Accounting Final Exam
Suppose that Neuman Exploration Tours has filed a lawsuit against a competitor for an alleged trademark violation. At the end of the year, Neuman's attorney estimates that the company will likely win the lawsuit and be awarded between $1.5 and $2 million, with the most likely amount being $1.8 million. How much should Neuman record as a gain?
0
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?
25000
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 warranty expense should the company record this year?
30,000
Which of the following is paid by both the employee and the employer?
Both employers and employees pay FICA tax, which is Social Security and Medicare Taxes.
Vertical Analysis
Comparison of one company to another (common-size) by getting the percentage of the base amount.
How do you find the % increase or decrease in a horizontal analysis?
Current year - Prior year --------------------------- Prior year
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?
Decrease of 38.34
How would you find the vertical analysis of an income statement?
Divide amount by total sales. % of sales.
Which of the following increases an employer's payroll costs?
Employers FICA contribution
Which of the following is not deducted from an employee's salary?
Federal and state unemployment taxes
Which of the following is not included in calculating the acid-test ratio?
Inventory
Which of the following statements regarding liabilities is not true?
Liabilities result from future transactions.
recievables turnover ratio
Net Credit Sales / Average Accounts Recievable
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?
No asset or gain is reported.
Assuming a current ratio of 1.0 and an acid-test ratio of 0.75, how will the purchase of office supplies for cash affect each ratio?
No change to the current ratio and decrease the acid-test ratio.
Assume that Airline Accessories' current ratio is greater than 1. Which of the following will decrease its current ratio?
Purchasing inventory on account.
Debt-Equity Ratio
Solvency ratio total liabilities/stockholders equity
Which of the following is true in comparing the current ratio with the acid-test ratio?
The current ratio will always be at least as large as the acid-test ratio
Solvency
a company's ability to pay all its liabilities, which includes its long-term liabilities.
horizontal analysis
analyze trends in financial statement data for a single company over time. AKA trend-analysis, or time series analysis.
Acid Test Ratio
cash+current investments+accounts receivable/current liabilities
Inventory Turnover Ratio
cost of goods sold/average inventory
Current Ratio
current assets/by current liabilities
Whats the amount in a horizontal analysis?
current year-prior year
Interest expense is recorded in the period in which
interest is incurred
Liquidity
the ability to easily convert financial assets into cash without loss in value. leads to ability to pay short term liabilities.