A201 Chapter 9 Smartbook
The current ratio and working capital are financial measures of ______.
liquidity
John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. What is John's net pay?
$486.10
Acme Enterprises began the new year owing its suppliers $3,000 for merchandise purchased last year. Acme then sold half of this merchandise for $5,000 on account. Two weeks later, Acme paid its suppliers $1,000 and bought another $4,000 of merchandise on account. Acme now has an Accounts payable balance of ______. Multiple choice question.
$6,000
Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal income tax $18,000 and State income tax $3,850. What is the net pay to employees?
$70,000
Which of the following have the same present value given a 10% interest rate compounded annually?
- $1.10 one year from today - $1 today
The entry to record the purchase of equipment that requires a $10,000 payment in 2 years includes a ______. The market rate of interest is 9% compounded annually.
- $8,417 credit to Notes Payable - $8,417 debit to Equipment $8,417=$10,000 x 0.8417.
Which of the following obligations are long-term?
- 10-year bonds - Notes payable due in 2 years - 10-year Leases
Which of the following factors will result in a higher present value of $1?
- A compounding of interest less frequently - A lower interest rate
Which of these would explain an increase in a company's accounts payable turnover ratio?
- An increase in the amount of purchase discounts taken - A decrease in the average age of payables
Which of the following are long-term liabilities?
- Bonds payable due in 20 years - Notes payable due in 3 years
Which of the following may be classified as contingent liabilities?
- Environmental problems - Future litigation losses - Product warranties
Which of the following are examples of annuities?
- Mortgage payments - Car payments
Which of the following are used to categorize the likelihood of the occurrence of a future loss?
- Remote - Probable - Reasonably possible
Which of the following cause working capital to increase?
- Sales on account - Cash sales of long-term assets
Bonds ______.
- allow companies to raise more debt capital than a note payable because the bonds are issued to many creditors - are sold in established markets making them liquid
On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2019. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, 2018 ABC's year end, would include a ______.
- credit to Interest payable of $1,000 - debit to Interest expense of $1,000 $100,000 x 0.06 x (2/12)=$1,000.
Which of the following would result in a deferred revenue?
- sales of gift cards - sales of subscriptions
New companies often experience rapid sales growth and increases in working capital. Working capital increases are caused by increases in sales-related asset accounts, such as _______ and accounts ______
Inventory, receivable
On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31, 2019. Assuming the November 1 transaction was properly recorded, how would the December 31, 2018, year-end adjusting entry affect the accounting equation?
Liabilities increase and stockholders' equity decreases.
What kind of account is deferred (or unearned) revenue?
Liability account
Liabilities
accountants formally define _____ as the probably future sacrifice of economic benefits that arise from past transactions
noncurrent liabilities
all other liabilities
Working capital equals ______.
current assets minus current liabilities
Which of the following has the highest present value?
$1 annuity compounded annually over 3 years at 5%
If the going rate of interest is 10%, which has the greater present value?
$1 received today
current liabilities
liabilities that are expected. to be paid with current assets within the current operating cycle of the business or within one year of the balance sheet date (whichever is longer)
Analysts say that a company has ________ if it has the ability to meet its current obligations.
liquidity
On September 1, ABC Company borrowed $50,000 with a 6% annual rate by issuing a 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, the adjusting entry at December 31 would include a ______.
debit to Interest expense of $1,000
A liability is first recorded at its cash equivalent amount, which ______ interest.
excludes
A ______ accounts payable turnover ratio may result if management pays its suppliers more quickly and often
higher
Assuming no inflation, $1 invested today is worth ______.
more than $1 received in the future because interest can be earned over time
A bond's maturity date is the date ______.
on which the bond principal will be repaid in full
Many current liabilities on the balance sheet, such as Accounts payable, Accrued wages and Deferred revenue, have a direct relationship to _______ activities on the statement of cash flows.
operating
The feature that distinguishes loss contingencies from other liabilities is the ________ that a loss will occur
probability
When a contingent event that may give rise to a future loss is likely to occur, it is said to be....
probable
The journal entry to record the purchase of an asset in exchange for $100,000 due in 3 years at a market rate of interest of 12% compounded annually includes a debit to the asset in the amount of ______.
the present value of $100,000 discounted at 12% for 3 years
Burrows, Inc. issued 2 notes payable for $10,000 each on November 30. One is a 3-month, 6%, note and the other is a 6-month, 6% notes. The amount of interest owed at December 31 will be ______.
the same amount for both notes
The accounts payable turnover ratio directly measures ______.
the times per year the average accounts payable is paid
