Financial Accounting Chp 9 - 13

current ratio

= current assets / current liabilities

pension

A cash payment to retired employees.

If $1,000,000 of 8% bonds are issued at 101 1/2, the amount of cash received from the sale is $985,000. $1,000,000. $1,015,000. $1,080,000.

$1,015,000. Purchase price is $1,000,000 × 1.015 or $1,015,000.

The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 40,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $3 per share dividend is declared? $120,000 $105,000 $500,000 $15,000

$105,000 Dividends are paid on shares outstanding.This is issued shares minus reacquired shares (40,000 - 5,000). This would be 35,000 shares times $3 or $105,000.

Steak Company acquired a building valued at $170,000 for property tax purposes in exchange for 10,000 shares of its $5 par common stock. The stock is widely traded and selling for $16 per share. At what amount should the building be recorded by Steak Company? $170,000 $50,000 $200,000 $160,000

$160,000 An asset exchanged for stock is valued at the verifiable market value. A property tax evaluation would not really be considered a market value. A widely traded stock value would be a market value and should be used to record the asset.

The Cardinal Industries purchased a generator which cost $11,000. It has an estimated life of 5 years and a residual value of $1,000. It is estimated that it will be good for 5,000 hours. Compute the depreciation expense for the second year using the double-declining-balance method of depreciation. $1,000 $2,000 $2,640 $4,400

$2,640

Coal Miner Co. acquired coal rights for $100,000,000. It is estimated that there are 2,500,000 tons of the resource, and during the current year 500,000 tons were mined and sold. What is the amount of depletion for the current year? a.$20,000,000 b.$2,000,000 c.$10,000,000 d.$2,500,000

$20,000,000

Wave Corporation began the current year with a retained earnings balance of $25,000. During the year, the company corrected an error made in the prior year, which was a failure to record depreciation expense of $5,000 on equipment. Also, during the current year the company earned net income of $15,000 and declared cash dividends of $5,000. Compute the year-end retained earnings balance. $25,000 $30,000 $40,000 $35,000

$30,000 Retained earnings would be beginning balance, plus net income, minus dividends, and minus expense not previously recognized ($25,000 + $15,000 - $5,000 - $5,000 = $30,000).

On June 1, $300,000 of bonds were purchased as a long-term investment at 101 and $500 was paid as the brokerage commission. If the bonds bear interest at 12%, which is paid semiannually on January 1 and July 1, what is the total cost to be debited to the investment account? $303,000 $303,500 $302,500 $300,000

$303,500 because The purchase of bonds is recorded at the cost of the bonds plus any charge from the broker. In this case, the bonds were purchased at 101; $300,000 X 1.01 = $303,000 plus the $500 brokerage commission equals a total investment cost of $303,500.

Gemstones Miner Co. acquired mineral rights for $100,000,000. It is estimated that there are 2,500,000 tons of the resource, and during the current year 500,000 tons were mined and sold. What is the rate of depletion? $50 per ton $75 per ton $40 per ton $60 per ton

$40 per ton because Correct. $100,000,000 / 2,500,000 tons = $40 per ton. $100,000,000 / 2,500,000 tons = $40 per ton

On December 31, Slugger Batting Cages Company decides to trade in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to allow a trade-in amount of $12,000. The initial cost of the old equipment was $225,000 with an accumulated depreciation of $195,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of boot in this transaction? $458,000 $488,000 $500,000 $470,000

$488,000

Peachtree Company borrows $30,000 from the local bank at 7% interest. The term of the note is five years and the annual payments remain constant at $7,317. Determine the decrease in notes payable that Peachtree Company should record in the first year. $5,217 $1,735 $7,317 $2,100

$5,217 $30,000 × 7% = $2,100; $7,317 - $2,100 = $5,217.

A corporation has 50,000 shares of $25 par value stock outstanding that has a current market value of $120. If the corporation issues a 2-for-1 stock split, the market value of the stock is expected to fall to approximately no change. $60. $5. $25.

$60. The market value will decrease by the approximate ratio of the stock issued. Since twice as many shares of stock are issued in a 2-for-1 split, the market value will be expected to fall to approximately $60 (or $120 / 2).

What is the total stockholders' equity based on the following account balances?Common Stock$100,000Paid-In Capital in Excess of Par500,000Retained Earnings190,000Treasury Stock40,000 $600,000 $830,000 $790,000 $750,000

$750,000 Total stockholders' equity would be common stock plus paid-in capital in excess of par plus retained earnings minus treasury stock ($100,000 + $500,000 + $190,000 - $40,000 = $750,000).

A copy machine was purchased for $35,000. It is estimated that the machine will have a useful life of 4 years with a residual value of $3,000. How much will be depreciated during the first full year using the straight-line method of depreciation? $3,000 $32,000 $8,750 $8,000

$8,000

Shale Miner Co. acquired mineral rights for $60,000,000. It is estimated that there are 80,000 tons of the resource, and during the current year 10,750 tons were mined and sold. What is the amount of depletion for the current year? $8,062,500 $8,000,000 $100,750 $60,000,000

$8,062,500

A copy machine was purchased for $35,000. It is estimated that the machine will have a useful life of 4 years with a residual value of $3,000. It is estimated that the machine will make 2,000,000 copies. Using the units-of-output method to depreciate the copy machine, how much will be depreciated if during the first year 550,000 copies were made? $8,800 $32,000 $8,750 $8,000

$8,800

Employers are subject to the following payroll taxes for amounts paid their employees

