OTC - ACC 220 - Exam 4

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

Creates interest expense on the income statement Creates deferred revenue on the income statement Creates an asset on the balance sheet Creates revenue on the income statement ANS: Creates interest expense on the income statement

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

decrease in assets and an increase in liabilities increase in liabilities and a decrease in stockholders' equity increase in assets and an increase in liabilities decrease in assets and a decrease liabilities ANS: increase in assets and an increase in liabilities

A corporate charter:

is required only for publicly-traded corporations. specifies the number of shares outstanding. specifies the shares of stock to be issued. names the board of directors. describes the business activities. ANS: specifies the shares of stock to be issued. names the board of directors. describes the business activities.

The term "dividends in arrears" refers to preferred stock dividends that are:

not paid in a given year

Which of the following payroll-related taxes must the employer pay by law?

(FICA) - Federal Insurance Contributions Act amounts Unemployment taxes Union dues Contributions toward retirement funds ANS: Federal Insurance Contributions Act amounts Unemployment taxes

Which of the following would be reported as a cash outflow from financing activities?

Purchase of treasury shares

Preferred Stock Characteristic. Convertible

Shares can be converted for common stock

Shares of stock previously sold by the corporation that are repurchased are called

available for sale securities. investments in securities. treasury stock. additional paid-in capital. ANS: Treasury Stock

The financial statement that provides information about cash receipts and cash disbursements for the period is the

balance sheet. statement of retained earnings. statement of cash flows. income statement. ANS: statement of cash flows.

Liabilities are classified as

current and long-term. operating and nonoperating. operating and investing. revenues and expenses. ANS: current and long-term.

Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:

guaranteed dividends consistently higher return than earned by common stockholders first right to specified amount of dividends preference in distribution of assets during dissolution of corporation ANS: first right to specified amount of dividends preference in distribution of assets during dissolution of corporation

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)

loss. asset. expense. liability ANS: liability.

Transactions reported on the statement of cash flows that do not increase or decrease cash, but that result in significant investing and financing activities are referred to as [______________] activities.

noncash or non-cash

Noncash investing and financing activities are either: (Select all that apply.)

reported as investing and financing activities on the statement of cash flows reported directly after the statement of cash flows reported in the notes to the financial statements ANS: reported directly after the statement of cash flows reported in the notes to the financial statements

The amount of money paid into a company by its owners is referred to as:

retained earnings invested capital investment in common stock owners' surplus ANS: invested capital

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.

Current ratio will increase Acid-test ratio will increase Current ratio will decrease Acid-test ratio will remain unchanged Acid-test ratio will decrease Current ratio will remain unchanged ANS: Current ratio will increase Acid-test ratio will increase

Morgan Company issued convertible preferred stock. What additional special feature(s) could also have been granted to preferred stock holders?

A variable interest rate that increased each year The right to convert the shares to common shares The right to redeem the preferred shares for cash ANS: The right to convert the shares to common shares The right to redeem the preferred shares for cash

Sally Company manufactures large kitchen appliances. For the first year of purchase, the company will repair any manufacturing defect free of charge. Sally apparently sells its appliances with a(n) [___________________]

ANS: warranty, guarantee, or warranties

The contra account used to record a company's repurchase of its own common stock is the [_______________________] stock account.

ANS: Treasury

A corporation is owned by its

ANS: stockholders, shareholders, investors, or common stockholders

Taxes subtracted from employees' pay and remitted to the government on their behalf are called

ANS: withholding taxes.

A loss that is judged to be probable and for which the amount is reasonably estimable should be

ANS: Recorded

The statement of cash flows provides information about the cash inflows and cash outflows of an entity. For financing activities, a cash [__________] occurs when cash is borrowed from a creditor, and a cash [__________] occurs when a loan is repaid.

Blank 1: inflow or receipt Blank 2: outflow or disbursement

Which of these payroll taxes are paid by the employer and the employee? (Check all that apply.)

Social Security Medicare SUTA FUTA ANS: Social Security Medicare

Preferred Stock Characteristic. Redeemable

Stocks can be turned in or re-purchased on demand

The number of shares issued represents the number of shares:

the company is allowed to sell sold repurchased sold less repurchased ANS: sold

Deferred revenues and sales tax payable typically are reported as [_________________] , Correct Unavailable liabilities.

