Acct ch 8 connect

Which of the following statements best describes an entity's liquidity ratios?

Some companies may be motivated to manipulate accounting numbers to improve their liquidity ratios.

Which of the following transactions will increase a company's working capital?

Receipt of cash on a long-term notes receivable

Ralph charges a fee of $2,180 for services performed for a new client. Assuming that the fee includes 9% of sales tax, Ralph should credit sales tax payable for:

$180 Reason: $2,180 - ($2,180/1.09)

Kauff Company properly classifies certain liabilities payable in 15 months as current liabilities. Kauff's operating cycle must be:

Longer than one year

A long term liability is usually payable ...

more than one year from now

Another name for the acid-test ratio is the

quick ratio

Liability is future...

sacrifice

True or false: Current liabilities are always payable within one year.

False

True or false: Sales tax is recorded on the income statement because it is a cost of making a sale.

False

The time it takes to spend cash to provide goods and services to a customer until collection of cash from that customer is referred to as the company's

Operating Cycle

The ratio that is a more conservative measure than the current ratio of a company's ability to pay its current liabilities is the:

Acid-test ratio

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

Liability

Norton's current ratio is 2.5 and its quick ratio is .9. What is the most likely cause for this difference in the current and quick ratio?

Norton has a high inventory balance

Which of the following are current liabilities?

Notes payable due in 3 months Wages Payable Accounts Payable Deferred revenues Taxes payable

Which of the following obligations is NOT commonly classified as a current liability?

Notes payable in 3 years

The point in time when gift cards expire or when it becomes unlikely that customers will redeem them is known as:

gift card breakage

Lester Corp. sells merchandise to a customer for $1,000. The company also collects state and local sales taxes of 6% and 4%, respectively. At the time of sale, Lester should record the following credit amounts.

sales revenue of $1,000. sales taxes payable of $100.

A company's "operating cycle" refers to the time required for the company to

spend cash to provide goods and services then collect from customers.

Which of the following are long term liabilties

Note payable due in 3 years 20-year mortgage payable

The acid-test ratio is based on a more conservative measure than the current ratio of the company's ability to:

pay its current liabilities

Current assets - current liabilities=

Working Capital

Deferred Revenue and sales tax are

current liabilities

A current liability is usually payable within...

one year

Common current liabilities include:

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

Which of the following are essential characteristics of a liability?

A future sacrifice of an economic benefit is probable. The future sacrifice arises from a present obligation. The obligation results from a past event.

Melvin charges a fee of $1,080 for merchandise purchased by a customer. Assuming that the amount includes 8% of sales tax, Melvin should credit sales tax payable for:

$80

Which of the following would be the best current ratio, assuming the company had excellent liquidity and an ability to generate positive income?

2.4

Which of the following items are included in the numerator for the current ratio but are excluded from the numerator of the quick or acid-test ratio?

Inventory Prepaid Asset

Identify a primary reason why financial statement users assess a company's liquidity.

Lack of liquidity can lead to the bankruptcy of a company that otherwise may have been successful.

Taxes collected for taxing authorities are recognized as

current liabilities

Current maturities of long-term debt should be classified as

current liability

Deferred revenues and sales tax payable typically are reported as

current liability

tax collected on sales is classified as a(n)

current liability

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

Which of the following are long-term liabilities?

20-year mortgage payable Note payable due in 3 years

A liability is a present responsibility to sacrifice ____ in the future due to a transaction or other event that happened in the ____

benefits, past

Assets represent probable future economic______, whereas liabilities represent probable future economic _____

benefits, sacrifices

If a liability is classified as current, rather than noncurrent, the company's working capital will ______.

decrease

Deferred revenue is classified as a

liability

Although a company may have a high current ratio and appear successful, the accounts used to calculate the current ratio that may have issues or problems are

AR Inventory

Which of the following are common examples of long-term liabilities that require reporting of a current portion of the liability?

mortgage requiring monthly payments of principal and interest long-term notes payable with quarterly payments of principal and interest

An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) ______ account.

revenue

Wagner Company's financial records show that it has a mortgage that requires monthly principal payments of $3,000. The mortgage loan matures in 15 years. What should Wagner show on its balance sheet at the end of the current year?

A current liability of $36,000. A noncurrent liability of $504,000. Reason: Total mortgage is $540,000 ($3,000 x 15 years x 12 months). Current portion is $36,000 ($3,000 x 12 months). Noncurrent portion is $504,000 ($540,000 - $36,000)

ABC Airlines collects $300 for a round-trip ticket from Chicago to Los Angeles and back. How does ABC Airlines record the $300 collected in advance?

A debit to Cash of $300 and a credit to Deferred Revenue of $300.

What is part of numerator of quick ratio

Cash AR Inventory

Kevin sells $100 of goods to a customer for cash. The sales tax is 8%. The journal entry for this sale will include which of the following entries?

Credit revenues $100 Debit cash $108 Credit sales tax payable $8

Liabilities are classified as

current, long-term

If current ratio is greater than 1.0, then

there are more current assets than current laibilities

On September 1, 2018, Great Lakes Equipment receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December 2018?

$4,000 Bc..Reason: $24,000/24 months = $1,000 per month x 4 months = $4,000 revenue recognized.

On June 1, 2018, Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the income statement for 2018?

$7000 Reason: $24,000/24 months = $1,000 per month x 7 months = $7,000 revenue.

Which of the following measure liquidity?

Acid-test ratio Current ratio Working capital

Balance Corporation sells $1,000 of goods to a customer for cash. The sales tax is 5%. The journal entry to record the sale will include which of the following?

Credit sales tax payable $50

The_____portion of long-term debt is the amount that will be paid within the next year

Current

What is the formula for current ratio?

Current assets / Current liabilities

Which of the following items are included in the numerators for both the current ratio and the acid-test ratio?

Current investments Accounts receivable

Poppy Corporation has a current ratio of 2.0 and a quick ratio of 1.6. Poppy purchases additional inventory for cash. Which of the following occurs?

Current ratio will remain the same

Assume that Market Company's current ratio is 1.2. Which of the following management strategies would prevent the company's current ratio from decreasing at the financial statement date?

Delaying a scheduled purchase of inventory on account until the beginning of the next fiscal year.

`Assume that Market Company's current ratio is 1.2. Which of the following management strategies would prevent the company's current ratio from decreasing at the financial statement date?

Delaying a scheduled purchase of inventory on account until the beginning of the next fiscal year.

The term referring to a company having a sufficient amount of cash to pay its current debts is

Liquidity

refers to a company's cash position and overall ability to obtain cash in the normal course of business.

Liquidity

If a company has a current ratio of 1.2, which of the following is true?

The company has $1.20 in current assets for each dollar of current liabilities.

Asset is probable future..

benfit

What will be the effect of paying off an accounts payable balance on the current and the acid-test ratios? Assume that both ratios are greater than 1.

both increase

At the end of the current year, Maximilliam Inc. signs a 10 year mortgage note, which requires monthly payments of principle and interest. On its current year balance sheet, Maximilliam reports the mortgage as:

current liability (1 year) and long-term liability (9 years)

The portion of a long-term liability that will be paid within the next year is referred to and reported as the:

current portion of long-term debt

Deferred revenue should be classified as a(n)____ on the balance sheet

liability