Woodcrest, Inc. borrowed $50,000 from a local bank and signed a promissory note. What entry should Woodcrest record?
A. Debit Cash, $50,000; Credit Notes
... [Show More] Receivable, $50,000.
B. Debit Notes Receivable, $50,000; Credit Cash, $50,000.
C. Debit Cash, $50,000; Credit Notes Payable, $50,000.
D. Debit Notes Payable, $50,000; Credit Cash, $50,000. - ANSWER-C. Debit Cash, $50,000; Credit Notes Payable, $50,000.
We record interest expense in the period in which we pay it, rather than in the period we incur it
A. True
B. False - ANSWER-B. False
On November 1, 2018, Knomark, Inc. signed a $100,000, 6%, six‐month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. Knomark should report interest payable at December 31, 2018, in the amount of
A. $0.
B. $1,000
C. $2,000
D. $3,000 - ANSWER-B. $1,000
On November 1, 2018, Boiler Bakery signed a $200,000,
6%, six‐month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. Boiler Bakery records the appropriate adjusting entry for the note on December 31, 2018. What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1, 2019?
A. $200,000.
B. $202,000
C. $204,000
D. $206,000 - ANSWER-D. $206,000
A contingency is best described as a(n)
a. currentliability.
b. probable liability.
c. potential liability.
d. estimatedliability. - ANSWER-c. potential liability.
If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be
A. Disclosed, but not reported as a liability
B. Disclosed and reported as a liability
C. Neither disclosed nor reported as a liability
D. Reported as a liability, but not disclosed - ANSWER-A. Disclosed, but not reported as a liability
Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins' legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation?
A. As a liability for $100,000 with disclosure of the range
B. As a liability for $150,000 with disclosure of the range
C. As a liability for $200,000 with disclosure of the range
D. As a disclosure only. No liability is reported - ANSWER-A. As a liability for $100,000 with disclosure of the range
Away Travel filed suit against West Coast Travel seeking damages for copyright violations. West Coast Travel's legal counsel believes it is reasonably possible that West Coast Travel will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should West Coast Travel report this litigation?
A. As a liability for $100,000 with disclosure of the range
B. As a liability for $150,000 with disclosure of the range
C. As a liability for $200,000 with disclosure of the range
D. As a disclosure only. No liability is reported - ANSWER-D. As a disclosure only. No liability is reported
If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is probable, a contingent liability should be
A. Disclosed, but not reported as a liability
B. Disclosed and reported as a liability
C. Neither disclosed nor reported as a liability
D. Reported as a liability, but not disclosed - ANSWER-B. Disclosed and reported as a liability
Footnote disclosure is required for material potential losses when the loss is at least reasonably possible:
A. Only if the amount is known.
B. Only if the amount is known or reasonably estimable.
C. Unless the amount is not reasonably estimable.
D. Even if the amount is not reasonably estimable. - ANSWER-D. Even if the amount is not reasonably estimable.
Ford estimates engine warranty expense in the year a car is sold. This best follows which of the following accounting principles?
A. historical cost
B. full disclosure
C. consistency
D. matching - ANSWER-D. matching
The balance in the Warranty Liability account is always equal to Warranty Expense
A. True
B. False - ANSWER-B. False
Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty expense for the year?
A. $0
B. $16,000
C. $7,000
D. $9,000 - ANSWER-B. $16,000
Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers' goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty liability at the end of the year?
A. $0
B. $16,000
C. $7,000
D. $9,000 - ANSWER-C. $7,000
We record gain contingencies when the gain is probable and the amount is reasonably estimable
A. True
B. False - ANSWER-B. False
The mixture of debt and equity securities is generally the same for most companies.
A. True
B. False - ANSWER-B. False
Which of the following is not a true statement?
A. Companies that are believed to have high bankruptcy risk generally receive low credit ratings and must pay a higher interest rate for borrowing
B. As a company's level of debt increases, the risk of bankruptcy increases
C. Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax‐deductible
D. The mixture of liabilities and stockholders' equity a business uses is called its capital structure - ANSWER-C. Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax‐deductible
A debt to equity ratio of 1.0 means that half of the company's assets are financed by creditors.
