accounting test- 8, 9, 10

Operating Cycle

the length of time from spending cash to provide goods and services to a customer until the collection of cash from that customer

A debit balance in retained earnings indicates that the company is expanding. revenues were greater than expenses. the company has an accumulated deficit. dividends were paid during the year.

c

At the beginning of the year, Petra owes $10,000 on an installment notes payable, which has an interest rate of 6%. At the end of the year, Petra makes a payment of $2,000. After the payment, the carrying value of the installment notes payable will be: 8,000 10,000 8,600

$10,000 - $(2,000 - (10,000 x .06) = $8,600

Just In Thyme, Inc. has the following end of year equity balances: Common stock of $20,000; Additional paid-in capital of $30,000; and Retained earnings of $50,000. If Just In Thyme repurchases $10,000 of its stock, the total stockholders' equity balance would equal ______. $60,000 90,000 110,000 40,000

$90,000 Rationale: $20,000 + 30,000 + 50,000 - 10,000

Notes payable is classified as a liability that has which of the following effects?

Creates interest expense on the income statement

common short term liabilities

Deferred revenues Sales tax payable The current portion of long-term debt

Which of the following are methods of long-term financing with debt? Accounts payable Leases Notes payable Common stock Rationale: Common stock is equity financing. Bonds

Leases Notes payable Bonds

Which of the following may be classified as contingent liabilities?

Product warranties Future litigation losses Frequent flier program awards

Which of the following terms are used to categorize the likelihood of the occurrence of a future loss? Remote Certain Probable Reasonably possible Uncertain

Remote Probable Reasonably possible

Ima Rich purchased 100 shares of Stockits, Inc.'s $1 par value common stock for $5 per share. Which statement is true regarding the effect of this transaction on Stockits' financial statements? The investing activities section of the statement of cash flows increases. Stockholders' equity on the balance sheet increases. Stockholders' equity on the balance sheet decreases. A gain on sale of stock will be reported on the income statement.

Stockit does not report gains or losses on the issuance of its common stock. The entry includes a $500 debit to Cash and a $100 credit to Common Stock and $400 to Additional Paid-In Capital. balance sheet

Issuing a note payable for cash results in a(n) ______.

The issuance of a note payable is recorded with a debit to Cash and a credit to Notes Payable, a liability. increase in assets and an increase in liabilities

When a corporation issues shares of common stock for an amount above par, which of the following entries occur? Credit to common stock Credit to additional paid-in capital Credit to revenue Credit to retained earnings

a and b

Periodic payments on installment notes typically include (Select all that apply.) a portion that reduces the outstanding loan balance. installment fees. a portion that reflects interest. an increase in stockholders' equity

a and c

Smith Company enters into a lease agreement with Rent-All Corp. At the beginning of the lease period, Smith Company records: interest expense a note payable a lease expense a lease payable a lease asset

a lease payable a lease asset

contigent liability

a potential liability that depends on some future event

A credit balance in retained earnings indicates that liabilities are less than shareholders' equity. net income has exceeded the dividends distributed to shareholders. dividends were not declared during the year. treasury stock was not purchased.

b

When treasury shares are reissued for an amount greater than cost, the amount over the cost increases retained earnings. additional paid-in capital. gain on sale of treasury stock. the investment account.

b

Justin Corp. issues 10,000 shares of $1 par value common stock for $5 per share. The journal entry to record this transaction will include which of the following? Credit to common stock $50,000 Credit to common stock $10,000 Credit to additional paid-in capital $40,000 Credit to other comprehensive income $40,000

b,c

In order to expand its business, Mueller Inc. is selling $10 million in common stock. Mueller is utilizing this type of financing: Sales Debt Equity Internal

equity

The number of shares outstanding equals the number of shares ______. issued plus the number of shares in treasury issued minus the number of shares in treasury authorized minus the number of shares issued authorized plus the number of shares issued

issued minus the number of shares in treasury

we record treasury stock as

negative, contra

GAAP does not allow gains or losses to be reported when a corporation reissues its treasury stock.

yeet

On December 31, Leann Corp. paid $5,120 on an installment note that requires annual payments. The outstanding loan balance on January 1 was $50,000; the effective interest rate is 8%. The journal entry to recognize the payment should include debits to interest expense for $4,000. notes payable for 5,120. notes payable for $1,120. interest expense for $5,120.

interest expense for $4,000. notes payable for $1,120.