--FICA Tax: Employers must match the employee's FICA tax contribution. --Federal Unemployment Compensation Tax (FUTA): This employer tax provides for temporary payments to those who become unemployed. The tax collected by the federal government is allocated among the states for use in state programs rather than paid directly to employees. Congress often revises the FUTA tax rate and maximum earnings subject to tax. --State Unemployment Compensation Tax (SUTA): This employer tax also provides temporary payments to those who become unemployed. The FUTA and SUTA programs are closely coordinated, with the states distributing the unemployment checks. SUTA tax rates and earnings subject to tax vary by state

Based on the following data, what is working capital? Accounts payable$30,000 Accounts receivable60,000 Accrued liabilities4,000 Cash60,000 Intangible assets50,000 Inventory69,000 Long-term investments 80,000 Long-term liabilities100,000 Marketable securities50,000 Fixed assets670,000 Prepaid expenses1,000 a.$34,000 b.$206,000 c.$776,000 d.$136,000

.$206,000 because Working capital is (cash + accounts receivable + marketable securities + prepaid expenses + inventory) - (accounts payable + accrued liabilities) = ($60,000 + $60,000 + $50,000 + $1,000 + $69,000) - ($30,000 + $4,000) = $206,000.

Financial statement data for the year ending December 31 for Sharp Company is shown below:Sales$787,500Fixed assets: Beginning of year200,000 End of year250,000Determine the fixed asset turnover ratio for the year. =(sales) / (average book value of fixed assets) 3.0 3.2 3.5 3.9

3.5 because Correct. ($200,000 + $250,000) / 2 = $225,000; $787,500 / $225,000 = 3.5.

Dividends of $2.40 per share were paid during the year. Earnings per share are $4.60. The stock has a current market value of $40. What is the dividend yield? 8.7%. 6%. 16.7%. 11.5%.

6% The formula for dividend yield is: Dividends per Share divided by Market Price per Share. $2.40 / $40 = .06 or 6%

Depreciation per unit

= (cost - residual value) / total units of output

depletion rate

= (cost of resource) / (estimated total units of resource)

working capital =

= current asstes - current liabilities

depletion expense

= depletion rate x quantity extracted

current position analysis

A company's ability to pay its current liabilities. This analysis is based on the following three measures: Working capital Current ratio Quick ratio

accelerated depreciation method.

A depreciation method that provides for a higher depreciation amount in the first year of the asset's use, followed by a gradually declining amount of depreciation.

employee's earnings record

A detailed record of each employee's earnings.

quick ratio

A financial ratio that measures the ability to pay current liabilities with quick assets (cash, marketable securities, accounts receivable). = quick assets / current liabilities

units-of-output method

A method of depreciation that provides for depreciation expense based on the expected productive capacity of a fixed asset. The units-of-output method provides for periodic amounts of depreciation expense that vary, depending on the amount the asset is used.

straight line method

A method of depreciation that provides for equal periodic depreciation expense over the estimated life of a fixed asset. Computed as follows: annual depreciation = cost - residual value / useful life. The straight-line method provides for the same periodic amounts of depreciation expense over the life of the asset.

double declining balance method

A method of depreciation that provides periodic depreciation expense based on the declining book value of a fixed asset over its estimated life. The double-declining-balance method provides for a higher depreciation amount in the first year of the asset's use, followed by declining amounts.

payroll register

A multicolumn report used to assemble and summarize payroll data at the end of each payroll period.

trademark

A name, term, or symbol used to identify a business and its products.

defined benefit plan

A pension plan that promises employees a fixed annual pension benefit at retirement, based on years of service and compensation levels. The formula is normally based on such factors as the employee's years of service, age, and past salary

defined contribution plan

A pension plan that requires a fixed amount of money to be invested on the employee's behalf during the employee's working years.

A machine was purchased at a cost of $52,000. The equipment had an estimated useful life of 7 years and had a residual value of $3,000. Assuming the equipment was sold at the end of year 6 for $14,000, which of the following will be included in the journal entry? (Assume the straight-line depreciation method.) Gain on sale of asset, debit $4,000 Loss on sale of asset, credit $4,000 Cash, credit $14,000 Accumulated depreciation, debit $42,000

Accumulated depreciation, debit $42,000

A statement of stockholders' equity is normally prepared when there is a purchase of treasury stock. there is a change in stock accounts. All of these choices are correct. there is a change in paid-in capital accounts.

All of these choices are correct.

Companies generate cash from their operations to be used for investing in All of these choices are correct. current operations. temporary investments. long-term investments.

All of these choices are correct.

Other comprehensive income includes pension liability adjustments. All of these choices are correct. unrealized gains and losses on available-for-sale securities. foreign currency adjustments.

All of these choices are correct.

The assets of a company are the rights of owners. All of these choices are correct. subject to the claims of creditors. subject to the claims of bondholders.

All of these choices are correct.

Copyright

An exclusive right to publish and sell a -literary, artistic, or musical composition. Copyrights are issued by the federal government and extend for 70 years beyond the author's death. The costs of a copyright include all costs of creating the work plus any other costs of obtaining the copyright. A copyright that is purchased is recorded at the price paid for it. Copyrights are amortized over their estimated useful lives.

goodwill

An intangible asset that is created from such favorable factors as location, product quality, reputation, and managerial skill. Goodwill allows a business to earn a greater rate of return than normal.

If earnings per share changes from $3.30 to $2.60, what does this indicate about the company's profitability? An unfavorable trend in the company's profitability is indicated. None of these choices are correct. Profitability cannot be determined from the information given. A favorable trend in the company's profitability is indicated.

