VQ7, PQ7, SB5A, SB5b, CQ4

The employer's Wages Payable or Accrued Payroll for a payroll period represents employees' gross/net pay

net

Calculate the amount of interest (straight basis) on a 2-year loan of $2,000 at a 15 percent interest rate.

$2,000 x 0.15 x 2 = $600

Identify the impact of recording the cash received in advance from customers. Working capital increases. Unearned revenues are recorded and this increases net income. Cash increases. Current liabilities increase. Net income is not affected.

Cash increases. Current liabilities increase. Net income is not affected.

Identify the true effects on the financial statements of a company if it purchases treasury stock. Its total assets will decrease. Its net income will increase. There will be no effect on its total liabilities. There will be no effect on its total stockholders' equity.

Its total assets will decrease. There will be no effect on its total liabilities.

Paid-in capital includes: common stock additional paid-in capital preferred stock treasury stock retained earnings

additional paid-in capital preferred stock common stock

The portion of equity in a subsidiary not attributable, directly or indirectly, to the parent company (reporting entity) is referred to as the (unusual/noncontrolling/extraordinary) interest.

noncontrolling

The declaration of a cash dividend by the directors results in: a decrease in cash and a decrease in retained earnings. a decrease in retained earnings and an increase in current liabilities. a decrease in net income and a decrease in cash. a decrease in net income and an increase in current liabilities.

a decrease in retained earnings and an increase in current liabilities.

Calculate the amount of interest (straight basis) on a 6-month loan of $2,000 at a 15 percent interest rate.

$2,000 x 0.15 x 6/12 = $150

Identify the true statements regarding noncontrolling interest. It is the portion of equity in a parent not attributable, directly or indirectly, to the subsidiary company. It signifies that a portion of the net assets controlled by the reporting entity are attributable to the ownership interests of outside parties. It is sometimes called minority interest. It arises in the consolidation process when a subsidiary is 100 percent owned by the parent company.

It signifies that a portion of the net assets controlled by the reporting entity are attributable to the ownership interests of outside parties. It is sometimes called minority interest.

Identify the impact of allocation of unearned revenue to the fiscal year in which the product is delivered and the revenue is earned. Current assets increase. Working capital increases. Revenues increase. Liabilities decrease. Net income remains unaffected.

Liabilities decrease. Working capital increases. Revenues increase.

Which of the following would not affect total Retained Earnings? (Assume it is the end of the fiscal year and that the books have been closed.) Cash dividends. All of the above would affect total Retained Earnings. Stock splits. Profits.

Stock splits.

Identify the requirements that must be met for a corporation to pay a cash dividend. The declaration of a cash dividend must not result in a violation of any existing contractual agreements such as bond covenants. The shareholders' approval by a majority vote is required to ratify the declaration of the dividend and its payment. The board of directors must declare the dividend first to pay a cash dividend.

The declaration of a cash dividend must not result in a violation of any existing contractual agreements such as bond covenants. The board of directors must declare the dividend first to pay a cash dividend.

Accumulated other comprehensive income (loss) is a stockholders' equity category that may include which of the following components? Treasury stock Unrealized gains or losses on available-for-sale investments Changes in certain pension or other postretirement benefit items Cumulative gains or losses from discontinued operations

Unrealized gains or losses on available-for-sale investments Changes in certain pension or other postretirement benefit items

The entry to record actual warranty costs in the year in which the warranty is honored includes: a decrease to expenses. a decrease to current liabilities. an increase to current liabilities. an increase to expenses.

a decrease to current liabilities.

The effects on the financial statements of the purchase of treasury stock include: a decrease to total stockholders' equity. an increase to total assets. an increase to liabilities. a decrease to cash.

a decrease to total stockholders' equity. a decrease to cash.

Deferred tax liabilities arise because of the _____. accounting process of matching revenues and expenses difference between a company's book value and market value accounting process of recording the expenses as and when they are paid for difference between a company's book income and taxable income

accounting process of matching revenues and expenses difference between a company's book income and taxable income

The financial statement effects of the accrual of estimated warranty liability in the year in which products are sold include: an increase to expenses and a decrease to net income. an increase to current liabilities and no effect on cash. a decrease to current liabilities and a decrease to cash (or repair parts inventory). a decrease to expenses and an increase to net income

an increase to expenses and a decrease to net income. an increase to current liabilities and no effect on cash.

Retained earnings represents: cash that is available for dividends. the total net income of the firm since its beginning. cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends. net income plus gains (or minus losses) on treasury stock transactions.

cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends.

Common stockholders: generally assume considerably less risk than do bondholders. experience no upper limit to the value of their ownership interests. are the ultimate owners of the corporation; they have a residual ownership claim to the corporation's asset.

experience no upper limit to the value of their ownership interests. are the ultimate owners of the corporation; they have a residual ownership claim to the corporation's asset.

