ACC 302 Exam 1

D) Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

2. Which of the following is not considered a part of the definition of a liability? A) Unavoidable obligation. B) Transaction or other event creating the liability has already occurred. C) Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. D) Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

D) $9,831,761

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2013. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2015? A) $9,835,115 B) $9,970,311 C) $9,816,916 D) $9,831,761

C) $784,249

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, how much interest expense will be recognized in 2014? A) $390,000 B) $780,000 C) $784,249 D) $784,166

A) $9,806,321

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2014 balance sheet? A) $9,806,321 B) $10,000,000 C) $9,812,563 D) $9,804,155

D) $789,896

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. What is interest expense for 2015, using straight-line amortization? A) $1,026,805 B) $780,000 C) $784,596 D) $789,896

D) none of these answers are correct.

An account which would be classified as a current liability is A) dividends payable in the form of a company's stock. B) accounts payable—debit balances. C) losses expected to be incurred within the next twelve months in excess of the company's insurance coverage. D) none of these answers are correct.

A) dividends payable in stock.

An example of an item which is not a liability is A) dividends payable in stock. B) advances from customers on contracts. C) accrued estimated warranty costs. D) the portion of long-term debt due within one year.

B) $640,000

At December 31, 2014 the following balances existed on the books of Foxworth Corporation: Bonds Payable Discount on Bonds Payable Interest Payable Unamortized Bond Issue Costs If the bonds are retired on January 1, 2015, at 102, what will Foxworth report as a loss on redemption? A) $740,000 B) $640,000 C) $540,000 D) $400,000

A) $1,000,000

Elmer Corporation has $1,800,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? A) $1,000,000 B) $1,800,000 C) $800,000 D) $0

D) The sum of cash, short-term investments and net receivables divided by current liabilities.

How do you determine the acid-test ratio? A) The sum of cash and short-term investments divided by short-term debt. B) Current assets divided by current liabilities. C) Current assets divided by short-term debt. D) The sum of cash, short-term investments and net receivables divided by current liabilities.

C) $800,000

In recent year Cey Corporation had net income of $500,000, interest expense of $100,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year? A) $1,000,000 B) $900,000 C) $800,000 D) None of these answers are correct.

D) $0.

Included in Vernon Corp.'s liability account balances at December 31, 2014, were the following: 7% note payable issued October 1, 2014, maturing September 30, 2015 $250,000 8% note payable issued April 1, 2014, payable in six equal annual installments of $150,000 beginning April 1, 2015 600,000 Vernon's December 31, 2014 financial statements were issued on March 31, 2015. On January 15, 2015, the entire $600,000 balance of the 8% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2015, Vernon consummated a noncancelable agreement with the lender to refinance the 7%, $250,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. On the December 31, 2014 balance sheet, the amount of the notes payable that Vernon should classify as short-term obligations is A) $175,000. B) $125,000. C) $50,000. D) $0.

B) $50,000

Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2014, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000 bowls. If the bowls cost Palmer Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2014? A) $270,000 B) $50,000 C) $75,000 D) $138,000

D) 7.7 times.

Putnam Company's 2014 financial statements contain the following selected data: Income taxes $40,000 Interest expense $15,000 Net income $60,000 Putnam's times interest earned for 2014 is A) 4.0 times B) 5.0 times. C) 6.7 times. D) 7.7 times.

C) $55,800.

The December 31, 2014, balance sheet of Hess Corporation includes the following items: 9% bonds payable due December 31, 2023 $3,000,000 Unamortized premium on bonds payable 81,000 The bonds were issued on December 31, 2013, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2015, Hess retired $1,200,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. A) $56,400. B) $32,400. C) $55,800. D) $60,000.

D) $2,950,000.

The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2014, contained the following accounts. 5-year Bonds Payable 8% Interest Payable Premium on Bonds Payable Notes Payable (3 months.) Notes Payable (5 yr.) Mortgage Payable ($15,000 due currently) Salaries and wages Payable Income Taxes Payable (due 3/15 of 2015) $2,500,000 50,000 100,000 40,000 165,000 200,000 18,000 25,000 The total long-term liabilities reported on the balance sheet are A) $2,865,000. B) $2,850,000. C) $2,965,000. D) $2,950,000.

B) included in the carrying amount of the related long-lived asset.

To A) expensed. record an asset retirement obligation (ARO), the cost associated with the ARO is B) included in the carrying amount of the related long-lived asset. C) included in a separate account. D) capitalized over the asset's useful life.

C) The company's liquidity.

What does the current ratio inform you about a company? A) The extent of slow-moving inventories. B) The efficient use of assets. C) The company's liquidity. D) The company's profitability.

D) An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

What is a contingency? A) An existing situation where certainty exists as to a gain or loss that will be resolved when one or more future events occur or fail to occur. B) An existing situation where uncertainty exists as to possible loss that will be resolved when one or more future events occur. C) An existing situation where uncertainty exists as to possible gain or loss that will not be resolved in the foreseeable future. D) An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

A) Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less).

What is the relationship between current liabilities and a company's operating cycle? A) Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less). B) Current liabilities are the result of operating transactions. C) Current liabilities can't exceed the amount incurred in one operating cycle. D) There is no relationship between the two.

C) Expensed based on estimate in year of sale.

Which of the following best describes the accrual method of accounting for warranty costs? A) Expensed when paid. B) Expensed when warranty claims are certain. C) Expensed based on estimate in year of sale. D) Expensed when incurred.

C) A cash dividend payable to preferred stockholders

Which of the following is a current liability? A) Preferred dividends in arrears B) A dividend payable in the form of additional shares of stock C) A cash dividend payable to preferred stockholders D) All of these answers are correct.

A) Obligations related to product warranties.

Which of the following is an example of a contingent liability? A) Obligations related to product warranties. B) Possible receipt from a litigation settlement. C) Pending court case with a probable favorable outcome. D) Tax loss carryforwards.

D) Subsequently refinance the obligation on a long-term basis.

Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities? A) Intend to refinance the obligation on a long-term basis. B) Obligation must be due with one year. C) Demonstrate the ability to complete the refinancing. D) Subsequently refinance the obligation on a long-term basis.

B) a loss contingency of $4,800,000 and disclose an additional contingency of up to $3,200,000.

Wooten Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Wooten's lawyer states that it is probable that Wooten will lose the suit and be found liable for a judgment costing Wooten anywhere from $1,600,000 to $8,000,000. However, the lawyer states that the most probable cost is $4,800,000. As a result of the above facts, Wooten should accrue A) a loss contingency of $1,600,000 and disclose an additional contingency of up to $6,400,000. B) a loss contingency of $4,800,000 and disclose an additional contingency of up to $3,200,000. C) a loss contingency of $4,800,000 but not disclose any additional contingency. D) no loss contingency but disclose a contingency of $1,600,000 to $8,000,000.