A. True
B. False - ANSWER-A. True
Cash flow generally limits the amount of debt a business can finance.
A. True
B. False - ANSWER-A. True
The entry to record a monthly payment on an installment note
A. Increases expense, decreases liabilities, and decreases assets.
B. Increases expense, increases liabilities, and increases assets.
C. Increases expense, decreases liabilities, and increases assets.
D. Increases expense, increases liabilities, and decreases assets. - ANSWER-A. Increases expense, decreases liabilities, and decreases assets.
In each succeeding payment on an installment note
A. The amount that goes to decreasing the carrying value of the note is unchanged.
B. The amount that goes to decreasing the carrying value of the note decreases.
C. The amount that goes to decreasing the carrying value of the note increases.
D. The amounts paid for both interest and principal increase proportionately. - ANSWER-C. The amount that goes to decreasing the carrying value of the note increases.
In each succeeding payment on an installment note
A. The amount of interest expense increases.
B. The amount of interest expense decreases.
C. The amount of interest expense is unchanged.
D. The amounts paid for both interest and principal increase proportionately. - ANSWER-B. The amount of interest expense decreases.
A corporation obtains a $125,000, 6%, five‐year loan for equipment on January 1, 2018. If the monthly payment is $2,416.60, by how much will the carrying value decrease when the first payment is made on January 31, 2018
A. $1,791.60
B. $625.00
C. $2,416.60
D. $1,000.60 - ANSWER-A. $1,791.60
Which of the following definitions describes a term bond?
A. Matures on a single date.
B. Secured only by the "full faith and credit" of the issuing corporation.
C. Matures in installments.
D. Supported by specific assets pledged as collateral by the issuer. - ANSWER-A. Matures on a single date.
A callable bond allows the holder to repay the bonds before their scheduled maturity date at a specified call price.
A. True
B. False - ANSWER-B. False
The term used for bonds that are unsecured as to principal is
A. series bonds
B. debenture bonds
C. indenture bonds.
D.callable bonds. - ANSWER-B. debenture bonds
Convertible bonds allow the borrower to convert each bond into a specified number of shares of common stock
A. True
B. False - ANSWER-B. False
The advantages of obtaining long‐term funds by issuing bonds, rather than issuing additional common stock, include which of the following?
A. Funds are obtained without surrendering ownership control.
B. Interest expense is tax‐deductible.
C. The company's default risk decreases.
D. Funds are obtained without surrendering ownership control, as well as, interest expense is tax‐deductible. - ANSWER-D. Funds are obtained without surrendering ownership control, as well as, interest expense is tax‐deductible.
The rate quoted in the bond contract used to calculate the cash payments for interest is called the
A. Effective rate
B. Yield rate
C. Market rate
D. Stated rate - ANSWER-D. Stated rate
We can calculate the issue price of a bond as the face amount plus the total periodic interest payments
A. True
B. False - ANSWER-B. False
A premium occurs when the issue price of a bond is above its face amount
A. True
B. False - ANSWER-A. True
A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 6%. 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 - ANSWER-B. More than $500,000
The price of a bond is equal to:
A. The future value of the face amount only
B. The present value of the interest only
C. The present value of the face amount plus the present value of the stated interest payments
D. The future value of the face amount plus the future value of the stated interest payments - ANSWER-C. The present value of the face amount plus the present value of the stated interest payments
Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct?
A. Both bonds will sell for the same amount
B. Bond X will sell for more than Bond Y
C. Bond Y will sell for more than Bond X
D. Both bonds will sell at a premium - ANSWER-B. Bond X will sell for more than Bond Y
Which of the following is true for bonds issued at a discount?
A. The stated interest rate is greater than the market interest rate
B. The market interest rate is greater than the stated interest rate
C. The stated interest rate and the market interest rate are equal
D. The stated interest rate and the market interest rate are unrelated - ANSWER-B. The market interest rate is greater than the stated interest rate
Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi‐annually. The market rate for this type of bond is 8%. What is the issue price of the bond?
