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Which of the following is not a liability? A. An unused line of credit. B. Estimated income taxes. C. Sales tax collected from customers D. Advances from customers
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A. An unused line of credit.
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When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in: A. A current liability B. Revenue C. Shareholders' equity D. Paid-in-capital
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A. A current liability
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The rate of interest printed on the face of a note payable is called the: A. Yield Rate B. Effective rate C. Market rate D. Stated rate
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D. Stated rate
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The rate of interest that actually is incurred on a note payable is called the: A. Face rate B. Contract rate C. Effective rate D. Stated rate
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C. Effective rate
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Jane's Donut Co. borrowed $200,000 on Jan. 1, 2011, and signed a two-year note bearing interest at 12%. Interest is payable in full at maturity on Jan. 1, 2013. In connection with this note, Jane's should report interest expense at Dec. 31, 2011 in the amount of: A. $0 B. $24,000 C. $48,000 D. $50,880
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B. 24,000
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At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent: A. Liabilities until the product or service is provided. B. A component of shareholders' equity. C. Long-term assets until the product or service is provided. D. Revenue upon receipt of the advance payment.
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A. Liabilities until the product or service is provided.
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All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party? A. Sales tax payable B. Customer deposits C. Employee insurance deductions D. Social security taxes deductions
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B. Customer deposits
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When a deposit on returnable containers is forfeited, the firm holding the deposit will experience: A. A decrease in cost of goods sold B. An increase in current liabilities C. An increase in accounts receivable D. An increase in revenue
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D. An increase in revenue.
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All else equal, a large increase in unearned revenue in the current period would be expected to produce what effect on revenue in a future period? A. Large increase, because unearned revenue becomes revenue when revenue is earned. B. Large decrease, because unearned revenue implies that less revenue has been earned, which reduces future revenue. C. No effect, because unearned revenue is a liability, so payment will use assets rather than providing revenue. D. Large decrease, because unearned revenue indicates collection problems that will reduce net revenues in future periods.
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A. Large increase, because unearned revenue becomes revenue when revenue is earned.
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When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes: A. A debit to a revenue and a credit to a liability account. B. A debit to a revenue and a credit to an asset account. C. A debit to an asset and a credit to a revenue account. D. A debit to a liability and a credit to a revenue account.
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D. A debit to a liability and a credit to a revenue account.
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In May of 2011, Raymond Financial Services became involved in a penalty dispute with the EPA. At Dec. 31, 2011, the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable. The additional penalties were estimated to be $770,000 but could be as high as $1,170,000. After the year-end, but before the 2011 financial statements were issued, Raymond accepted an EPA settlement offer of $900,000. Raymond should have reported an accrued liability on its Dec. 31, 2011, balance sheet of: A. $770,000 B. $900,000 C. $970,000 D. $1,170,000
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B. $900,000
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Which of the following is not a current liability? A. Accounts Payable B. A note payable due in 2 years. C. Accrued interest payable D. Sales tax payable.
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B. A note payable due in 2 years.
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Large, highly rated firms sometimes sell commercial paper: A. To borrow funds at a lower rate than through a bank. B. To earn a profit on the paper. C. To avoid paperwork. D. Because the interest rate is locked in by the Federal Reserve Board.
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A. To borrow funds at a lower rate than through a bank.
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A long-term liability should be reported as a current liability in a classified balance sheet if the long-term debt A. is callable by the creditor B. is secured by the adequate collateral C. will be refinanced with stock D. will be refinanced with debt
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A. is callable by the creditor
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Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current. The logic behind this preference is that the long-term classifications permits the company to report: A. Higher working capital and a higher inventory turnover. B. Lower working capital and a higher current ratio. C. Higher working capital and a higher current ratio. D. Higher working capital and a lower debt to equity ratio.
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C. Higher working capital and a higher current ratio.
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Gain contingencies usually are recognized in a company's income statement when: A. Realized B. The amount can be reasonably estimated. C. The gain is reasonably possible and the amount can be reasonable estimated. D. The gain is probable and the amount can be reasonably estimated.
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A. Realized
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A company should accrue a loss contingency only if the likelihood that a liability has been incurred is: A. More likely than not and the amount of the loss is known. B. At least reasonably possible and the amount of the loss is known. C. At least reasonably possible and the amount of the loss can be reasonably estimated. D. Probable and the amount of the loss can be reasonably estimated.
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D. Probable and the amount of the loss can be reasonably estimated.
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Which of the following is a contingency that should be accrued? A. The company is being sued and a loss is reasonably possible and reasonably estimable. B. The company deducts life insurance premiums from employees' paychecks. C. The company offers a two year warranty and the expenses can be reasonably estimated. D. It is probable that the company will receive $100,000 in settlement of a lawsuit.
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C. The company offers a two year warranty and the expenses can be reasonably estimated.
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Paul Company issues a product recall due to an apparently pre-existing and material defect discovered after the end of its fiscal year. Financial statements have not yet been issued. The action required of Paul Company for this reasonably estimable contingency for the year just ended is: A. To disclose it in a footnote B. To accrue a long term liability C. To accrue the liability and explain it in a footnote. D. To do nothing relative to the contingency.
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C. To accrue the liability and explain it in a footnote.
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Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If the likelihood of the expropriation is remote, a loss contingency should be A. Disclosed but not accrued as a liability. B. Disclosed and accrued as a liability. C. Accrued as liability but not disclosed. D. Neither accrued as a liability nor disclosed.
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D. Neither accrued as a liability nor disclosed.