An unfavorable trend in the company's profitability is indicated.

fringe benefits

Benefits provided to employees in addition to wages and salaries. may include vacation, medical, and retirement benefits

quick assets

Cash and other current assets that can be quickly converted to cash, such as marketable securities and receivables. This normally includes cash, temporary investments, and accounts receivable

The journal entry to issue 1,000,000 shares of $5 par common stock for $9.00 per share on July 2nd would be

Cash......9,000,000 Common Stock.........5,000,000 Paid in capital in excess of par..........4,000,000 Common Stock will be increased for the number of shares issued times the par amount. Paid-in capital would be recorded as an increase at cash received minus par value.

Which of the following statements concerning taxation is accurate? Corporations pay federal and state income taxes. Corporations pay income taxes but their stockholders do not. Only the stockholders must pay taxes on corporate income. Corporations pay federal income taxes but not state income taxes.

Corporations pay federal and state income taxes.

Revenue expenditures

Costs that benefit only the current period or costs incurred for normal maintenance and repairs of fixed assets.

The calculation of depletion expense is None of these choices are correct. Depletion Rate × Quantity Extracted. Depletion Rate × Estimated Useful Life. Quantity Extracted × Estimated Useful Life.

Depletion Rate × Quantity Extracted.

Depreciation Expense

Depreciation per unit x total units of output used

The accounting for intangible assets is similar to that for fixed assets. The major issues are:

Determining the initial cost. Determining the amortization, which is the amount of cost to transfer to expense.

All of the following are normally found in a corporation's stockholders' equity section except Dividends Payable. Common Stock. Retained Earnings. Paid-In Capital in Excess of Par.

Dividends Payable.

Dividend yield is calculated as Earnings per Share / Dividends per Share of Common Stock. Dividends per Share of Common Stock / Earnings per Share. Dividends per Share of Common Stock / Market Price per Share of Common Stock. Market Price per Share of Common Stock / Dividends per Share of Common Stock.

Earnings per Share / Dividends per Share of Common Stock.

patents

Exclusive rights to produce and sell goods with one or more unique features.

FICA tax

Federal Insurance Contributions Act tax used to finance federal programs for old-age and disability benefits (social security) and health insurance for the aged (Medicare).

Zoom Shoes Inc has 115,000 shares of stock outstanding. GAS Running Company owns 35,000 shares of Zoom Shoes, Inc. Which of the following is true? GAS Running Company is required to combine the financial statements of ZOOM Shoes Inc. and report as a single company. GAS Running Company is required to use the equity method for this investment. GAS Running Company is the subsidiary company. Zoom Shoes Inc. is the parent company.

GAS Running Company is required to use the equity method for this investment.

Net pay

Gross pay less payroll deductions; the amount the employer is obligated to pay the employee.

Payroll controls

If a check-signing machine is used, blank payroll checks and access to the machine should be restricted to prevent their theft or misuse. The hiring and firing of employees should be properly authorized and approved in writing. All changes in pay rates should be properly authorized and approved in writing. Employees should be observed when arriving for work to verify that employees are "checking in" for work only once and only for themselves. Employees may "check in" for work by using a time card or by swiping their employee ID card. Payroll checks should be distributed by someone other than employee supervisors. A special payroll bank account should be used.

contingent liabilities

Liabilities that may arise from past transactions if certain events occur in the future. The accounting for contingent liabilities depends on the following two factors: Likelihood of occurring: Probable, reasonably possible, or remote Measurement: Estimable or not estimable

intangible assets

Long-term assets that are useful in the operations of a business, are not held for sale, and are without physical qualities.

Which of the following is the correct computation of comprehensive income? Retained earnings plus/minus Other comprehensive income = Comprehensive income None of these choices are correct. Net income plus/minus Other comprehensive income = Comprehensive income Total stockholders' equity plus/minus Accumulated other comprehensive income = Comprehensive income

Net income plus/minus Other comprehensive income = Comprehensive income

Luke Enterprises has 300,000 shares of $20 par common stock outstanding. On January 19, Luke Enterprises declared a 3% stock dividend. The market price of the stock on January 19 was $28 per share. The journal entry to record the stock dividend would include a debit to Stock Dividends Distributable for $252,000. a debit to Cash for $252,000. None of these choices are correct. a credit to Stock Dividends for $180,000.

None of these choices are correct.

Short term notes payable

Notes may be issued to purchase merchandise or other assets. Notes may also be issued to creditors to satisfy an account payable created earlier

401K plan

One of the more popular defined contribution plans is the 401k plan. Under this plan, employees contribute a portion of their gross pay to investments, such as mutual funds. A 401k plan offers employees two advantages. The employee contribution is deducted before taxes. The contributions and related earnings are not taxed until withdrawn at retirement.

What's included in cost of fixed asset?

Only costs necessary for preparing the fixed asset for use are included as a cost of the asset

Treasury stock that had been purchased for $5,500 last month was reissued this month for $6,500. The journal entry to record the re-issuance would include a credit to Paid-In Capital from Sale of Treasury Stock for $6,500. Paid-In Capital in Excess of Par—Common Stock for $1,000. Paid-In Capital from Sale of Treasury Stock for $1,000. Treasury Stock for $6,500.

Paid-In Capital from Sale of Treasury Stock for $1,000.

If Smart Company issues 1,000 shares of $5 par value common stock for $90,000, the account Paid-In Capital in Excess of Par will be credited for $5,000. Common Stock will be credited for $90,000. Cash will be debited for $95,000. Paid-In Capital in Excess of Par will be credited for $85,000.