ANS: current or short-term

A contingent liability is an existing [_______________] situation that might result in a loss depending on the outcome of a future event.

ANS: uncertain or undecided

Which of the following is a guarantee that protects a customer from product defects for a specified period of time?

Contingency Promissory note Warranty Sales allowance ANS: Warranty

Match the preferred stock feature with the correct description. Redeemable

Nurbert Inc. demands return of preferred stock at the pre-specified amount

The rights of common stockholders typically include which of the following?

Right to receive a percentage of net income each year. Right to vote for corporate directors. Right to dividends when declared. Right to distribution of assets in liquidation. ANS: Right to vote for corporate directors. Right to dividends when declared. Right to distribution of assets in liquidation.

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?

The quick ratio will increase. Working capital decreases. The current ratio will decrease. The current ratio will remain the same. ANS: The current ratio will remain the same.

Payroll withholdings ______. (Select all that apply.)

A. are amounts added to employees' gross earnings to determine their net pay B. are amounts subtracted from employees' gross earnings to determine their net pay C. are voluntary D. increase the amount of cash an employee receives E. decrease the amount of cash an employee receives ANS: are amounts subtracted from employees' gross earnings to determine their net pay decrease the amount of cash an employee receives

Product warranties, effects of environmental problems, and lawsuits are examples of transactions or events that give rise to [_______________] liabilities.

ANS: contingent, contingency, or contingencies

Which of the following are included in the duties of the board of directors?

Establish corporate policies. Manage the daily activities of the corporation. Appoint the members of the board of directors. Appoint officers to manage the corporation. ANS: Establish corporate policies. Appoint officers to manage the corporation.

Which of the following payroll-related taxes must the employer pay by law?

Federal Insurance Contributions Act amounts Contributions toward retirement funds Union dues Unemployment taxes ANS: Federal Insurance Contributions Act amounts Unemployment taxes

Which of the following are not required to be deducted from an employee's paycheck?

Federal unemployment tax (FUTA) Federal income tax Social Security Medicare taxes State unemployment tax (SUTA) Charitable contributions ANS: Federal unemployment tax (FUTA) State unemployment tax (SUTA) Charitable contributions

[_______________________] capital is the amount of money paid into a company by its owners.

Invested, Contributed, or Paid-in

Which of the following are cash inflows from financing activities?

Issuance of bonds Issuing stock to investors for cash

Match the preferred stock feature with the correct description. Convertible

Marcus turn in his preferred stock and receives common shares in exchange.

Payroll withholdings ______. (Select all that apply.)

increase the amount of cash an employee receives decrease the amount of cash an employee receives are amounts added to employees' gross earnings to determine their net pay are amounts subtracted from employees' gross earnings to determine their net pay are voluntary ANS: decrease the amount of cash an employee receives are amounts subtracted from employees' gross earnings to determine their net pay

Payroll withholdings are

A. the employer's portion of taxes paid for social security and Medicare. B. the items subtracted from an employee's gross pay to arrive at take-home pay. C. the payments submitted for both the employee and employer to the government for taxes. ANS: the items subtracted from an employee's gross pay to arrive at take-home pay.

Which of the following are cash inflows from financing activities?

ANS: Borrowing from bank Issuance of common stock to investors

Who owns and controls a corporation?

ANS: Shareholders

Unpaid dividends on cumulative preferred stock are referred to as dividends in [____________]

ANS: arrears

Preferred stock carries priority over common stock:

ANS: both for dividends and at dissolution

Which of the following transactions would be classified as financing activities in the statement of cash flows?

ANS: repayment of a long-term loan payment of cash dividends

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

ANS: Liquidity

A(n) [________________] payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with

ANS: accounts or account

The total number of shares that a company may sell is referred to as [__________________________]

ANS: Authorized

A(n) [_________________] gain is an existing uncertainty that might result in a gain.

ANS: contingent or contingency

A [__________________] liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.