A. $83,920
B. $46,320
C. $54,055
D. $50,000 - ANSWER-C. $54,055
Bonds payable should be reported as a long‐term liability in the balance sheet at:
A. Face value
B. Current bond market price
C. Carrying value
D. Face value less accrued interest since the last interest payment date - ANSWER-C. Carrying value
Samson Enterprises issued a ten‐year, $20 million bond with a 10% interest rate for $19,500,000. The entry to record the bond issuance would have what effect on the financial statements?
A. Increase assets
B. Increase liabilities
C. Increase stockholders' equity
D. Increase assets and liabilities - ANSWER-D. Increase assets and liabilities
The cash payment each period is calculated as the carrying value times the market rate
A. True
B. False - ANSWER-B. False
Interest expense on bonds payable is calculated as the:
A. Face amount times the stated interest rate
B. Face amount times the market interest rate
C. Carrying value times the market interest rate
D. Carrying value times the stated interest rate - ANSWER-C. Carrying value times the market interest rate
When bonds are issued at a premium (above face amount), the carrying value and the corresponding interest expense increase over time
A. True
B. False - ANSWER-B. False
For bonds issued at a premium, the difference between interest expense and the cash paid increases the carrying value of the bonds
A. True
B. False - ANSWER-B. False
The carrying value, using the effective interest method, would increase each year:
A. The carrying value of bonds will never increase
B. If the bonds were sold at either a discount or a premium
C. If the bonds were sold at a premium
D. If the bonds were sold at a discount - ANSWER-D. If the bonds were sold at a discount
A $500,000 bond issue sold for $510,000. Therefore, the bonds
A. Sold at a premium because the stated interest rate was higher than the market rate
B. Sold for the $500,000 face amount plus $10,000 of accrued interest
C. Sold at a discount because the stated interest rate was higher than the market rate
D. Sold at a premium because the market interest rate was higher than the stated rate - ANSWER-A. Sold at a premium because the stated interest rate was higher than the market rate
An amortization schedule for a bond issued at a discount:
A. Has a carrying value that decreases over time
B. Is contained in the balance sheet
C. Is a schedule that reflects the changes in bonds payable over its term to maturity
D. Reflects interest expense decreasing over the term of the bond - ANSWER-C. Is a schedule that reflects the changes in bonds payable over its term to maturity
Bonds usually sell at a discount when
A. investors are willing to invest in the bonds only at rates that are higher than the stated interest rate.
B. investors are willing to invest in the bonds at rates that are lower than the stated interest rate.
C. investors are willing to invest in the bonds at the stated interest rate.
D. a capital gain is expected. - ANSWER-A. investors are willing to invest in the bonds only at rates that are higher than the stated interest rate
X2 will issue callable bonds on January 1, 2018. The bonds pay interest annually on December 31 each year. X2's accountant has projected the following amortization schedule from issuance until maturity.
What is the annual stated interest rate on the bonds?
A. 3%
B. 3.5%.
C. 6%
D. 7% - ANSWER-D. 7%
X2 will issue callable bonds on January 1, 2018. The bonds pay interest annually on December 31 each year. X2's accountant has projected the following amortization schedule from issuance until maturity.
What is the annual market interest rate on the bonds? A. 3%
B. 3.5%
C. 6%
D. 7% - ANSWER-C. 6%
If bonds are retired by an issuer by purchase on the open market at a price below the bonds' carrying value, a gain will result.
A. True
B. False - ANSWER-A. True
Gains/losses on the early extinguishment of debt are reported as part of operating income in the income statement
A. True
B. False - ANSWER-B. False
A gain or loss is recorded on bonds retired at maturity
A. True
B. False - ANSWER-B. False
When bonds are called for retirement, any excess of the bonds' call price over the bonds' carrying value is reported as a loss on the income statement.
A. True
B. False - ANSWER-A. True
When using vertical analysis, we express income statement accounts as a percentage of
A. Net income
B. Sales
C. Total expenses
D. Gross profit - ANSWER-B. Sales
When using vertical analysis, we express balance sheet accounts as a percentage of
A. Cash
B. Total assets
C. Total liabilities
D. Total stockholders' equity - ANSWER-B. Total assets
Which of the following is an example of vertical analysis?