Paid-In Capital in Excess of Par will be credited for $85,000. When a stock has a par value, common stock would be recorded at the par value times number of shares issued ($5 X 1,000). Paid-in capital would be recorded at cash received ($90,000) minus par value ($5,000). This would equal $85,000.

Importance of payroll

Payroll and related payroll taxes significantly affect the net income of most companies. Payroll is subject to federal and state regulations. Good employee morale requires payroll to be paid timely and accurately.

The fixed asset turnover ratio is calculated as Average Book Value of Fixed Assets / Accumulated Depreciation. Sales / Accumulated Depreciation. Sales / Average Book Value of Fixed Assets. Average Book Value of Fixed Assets / Cash.

Sales / Average Book Value of Fixed Assets.

3 depreciation methods

Straight-line depreciation Units-of-output depreciation Double-declining-balance depreciation

Which of the following is not one of the most common depreciation methods? Straight-line method Units-of-output method Double-declining-balance method Sum-of-the-years-digits method

Sum-of-the-years-digits method

What determines the depreciation expense for a fixed asset?

The asset's initial cost The asset's expected useful life The asset's estimated residual value

book value

The cost of a fixed asset minus accumulated depreciation on the asset.

capital expenditures

The costs of acquiring fixed assets, adding to a fixed asset, improving a fixed asset, or extending a fixed asset's useful life.

Selling fixed asset

The entry to record the sale of a fixed asset is similar to the entry for discarding an asset. The only difference is that the receipt of cash is also recorded. If the selling price is more than the book value of the asset, a gain is recorded. If the selling price is less than the book value, a loss is recorded.

Residual value

The estimated value of a fixed asset at the end of its useful life.

Discounted note

The interest rate on the note is called the discount rate. The amount of interest on the note, called the discount, is computed by multiplying the discount rate times the face amount of the note. The debtor (borrower) receives the face amount of the note less the discount, called the proceeds. The debtor must repay the face amount of the note on the due date.

fixed asset turnover ratio

The number of dollars of sales that are generated from each dollar of average fixed assets during the year, computed by dividing the net sales by the average net fixed assets. FATR = sales / average book value of fixed assets. The higher the fixed asset turnover, the more efficiently a company is using its fixed assets in generating sales

Which of the following is not true of a corporation? It may sue and be sued. It may buy, own, and sell property. The owners are personally liable for corporate actions. It may enter into binding legal contracts in its own name.

The owners are personally liable for corporate actions.

depletion

The process of transferring the cost of natural resources to an expense account.

Depreciation

The systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life.

Payroll

The total amount paid to employees for a certain period.

gross pay

The total earnings of an employee for a payroll period, including any overtime pay

Which of the following statements is not true about a 4-for-1 split? A stockholder with ten shares before the split owns forty shares after the split. The market price will probably decrease. Par value per share is reduced to one-fourth of what it was before the split. Total contributed capital increases.

Total contributed capital increases.

_______________ are issued at a discount; however, there is no interest paid on these. US Treasury bills US Treasury bonds None of these choices are correct. US Treasury notes

US Treasury bills

On January 1, Bargain Company's Valuation Allowance for Trading Investments account had a debit balance of $18,500. On December 31, the cost of the trading securities portfolio is $80,000. The fair value is $100,000. Which of the following would Bargain Company report? Unrealized Loss on Trading Investments of $1,500. Unrealized Gain on Trading Investments of $20,000. Unrealized Loss on Trading Investments of $20,000. Unrealized Gain on Trading Investments of $1,500.

Unrealized Gain on Trading Investments of $1,500. because To date, an $18,500 gain on the trading investments has been recorded. As of the end of the year, the cumulative gain is $20,000, which would result in an additional unrealized gain of $1,500 to be reported on December 31, 2014 ($18,500 - $20,000 = $1,500).

On January 1, Black Company's Valuation Allowance for Trading Investments account had a credit balance of $22,500. On December 31, the cost of the trading securities portfolio is $100,000. The fair value is $80,000. Which of the following would Black report? Unrealized Loss on Trading Investments of $2,500 Unrealized Gain on Trading Investments of $20,000 Unrealized Loss on Trading Investments of $20,000 Unrealized Gain on Trading Investments of $2,500

Unrealized Gain on Trading Investments of $2,500

Aaron Company has 80,000 shares of $10 par common stock outstanding. On May 25, Aaron Company declared a $1.50 cash dividend. The market price of the stock on May 25 was $17 per share. The journal entry to record the cash dividend would include a debit to Cash for $560,000. a credit to Paid-In Capital in Excess of Par—Common Stock for $560,000. All of these choices are correct. a debit to Cash Dividends for $120,000.

a debit to Cash Dividends for $120,000.

A corporation purchases 1,000 shares of its own common stock for $4,000 on Feb. 13. On April 13, half of the treasury stock was sold for $3,000. On April 26, the other half of the treasury stock was sold for $1,800. The entry to record the April 26 sale would include a debit to Treasury Stock for $2,000. a debit to Paid-in Capital from the Sale of Treasury Stock for $200. a credit to Paid-in Capital from the Sale of Treasury Stock for $1,200. a credit to Cash for $1,800.

a debit to Paid-in Capital from the Sale of Treasury Stock for $200. Since the April 13 transaction generated a credit balance in Paid-in Capital from the Sale of Treasury Stock, a decrease from the April 26 sale can be debited to the account for the difference between the cost of the treasury stock and the amount of the sale (or $2,000 - $1,800 = $200). The journal entry for the April 26 sale would be: Apr. 26 Cash 1,800 Pd-in Cap from the Sale of Treas. Stock 200 Treasury Stock 2,000

The portion of bonds or notes payable that is not due within one year is reported as a part of stockholders' equity. a long-term liability on the balance sheet. an expense on the income statement. a current liability on the balance sheet.

a long-term liability on the balance sheet. Any portion of the bonds or notes payable that is not due within one year is reported as a long-term liability.

