Accounting Exam 3 Chapter 8 study areas

How is the current ratio calculated? a. current assets/ current liabilities b. cash flows from operating activities/ current liabilities c. (cash + marketable securities) / current liabilities d. (cash + marketable securities + AR)/ current liabilities.

a.

Kinsella Seed borrowed $200,000 on October 1, 2013, at 10% interest. The interest and principal are due October 1, 2014 What journal entry should be made with respect to the interest payment on October 1, 2014? a. Debit interest expense $15,000; debit interest payable $5,000; credit cash $20,000 b. Debit interest expense $15,000; credit cash $15,000 c. Debit cash $20,000; credit interest expense $15,000; credit interest payable $5,000 d. Debit interest expense $20,000; credit cash $20,000

a.

When a credit is made to the income taxes payable account related to taxes withheld from an employee, the corresponding debit is made to: a. Wages expense b. Taxes expense c. Taxes payable d. Cash

a.

Which of the following is not an example of an accrued liability? a. Accounts payable b. Interest payable c. Wages payable d. Property taxes payable

a.

Which of the following is true? a. No journal entries or footnotes are necessary if the probability of a contingent liability is remote. b. A contingent liability should always be recorded in the footnotes to the financial statements c. A contingent liability should always be recorded within the financial statements d. A company can choose to record a contingent liability either within its financial statement or in the footnotes to the financial statements

a.

Kinsella Seed borrowed $200,000 on October 1, 2011, at 10 percent interest. The interest and principal are due on October 1, 2012. Refer to the information for Kinsella Seed above. What journal entry should be recorded on December 31, 2011? a. Debit interest expense $5,000; credit Interest payable $5,000 b. Debit interest interest receivable $20,000; credit interest expense $20,000 c. Debit interest payable $5,000; credit interest expense $5,000 d. No entry is necessary

a. (200,000 x .10)= 20,000 3/12 months $20,000 x .25 = $5,000

Payroll taxes typically include all of the following except: a. Social security taxes b. Federal excise taxes c. Medicare taxes d. Federal unemployment taxes

b.

To record warranties, the adjusting entry would be? a. a debit to warranty liability and credit to warranty expense b. a debit to warranty expense and a credit to warranty liability c. a debit to warranty expense and a debit to cash d. a debit to warranty liability and a credit to cash

b.

Warranty expense is: a. recorded as it is incurred b. recorded in the period of sale c. capitalized as a warranty asset d. none of these

b.

All of the following represent taxes commonly collected by business from customers except a. City sales taxes b. Federal excise taxes c. Unemployment taxes d. State sales taxes

c.

How is the cash ratio calculated? a. current assets/ current liabilities b. cash flows from operating activities/ current liabilities c. (cash + marketable securities) / current liabilities d. (cash + marketable securities + AR)/ current liabilities.

c.

When reporting liabilities on a balance sheet, in theory, what measurement should be used? a. future value of the outflow b. future value of the present outflow c. present value of the future outflow d. present value of the present outflow

c.

ABC Advisors is being sued by a former customer. ABC's lawyers say that it is possible but not probable, that the company will lose the lawsuit and the trial should last approximately 18 more months. Should ABC lose, they will most likely have to pay approximately $750,000. How should this lawsuit be recorded in the financial statements? a. Current liability of $750,000 and expense of $750,000 b. Long-term liability of $750,000 and expense of $750,000 c. No disclosure is required d. No effect on the balance sheet or income statement, but described in the footnotes

d.

Kramerica Inc. sold 350 oil drums to Thompson Manufacturing for $75 each. In addition to the $75 sale price per drum, there is $1 per drum federal excise tax and a 7% state sales tax. What journal entry should be made to record this sale? a. Debit accounts receivable $28,438; credit sales revenue $28,438 b. Debit accounts receivable $26,250; credit sales revenue $26,250 c. Debit accounts receivable $26,250; debit taxes expense $2,188; credit excise taxes payable (federal) $350; credit sales taxes payable (state) $1,838; credit sales revenue $26,250 d. Debit accounts receivable $28,438; credit excise taxes payable (federal) $350; credit sales taxes payable (state) $1,838; credit sales revenue $26,250

d.

Liabilities are recognized: a. in exchange for goods b. in exchange for services c. in exchange for borrowing money d. all of these

d.

When should a contingent liability be recognized? a. When a reasonable estimation can be made b. When the contingent liability is probable c. neither a or b d. both a and b

d.

Which of the following is NOT a current liability? a. Accounts payable b. Unearned revenue c. Sales taxes payable d. Bonds payable due in 5 years

d.

Which of the following transactions would cause the current ratio to increase (assuming the current ratio is currently greater than 1)? a. Purchased inventory on credit b. Purchased property, plant, and equipment for cash c. Received money from a customer related to an accounts receivable d. paid off payable

d.