Accounting Final Connect CH. 8-10

A company is the number one online music retailer through its iTunes music store. The company sells iTunes gift cards in $15, $25, and $50 increments. Assume the company sells $19.3 million in iTunes gift cards in November, and customers redeem $12.3 million of the gift cards in December. What is the ending balance in the Deferred Revenue account? a. 7,000,000 b. 1,000,000 c. 19,300,000 d. 12,300,000

a

A contingent liability that is probable and can be reasonably estimated must be a. recorded b. not disclosed c. paid d. disclosed

a

Outdoor Adventures issues bonds at a discount. On the maturity date, the bonds' carrying value will be a. At face amount. b. Above or below face value depending on current market interest rates. c. Below face amount. d. Above face amount.

a

Serial bonds are a. Bonds that mature in installments. b. Bonds the issuer can repurchase at a fixed price. c. Bonds backed by collateral. d. Bonds issued below the face amount.

a

Which of the following is not a characteristic of a liability? a. It must be payable in cash. b. It represents a probable, future sacrifice of economic benefits. c. It results from past transactions or events. d. It arises from present obligations to other entities.

a

Which of the following is true regarding a company assuming more debt? a. Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds. b. Assuming more debt is always good for the company. c. Assuming more debt reduces leverage. d. Assuming more debt is always bad for the company.

a

If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 20X1? a. $600,000 b. $450,000 c. $150,000 d. $300,000

b

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should report the following adjusting entry at December 31, 20X1: a. Debit interest expense and credit interest payable, $12,000. b. Debit interest expense and credit interest payable, $4,000. c. Debit interest expense and credit cash, $4,000. d. Debit interest expense and credit cash, $12,000.

b

The city of Summerton has a sales tax rate of 8%. A local convenience store sells merchandise, and the customer pays a total of $38.34. What effect does this transaction have on total liabilities? a. Increase of $3.07. b. Increase of $2.84. c. Decrease of $38.34. d. No effect.

b

Which of the following is not a primary source of corporate debt financing? a. notes b. receivables c. leases d. bonds

b

Which of the following is not a primary source of long-term debt financing? a. notes payable b. accounts payable c. bonds d. leases

b

Which of the following is paid by both the employee and the employer? a. State unemployment taxes. b. FICA taxes. c. Federal unemployment taxes. d. Personal income taxes.

b

A company leases an office building for 24 months. At the beginning of the lease period, the lessee (user) would: a. Record a lease for the present value of the 24 lease payments. b. Record a lease liability. c. All of the answers are correct. d. Record a lease asset.

c

Assume that Airline Accessories' current ratio is greater than 1. Which of the following will decrease its current ratio? a. Collecting an accounts receivable. b. Issuing common stock for cash. c. Purchasing inventory on account. d. Purchasing equipment, signing a long-term note.

c

Aviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much is the estimated warranty liability reported in the balance sheet this year? a. $30,000. b. $10,000. c. $25,000. d. $5,000.

c

If bonds are issued with a stated interest rate higher than the market interest rate, the bonds will be issued at a. Face amount. b. A discount. c. A premium. d. A discount or premium depending on the maturity date.

c

In each succeeding payment on an installment note: a. The amount that goes to interest expense is unchanged. b. The amounts paid for both interest and principal increase proportionately. c. The amount that goes to interest expense decreases. d. The amount that goes to interest expense increases.

c

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation? a. As both an asset and a gain for $125,000. b. As an asset for $125,000. c. No asset or gain is reported. d. As a gain for $125,000.

c

A company's capital structure refers to: a. Its mixture of current versus long-term assets. b. Its mixture of paid-in capital versus retained earnings. c. Its mixture of current versus long-term liabilities. d. Its mixture of liabilities and stockholders' equity.

d

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account? a. $0. b. $10,000. c. $8,000. d. $2,000.

d

The cash paid for interest on bonds payable is calculated as: a. Face amount times the market interest rate. b. Carrying value times the market interest rate. c. Carrying value times the stated interest rate. d. Face amount times the stated interest rate.

d

current ratio formula

total current assets/total current liabilities