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The accounting concept that requires recognition of a liability for customer premium offers is A. Periodicity B. Conservatism C. Historical cost D. The matching principal
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D. The matching principal
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Volt Electronics sells equipment that includes a three year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs: A. When the equipment is sold. B. When the repairs are performed. C. When payments are made to the service firm. D. Evenly over the life of the warranty.
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A. When the equipment is sold.
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At the beginning of 2011, Angel Corporation began offering a 2 year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2011 were $180 million. 15% of the units sold were returned in 2011 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2011 income statement is: A. 5.3 million B. 7.2 million C. 10.6 million D. 27 million
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B. 7.2 million
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During the year, L&M Leather Goods sold 1,000,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $4.00 cash rebate. L&M estimates that 70% of the coupons will be redeemed, even though only 500,000 coupons had been processed during the year. At Dec. 31, L&M should report a liability for unredeemed coupons of: A. $700,000 B. $800,000 C. $1,000,000 D. $2,800,000
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B. $800,000
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Which of the following may create employer liabilities in connection with their payrolls? A. Employee withholding taxes B. Employee voluntary deductions C. Employee fringe benefits D. All of above
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D. All of above
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The rate of interest that actually is incurred on a bond payable is called the: A. Face rate B. Contract rate C. Effective rate D. Stated rate
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C. Effective rate
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Interest expense is: A. The effective interest rate times the amount of the debt outstanding during the interest period. B. The stated interest rate times the amount of debt outstanding during the interest period. C. The effective interest rate times the face amount of the debt. D. The stated interest rate times the face amount of the debt.
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A. The effective interest rate times the amount of the debt outstanding during the interest period.
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Bonds usually sell at their: A. Maturity value B. Face value C. Present value D. Statistical expected value
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C. Present value
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Bonds are issued on June 1 that have interest payment dates of April 1 and Oct 1. Bond interest expense for the year ended Dec. 31, 2011, is for a period of: A. 3 months B. 4 months C. 6 months D. 7 months
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D. 7 months
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A $500,000 bond issue sold for 98. Therefore, the bonds: A. Sold at a discount because the stated rate of interest was lower than the effective rate. B. Sold for the $500,000 face amount less $10,000 of accrued interest. C. Sold at a premium because the stated rate of interest was higher than the yield rate. D. Sold at a discount because the effective interest rate was lower than the face rate.
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A. Sold at a discount because the stated rate of interest was lower than the effective rate.
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A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is 11%. These bonds will sell at a price that is: A. Equal to $500,000 B. More than $500,000 C. Less than $500,000 D. The answer cannot be determined from the information provided.
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C. Less than $500,000
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The market price of a bond issued at a discount is the present value of its principal amount at the market(effective) rate of interest A. Less the present value of all future interest payments at the rate of interest stated on the bond. B. Plus the present value of all future interest payments at the rate of interest stated on the bond. C. Plus the present value of all future interest payments at the market (effective) rate of interest. D. Less the present value of all future interest payments at the market (effective) rate of interest.
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C. Plus the present value of all future interest payments at the market (effective) rate of interest.
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Bond X and Bond Y both are issued by the same company. Each of the bonds has a maturity value of $100,000 and each pays interest at 8%. The current market rate of interest is 8% for each. Bond X matures in 7 years while Bond Y matures in 10 years. Which of the following is correct? A. Both bonds sell for the same amount. B. Both bonds sell for more than $100,000 C. Bond X sells for more than Bond Y D. Bond Y sells for more than Bond X
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A. Both bonds sell for the same amount.
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In each succeeding payment on an installment note: A. The amount of interest paid increases. B. The amount of principal paid increases. C. The amount of interest paid is unchanged. D. The amounts paid for both interest and principal increase proportionately.
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B. The amount of principal paid increases.
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Bonds payable should be reported as a long term liability in the balance sheet of the issuing corporation at the: A. Face amount price less any unamortized discount or plus any unamortized premium. B. Current bond market price C. Face amount less any unamortized premium or plus any unamortized discount. D. Face amount less accrued interest since the last interest payment date.
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A. Face amount price less any unamortized discount or plus any unamortized premium.
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The unamortized balance of discount on bonds payable is reported in the balance sheet as: A. A prepaid expense B. An expense account C. A current liability D. A contra-liability
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D. A contra-liability
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Eagle Company issued ten year bonds at 96 during the current year. In the year end financial statements, the discount should be: A. Deducted from bonds payable. B. Added to bonds payable. C. Included as an expense in the year of issue. D. Reported as a deferred charge.
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A. Deducted from bonds payable.
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Patrick Roch International issued 5% bonds convertible into shares of the company's common stock. Upon issuance, Patrick Roch International should record: A. the proceeds of the bond issue as part debt and part equity B. the proceeds of the bond issue entirely as debt C. the proceeds of the bond issue entirely as equity D. the proceeds of the bond issue entirely as debt if the bonds are mandatorily redeemable.
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B. the proceeds of the bond issue entirely as debt
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When bonds are retired prior to their maturity date: A. GAAP has been violated B. The issuing company probably will report an ordinary gain or loss. C. The issuing company probably will report an extraordinary gain or loss. D. The issuing company will report a non-operating gain or loss.
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B. The issuing company probably will report an ordinary gain or loss.
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On March 1, 2011 E Corp. issued $1,000,000 of 10% nonconvertible bonds at 103, due on Feb. 28, 2021. Each $1,000 bond was issued with 30 detachable stock warrants, each of which entitled the holder to purchase, for $50, one share of Evan's $25 par common stock. On March 1, 2011, the market price of each warrant was $4. By what amount should the bond issue proceeds increase shareholders' equity? A. $0 B. $30,000 C. $90,000 D. $120,000
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D. $120,000
