Acct 162 Test #1

Partnership creditors may have a claim on the personal assets of any of the partners if the partnership assets are not sufficient to settle claims. T OR F

true

The admission of a new partner results in the legal dissolution of the existing partnership and the beginning of a new partnership. T OR F

true

The financial statements of a partnership are similar to those of a proprietorship T OR F

true

Most companies pay current liabilities a. out of current assets. b. by issuing interest-bearing notes payable. c. by issuing stock. d. by creating long-term liabilities.

A Out of current assets

A current liability is a debt that can reasonably be expected to be paid a. within one year. b. between 6 months and 18 months. c. out of currently recognized revenues. d. out of cash currently on hand.

A within one year

Lincoln Company sells 600 units of a product that has a one-year warranty on parts. The average cost of honoring one warranty contract is $50. During the year 30 contracts are honored at a cost of $1,500. It is estimated that 60 contracts will be honored in the following year. The adjusting entry at the end of the current year will include a a. credit to Estimated Warranty Liability for $3,000. b. credit to Estimated Warranty Liability for $4,500. c. debit to Warranty Expense for $1,500. d. debit to Warranty Expense for $4,500

A. Credit to estimated warranty liabilities for $3,000

A contingent liability need only be disclosed in the financial statement notes when the likelihood of the contingency is a. reasonably possible b. probable c. remote d. unlikely

A. Reasonably possible

Any balance in an unearned revenue account is reported as a(n) a. current liability b. long-term debt c. revenue d. unearned liability

A. current liability

Nick Dent, an employee of Spottswood Company, has gross earnings for the month of October of $6,000. FICA taxes are 8% of gross earnings, federal income taxes amount to $952 for the month, state income taxes are 2% of gross earnings, and Nick authorizes voluntary deductions of $15 per month to the United Fund. What is the net pay for Nick Dent? a. $4,442 b. $4,433 c. $4,448 d. $4,452

B $4,433

The relationship between current liabilities and current assets is important in evaluating a company's ability to pay off its long-term debt.

FALSE

Admire County Bank agrees to lend Givens Brick Company $200,000 on January 1. Givens Brick Company signs a $200,000, 8%, 9-month note. The entry made by Givens Brick Company on January 1 to record the proceeds and issuance of the note is a. Interest Expense........................12,000 Cash.................................................188,000 Notes Payable.......................................200,000 b. Cash ................................... 200,000 Notes Payable ..............................200,000 c. Cash ............................... 200,000 Interest Expense ..........12,000 Notes Payable ...............212,000 d. Cash ............................... 200,000 Interest Expense .................12,000 Notes Payable .................200,000 Interest Payable.................12,000

B Cash..............200,000 Notes Payable........200,000

Sales taxes collected by a retailer are recorded as a(n) a. revenue b. liability c. expense d. asset

B liability

The relationship between current liabilities and current assets is: a. useful in determining income. b. useful in evaluating a company's liquidity c. called the matching principle d. useful in determining the amount of a company's long-term debt.

B useful in evaluating a company's liquity

A cash register tape shows cash sales of $1,500 and sales taxes of $120. The journal entry to record this information is a. Cash 1,620 Sales 1,620 b. Cash 1,620 Sales Tax Payable 120 Sales 1,500 c. Cash 1,500 Sales Tax Expense 120 Sales 1,620 d. Cash 1,620 Sales 1,500 Sales Tax Revenue 120

B. Cash 1,620 Sales Tax Payable 120 Sales 1,500

Which one of the following payroll taxes is not withheld from an employee's wages because it is not levied on the employee? a. Federal income tax b. Federal unemployment tax c. State income tax d. FICA tax

B. Federal unemployment tax

The accounting for warranty costs is based on the a. Going concern principle b. matching principle c. conservatism principle d. objectively principle

B. Matching Principle

The interest charged on a $50,000 note payable at the rate of 8%, on a 3 month note would be a. $4,000 b. $2,000 c. $1,000 d. $667

C $1,000

Valerie's Salon has total receipts for the month of $16,430 including sales taxes. If the sales tax rate is 6%, what are Valerie's sales for the month? a. $15,444.20 b. $17,415.80 c. $15,500.00 d. It cannot be determined

C $15,500

The current portion of long-term debt should a. be paid immediately b. be reclassified as a current liability c. be classified as a long-term liability d. not be separated from the long-term portion of debt

C be classified as a long term liability

The entry to record the issuance of an interest-bearing note credits Notes Payable for the note's a. maturity value. b. market value. c. face value d. cash realizable value

C face value

Liabilities are classified on the balance sheet as current or a deferred b un-earned c long term d accrued

