Accounting 205 Exam 3

The accumulated depreciation account is classified as a(n): A. Contra asset B. Expense C. Liability D. Asset

Contra asset

Taxes collected for taxing authorities are recognized as... A. Revenues B. Operating expenses C. Prepaid expenses D. Current liabilities

Current liabilities

Kevin sels $100 of goods to a customer on account. The sales tax is 8%. The journal entry for this sale will include which of the following? A. Credit accounts payable $108 B. Debit sales tax payable $8 C. Debit accounts receivable $108 D. Credit Revenue $108

Debit accounts receivable $108

Two sisters operate a bed and breakfast on the coast of Maine. As customers make reservations, they are required to pay cash in advance equal to one-half of the rate for their stay. How should the sisters account for the cash received as reservations are made? A. Debit: Cash Credit: Service Revenue B. Debit: Unearned Revenue Credit: Service Revenue C. Debit: Cash Credit: Prepaid Room Expense D. Debit: Cash Credit: Unearned Revenue

Debit: Cash Credit: Unearned Revenue

When treasury stock is purchased, what is the effect on total stockholders' equity? A. Cannot tell from the given information B. No effect C. Decrease D. Increase

Decrease

Research and development costs should be: A. Expensed in the period incurred B. Deferred pending determination of success C. Expensed in the period they are determined to be unsuccessful D. Expensed if unsuccessful, capitalized if successful

Expensed in the period incurred

If a company issues 1,000 shares of $1 par value common stock for $30 per share, what would be the effect on the accounting equation? A. Increase assets and increase SE B. Increase assets and increase revenues C. Increase assets and increase liabilities D. Increase assets and decrease SE

Increase assets and increase SE

Which of the following stages of equity financing comes last in the traditional order of progression? A. Investment by the founders of the business B. Initial public offering (IPO) C. Outside investment by "angel" investors and venture capital firms D. Investment by friends and family of the founders

Initial public offering (IPO)

For a bond issue that sells for less than the bond face amount, the stated interest rate is: A. Less than the market rate B. More than the market rate C. The actual yield rate D. The prime rate

Less than the market rate

The most important advantage to the corporate form of business is... A. Ease of formation B. Regulations C. Limited liability D. Double taxation

Limited liability

The ______ principle requires that the cost of an asset should be allocated to the periods in which revenue is produced. A. Matching B. Revenue Recognition C. Cost of capital D. Periodicity

Matching

calculating interest =

P x R x T = Interest

A company's past profits that are kept instead of being paid to stockholders are... A. Dividends B. Cash C. Reported as income for the current year D. Retained earnings

Retained earnings

Don's Pharmacy has collected $600 in sales taxes during March. If sales taxes must be remitted (paid) to the state government monthly, what entry will Don's Pharmacy make to show the March remittance? A. No entry required B. Sales Taxes Payable 600 Cash 600 C. Sales Tax Expense 600 Cash. 600 D. Sales Tax Expense. 600 Sales Taxes Payable 600

Sales Taxes Payable 600 Cash 600

A $500,000 bond issue sold for $510,000. Therefore, the bonds: A. Sold at a premium because the stated interest rate was higher than the market rate B. Sold for the $500,000 face amount plus $10,000 of accrued interest C. Sold at a premium because the market interest rate was higher than the stated rate D. Sold at a discount because the stated interest rate was higher than the market rate

Sold at a premium because the stated interest rate was higher than the market rate

In a basket purchase of assets, the cost must be allocated to the individual assets because: A. Intangible assets must be identified and expensed as they are purchased B. Goodwill must be expensed immediately C. The assets have different useful lives for depreciation purposes D. Some assets must be expensed upon acquisition

The assets have different useful lives for depreciation

Which of the following statements is true regarding the amortization of intangible assets? A. The expected residual value of most intangible assets is zero B. Intangible assets with a limited useful life are not amortized C. In recording amortization, an accumulated amortization account is always used D. The service life of an intangible asset is always equal to its legal life

The expected residual value of most intangible assets is zero

Gain contingencies usually are recognized in a company's income statement when: A. The amount can be reasonably estimated B. The gain is probable and the amount can be reasonably estimated. C. The gain is reasonably possible and the amount can be reasonably estimated D. The gain is certain

The gain is certain

A company's capital structure refers to: A. The amount of short term and long term debt that the company has on the balance sheet B. The mixture of debt and equity used to finance the company C. The amount of cash a company maintains for future construction D. The percentage of assets to total liabilities the company maintains

The mixture of debt and equity used to finance the company

The common stock account on a company's balance sheet is measured as: A. The number of common shares issued x the stock's par value per share B. The number of common shares issued x the stock's current market value per share C. The number of common shares outstanding x the stock's par value per share D. The number of common shares outstanding x the stock's current market value per share

The number of common shares issued x the stock's par value per share

Stockholders of a company may be reluctant to finance expansion through issuing more equity because: A. Dividends must be paid on a periodic basis B. The price of the stock will automatically decrease C. Leveraging with debt is always a better idea D. Their earnings per share may decrease

Their earnings per share may decrease

The relationship between current assets and current liabilities is: A. Useful in evaluating a company's liquidity B. Called the matching principle C. Useful in determining income D. Useful in determining the amount of a company's long-term debt

Useful in evaluating a company's liquidity

Book value =

cost - accumulated depreciation

Return on equity =

net income / average SE

Western Wholesale Foods incurs the following expenditures during the current fiscal year: (1) Salaries for the repair technicians, $155,000 (2) Remodeling of the executive offices, $84,000 (3) Annual maintenance costs related to its machines, $72,000 (4) Improvements of the production line resulting in an increase in productivity, $38,000 (5) Addition of a sprinkler system to the manufacturing facility to reduce the risk of fire damage, $35,000 Which items would Western capitalize? A. 1 and 3 B. 2 and 4 C. 2, 4, and 5 D. 1, 3, and 5

2, 4, and 5

Which of the following is NOT a current liability on December 31, 2012? A. An accounts payable due Jan. 31, 2013 B. Accrued salaries payable from 2012 C. A lawsuit judgement to be decided on Jan. 10, 2013 D. A note payable due Dec. 31, 2013

A lawsuit judgement to be decided on Jan. 10, 2013

Which of the following is not a current liability? A. Sales tax payable B. Current portion of long-term debt C. A note payable due in 18 months D. Accounts payable

A note payable due in 18 months

An accounting entry is NOT made for which of the following types of stock? A. None of these - they all need entries B. Issued shares C. Treasury shares D. Authorized shares

Authorized shares

Ima Rich purchased 100 shares of Stocket, Inc.'s $1 par value common stock for $5 per share on the date of their IPO. Which of Stocket's financial statements is affected by this transaction? A. Both the income statement and the balance sheet B. Neither the income statement or balance sheet C. Income statement D. Balance sheet

Balance sheet

Working Capital =

current assets - current liabilities

Acid-test ratio =

(cash + current investments + accounts receivable) / current liabilities

Accumulated Depreciation =

(cost - salvage value) / years x 2

RanchHand Corp. estimated warranty expense in Year 1 of $10,000. In Year 2, Ranch performed warranty work of $8,000. The journal entry to record the performance of warranty work would include a: A. Credit to warranty expense B. Debit to warranty liability C. Credit to estimated liability for warranty D. Debit to cash

Debit to warranty liability

Current Ratio =

current assets / current liabilities

Earnings per share =

net income - dividends on preferred stock / avg. shares of common stock outstanding

Return on assets =

net income / avg. total assets

Profit margin =

net income / net sales

Asset turnover =

net sales/ avg. total assets

Price earnings ratio =

stock price / earnings per share