accounting chapter 8

b) no change to the current ratio and decrease the acid test ratio

Assuming a current ration of 1.00 and an acid test ration of 0.75, how will the purchase of inventory with cash affect each ration a) increase the current ratio and increase the acid test ratio b) no change to the current ratio and decrease the acid test ratio c) decrease the current ratio and decrease the acid test ratio d) increase the current ratio and decrease the acid test ratio

100 x .06 x 3/12 = c) $1.5 million

If express jet borrows $100 million on October 1, 2018, for one year at 6% interest, how much interest expense does it record for the year ended December 21, 2018? a) $0 b) $1 million c) $1.5 million d) $6 million

a) disclosed but not reported as a liability

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be: a) disclosed but not reported as a liability b) disclosed and reported as a liability c) neither disclosed nor reported as a liability d) reported as a liability but not disclosed

a) as a liability for $75,000 with disclosure of the range

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Westerns legal counsel believes it is probable that Western will settle the lawsuit for an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation. a) as a liability for $75,000 with disclosure of the range b) as a liability for $125,000 with disclosure of the range c) as a liability for $175,000 with disclosure of the range d) as a disclosure only, no liability is reported

c) cash, current investments and accounts receivable divided by current liabilities

The acid test ratio is: a) current assets divided by current liabilities b) cash and current investments divided by current liabilities c) cash, current investments and accounts receivable divided by current liabilities d) cash, current investments, accounts receivable and inventory divided by current liabilities

d) sales tax payable

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as: a) sales tax expense b) sales tax revenue c) sales tax receivable d) sales tax payable

c) liabilities result from future transactions

Which of the following statements regarding liabilities is NOT true? a) liabilities can be for services rather than cash b) liabilities are reported in the balance sheet for almost every business c) liabilities result from future transactions d) liabilities represent probable future sacrifices of benefits

liability

a present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past

unemployment taxes

a tax cover federal and state unemployment costs paid by the employer on behalf of its employees

fringe benefits

additional employee benefits paid for by the employer

debt covenant

an agreement between a borrower and a lender requiring certain minimum financial measures be met or the lender can recall the debt

contingent gain

an existing uncertain situation that might result in a gain

contingent liability

an existing uncertain situation that might result in a loss

line of credit

an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork

FICA taxes

based on the federal insurance contributions act, tax withheld from employees paychecks and matched by employers for social security and medicare

commercial paper

borrowing from another company rather than from a bank

deferred revenue

cash received in advance from a customer for products or services to be provided in the future

acid test ratio

cash, current investments and accounts receivable divided by current liabilities, measures the available ability of liquid current assets to pay current liabilities

current ratio

current assets divided by current liabilities, measures the availability of current assets to pay current liabilities

a) may include contingent liabilities

current liabilities: a) may include contingent liabilities b) include obligations payable withing one year or one operating cycle, whichever is shorter c) can be satisified with only the payment of cash d) are preferred by most companies over long term liabilities

current portion of long term debt

debt that will be paid within the next year

current liabilities

debts that in most cases are due within one year. However when a company has an operating cycle of longer than a year, current liabilities are defined by the length of operating cycle, rather than by the length of one year

liquidity

having sufficient cash (or other assets convertible to cash in a relatively short time) to pay currently maturing debts

quick assets

includes only cash, current investments and accounts receivable

sales tax payable

sales tax collected from customers by the seller, representing current liabilities payable to the government

working capital

the difference between current assets and current liabilities

contingencies

uncertain situation that can result in a gain or loss for a company

b) we incur interest

we record interest expense on a note payable in the period in which: a) we pay cash for interest b) we incur interest c) we pay cash and incur interest d) we pay cash or incur interest

b) unemployment taxes

which of the following is not deducted from an employees salary? a) FICA taxes b) unemployment taxes c) income taxes d) employee portion of insurance and retirement payments

notes payable

written promises to repay amounts borrowed plus interest