Accounting Test 3 MC

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Additional Paid-in Capital for:

$1,600,000

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

If Speedy Travel, Inc. borrows $50 million on September 1 for one year at 9% interest, how much interest expense should it record by December 31 of that same year?

$1.5 million

A company issues 100,000 shares of $1 par value common stock for $17 per share. To record this transaction, the company would credit Common Stock for:

$100,000

A company purchased new equipment for $31,000 with a two-year installment note requiring 5% interest. The required monthly payment is $1,360. For the first month's payment, what is the amount to record for interest expense?

$129

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?

$2,542

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 second month?

$2,555

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account?

$2000

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 revenues. Actual warranty costs related to these sales were $5000 during the year. How much is the estimated warranty liability reported int he balance sheet this year?

$25,000

A company purchased new equipment for $31,000 with a two-year installment note requiring 5% interest. The required monthly payment is $1,360. After the first month's payment, what is the balance of the note?

$29,769

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 $5000 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

Suppose a company declares a dividend of $0.50 per share. At the time of declaration, the company has 100,000 shares issued and 90,000 shares outstanding. On the declaration date, Dividends would be recorded for

$45,000

If Executive Airways borrows$10 million on April 1, 20X1, for one year 6% interest, how much interest expense does it record for the year ended December 31, 20X1?

$450,000

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

$487

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

$500

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?

$5414

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?

$8000

Petite Fashions issued 500,000 of its 2 million shares of authorized common stock. At the end of the accounting period, 450,000 shares are outstanding. How many shares of treasury stock does Petite Fashions have?

50,000 shares

An accumulated deficit is:

A debit balance in retained earnings

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

Treasury stock is recorded as:

A decrease in stockholders' equity

Declaring a cash dividend has what effect on total stockholders' equity?

A decrease in total stockholders' equity

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

Accounts payable

Retained earnings represents:

All net income, less all dividends, since the company began operations

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

All of the answer choices are advantages of leasing

A company leases an office building for 24 months. At the beginning of the lease period, the lessee (user) would:

All of the answers are correct

Which of the following represents a characteristic of a liability?

All of these are characteristics of a liability

Which of the following is not a current liability?

An unused line of credit.

Allied Partners filed suit against Big Sky, Inc., seeking damages for patent infringement. Big Sky's legal counsel believes it is probable that Big Sky will settle the lawsuit for an estimated amount in the range of $500,000 to $700,000, with all amounts in the range considered equally likely. How should Big Sky report this litigation?

As a liability for $500,000 with disclosure of the range.

The correct order from the largest number of shares to the smallest number of shares is:

Authorized, issued, and outstanding

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. The company then resells 400 of these shares for $20 per share. Which of the following is recorded at the time of the resale?

Credit Additional Paid-In Capital for $1,600

A company issues 10,000 shares of $0.05 par value common stock for $25 per share. Which of the following is recorded at issuance?

Credit Common Stock for $500

Cash dividends are initially recorded on which date?

Date of declaration

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?

Debit Cash, $5000; Credit Notes Payable, $5000

Travel Planners, Inc. borrowed $5000 from First State Bank and signed a promissory note. What entry should First State Bank record?

Debit Notes Receivable, $5000; Credit Cash, $5000

Suppose a company purchases 2,000 shares of its own $1 par value common stock for $16 per share. Which of the following is recorded at the time of the purchase?

Debit Treasury Stock for $32,000

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. The company should report the following adjusting entry at December 31, 20X1:

Debit interest expense and credit interest payable, $4000

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

Debt financing often has no maturity date.

We credit Dividends Payable on

Declaration date

When treasury stock is purchased, what is the effect on total shareholders' equity?

Decrease

Treasury stock

Decreases stockholders' equity

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

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 the reasonably likely, a contingent liability should be:

Disclosed but not reported as a liability.

The disadvantages of a corporation compared to a sole proprietorship or partnership include:

Double taxation

Which of the following is a publicly traded company?

Facebook

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

When treasury stock is resold, total stockholders' equity:

Increases

Retained earnings

Increases stockholders' equity

Which of the following stages of equity financing would come last for most public companies?

Initial public offering.

Which of the following is not a characteristic of a liability?

It must be payable in cash.

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.

Which of the following statements regarding liabilities is true?

Liabilities represent probable future sacrifices of benefits

Which of the following statements regarding liabilities is not true?

Liabilities result from future transactions

The advantages of a corporation compared to a sole proprietorship or partnership include:

Limited liability

The advantages of owning a corporation include

Limited liability

Current liabilities

May include contingent liabilities

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

Cash dividends are based on the number of shares:

Outstanding

The correct order from the smallest number of shares to the largest number of shares is

Outstanding, issued, and authorized

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

Receivables

A contingent liability that is probable and can be reasonably estimated must be

Recorded

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

Sales tax payable

Which of the following shows activity over a period of time?

Statement of stockholders' equity

The statement of stockholders' equity

Summarizes the changes in the balance in each stockholders' equity account over a period of time

In each succeeding payment on an installment note:

The amount that goes to interest expense decreases

Interest expense is recorded in the period in which:

The interest is incurred

How does the stockholders' equity section in the balance sheet differ from the statement of stockholders' equity?

The stockholders' equity section shows balances at a point in time, whereas the statement of stockholders' equity shows activity over a period of time.

A company resells 10,000 shares of treasury stock for $22 per share. The stock was purchased in a previous year for $18 per share. By how much would net income be affected by the sale of this treasury stock?

There would be no effect on net income from the sale of treasury stock.

Common shareholders usually have all of the following rights except:

To participate in the day-to-day operations

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

We incur interest

In most cases, current liabilities are payable within_____ years(s), and long-term liabilities are payable more than_____ year(s) from now.

one; one

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

In its first three years of operations, a company has net income of $2,000; $5,000; and $8,000. It also pays dividends of $1,000 in the second year, and $3,000 in the third year. What is the balance of Retained Earnings at the end of the third year?

$11,000

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will have to pay 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?

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

Which of the following is reported as a current liability?

Current portion of a long-term debt

On the date of dividend declaration, which of the following entries is recorded?

Debit dividends; Credit Dividends Payable

If a company issues par-value stock, the amount credited to common stock will be:

The par value per share times the number of shares issued