A machine was purchased at a cost of $70,000. The equipment had an estimated useful life of 8 years and had a residual value of $6,000. Assuming the equipment was sold at the end of year 6 for $14,000, determine the gain or loss on the sale of the equipment. (Assume the straight-line depreciation method.) a gain of $8,000 a loss of $8,000 a loss of $14,000 a gain of $14,000

a loss of $8,000

The best definition of a trademark is A. the exclusive right to produce and sell goods with one or more unique features. B. a name, term, or symbol used to identify a business or its product. C. the exclusive right to publish and sell literary, artistic, or musical compositions. D. an asset created from favorable factors such as location, product quality, reputation, and managerial skills.

a name, term, or symbol used to identify a business or its product.

On July 8, Action Co. issued an $70,000, 6%, 120-day note payable to Scanlon Co. Assuming a 360-day year, what is the interest expense of the note? a.$1,400 b.$4,200 c.$0 d.$140

a.$1,400 because $70,000 × .06 × (120 / 360) = $1,400.

On January 8, Lowrence Co. issued a $60,000, 120-day discounted note to Raines Bank. The discount rate is 8%. Assuming a 360-day year, what is the amount of proceeds received? a.$58,400 b.$60,000 c.$61,600 d.$55,200

a.$58,400 because The proceeds received is the face value minus the discount amount. This is calculated as: $60,000 - [$60,000 × .08 × (120 / 360)] = $58,400.

Parton Company provides its employees with varying amount of vacation per year, depending on the length of employment. The estimated amount of the current year's vacation cost is $196,800. The journal entry to record the adjusting entry required on December 31 to record the current month's accrued vacation pay will include a.A debit to Vacation Pay Expense for $16,400. b.A credit to Vacation Pay Expense for $16,400. c.A debit to Vacation Pay Payable for $196,800. d.A credit to Vacation Pay Expense for $196,800.

a.A debit to Vacation Pay Expense for $16,400. because The journal entry to record the current month's accrued vacation pay will include an increase to a vacation pay expense account for one-twelve of the annual amount. One-twelfth of the annual vacation expense is recognized each month. $196,800 X 1/12 = $16,400.

The numerator in the current ratio calculation is a.current assets. b.None of these choices are correct. c.current liabilities. d.intangible assets.

a.current assets.

The journal entry to record the monthly payroll on April 30 would include a a.debit to Salaries Expense for $12,000. b.debit to Salaries Expense for $8,500. c.debit to Salaries Payable for $8,500. d.debit to Salaries Payable for $8,252.

a.debit to Salaries Expense for $12,000.

A contingent liability that is probable and the dollar amount can be estimated should be a.recorded and disclosed. b.disclosed only. c.no treatment needed. d.recorded only.

a.recorded and disclosed.

The balance in Unamortized Premium on Bonds Payable should be reported in the Paid-in Capital section of the balance sheet. reported on the balance sheet as a deduction from the face amount of the related bonds payable. reported separately in the Current Liabilities section of the balance sheet. added to the face amount of the related bonds payable on the balance sheet.

added to the face amount of the related bonds payable on the balance sheet. The carrying value of a bond is reported on the balance sheet as the face amount of the related bond plus the Unamortized Premium on the bonds. The premium can either be reported on the face of the financial statements or in the accompanying notes.

Intangible assets are reported on the balance sheet after the current assets. after the fixed assets. before the current assets. before the fixed assets.

after the fixed assets.

All of the following are conditions for a cash dividend except sufficient retained earnings. formal action by the board of directors. all of these choices are conditions for cash dividends. sufficient cash.

all of these choices are conditions for cash dividends.

A corporation may reacquire (purchase) its own stock for the following reasons except to provide shares for resale to employees. to reissue as bonuses to employees. all of these choices are reasons a corporation may reacquire (purchase) its own stock. to support the market price of the stock.

all of these choices are reasons a corporation may reacquire

The expensing of intangible assets is called expense. depletion. amortization. depreciation.

amortization.

If the asset is long lived but not used in a productive manner it will be classified as an expense. an intangible asset. a fixed asset. an investment.

an investment.

An decrease in the fixed asset turnover ratio from 3.0 to 2.2 indicates None of these answer choices are correct. an unfavorable trend in the efficiency of using fixed assets to pay down debt. an unfavorable trend in the efficiency of using fixed assets to generate sales. a favorable trend in the efficiency of using fixed assets to generate sales.

an unfavorable trend in the efficiency of using fixed assets to generate sales.

Fixed assets

are long-term or relatively permanent assets such as equipment, machinery, buildings, and land

Any unamortized discount is reported in the stockholders' equity section of the balance sheet. as an addition to the face amount of the bonds. as a deduction to the face amount of the bonds. on the income statement.

as a deduction to the face amount of the bonds. Any unamortized discount is reported as a deduction to the face amount of the bonds. A description of the bonds and notes should also be reported either on the face of the financial statements or in the accompanying notes.

The number of shares of stock that a corporation can issue as stated in its charter is referred to as issued. outstanding. authorized. arrears.

authorized.

