ACT test 3 learnsmart
what payroll withholdings are subtracted from gross pay to arrive at net pay?
Federal income tax, health insurance paid for by the employee, and employee contribution to retirement plans are used to reach net pay (all factors that are decided by the employee)
additional benefits such as health insurance paid for by the employer
Fringe benefits
When are gain contingencies accrued?
Gain contingencies are not accrued.
Company's overall position and ability to obtain cash in the normal course of business
Liquidity
Formula for return on asset
Net income/average total assets
Net pay for employees =
gross earnings - social security- medicare - federal income tax - state income tax
when an employer withholds an item such as charitable contributions from an employees pay, the employer must record them as a____________
liability until the amount is paid to the organization
Liabilities are classified as:
long term and current
What kind of account is a premium on a bonds payable?
long term liability
A _____________ bond is backed by a lien on specified real estate owned by the issuer
mortgage
Return on equity =
net income/shareholders equity
What transaction will increase working capital?
receipt of cash on a long term notes payable
callable bonds
the issuing company can pay off the bonds at any time
which of the following dividends has no effect on total owners equity?
stock dividend
the issuer of a 5% common stock dividend to common stockholders should debit stock dividends for an equal amount to the _______________ value of shared issued
MARKET value of shares issued
price earnings ratio:
Market value per share/earnings per share
Estimating warranties and recognizing warranty expense and it's related liability is an application of the ___________ principle.
Matching
Formula for return on income
Net income/ average total shareholders equity
what are some possible benefits of leasing an asset rather than purchasing it?
-tax savings -improvement of cash flow -lower periodic payment on the asset
effect of stockholders equity: declare a cash dividend
Decrease stockholders equity
Payout ratio:
Dividends (common)/net income
Which of the following could be classified as contingent liabilities? - product warranties - unearned revenue - frequent flier program awards - future litigation losses - deposits from customers
Product warranties, frequent flier program awards, and future litigation losses are contingent liabilities
what kind of account is a treasury stock?
contra equity
purpose of the statement of stockholders equity:
report the changes and the sources of the changes in stockholder equity accounts
What items are in the numerator of the quick ratio?
Current investments, cash, and accounts recieveable
You must (credit/debit) retained earnings to increase the account
CREDIT
2 types of financing:
Equity and Debt
A bank would be more inclined to offer Long term/Short Term loans?
Short term
T//F the debt to equity ratio indicates the extent to which a company relies on creditors to provide a resource for the company
TRUE
T/F Some States allow corporations to issue no-par value common stock
TRUE
T/F no journal entry is required on the date of record
TRUE
date of record
a list of shareholders that are entitled to receive a dividend is made
declaration date
board of directors officially approves the dividend
frequent reason for a stock split is to
cause the market price per share to decline (Disney does this)
What is the formula for the current ratio?
current assets divided by current liabilities
formula for the acid test or quick ratio is quick assets divided by _____________
current liabilities
what kind of liability is the current portion of long term debt?
current liability
This bond is secured by the faith and credit standing of the user
debenture
Which of the following are long term liabilities? - notes payable in 3 years -wages payable -common stock -20 yr mortgage payable
Notes payable in 3 years and 20 yr mortgage payable are long term liabilities
The times interest earned formula is calculated as:
Earnings before interest and taxes/interest expense
T/F If a state has an unemployment tax no FUTA tax needs to be paid
FALSE
T/F Sales tax is recorded on the income statement because it is a cost of making the sale
FALSE
poppy corporation has a current ratio of 2.0 and a quick ratio of 1.6. poppy purchases additional inventory for cash. What happens to the current ratio?
It stays the same because there is a trade-off between cash and additional inventory
When estimating loss due to litigation you should accrue loss of Minimal/maximum amount unless there is a number present within the range of the two numbers
Minimal. if there is a number within the range you will accrue that amount
term
bond issue that matures on a single date
callable bonds can be redeemed at the choice of the _________
bond issuer
a corporation that wishes to borrow from the general public rather than a bank will issue
bonds
convertible bonds
bonds that can be exchanged for shares of stock in the issuing company
serial bonds
bonds that mature in installment
FICA tax is paid by
both the employee and employer
Capital lease
rights and risk of ownership are retained by the lessor
debt to equity ratio:
total liabilities/total stockholders equity
Debentures
unsecured bonds
Which of these payroll taxes are paid only by the employer?
SUTA and FUTA
Which of the following are current liabilities? - notes payable due in 23 months -wages payable - accounts receivable - note payable due in 3 months - accounts payable
Wages Payable, note payable in 3 months, and accounts payable are current liabilities
what lease is essentially a purchase of an asset with debt financing?
capital lease
a _____________ balance in retained earnings indicates an accumulated deficit
debit
date on which a cash dividend becomes a liability?
declaration date
when taxable income is less than net income for financial accounting purposes, what occurs?
deferred tax liability
2 preferences over common stock that preferred stock has:
dividends and distribution of assets if the corporation is dissolved
Effect of stockholders equity: Issued preferred stock for cash at par value
increase in stockholders equity
Specific promises made to bondholders are described in a document called bond ____________
indenture
advantage of financing with debt:
interest is tax deductable
What information does the times interest earned ratio provide to investors and creditors?
it provides the creditor with an indication of the ability of the debtor to pay the interest on its debts
What is a primary reason why financial statement users asses a company's liquidity?
lack of liquidity can lead to the bankruptcy of a company that otherwise may have been successful
par value is also referred to as
legal capital
a corporation will issue bonds when the interest on the bond plus the bond issue cost is ________________
less than the interest payment for a bank loan
What are the two classifications of liabilities?
long term and current
Effect of stockholders equity: Completed a 2 for 1 stock split in which the $10 par value common stock was changed to $5 par value stock
no effect of Stockholders equity
Effect of stockholders equity: Paid a cash dividend that had been declared in a previous month
no effect on Stockholders equity
effect on stock holders equity: declare a 2 for one stock split
no effect on stockholders equity
an end of period adjusting entry that debits unearned revenue will most likely credit a(n) ___________ account
revenue
conversion right
right of a stockholder to exchange his preferred stock for another class of stock
redemption right
right of the preferred stockholder to have his stock repurchased by the corporation for cash
when should a corporation record a liability for dividends in arrears on its cumulative preferred stock?
when dividends have been declared
current assets minus current liabilities is:
working capital