A. Comparing gross profit across companies
B. Comparing income statement items as a percentage of sales
C. Comparing debt with industry averages
D. Comparing the change in sales over time - ANSWER-B. Comparing income statement items as a percentage of sales
To calculate a year‐to‐year percentage change in any financial statement line item such as sales, you should take the current year's amount, subtract the prior year's amount, then divide by ______, and finally multiply the result by 100
A. net income
B. total assets
C. the current year's amount
D. the prior year's amount - ANSWER-D. the prior year's amount
Brady's Inflation Needle Co. reports accounts receivable of $200,000 in 2017 and $250,000 in 2018. Using horizontal analysis, what would be the percentage increase or decrease in accounts receivable?
A. 25% decrease
B. 25% increase
C. 150% decrease
D. 150% increase - ANSWER-B. 25% increase
Which of the following is an example of horizontal analysis?
A. Comparing gross profit across companies
B. Comparing gross profit with operating expenses
C. Comparing assets with equity
D. Comparing the change in sales over time - ANSWER-D. Comparing the change in sales over time
A company with a current ratio of 2.0 is considered more liquid than one with a current ratio of 3.0.
A. True
B. False - ANSWER-B. False
Assuming a current ratio of 1.0, how will the purchase of supplies with cash affect the ratio?
A. Increase the current ratio
B. No change to the current ratio
C. Decrease the current ratio
D. Could either increase or decrease the current ratio - ANSWER-B. No change to the current ratio
Which type of account is gross margin?
A. An income account
B. An expense account
C. An asset account
D. None of these are correct - ANSWER-D. None of these are correct
Profit margin and gross margin are the same thing.
A. True
B. False - ANSWER-B. False
Will the profit margin of a business be higher than its gross margin?
A. Yes
B. No - ANSWER-B. No
Richard's Sporting Goods reports net income of $100,000, net sales of $500,000, and average assets of $1,000,000. The profit margin is
A. 10%
B. 20%
C. 50%
D. 5 times - ANSWER-B. 20%
Calculate the company's profit margin for 2018 on the following schedule.
A. .9%
B. 4%
C. 9%
D. 32% - ANSWER-B. 4%
The company's 2018 gross margin ratio on the following schedule is:
A. 38%.
B. 80%.
C. 40%.
D. 60%. - ANSWER-A. 38%.
When a corporation is formed what document is filed with a state jurisdiction?
a) Charter of organization
b) Common stock registration form
c) Articles of incorporation
d) Articles of business organization - ANSWER-c) Articles of incorporation
The CEO of a company is elected by a vote of the shareholders.
a. true
b. false - ANSWER-b. false
Limited liability means that even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company
a. True
b. False - ANSWER-a. True
All publicly held corporations are regulated by what government organization?
a. TheFinancialAccountingStandardsBoard
b. The Commission on Accounting Procedures
c. The Accounting Principles Board
d. The Securities and Exchange Commission - ANSWER-d. The Securities and Exchange Commission
Advantages of the corporate form of business include which of the following?
I. Double taxation
II. Ability to raise capital
III. Ability to transfer ownership
IV. More paperwork
V. Limited liability
a. II
b. II., III., V
c. I., II., III
d. II.,IV.,V - ANSWER-b. II., III., V
Which of the following is a reason that a corporation would prefer to issue stock instead of bonds?
a. Dividendpaymentscanbedeductedfor income tax purposes but interest payments cannot
b. Expansion is accomplished without surrendering ownership control
c. The risk of going bankrupt is less
d. AlL oF these - ANSWER-c. The risk of going bankrupt is less
Contributed capital is the amount stockholders have invested in the company
a. true
b. false - ANSWER-a. true
The par value of common stock represents the
a. liquidation value of the stock
b. book value of the stock
c. amount received by the corporation when the stock was originally issued
d. legal nominal value assigned to the stock - ANSWER-d. legal nominal value assigned to the stock
Par value is the legal capital per share of stock that's assigned when the corporation is first established [Show Less]