When bonds are issued at a premium: interest expense on the bonds will be less than the interest paid. the coupon interest rate is less than the market interest rate. interest expense on the bonds will be more than the interest paid. the bonds are sold for less than their face amount.

interest expense on the bonds will be less than the interest paid.

Additional paid-in capital: is one of the items included in the paid-in capital (or contributed capital) category of stockholders' equity. is recorded as equity when bonds are issued at a premium. is sometimes referred to as capital surplus.

is one of the items included in the paid-in capital (or contributed capital) category of stockholders' equity. is sometimes referred to as capital surplus.

Another term frequently used to describe stockholders' equity is: net assets. gross assets. paid-in capital. capital stock.

net assets

Accounts payable are normally shown: on the balance sheet as a noncurrent liability, but not reduced by anticipated cash discounts. on the balance sheet as a current liability, but not reduced by anticipated cash discounts. on the balance sheet as a current liability, net of anticipated cash discounts. on the income statement as an expense, but not reduced by anticipated cash discounts.

on the balance sheet as a current liability, but not reduced by anticipated cash discounts.

Additional paid-in capital is a stockholders' equity category that reflects the excess of the amount received from the sale of preferred or common stock over the (surplus/market/par) value per share.

par

Identify an item that is commonly included with noncurrent liabilities. Product warranties Accounts receivable Interest payables Contingent gains

product warranties

Current maturities of long-term debt are a current liability representing that portion of long-term debt that: will be maturing within a year of the balance sheet date. is similar to an account payable owed to suppliers for the purchase of goods in the normal course of business. is expected to be used as part of a debt/equity swap transaction. has been refinanced with the bank as short-term debt.

will be maturing within a year of the balance sheet date.

Which of the following is (are) a true statement(s) pertaining to bonds? The issuing firm sets the price of a bond. The SEC sets the market price of a bond. Bonds can be sold at a discount, par, or payable. Bonds can be sold at a discount, face amount, or premium.

Bonds can be sold at a discount, face amount, or premium.

Which of the following is a true statement pertaining to bonds? Bonds can be sold at a discount, par, or premium. The issuing firm sets the price of a bond. The SEC sets the market price of a bond. Bonds can be sold at a discount, par, or payable.

Bonds can be sold at a discount, par, or premium.

Debt financing usually has _____. no economic cost to a firm a lower cost to a firm as compared to equity financing a higher cost to a firm as compared to equity financing the same cost to a firm as equity financing

a lower cost to a firm as compared to equity financing

Current maturities of long-term debt are reported

in the current liability section but separately from short-term debt

One of the key advantages of issuing debt as opposed to common stock to raise additional funds is that: interest expense is deductible in calculating taxable income, whereas dividends are not tax deductible. capital investment projects are normally more successful when financed by debt as opposed to equity. issuing debt reduces a corporation's financial leverage and thus allows ROI to become approximately equal to ROE. issuing common stock substantially increases a corporation's perceived risk.

interest expense is deductible in calculating taxable income, whereas dividends are not tax deductible.

One of the key advantages of issuing debt as opposed to common stock to raise additional funds is that: issuing debt reduces a corporation's financial leverage and thus allows ROI to become approximately equal to ROE. capital investment projects are normally more successful when financed by debt as opposed to equity. issuing common stock substantially increases a corporation's perceived risk. interest expense is deductible in calculating taxable income, whereas dividends are not tax deductible.

interest expense is deductible in calculating taxable income, whereas dividends are not tax deductible.

The difference between the gross and net methods of recording the accounts payable relates to:

the timing of the recognition of cash discounts.

Firm A has 8 percent, $50 par value cumulative preferred stock, 30,000 shares authorized, issued, and outstanding. Dividends are paid semiannually, and no dividends are in arrears. The semiannual dividend requirement is:

30,000 x $50 x 8% x 6/12 = $60,000

Firm B has $3, $50 par value cumulative preferred stock, 50,000 shares authorized and issued, and 40,000 shares outstanding. Dividends are paid quarterly, and no dividends are in arrears. The quarterly dividend requirement is:

40,000 x $3 x 3/12 = $30,000

Which of the following does not appear in the stockholders' equity section of a balance sheet? Current maturities of long-term debt. Accumulated Other Comprehensive Income (Loss). Treasury Stock. Additional Paid-In Capital.

Current maturities of long-term debt.