ANS: contingent, contingency, or contingencies

Which of the following may be classified as contingent liabilities?

Deferred revenues Frequent flyer program awards Product warranties Future litigation losses Deposits from customers ANS: Frequent flyer program awards Product warranties Future litigation losses

A contingent liability is recorded if which conditions are met?

It is probable that a future loss will occur. There is a remote chance that a future loss will occur. The amount of the loss can be reasonably estimated. ANS: It is probable that a future loss will occur. The amount of the loss can be reasonably estimated.

Which of the following are included in the duties of the board of directors?

Manage the daily activities of the corporation. Appoint officers to manage the corporation. Appoint the members of the board of directors. Establish corporate policies. ANS: Appoint officers to manage the corporation. Establish corporate policies.

Daffy Duct, Inc. issued 10,000 shares of no-par value common stock at $10 per share. Miss Hap, the bookkeeper, recorded the transaction with a $100,000 debit to Cash and $100,000 credit to Common stock. Which of the following is true?

Total liabilities will be understated. Total assets will be overstated. This entry is correct. Total stockholders' equity will be overstated. ANS: This entry is correct.

A company purchases inventory or supplies and promises to pay within 30 to 45 days. No formal agreement is signed. This transaction is recorded as a(n)

accounts payable. notes payable. accounts receivable. notes receivable. ANS: Accounts Payable

In a corporation, the stockholders' potential loss is

limited to the amount of the investment. unlimited with responsibility for all corporate losses. limited to the amount of net income. ANS: limited to the amount of the investment.

An IPO:

stands for initial public offering. is when a private company goes public. stands for independent public obligations. stands for issued private options. ANS: stands for initial public offering. is when a private company goes public.

Historically, par value was considered to be

the amount of retained earnings that must be appropriated for future dividends. the amount of cash that must be maintained in the corporation for contingencies. the value of the company's shares of stock. the maximum amount of money the company could borrow. ANS: the value of the company's shares of stock.

X-Co issued 1,000 shares of its 5%, $10 par value, cumulative preferred stock for $100 cash per share. The journal entry to record this event includes:

$100,000 credit to Preferred stock. $100,000 debit to Cash. $90,000 debit to Cash. $10,000 credit to Preferred stock. $90,000 credit to Additional paid-in capital. ANS: $100,000 debit to Cash. $10,000 credit to Preferred stock. $90,000 credit to Additional paid-in capital.

The advantages to the corporate form of business include

double taxation for the corporation. transferability of ownership. ease of raising capital. ANS: transferability of ownership. ease of raising capital.

Cash inflows and outflows involving stockholders and creditors are classified on the statement of cash flows as [_____________] activities.

financing or finance

Cash flows from [__________] activities include both inflows and outflows of cash from the external funding of a business.

financing, finance, or financial

The number of shares authorized is set forth in the company's:

general ledger articles of incorporation general journal ANS: articles of incorporation

No-par value stock is common stock that:

has no current value is not publicly traded has not been assigned a par value ANS: has not been assigned a par value

Preferred Stock Characteristic. Cumulative

Dividends not declared during one year are payable when declared in subsequent periods

Match the preferred stock feature with the correct description. Cumulative

During the current year, Petra Inc. pays dividends that were not declared last year

Which of these payroll taxes are paid only by the employer?

SUTA Social Security Medicare FUTA ANS: SUTA FUTA

True or false: Some states allow corporations to issue no-par value common stock.

ANS: TRUE Reason: Since par value is less meaningful today, some states no longer require a specified legal value per share.

Wyanot Company issued 1,000 shares of its 5%, $100 par value, cumulative preferred stock for $110 cash per share. The journal entry to record this transaction includes:

$100,000 debit to Cash. $100,000 credit to Preferred stock. $110,000 debit to Cash. $5,000 credit to Preferred stock. $10,000 credit to Additional paid-in capital - preferred. ANS: $100,000 credit to Preferred stock. 1,000 shares x $110 = $110,000 $110,000 debit to Cash. 1,000 shares x $100 = $100.000 $10,000 credit to Additional paid-in capital - preferred.

A(n) [________________] 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.

ANS: liability or liabilities