Little Company provides its employees with varying amount of vacation per year, depending on the length of employment. The estimated amount of the current year's vacation cost is $172,800. The journal entry to record the adjusting entry required on December 31, the end of the current year, to record the current month's accrued vacation pay is a.$0. b.$14,400. c.$172,800. d.$86,400.

b.$14,400. because One-twelfth of the annual vacation expense is recognized each month. $172,800 X 1/12 = $14,400.

An employee receives an hourly rate of $25, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 45; federal income tax withheld, $350; social security tax rate, 6.0%; and Medicare tax rate, 1.5%. What is the net amount to be paid to the employee? a.$775.00 b.$748.44 c.$762.00 d.$837.50

b.$748.44

Which of the following taxes are paid by the employee and the employer? a.federal withholding taxes b.FICA c.FUTA d.SUTA

b.FICA

Current liabilities are debts that are expected to be satisfied a.only after six months. b.within one year. c.after one year. d.after several years.

b.within one year.

When a corporation completes a 2-for-1 stock split both market price per share and par value per share are decreased. only the par value per share is decreased. only the ownership interest of current stockholders is decreased. only the market price per share of the stock is decreased.

both market price per share and par value per share are decreased.

Which of the following statements below is not typically a reason why a company may purchase another company's stock? developing or maintaining business relationships gaining control of another company's operations buoying up the other company's stock price earning a return on excess cash

buoying up the other company's stock price

A debtor is referred to as a a.creditor. b.payee. c.borrower. d.lender.

c. borrower

The payroll register of Charbroil Company indicates $1,200 of social security tax withheld and $300 of Medicare tax withheld on total salaries of $20,000 for the period. Assume earnings subject to state and federal unemployment compensation taxes are $7,000, at the federal rate of 0.8% and the state rate of 5.4%. What is the total amount of payroll tax expense? a.$1,500 b.$1,878 c.$1,934 d.$1,556

c.$1,934

Based on the following data, what is the current ratio, rounded to one decimal point? a.6.8 b.5.0 c.7.1 d.1.8

c.7.1 The current ratio is = (cash + accts rec + marketable securities + prepaid exp + inventory) / (accounts payable + accrued liabilities) = ($60,000 + $60,000 + $50,000 + $1,000 + $69,000) / ($30,000 + $4,000) = 7.1

All of the following are other deductions that employees may choose to have deducted from their gross pay except a.retirement savings. b.dental insurance. c.FICA. d.life insurance.

c.FICA.

The journal entry a company uses to record accrued vacation privileges for its employees at the end of the year is a.debit Salary Expense; credit Cash. b.debit Salary Expense; credit Salaries Payable. c.debit Vacation Pay Expense; credit Vacation Pay Payable. d.debit Vacation Pay Payable; credit Vacation Pay Expense.

c.debit Vacation Pay Expense; credit Vacation Pay Payable.

The entry to record the accrual of employer's payroll taxes would include a a.credit to Social Security and Medicare Tax Payable for $2,100. b.debit to Payroll Tax Expense for $310. c.debit to Payroll Tax Expense for $1,360. d.debit to Payroll Tax Expense for $1,050.

c.debit to Payroll Tax Expense for $1,360. because Payroll tax expense includes more than unemployment taxes. Payroll tax expense is social security taxes,Medicare taxes $1,050plus payroll taxes ($5,000 X .062) + 310Total payroll tax expense $1,360

Estimating and recording product warranty expense in the period of the sale best follows which of the following accounting concepts? a.cost concept. b.business entity concept. c.matching concept. d.materiality concept.

c.matching concept. Under the cost concept, amounts are initially recorded in the accounting records at their cost or purchase price. The matching concept of accounting requires expenses to be matched with the revenue generated during the period by those expenses.

Postretirement benefits may include all of the following except a.tuition assistance. b.All of these choices are correct. c.vacation pay. d.dental care.

c.vacation pay.

Dividend yield measures the rate of return to stockholders based on None of these choices are correct. retained earnings. stock dividends. cash dividends.

cash dividends.

A gain or loss on the exchange of similar assets will be recorded if the transaction has a high value. a trade-in allowance. commercial substance. boot.

commercial substance. because If an exchange of similar assets has commercial substance, a gain or loss is recognized based on the difference between the book value of the asset given up (exchanged) and the fair market value of the asset received.

On May 1, 2016, Stanton Company purchased $100,000 of Harris Company's 12% bonds at 100 plus accrued interest of $4,000. On June 30, 2016, Stanton received its first semiannual interest. On February 1, 2017, Stanton sold $80,000 of the bonds at 103 plus accrued interest. The journal entry Stanton will record on February 1, 2017 will include a debit to Cash for $82,400. credit to Interest Revenue for $2,400. credit to Interest Receivable for $1,000. credit to Gain on Sale of Investments for $2,400.

credit to Gain on Sale of Investments for $2,400. because The $80,000 in bonds were sold at 103, which equates to $80,000 X 1.03 = $82,400, plus accrued interest of $800 (or $80,000 x 12% x 1/12) . Thus, there was a gain of $2,400 ($83,200 - $80,800 = $2,400). The journal entry for Feb. 1, 2014 is: Cash 83,200 Interest Revenue 800 Gain on Sale of Investments 2,400 Investments - Harris Bonds 80,000

On May 1, 2016, Dean Company purchased $200,000 of Horton Company's 12% bonds at 100 plus accrued interest of $8,000. On June 30, 2016, Dean Company received its first semiannual interest. On February 1, 2017, Dean Company sold $160,000 of the bonds at 103 plus accrued interest. The journal entry Dean Company will record on February 1, 2017, will include a debit to Cash for $164,800. credit to Interest Revenue for $4,800. credit to Interest Receivable for $2,000. credit to Gain on Sale of Investments for $4,800.

credit to Gain on Sale of Investments for $4,800. The $160,000 in bonds were sold at 103, which equates to $160,000 X 1.03 = $164,800, plus accrued interest of $1,600 (or $160,000 x 12% x 1/12) . Thus, there was a gain of $4,800 ($166,400 - $161,600 = $4,800). The journal entry for Feb. 1, 2015 is: Cash 166,400 Interest Revenue 1,600 Gain on Sale of Investments 4,800 Investments - Horton Bonds 160,000

The entry to record issuance of an installment notes payable would include a credit to Notes Payable. debit to Notes Payable. credit to Cash. credit to Interest Expense.

credit to Notes Payable. The entry to record issuance of an installment notes payable would include a debit to Cash and a credit to Notes Payable.

