Financial Accounting Exam 3

Which of the following is not a primary source of long-term debt financing?

Accounts Payable.

A company's capital structure refers to:

Its mixture of liabilities and stockholders' equity.

An advantage of leasing an asset rather than purchasing the asset is:

Leases typically require less cash upfront to begin using the asset.

Like an S corporation, but there are no limitations on the number of owners as in an S corporation.

Limited Liability Company.

Current liabilities

May include contingent liabilities.

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as

Sales Tax Payable.

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.

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest payable for the year ended December 31, 2021?

$1.5 million.

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?

$25,000.

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as the reduction in principal for the first full month?

$2542.

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.

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest expense for the year ended December 31, 2022?

$4.5 million.

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year?

$400.

A company needs construction equipment to complete a project over the next 20 months. The equipment costs $10,000. Instead of purchasing the equipment with a 12% note, the company leases the equipment with payments of $300 due at the end of each month. For what amount would the company record the lease liability at the beginning of the lease?

$5,414.

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. What is the amount of interest expense to report in 20X2?

$8,000.

When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as:

A debit to a liability and a credit to a revenue account.

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as:

A debit to an asset and a credit to a liability account.

Describes (a) the nature of the firm's business activities, (b) the shares to be issued, and (c) the composition of the initial board of directors.

Articles of incorporation.

Which of the following is not an advantage of debt financing?

Debt financing often has no maturity date.

Corporate earnings are taxed twice—at the corporate level and individual shareholder level.

Double taxation.

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?

Increase of $2.84.

The first time a corporation issues stock to the public.

Initial public offering.

Traces the line of authority within the corporation.

Organization chart.

Has stock traded on a stock exchange such as the New York Stock Exchange (NYSE).

Publicly help corporation.

Which of the following is not a primary source of corporate debt financing?

Receivables.

Allows for legal treatment as a corporation, but tax treatment as a partnership.

S Corporation.

Interest expense is recorded in the period in which:

The interest is incurred.

We record interest expense on a note payable in the period in which

We incur interest.

Which of the following typically represents an advantage of leasing over purchasing an asset with an installment note?

Lease payments often are lower than installment payments, Leasing generally requires less cash upfront, & Leasing typically offers greater flexibility and lower costs in disposing of an asset.

Shareholders can lose no more than the amount they invest in the company.

Limited Liability.