C long term

FICA Taxes Payable was credited for $9,000 in the entry when Peltry Company recorded payroll. When Peltry Company records employer's payroll taxes, FICA Taxes Payable should be credited for: a. $0 b. $9,000 c. $18,000 d. some other amount

C. $18,000

Current maturities of long-term debt a. require an adjusting entry b. are optionally reported on the balance sheet c. can be properly classified during balance sheet preparation, with no adjusting entry required d. are not considered to be current liabilities

C. Can be properly classified during balance sheet preparation, with no adjusting entry required

On August 1, 2010, a company borrowed cash and signed a one-year interest-bearing note on which both the face value and interest are payable on August 1, 2011. How will the note payable and the related interest be classified in the December 31, 2010, balance sheet? Notes Payable Interest Payable a. Current Liability Non-current liability b. Non current Liability Current liability c. Current liability Current liability d. Non current liability Not shown

C. current liability current liability

Working capital is current assets divided by current liabilities.

FALSE

Assuming a FICA tax rate of 8% on the first $100,000 in wages, and a federal income tax rate of 20% on all wages, what would be an employee's net pay for the year if he earned $110,000 for the year? a. $110,000 b. $79,200 c. $88,000 d. $80,000

D $80,000

A company receives $174, of which $14 is for sales tax. The journal entry to record the sale would include a a. debit to sales tax expense for $14 b. debit to sales tax payable for $14 c. debit to sales for $174 d. debit to cash for $174

D debit to cash for $174 Cash 174 Sales 160 sales tax payable 14

A current liability must be paid out of current earnings.

FALSE

The higher the sales tax rate, the more profit a retailer can earn.

FALSE

The income earned by a partnership will always be greater than the income earned by a proprietorship because in a partnership there is more than one owner contributing to the success of the business.

FALSE

A company whose current liabilities exceed its current assets may have a liquidity problem.

TRUE

FICA taxes and federal income taxes are levied on employees' earnings without limit.

TRUE

Interest expense is reported under Other Expenses and Losses in the income statement.

TRUE

Metropolitan Symphony sells 200 season tickets for $100,000 that represents a five concert season. The amount of Unearned Ticket Revenue after the second concert is $40,000.

TRUE

Notes payable usually require the borrower to pay interest.

TRUE

Once assets have been invested in the partnership, they are owned jointly by all general partners.

TRUE

Pronouncements of the Financial Accounting Standards Board are considered to have "substantial authoritative support." T OR F

TRUE

The withdrawal of a partner legally dissolves the partnership.

TRUE

When a company gives employees rights to receive compensation for absences and the payment for such absences is probable and the amount can be reasonably estimated, the company should accrue a liability.

TRUE

Which of the following statements about a partnership is correct? a. The personal assets of a partner are included in the partnership accounting records b. A partnership is not required to file an information tax return c. Each partner's share of income is taxable to the partnership d. A partnership represents an accounting entity for financial purposes

a. The personal assets of a partner are included in the partnership accounting records

Which of the following would not be recorded in the entry for the formation of a partnership? a. Accumulated depreciation b. Allowance for doubtful accounts c. accounts receivable d. all of these would be recorded

a. accumulated depreciation

Each of the following is used in preparing the partners' capital statement except the a. balance sheet b. income statement c. partners' capital accounts' d. partners' drawing accounts

a. balance sheet

limited partnerships a. must have at least 1 general partner b. guarantee that a partner will receive a return c. guarantee that a partner will get back his original investment d. are limited to only 3 partners

a. must have at least one general partner

Which of the following is not an advantage of the partnership form of business? a. mutual agency b. ease of formation c. ease of decision making d. freedom from governmental regulations and restrictions

a. mutual agency

Reliable Insurance Company collected a premium of $15,000 for a 1-year insurance policy on May 1. What amount should Reliable report as a current liability for Unearned Insurance Premiums at December 31? a. $0 b. $5,000 c. $10,000 d. $15,000

b. $5,000

Jan Goll has worked 44 hours this week. She worked in excess of 8 hours each day. Her regular hourly wage is $15 per hour. What are Jan's gross wages for the week? (The company Jan works for is in compliance with the Fair Labor Standards Act.) a. $660 b. $690 c. $990 d. $720

b. $690

A partner's share of net income is recognized in the accounts through a. adjusting entries b. closing entries c. correcting entries d. accrual entries

b. closing entries

The partnership of Nott and Starr reports net income of $80,000. The partners share equally in net income and net losses. The entry to record the partners' share of net income will include a a. credit to income summary for $80,000 b. credit to Nott, capital for $40,000 c. debit to starr, capital for $40,000 d. credit to starr, drawing for $40,000