On December 31, Leann Corp. paid $5,120 on an installment note that requires annual payments. The outstanding loan balance on January 1 was $50,000; the effective interest rate is 8%. The journal entry to recognize the payment should include debits to interest expense for $5,120. interest expense for $4,000. notes payable for 5,120. notes payable for $1,120.

interest expense for $4,000. notes payable for $1,120.

A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a(n)

liability

bonds and leases are typically classified as _______ leases

long term

affy Duct, Inc. issued 10,000 shares of $1 par value common stock at $5 per share. The effect of this transaction on the accounting equation includes a: $50,000 increase in total stockholders' equity. $50,000 decrease in total stockholders' equity. Rationale: The entry cause stockholders' equity to increase, not decrease, by $50,000 (=$10,000 Common Stock + $40,000 Additional Paid-in Capital.) $50,000 increase in total liabilities. Rationale: The entry includes a $50,000 debit to Cash (+A) and a $10,000 credit to Common Stock (+SE) and $40,000 to Additional Paid-In Capital (+SE). Liabilities are not affected. $50,000 increase in total assets. $10,000 increase in total assets. Rationale: The entry includes a $50,000, not $10,000, debit to Cash (+A). $10,000 increase in total stockholders' equity.

a & d

ABC Company issues a bond with a face value of $100,000 at face amount on January 1. The bond carries a stated annual interest rate of 6% payable in cash on December 31 of each year. If ABC issues monthly financial statements, it must make an adjusting entry on January 31 that includes ______. a credit to Cash of $6,000 a debit to Interest expense of $6,000 a credit to Interest payable of $500 a credit to Cash of $500

a credit to Interest payable of $500 a debit to Interest expense of $500

During the current year, Katie Corp. pays $5,120 on an installment note. The outstanding loan balance at the beginning of the year was $50,000; the effective interest rate is 8%. Which of the statements regarding the installment note balance at the end of the current year is correct? The balance is $44,880. Rationale: $50,000 - (5,120 - 4,000 interest) The balance is $48,880. Rationale: $50,000 - (5,120 - 4,000 interest) The balance is $50,000. Rationale: $50,000 - (5,120 - 4,000 interest)

$50,000 - (5,120 - 4,000 interest)

A contingent event for which the likelihood of payment is properly judged to be remote: is not required to be disclosed in the financial statement notes must be recorded if the amount is estimated significant must be disclosed in the financial statement notes

Correct Answer is not required to be disclosed in the financial statement notes

Refurbish, Inc., reissued 1,000 shares of its treasury stock for $10,000. Prior to the reissuance, the Treasury stock balance was $12,000, which included the $8,000 cost of the 1,000 shares reissued. After recording this transaction, ______. Treasury stock will equal $4,000 Cash will be decreased by $10,000 Rationale: Cash increases by $10,000. Treasury stock will equal $2,000 Rationale: $12,000-8,000=$4,000 Additional paid-in capital will be increased by $2,000

Treasury stock will equal $4,000 Additional paid-in capital will be increased by $2,000

T-balls, Inc. bought 1,000 shares of its own stock for $11 per share. Later it reissued all 1,000 shares for $10 per share. The effect of reissuing the treasury stock includes a(n): increase in total assets of $10,000. decrease in additional paid-in capital of $1,000. decrease in retained earnings of $1,000. Rationale: Additional paid-in capital decreases $1,000, not retained earnings. increase in total stockholders' equity of $11,000. Rationale: Stockholders' equity increases by $10,000, not $11,000. Treasury stock decreases $11,000, which increases stockholders' equity; additional paid-in capital decreases $1,000 ($11,000-10,000), which decreases stockholders' equity.

