ACCT 201 Exam 3

formula for calculating interest

Face amount x annual interest rate x fraction of the year

the following may be classified as contingent liabilities

Future litigation losses Frequent flier program awards Product warranties

the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay

Health insurance paid by the employee Federal income taxes Employee contributions to retirement plans

Depreciation is a process of cost _______, and not a process of valuation.

allocation

An interest rate, unless otherwise specified, is typically a(n) _________ rate

annual

Under US GAAP, a contingent liability should

be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated not be reported if the loss is remote and unable to be estimated be reported on the balance sheet if the loss will probably occur and can be reasonably estimated

The two types of financing are

debt and equity

Financing with ____ requires borrowing, whereas financing with _____ requires issuing shares of stock.

debt; equity

The declaration and payment of a cash dividend ultimately causes a(n):

decrease in stockholders' equity. decrease in Cash. decrease in Retained earnings.

The effect on the accounting equation of declaring a dividend that will be paid at a later date includes a(n):

decrease in stockholders' equity. increase in liabilities.

the following are examples of fringe benefits provided by employers to their employees

payment of insurance premiums on employees behalf contributions to retirement and other savings accounts reduced or no-cost company-provided services

Periodic payments on installment notes typically include

portion answers

Straight-line and declining balance methods allocate the cost of a long-term asset based on ________, while an activity-based method allocates the cost of an asset based on its

time; use

A(n) ______ is the exclusive right to manufacture a product or use a process granted for a period of ______ years.

patent; 20

activity-based depreciation=

(cost - residual value)/estimated total production

Which of the following are included in the duties of the board of directors?

Appoint officers to manage the corporation. Establish corporate policies.

characteristics of notes payable that are not common to accounts payable

Based on promissory note Interest bearing

Notes payable is classified as a liability that has this effect:

Creates interest expense on the income statement

On October 1, 2018, Logan Corporation signed a 6-month, 8% interest-bearing promissory note for $10,000. The journal entry required at December 31, 2018 would include which of the following?

Debit interest expense $200

the following are not required payroll withholdings

State unemployment tax (SUTA) Federal unemployment tax (FUTA) Charitable contributions

Which of the following are typically shown in an amortization schedule related to an installment notes payable?

The carrying value of the note at the end of the period The cash paid each payment period The carrying value of the note at the beginning of the period

Which of the following are typically shown in an amortization schedule related to an installment notes payable requiring period payment of interest and principal?

The cash paid each payment period Interest expense based on the beginning period carrying value and the effective rate of the loan The carrying value of the note at the end of the period The decrease in the carrying value of the note

A(n) _______ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash

accounts

Allocating the cost of intangible assets to expense is referred to as

amortization

A corporation that wishes to borrow from the general public rather than a bank will issue

bonds

the double-declining-balance=

book value at beginning of year x 2/estimated service life

The feature that distinguishes loss ________ from other liabilities is the uncertain outcome.

contingencies

A transaction or event in which the outcome is uncertain is referred to as a(n)

contingency

the following voluntary contributions by employees may employers deduct from their employees' pay

contributions toward retirement funds employee investments in retirement

____ bonds are retired when the bondholder exchanges them for the issuing company's stock

convertible

Which of the following are correct regarding bonds?

credit lease payable $25,000 debit lease asset $25,000

The portion ________ of long-term debt is the amount that will be paid within the next year.

current

__________ financing refers to borrowing money from creditors

debt

Internally developed goodwill should be capitalized as an asset.

false

Using the declining balance method, depreciation will be

higher in earlier years, but lower in later years

Loans requiring periodic payments of interest and principle are referred to as ________ notes

installment

The amount of money paid into a company by its owners is referred to as

invested capital

Improved cash flows is a common advantage of acquiring equipment through .

leasing

______ has grown into the most popular method of external financing of corporate assets in America.

leasing

A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a

liability

________ bonds are supported by a specific asset the issuer pledges as collateral.

secured

The cost of land improvements are capitalized separately from land because land improvements tend to have a ________ useful life

short

An IPO:

stands for initial public offering. is when a private company goes public.

Shareholders' equity is another common term for _________equity.

stockholders'

Straight-line deprecation=

the depreciable cost/the estimated service life of the asset

A contingent liability is an existing _________ situation that might result in a loss depending on the outcome of a future event

uncertain

Most bonds issued today are __

unsecured

Shareholders influence a company by

voting for the board of directors

For a manufacturer, the most commonly reported contingent liabilities relate to product

warranty

Current assets minus current liabilities equals

working capital

A business that incorporates must file a document with the state, which includes a description of the business activities, the shares to be issued, and the composition of the board of directors. Which of the following terms are used to describe this document?

Articles of incorporation Corporate charter

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?

Cost of driveways Cost of sidewalks Cost of lawn sprinkler system

the following are employer payroll costs

Employer portion of Medicare tax Federal and state unemployment taxes

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?

Title insurance Costs to remove an old building Grading the land Legal fees to secure title Commissions

Recording depreciation results in the allocation of the cost of a long-term asset to the years during which the asset provides ________

benefits

the following payroll-related costs are incurred by employees

employee investments in retirement plans federal and state income tax

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $110 in cash per share affects the accounting equation by: (Select all that apply.)

increasing total stockholders' equity. increasing additional paid-in capital. increasing total assets.

Issuing 1,000 shares of 5%, $100 par value, cumulative preferred stock for $100 cash per share affects the accounting equation by:

increasing total stockholders' equity. increasing total assets.

two classifications for liabilities

long-term, current

Issuing a note payable for cash results in a(n) _____

increase in assets, increase in liabilities

On September 1, 2018, Kale Corporation signed a 6-month, 12% interest-bearing promissory note for $100,000. The journal entry required at December 31, 2018 would include which of the following?

Debit interest expense $4,000