b. credit to Nott, capital for $40,000

Which of the following would not be considered an expense of a partnership in determining income for the period? a. expired insurance b. income tax expense c. rent expense d. utilities expense

b. income tax expense

The owners' equity statement for a partnership is called the a. partners' proportional statement b. partner's capital statement c. statement of shareholder's equity d. capital and drawing statement

b. partner's capital statement

Bingham and Ecuyer sell 1/4 of their partnership interest to Ives receiving $600,000 each. At the time of admission, Bingham and Ecuyer each had a $1,050,000 capital balance. The admission of Ives will cause the net partnership assets to a. increase by $1,200,000. b. remain at $2,100,000 c. decrease by $1,200,000 d. remain at $3,300,000

b. remain at $2,100,000

Which one of the following would not be considered an expense of a partnership in determining income for the period? a. expired insurance b. salary allowance to partners c. supplies used d. freight out

b. salary allowance to partners

A partner contributes, as part of her initial investment, accounts receivable with an allowance for doubtful accounts. Which of the following reflects a proper treatment? a. The balance of the accounts receivable account should be recorded on the books of the partnership at its net realizable value. b. The allowance account may be set up on the books of the partnership because it relates to the existing accounts that are being contributed. c. The allowance account should not be carried onto the books of the partnership. d. The accounts receivable and allowance should not be recorded on the books of the partnership because a partner must invest cash in the business.

b. the allowance account may be set up on the books of the partnership because it relates to the existing accounts that are being contributed

The Smith and Jones partnership agreement stipulates that profits and losses will be shared equally after salary allowances of $120,000 for Smith and $60,000 for Jones. At the beginning of the year, Smith's Capital account had a balance of $240,000, while Jones' Capital account had a balance of $210,000. Net income for the year was $150,000. The balance of Jones' Capital account at the end of the year after closing is a. $285,000 b. $60,000 c. $255,000 d. $270,000

c. $255,000

he largest companies in the United States are primarily organized as a. limited partnerships b. partnerships c. corporations d. proprietorships

c. corporations

The partner in a limited partnership that has unlimited liability is referred to as the a. lead partner b. head partner c. general partner d. unlimited partner

c. general partner

A contingent liability is recorded as a liability when the likelihood of the contingency is a. remote b. reasonably possible c. probable d. nil or zero

c. probable

Which one of the following would not be considered a disadvantage of the partnership form of organization? A. limited life b. unlimited liability c. mutual agency d. ease of formation

d ease of formation

Rosen and Noble decide to organize a partnership. Rosen invests $15,000 cash, and Noble contributes $12,000 cash and equipment having a book value of $6,000. Choose the entry to record Noble's investment in the partnership assuming the equipment has a fair market value of $9,000. a. Cash 12,000 Equip 6,000 Noble, Capital 18,000 b. Equipment 6,000 Noble, Capital 6,000 c. Cash 12,000 Noble, Capital 12,000 d. Cash 12,000 Equip 9,000 Noble, Capital

d. Cash 12,000 Equipment 9,000 Noble, Capital 21,000

If the partnership agreement specifies salaries to partners, interest on partners' capital, and the remainder on a fixed ratio, and partnership net income is not sufficient to cover both salaries and interest, a. only salaries are allocated to the partners b. only interest is allocated to the partners c. the entire net income is shared on a fixed ratio d. both salaries and interest are allocated to the partners

d. both salaries and interest are allocated to the partners

A bonus to a new partner a. is prohibited by GAAP b. results when the new partner's capital credit is less than his or her investment of assets in the firm c. may occur when recorded book values are lower than market values d. results when the new partner's capital credit is greater than his or her investment of assets in the firm

d. results when the new partner's capital credit is greater than his or her investment of assets in the firm

A detailed listing of all the assets invested by a partner in a partnership appears on the Partners' Capital Statement. T OR F

false

If a partner's investment in a partnership consists of Accounts Receivable of $35,000 and an Allowance for Doubtful Accounts of $7,000, it would not be appropriate for the partnership to record the Allowance for Doubtful Accounts. T OR F

false

Salary allowances to partners are a major expense on most partnership income statements. T OR F

false

Two proprietorships cannot combine and form a partnership T OR F

false

Unless stated otherwise in the partnership contract, profits and losses are shared among the partners in the ratio of their capital equity balances. T OR F

false

If a partnership has a loss for the period, the closing entry to transfer the loss to the partners will require a credit to the Income Summary account. T OR F

false it would require a debit not a credit

Partnership income or loss need not be closed to partners' capital accounts each period because of the unlimited life characteristic of partnerships. T OR F

false partnerships don't have unlimited life like corporations