ACC 201 Ch 8 Quiz

What is the impact on the accounting equation of recording the accrual of interest expense?

Liabilities increase and stockholders' equity decreases.

What is the impact on the accounting equation of recording the accrual of wages expense?

Liabilities increase and stockholders' equity decreases.

Which of the following statements regarding liabilities is true?

Liabilities arise from past activities that require some future sacrifice of economic benefits.

Which of the following statements regarding accounts payable is false?

Accounts payable arise when a business promises to purchase goods or services in the future.

What is the impact on the accounting equation of recording a payment to a supplier on account?

Both assets and liabilities decrease.

During the year, Great Adventures sold 150 dune buggies for $4,000 each. The dune buggies carry a 5-year warranty for defects. Estimates suggest that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $14,000, and $20,000 in claims was actually incurred during the year to honor the warranty. What was the warranty expense at the end of the year?

$24,000

During the first quarter of the current year, the company sold 4,000 batteries on credit for $150 each plus state sales tax of 6%.Refer to General Lighting. Sales taxes are required to be paid to the state taxing authority at the end of the quarter. What is the amount of the current liability related to this transaction?

$36,000

Giff Services Company experienced some difficulties with cash flow so it approached one of its vendors about a payment extension. The vendor agreed to the extension on the condition that the company sign a note that includes 9% interest. What is the impact on the accounting equation of recording a note payable in exchange for the account payable?

There is no net impact, as there are corresponding increases and decreases in liability accounts.

During the first quarter of the current year, the company sold 4,000 batteries on credit for $150 each plus state sales tax of 6%.Refer to General Lighting. The $150 price of each battery includes a $3 federal excise tax. Which of the following statements is true regarding the proper accounting treatment for the taxes related to this transaction?

They are recorded as a current liability owed to the taxing authority.

The payment of Accounts Payable results in a(n)

decrease in both liabilities and assets

Which of the following is not classified as a current liability account?

note payable, due in 2 years

An example of a current liability that must be accrued is

wages payable.

A current liability includes obligations which must be repaid

within one year or within the operating cycle, whichever is longer.

Which of the following statements about current liabilities is true?

Current liabilities are the denominator in the formula for the current ratio.

During January, Gaston Wholesalers experienced some difficulties with cash flow so it approached one of its vendors about a payment extension. The vendor agreed to the extension on the condition that the company sign a 30-day note that includes 9% interest. What journal entry is needed to record the retirement of the note on the maturity date?

Debit notes payable, debit interest expense, and credit cash.

What is the impact on the accounting equation of recording the issuance of a short-term note payable?

Both assets and liabilities increase

A current liability is defined as a commitment or obligation which requires a company to transfer assets, create a new current liability, or provide services to another entity at some point in the future that must occur

within one year or within the operating cycle, whichever is longer.

During the first quarter of the current year, the company sold 4,000 batteries on credit for $150 each plus state sales tax of 6%.Refer to General Lighting. What is the amount of the accounts receivable as a result of this transaction?

$636,000

Go Cars has $200 in cash, $500 in accounts receivable, $400 in marketable securities, and $700 in inventory. Assuming the company also has $200 in accounts payable and $200 in unearned sales revenue, what is its cash ratio?

1.50

GT Company has $200 in cash, $500 in accounts receivable, and $700 in inventory. The company also has $200 in accounts payable and $200 in unearned sales revenue. What is the company's quick ratio?

1.75

A company has total assets of $350,000 consisting of current assets of $115,000, property, plant, and equipment of $200,000, and other assets of $35,000. The company has total liabilities of $100,000 consisting of current liabilities of $65,000 and other liabilities of $35,000. What is the current ratio?

1.77

GTO Division has $14,000 in current assets, $2,000 in accounts payable, and $2,000 in unearned sales revenue. What is the division's current ratio?

3.50

GTX Corp. has $100,000 in cash, $40,000 in inventory, $25,000 in accounts payable and $15,000 in accrued liabilities (salaries, interest, taxes, etc.). If the company has $280,000 in cash flows from operating activities, what is its operating cash flow ratio?

7.0