter

a company issued 10,000,000 of bonds. assuming the most common denomination of bonds the number of bonds sold was

10,000 (denominations of 1000 so 10,000,000/1,000)

on the issuance date the bonds payable account that a balance of 55,000,000 and premium on bonds payable has a balance of 5,000,000. these bonds issued at

60,000,000 (55,000,000 + 5,000,000)

if a company borrowed 30,000 from the bank on a 1 year 6% note, an entry is needed on december 31st to increase ______

interest payable by 1,200 (30,000 x .06 x 8/12)

a company planned to raise 500,000 by issuing bonds. the bond certificates were printed with a stated interest rate of 6% which was equal to the market rate. before it could be issued economic conditions forced the market rate up to 7%. if the life of the bonds is 10 years and interest is paid annually on december 31st how much will the company receive from the sale of the bonds?

less than 500,000 because the 7% yield rate of interest was higher than the standard rate (discount)

there are some liabilities such as income taxes payable and the estimated warranty liability for which the amounts must be estimated so they can be recorded in the same period as the related revenues. failure to record these amounts in the same period as the related revenues is a violation of the__

matching principle

current accounting standards indicate that the costs of intangible assets with an indefinite life such as goodwill, should____

not be amortized but should be reviewed annually for impairment

what is the impact on the accounting equation of recording a not payable in exchange for the account payable

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