increase in total assets of $10,000. decrease in additional paid-in capital of $1,000. Concept Resources Text

Daffy Duct, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. The journal entry to record this transaction includes: $90,000 credit to Additional paid-in capital $10,000 credit to Common stock $100,000 debit to Cash $100,000 credit to Common stock Rationale: Of the $100,000 cash received, $10,000 is credited to Common stock (the par value, $1, times the number of shares issued, 10,000 shares). The additional $90,000 received over the par value is credited to Additional paid-in capital. $10,000 debit to Cash

$90,000 credit to Additional paid-in capital $10,000 credit to Common stock $100,000 debit to Cash

Which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for recording a liability but are at least reasonably possible? The contingency must be accrued if the amount of the potential loss can be reasonably estimated A disclosure must describe the contingency. The contingency should not be accrued nor disclosed. An estimate of the potential loss should be made (if possible) and disclosed.

A disclosure must describe the contingency. The contingency should not be accrued nor disclosed.

Which of the following are typically shown in an amortization schedule related to an installment notes payable? (Select all that apply.) The carrying value of the note at the beginning of the period The carrying value of the note at the end of the period Interest expense based on the end of period carrying value and current market conditions The cash paid each payment period

The carrying value of the note at the beginning of the period The carrying value of the note at the end of the period The cash paid each payment period

Which of the following are typically shown in an amortization schedule related to an installment notes payable requiring period payment of interest and principal? (Select all that apply.) The decrease in the carrying value of the note The increase in the carrying value of the note The cash paid each payment period Interest expense based on the beginning period carrying value and the effective rate of the loan The carrying value of the note at the end of the period

The decrease in the carrying value of the note The cash paid each payment period Interest expense based on the beginning period carrying value and the effective rate of the loan The carrying value of the note at the end of the period

The journal entry to record reissuing treasury stock at a price below the cost of the treasury stock includes: credit to Additional Paid-in Capital Rationale: Additional Paid-in Capital is debited, not credited, because the price (cash received) was lower than the cost of the treasure stock. debit to Cash debit to Additional Paid-in Capital credit to Treasury Stock credit to Common Stock

debit to Cash debit to Additional Paid-in Capital credit to Treasury Stock

Under US GAAP, a contingent liability should ______. not be reported if the loss is remote and unable to be estimated be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated be reported on the balance sheet if the loss will probably occur and can be reasonably estimated be reported on the balance sheet if the loss may possibly occur and can be reasonably estimated

not be reported if the loss is remote and unable to be estimated be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated be reported on the balance sheet if the loss will probably occur and can be reasonably estimated

Canton, Inc. issued 10,000 shares of $1 par value common stock at $10 per share. Mr. Smart, the bookkeeper, recorded this transaction with a $100,000 debit to Cash and a $100,000 credit to Common stock. As a result of this entry, total stockholders' equity will be understated. Rationale: Common stock is overstated and additional paid-in capital is understated, but total SE is correct. total assets will be overstated. total stockholders' equity will be overstated. Rationale: Common stock is overstated and additional paid-in capital is understated, but total SE is correct. common stock will be overstated. additional paid-In capital will be understated.

read

notes payable can be long term or short debt

but if the note is due in the next year it is a current liability

Treasury stock: is shares of stock no longer outstanding. is a contra-equity account. reduces stockholders' equity. is the number of shares authorized minus the number of shares issued.

is shares of stock no longer outstanding. is a contra-equity account. reduces stockholders' equity.

When common stock has a designated par value, and common stock is issued at an amount above par, which entry is recorded? Credit common stock for the proceeds. Credit common stock for the amount in excess of par. Credit common stock for the par amount.

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