ACCT 302 Test 1, CH 6, 13, 14

Which of the following is not a correct statement about sales taxes? a. Sales taxes are an expense of the seller. b. If sales taxes are included in the sales account, the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate. c. Sales Taxes Payable is classified as a current liability. d. Many companies record sales taxes in the sales account.

a.

Use the following 8% interest factors. Present Value of Future Value of Ordinary Annuity Ordinary Annuity 7 periods 5.2064 8.92280 8 periods 5.7466 10.63663 9 periods 6.2469 12.48756 What will be the balance on September 1, 2020 in a fund which is accumulated by making $20,000 annual deposits each September 1 beginning in 2013, with the last deposit being made on September 1, 2020? The fund pays interest at 8% compounded annually. a. $212,733 b. $114,932 c. $178,458 d. $151,200

a. $20,000 × 10.63663 = $212,733.

Assume ABC Company deposits $70,000 with First National Bank in an account earning interest at 6% per annum, compounded semi-annually. How much will ABC have in the account after five years if interest is reinvested? a. $94,074. b. $70,000. c. $91,000. d. $93,677.

a. $70,000 × 1.34392 = $94,074.

Under IFRS, short-term obligations expected to be refinanced can be classified as noncurrent if the refinancing is completed: a. by the financial reporting date. b. after the maturity date of the obligation. c. by issue date of the financial statement. d. either by the financial statement date or before the date the financial statement is issued.

a. Under IFRS, a company must classify its short-term obligation as a current liability if the refinancing was not completed by the financial reporting date. Only if the refinancing was completed before the financial reporting date, can the company classify the obligation as non-current.

Roxy Co., which has a taxable payroll of $600,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Roxy Co.? a. $16,800 b. $24,000 c. $70,200 d. $49,200

a. [(.062 - .054) + .02] × $600,000 = $16,800.

The numerator of the acid-test ratio consists of a. total current assets. b. cash, marketable securities, and net receivables. c. cash inventory and net receivables. d. cash inventory and marketable securities.

b.

James leases a ski chalet to his best friend, Janet. The lease term is five years with $20,000 annual payments due at the beginning of each year. What is the present value of the payments discounted at 8% per annum? a. $72,488. b. $86,243. c. $76,346. d. $79,855.

b. $20,000 × 4.31214 = $86,243.

Anna has $15,000 to invest. She requires $25,000 for a down payment for a house. If she is able to invest at 6%, how many years will it be before she will accumulate the desired balance? a. 8 years. b. 9 years. c. 6 years. d. 7 years.

b. $25,000 ÷ $15,000 = 1.66667; 1.66667 is FV factor for 9 years.

Charlie Corp. is purchasing new equipment with a cash cost of $250,000 for the assembly line. The manufacturer has offered to accept $57,400 payments at the end of each of the next six years. What is the interest rate that Charlie Corp. will be paying? a. 11%. b. 10%. c. 8%. d. 9%.

b. $250,000 ÷ $57,400 = 4.35540; 4.35540 is PV factor for 10%.

Charlie Corp. is purchasing new equipment with a cash cost of $250,000 for an assembly line. The manufacturer has offered to accept $57,400 payment at the end of each of the next six years. How much interest will Charlie Corp. pay over the term of the loan? a. $307,400. b. $94,400. c. $250,000. d. $57,400.

b. ($57,400 × 6) - $250,000 = $94,400.

Elmer Corporation has $1,800,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? a. $1,800,000 b. $1,000,000 c. $0 d. $800,000

b. 50,000 × $20 = $1,000,000.

Ethan has $160,000 to invest today at an annual interest rate of 4%. Approximately how many years will it take before the investment grows to $324,000? a. 16 years. b. 11 years. c. 18 years. d. 20 years.

c. $324,000 ÷ $160,000 = 2.025; 2.025 is FV factor for 18 years.

On May 1, 2014, a company purchased a new machine which it does not have to pay for until May 1, 2016. The total payment on May 1, 2016 will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money factor? a. Future value of 1 b. Present value of annuity of 1 c. Present value of 1 d. Future value of annuity of 1

c.

Which of the following should not be included in the current liabilities section of the balance sheet? a. Short-term zero-interest-bearing notes payable b. Trade notes payable c. All of these are included d. The discount on short-term notes payable

c.

On September 1, 2014, Halley Co. issued a note payable to Fidelity Bank in the amount of $1,800,000, bearing interest at 10%, and payable in three equal annual principal payments of $600,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2015. At December 31, 2015, Halley should record accrued interest payable of a. $66,000. b. $60,000. c. $40,000. d. $132,000.

c. $1,200,000 × .10 × 4/12 = $40,000.

A company buys an oil rig for $3,000,000 on January 1, 2014. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000 (present value at 10% is $231,330). 10% is an appropriate interest rate for this company. What expense should be recorded for 2014 as a result of these events? a. Depreciation expense of $323,133 and interest expense of $23,133 b. Depreciation expense of $360,000 c. Depreciation expense of $300,000 and interest expense of $23,133 d. Depreciation expense of $300,000 and interest expense of $60,000

c. ($3,000,000 + $231,330) ÷ 10 = $323,133; $231,330 × .10 = $23,133.

Qualpoint provides its employees two weeks of paid vacation per year. As of December 31, 65 employees have earned two weeks of vacation time to be taken the following year. If the average weekly salary for these employees is $1,140, what is the required journal entry? a. Debit Salaries and Wages Payable for $147,600 and credit Salaries and Wages Expense for $147,600. b. Debit Salaries and Wages Expense for $74,100 and credit Salaries and Wages Payable for $74,100. c. Debit Salaries and Wages Expense for $148,200 and credit Salaries and Wages Payable for $148,200. d. No journal entry required.

c. 65 × 2 weeks × $1,140/week = $148,200.

An amount is deposited for eight years at 8%. If compounding occurs quarterly, then the table value is found at a. 2% for 32 periods. b. 8% for eight periods. c. 2% for eight periods. d. 8% for 32 periods.

d.

On January 2, 2014, Wine Corporation wishes to issue $4,000,000 (par value) of its 8%, 10-year bonds. The bonds pay interest annually on January 1. The current yield rate on such bonds is 10%. Using the interest factors below, compute the amount that Wine will realize from the sale (issuance) of the bonds. Present value of 1 at 8% for 10 periods 0.4632 Present value of 1 at 10% for 10 periods 0.3855 Present value of an ordinary annuity at 8% for 10 periods 6.7101 Present value of an ordinary annuity at 10% for 10 periods 6.1446 a. $4,424,104 b. $4,000,000 c. $4,000,024 d. $3,508,272

d. $4,000,000 × .08 = $320,000 (annual interest payment) ($320,000 × 6.1446) + ($4,000,000 × 0.3855) = $3,508,272.

Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Muggs $3 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2014 and 2015 are as follows: 2014 2015 Bags of dog food sold 500,000 600,000 Leashes purchased 18,000 22,000 Coupons redeemed 120,000 150,000 The premium liability at December 31, 2015 is a. $22,500. b. $45,000. c. $39,375. d. $84,375.

d. {[(600,000 × .45) - 150,000] ÷ 8} × $3 = $45,000. $45,000 + $39,375 = $84,375.