Based on the following data, what is the amount of working capital? a.$95,000 b.$130,000 c.$30,000 d.$165,000

d.$165,000 because Working capital = (Cash + Accts Rec + Marketable Securities + Prepaid Exp + Inventory) - (Accounts Payable + Accrued Liabilities). = ($40,000 + $60,000 + $30,000 + $1,000 + $69,000) - ($30,000 + $5,000) = $165,000

Employees' weekly gross earnings were $5,500, and their federal income tax withholding was $1,116.50. Assuming the social security rate is 6.0% and Medicare tax rate is 1.5%, what is the net amount to be paid to employees? a.$4,383.50 b.$4,301.00 c.$4,053.50 d.$3,971.00

d.$3,971.00

Puzzles Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 3,600 units. It is estimated that warranty repairs will average $15 per unit sold, and 40% of the repairs will be made in Year 1 and 60% in Year 2. In the income statement for Year 1, Puzzles Company should show warranty expense of a.$0. b.$32,400. c.$21,600. d.$54,000.

d.$54,000. All warranty expense is recognized in the period of sale, no matter when the costs are expected to be incurred. It is calculated as: 3,600 units X $15 per unit.

On January 8, Lowrence Co. issued a $60,000, 120-day discounted note to Raines Bank. The discount rate is 8%. Assuming a 360-day year, what is the amount of proceeds received? a.$60,000 b.$61,600 c.$55,200 d.$58,400

d.$58,400

On July 8, Action Co. issued an $80,000, 6%, 90-day note payable to Scanlon Co. Assuming a 360-day year, what is the maturity value of the note? a.$80,000 b.$78,800 c.$84,800 d.$81,200

d.$81,200

A contingent liability can be classified as which one of the following? a.probable b.reasonably possible c.remote d.All of these choices are correct.

d.All of these choices are correct.

Major elements in a payroll system are a.employees' earnings records. b.payroll checks. c.a payroll register. d.All of these choices are correct.

d.All of these choices are correct.

The date on which cash dividends are paid is on the date of declaration. date of payment. last day of the fiscal year-end. date of record.

date of payment.

If the initial purchase of the bonds was completed between interest dates, the journal entry to record the purchase would include debit to interest receivable. debit to interest revenue. credit to interest receivable. credit to interest payable.

debit to interest receivable.

If the number of times interest charges are earned has increased from 3.0 to 3.5 debtholders have increased protection regarding the company's ability to make its interest payments. None of these choices are correct. debtholders have decreased protection regarding the company's ability to make its interest payments. debtholder protection regarding the company's default on interest payments remains the same.

debtholders have increased protection regarding the company's ability to make its interest payments.

The effect of the declaration of a cash dividend on a company's financial statements is to decrease stockholders' equity and to increase total liabilities. increase total assets and stockholders' equity. decrease total assets and stockholders' equity. increase total expenses and total liabilities.

decrease stockholders' equity and to increase total liabilities.

When a corporation issues bonds, the price that buyers are willing to pay for the bonds does not depend on which of the following? denominations in which the bonds are sold market rate of interest periodic interest to be paid on the bonds contract rate of the bonds

denominations in which the bonds are sold

Which of the following is the account that will be used to transfer the fixed asset cost to an expense? depreciation expense accumulated depreciation goodwill improvements

depreciation expense

The accounting for bond investments include all of the following except sale of bonds. interest revenue. purchase of bonds. dividend revenue.

dividend revenue.

A restriction/appropriation of retained earnings decreases total retained earnings. decreases total assets. does not change the balance in retained earnings. increases total retained earnings.

does not change the balance in retained earnings.

One of the main disadvantages of the corporate form is the double taxation. corporation must issue stock. charter. professional management.

double taxation.

Before deciding on long-term borrowing as part of a financing plan, a key measurement that should be considered is: current ratio. profit margin. earnings per share. quick ratio.

earnings per share. In addition to earnings per share, the corporation should consider other factors when choosing a potential financing plan that involves long-term borrowing. For example, if bonds are issued, the interest and the face value of the bonds at maturity must be paid, requiring sufficient cash availability.

The market interest rate related to a bond is also called the coupon rate. face interest rate. effective interest rate. contract rate.

effective interest rate.

A high ratio of number of times interest charges are earned indicates no protection in the event of an earnings decline. nothing about protection in the event of an earnings decline. mediocre protection in the event of an earnings decline. extremely good protection in the event of an earnings decline.

extremely good protection in the event of an earnings decline.

All of the following are disadvantages of fair value use except fair values may cause more fluctuations as changes occur from period to period. fair values can only be used on balance sheet accounts. comparability between companies may be impacted by different fair value measurements. fair values may not be readily obtainable.

fair values can only be used on balance sheet accounts.