The entry to record the purchase of treasury stock is: Dr. Treasury Stock Cr. Cash Dr. Common Stock Cr. Cash Dr. Cash Cr. Treasury Stock Cr. Additional Paid-in Capital Dr. Treasury Stock Cr. Common Stock Cr. Additional Paid-in Capital

Dr. Treasury Stock Cr. Cash

Accumulated other comprehensive income (loss) is a stockholders' equity category that may include which of the following components? Preferred stock Gains or losses on certain derivative instruments Noncontrolling interests (or minority interests) Cumulative foreign translation adjustments

Gains or losses on certain derivative instruments Cumulative foreign translation adjustments

If a company issues a stock dividend, identify the true effects on the financial statements of the company. Its total liabilities are not affected. Its net income is not affected. Its total assets are decreased. Its total stockholders' equity is decreased. Its total paid-in capital is increased. Its common stock is increased.

Its total liabilities are not affected. Its net income is not affected. Its total paid-in capital is increased. Its common stock is increased. Its retained earnings is decreased. Its total assets are not affected. Its total stockholders' equity is not affected.

Select all that apply Identify the impact of allocation of unearned revenue to the fiscal year in which the product is delivered and the revenue is earned. Net income remains unaffected. Current assets increase. Revenues increase. Liabilities decrease. Working capital increases.

Liabilities decrease. Working capital increases. Revenues increase.

Which of the following statements regarding net income (loss) and retained earnings are correct? Dividends declared during the period decrease net income. Dividends declared during the period increase retained earnings. Net income for the period increases retained earnings. Retained earnings represent the cumulative earnings the corporation has retained for use in the business.

Net income for the period increases retained earnings. Retained earnings represent the cumulative earnings the corporation has retained for use in the business.

Which of the following statements regarding net income (loss) and retained earnings are correct? Net loss for the period decreases retained earnings. Dividends declared during the period decrease retained earnings. Dividends declared during the period increase net loss. Retained earnings is not affected by the declaration of dividends.

Net loss for the period decreases retained earnings. Dividends declared during the period decrease retained earnings.

Identify the frequently listed other noncurrent liabilities. Estimated bonds payable in long term Accounts payable Obligations to pension plans Estimated liabilities under lawsuits

Obligations to pension plans Estimated liabilities under lawsuits

Which of the following statements are true regarding owners' equity and ownership rights held in noncorporate entities? Owners' equity for proprietorships and partnerships is usually referred to as capital. Distributions to owners during the year (sometimes referred to as withdrawals) are treated as expenses. No distinction is made between invested capital and retained earnings for a proprietorship or a partnership. Each partner ordinarily has a voice in the management of the firm that is proportionate to his or her capital account balance. Neither proprietorships or partnerships issue stock.

Owners' equity for proprietorships and partnerships is usually referred to as capital. No distinction is made between invested capital and retained earnings for a proprietorship or a partnership. Neither proprietorships or partnerships issue stock.

In the context of determining the ending balance of retained earnings within the statement of changes in retained earnings which of the following is true? Stock splits need to be added (negative amount) Treasury stock purchased needs to be subtracted (negative amount) The beginning balance of Retained Earnings account needs to be added (positive amount) Stock dividends need to be subtracted (negative amount) Cash dividends for common and preferred stock need to be subtracted (negative amount)

Stock dividends need to be subtracted (negative amount) Cash dividends for common and preferred stock need to be subtracted (negative amount) The beginning balance of Retained Earnings account needs to be added (positive amount) Treasury stock purchases have no effect on retained earnings. Net income needs to be added (positive amount) to retained earnings Stock splits have no effect on retained earnings Preferred stock issuances have no effect.

In reference to the Discount on Bonds Payable and Premium on Bonds Payable accounts, which statement is true? The Discount on the Bonds Payable account reduces working capital. The Discount on the Bonds Payable account is a contra liability. The Premium on Bonds Payable account is a contra liability. As the Premium on Bonds Payable account is amortized each period, the Interest Expense account is increased to the amount it would have been, had the bonds been sold at par.

The Discount on the Bonds Payable account is a contra liability.

Identify the requirements that must be met for a corporation to pay a cash dividend. The corporation must have a sufficient balance in the Retained Earnings account to absorb the dividend. The corporation must agree not to issue a stock dividend within the same calendar year as the declaration of the cash dividend. The corporation must have enough cash to be able to pay the dividend.

The corporation must have a sufficient balance in the Retained Earnings account to absorb the dividend. The corporation must have enough cash to be able to pay the dividend.

Financial leverage refers to which of the following? The difference between the rate of return earned on current assets and the rate of return earned on retained earnings. The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE). The leverage a firm obtains from increasing production. Decreasing fixed costs per unit by increasing production.

The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE).

True or false: The determination of a contingent liability depends on one or more future events.

True

The entry to record an issuance of a small stock dividend (when the market price per share of stock is greater than the par value per share) includes: a credit to Common Stock account for the par value per dividend share issued. a debit to Retained Earnings account for the market price per dividend share issued. a credit to Additional Paid-in Capital account for market price per dividend share issued.

a credit to Common Stock account for the par value per dividend share issued. a debit to Retained Earnings account for the market price per dividend share issued.

The entry to record an issuance of a small stock dividend (when the market price per share of stock is greater than the par value per share) includes: a debit to Retained Earnings account for the market price per dividend share issued. a credit to Common Stock account for the market price per dividend share issued. a credit to Additional Paid-in Capital account for the difference between the market price and par value per dividend share issued.

a debit to Retained Earnings account for the market price per dividend share issued. a credit to Additional Paid-in Capital account for the difference between the market price and par value per dividend share issued.

If a firm sells treasury stock for more than its cost: a gain is recognized in the income statement. retained earnings is increased. additional paid-in capital is increased. total stockholders' equity does not change.

additional paid-in capital is increased.

The entry to record the estimated warranty liability in the year in which the product is sold includes: an increase to expenses. a decrease to current liabilities. a decrease to cash (or repair parts inventory). a decrease to expenses.

an increase to expenses.

Select all that apply Deferred tax liabilities: are normally long term in nature. are provided for temporary differences between income tax and financial statement recognition of revenues and expenses. are one of the most significant liabilities shown on the balance sheet for many firms. involve a straightforward computational process and are a noncontroversial and easily understood liability category.

are normally long term in nature. are provided for temporary differences between income tax and financial statement recognition of revenues and expenses. are one of the most significant liabilities shown on the balance sheet for many firms.

Common stockholders: are the ultimate owners of the corporation; they have a residual ownership claim to the corporation's asset. experience no upper limit to the value of their ownership interests. generally assume considerably less risk than do bondholders.

are the ultimate owners of the corporation; they have a residual ownership claim to the corporation's asset. experience no upper limit to the value of their ownership interests.

Interest on a Note Payable is most appropriately accrued: as of the end of each accounting period during which the note is a liability. when the note is signed. when principal payments on the note are made. when the interest is paid.

as of the end of each accounting period during which the note is a liability.

Treasury stock involves shares which are: authorized and issued, but not currently outstanding. issued and outstanding, but not yet authorized. authorized, issued, and outstanding. not yet authorized

authorized and issued, but not currently outstanding.

Potential claims on a company's resources arising from such things as pending litigation, environmental hazards, casualty losses to property, and product warranties are referred to as (callable/contingent/convertible) liabilities.

contingent

Common stock is an example of what is sometimes referred to as (contributed/earned) capital.

contributed

Common stockholders: do not have any personal liability for corporate debts and thus cannot be forced by creditors to invest additional amounts to make up for losses. have a claim to all assets that remain in the entity after all liabilities and preferred stock claims have been satisfied. are entitled to receive specific predetermined amounts of dividends each year, either as a dollar amount or percentage of par value.

do not have any personal liability for corporate debts and thus cannot be forced by creditors to invest additional amounts to make up for losses. have a claim to all assets that remain in the entity after all liabilities and preferred stock claims have been satisfied.

The employer's Wages Expense for a payroll period represents the employees' (gross/net) pay.

gross

The financial statements prepared by the not-for-profit organizations focus on the requirement of _____. short-term lenders resource providers investors long-term lenders

resource providers

The amortization of bond discount: increases the cash paid to bondholders for interest. reduces the carrying value of bonds payable on the balance sheet. results in bond interest expense being less than the interest paid to bondholders. results in bond interest expense being greater than the interest paid to bondholders.

results in bond interest expense being greater than the interest paid to bondholders.

When a company issues a bond at a premium: the company's interest expense will be less than the interest paid each year. investors perceive the bond to be a very safe investment. the company is more profitable than most companies in its industry. the company's interest expense will be more than the interest paid each year.

the company's interest expense will be less than the interest paid each year.

If the market price of a bond exceeds its face amount: the coupon rate is less than the market interest rate. the company's ROI and working capital have been increasing over time. the maturity rate has been declining. the coupon rate is more than the market interest rate.

the coupon rate is more than the market interest rate.

Not-for-profit and governmental organizations normally report to resource providers rather than investors because: with these types of organizations, operating funds must be accounted for separately from restricted funds. total assets are not reported anywhere in the financial statements. net income is not reported for most of these types of organizations because of their service orientation. these types of organizations do not have owners who have direct financial interests in the entities.

these types of organizations do not have owners who have direct financial interests in the entities.

When a firm purchases its own shares as treasury stock: retained earnings is decreased. total stockholders' equity is increased. paid-in capital is decreased. total stockholders' equity is decreased.

total stockholders' equity is decreased.

Any salary paid to the proprietor of a firm is _____. treated as the firm's expenses treated as a grant given to the proprietor treated as reduction to the proprietor's capital treated as the firm's income

treated as reduction to the proprietor's capital