Cash may be invested in temporary investments for all of the following reasons except to earn interest revenue. receive dividends. finance expansion. realize gains from increases in the market price of the securities.

finance expansion.

On December 31, Tradewinds Company decides to trade in one of its ships for another one that has a cost of $800,000. The seller of the ship is willing to allow a trade-in amount of $60,000. The initial cost of the old equipment was $600,000 with an accumulated depreciation of $550,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction? no loss or gain loss of $60,000 loss of $10,000 gain of $10,000

gain of $10,000 because The book value of the equipment is equal to $50,000 ($600,000 original cost less the accumulated depreciation of $550,000). The trade-in allowance of $60,000 is subtracted from the $50,000 book value resulting in an $10,000 gain.

Generally accepted accounting principles requires the use of fair value for all of the following except held-to-maturity securities. available-for-sale securities. None of these choices are correct. trading securities.

held-to-maturity securities.

Functional depreciation

include obsolescence and changes in customer needs that cause the asset to no longer provide services for which it was intended. For example, equipment may become obsolete due to changing technology.

Physical depreciation

include wear and tear during use or from exposure to weather

All of the following assets will be included as intangible assets on the balance sheet except patents. investments. copyrights. goodwill.

investments.

Leasing

leases are short-term and not extending beyond one year. Thus, lease payments are recorded as rent by debiting Rent Expense and crediting Cash

If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $300,000 will be less than $300,000. greater than $300,000. greater than or less than $300,000, depending on the maturity date of the bonds. equal to $300,000.

less than $300,000. Interest rate and bond price are inversely related; thus, if the market interest rate rises above the stated rate, then the price of the bonds will decrease below the face value indicating a discounted bond.

An asset with a net book value of $1,225 was discarded, having no market value. How much will be recorded as a loss or gain on disposal? cannot be determined with the information given no loss or gain gain of $1,225 loss of $1,225

loss of $1,225

Other comprehensive income items include all of the following except unrealized gains and losses on available-for-sale securities. loss on disposal of fixed assets. foreign currency adjustments. pension liability adjustments.

loss on disposal of fixed assets.

All except which of the following will be included in the cost of a fixed asset? direct costs of new construction mistakes in installation freight costs cost of installing equipment

mistakes in installation

An installment note may be secured by a pledge of the borrower's assets. Such notes are called mortgage notes. principal notes. short-term notes. interest-only notes.

mortgage notes.

Long term liabilities

often paid back in periodic payments, called installments. Such installments that are due within the coming year are classified as a current liability. The installments due after the coming year are classified as a long-term liability.

The Unrealized Loss on Available-for-Sale securities is reported on the income statement in the operating expenses area. on the balance sheet. is not significant enough to be reported. on the income statement separately or as a part of Other Income and Expense.

on the balance sheet.

The Unrealized Gain on Trading Investments is reported on the balance sheet. on the income statement separately or as a part of Other Income and Expense. is not significant enough to be reported. on the income statement in the operating expenses area.

on the income statement separately or as a part of Other Income and Expense.

The Unrealized Loss on Trading Investments is reported on the balance sheet. on the income statement separately or as a part of Other Income and Expense. is not significant enough to be reported. on the income statement in the operating expenses area.

on the income statement separately or as a part of Other Income and Expense.

The payment of a portion of the amount initially borrowed of an installment note is referred to as principal only. principal and interest. interest only. any amount able to be paid.

principal only.

Amortization and depreciation will be found on the income statement as They will be on the balance sheet. separate expenses. one amount. They will not be found on the income statement.

separate expenses.

An annuity refers to a balloon payment. principal payment. lump sum payment. series of equal cash receipts at fixed intervals.

series of equal cash receipts at fixed intervals.

If the market rate of interest is equal to the contract rate of interest the bonds will sell for more than their face amount. the bonds will sell for less than their face amount. None of these choices are correct. the bonds will sell for their face amount.

the bonds will sell for their face amount.

The best definition of a copyright is A. the exclusive right to produce and sell goods with one or more unique features. B. a name, term, or symbol used to identify a business or its product. C. the exclusive right to publish and sell literary, artistic, or musical compositions. D. an asset created from favorable factors such as location, product quality, reputation and managerial skills.

the exclusive right to publish and sell literary, artistic, or musical compositions.

One potential advantage of financing corporations through the use of bonds rather than common stock is that the interest on common stock is not deductible. the interest expense is deductible for tax purposes by the corporation. a higher earnings per share is guaranteed for existing common shareholders. the corporation must pay the bonds at maturity.

the interest expense is deductible for tax purposes by the corporation.

A bond indenture is a bond that has past due interest payments. the underlying contract between the corporation issuing the bonds and the bondholders. a bond that is secured by specific assets of the issuing corporation. a bond that is unsecured.

the underlying contract between the corporation issuing the bonds and the bondholders.

Cash is generally invested in long-term investments for all of the following reasons except to earn interest revenue. to reduce costs. to finance expansion. for the integration of operations.

to earn interest revenue.

Which of the following is not a source of financing for a company? bonds. preferred stock. treasury stock. common stock.

treasury stock.

Modified Accelerated Cost Recovery System

used to compute depreciation for tax purposes. MACRS has eight classes of useful life and depreciation rates for each class. Two of the most common classes are the five-year class and the seven-year class. The five-year class includes automobiles and light-duty trucks. The seven-year class includes most machinery and equipment. Depreciation for these two classes is similar to that computed using the double-declining-balance method.

A fixed asset should be removed from the accounts except when it is fully depreciated. when it is sold. when it is discarded. when it is given away.

when it is fully depreciated.