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Which of the following measures of liquidity does not control for the relative size of the company?


A) Working capital.
B) Current ratio.
C) Acid-test ratio.
D) They all control for the relative size of the company.

E) A) and B)
F) C) and D)

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On September 1,2012,Daylight Donuts signed a $100,000,9%,six-month note payable with the amount borrowed plus accrued interest due six months later on March 1,2013.Daylight Donuts records the appropriate adjusting entry for the note on December 31,2012.In recording the payment of the note plus accrued interest at maturity on March 1,2013,Daylight Donuts would


A) Debit Interest Expense,$3,000.
B) Debit Interest Expense,$1,500.
C) Debit Interest Payable,$1,500.
D) Debit Interest Expense,$4,500.

E) B) and C)
F) C) and D)

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When a company receives cash in advance,it debits Cash and credits a revenue account called Unearned Revenue.

A) True
B) False

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Accurate Reports has 50 employees each working 40 hours per week and earning $25 an hour.Federal income taxes are withheld at 15% and state income taxes at 6%.FICA taxes are 7.65% of the first $106,800 earned per employee and 1.45% thereafter.Unemployment taxes are 3.8% of the first $7,000 earned per employee. 1.Compute the total salaries expense,the total withholdings from employee salaries,and the actual direct deposit of payroll for the first week of January. 2.Compute the total payroll tax expense Accurate Reports will pay for the first week of January.

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A company's liquidity refers to its:


A) Ability to collect accounts receivable.
B) Ability to sell inventory efficiently.
C) Ability to generate profits from operations.
D) Ability to pay currently maturing debts.

E) A) and B)
F) A) and C)

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When a company delivers a product or service for which a customer has previously paid,the company records the following:


A) A debit to a revenue account and a credit to a liability account.
B) A debit to a revenue account and a credit to an asset account.
C) A debit to an asset account and a credit to a revenue account.
D) A debit to a liability account and a credit to a revenue account.

E) None of the above
F) B) and C)

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Which of the following is true regarding FICA taxes?


A) FICA taxes are paid only by the employee.
B) FICA taxes are paid only by the employer.
C) FICA taxes are paid in equal amounts by the employee and the employer.
D) FICA taxes are paid in different amounts by the employee and the employer.

E) B) and D)
F) A) and D)

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The current ratio is


A) Current assets divided by current liabilities.
B) Cash and short-term investments divided by current liabilities.
C) Cash,short-term investments,and accounts receivable divided by current liabilities.
D) Cash,short-term investments,accounts receivable,and inventory divided by current liabilities.

E) A) and D)
F) All of the above

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Regarding a contingent liability,when no amount within a range of potential losses appears more likely than others,we record the maximum amount in the range.

A) True
B) False

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On November 1,2012,The Bagel Factory signed a $100,000,6%,six-month note payable with the amount borrowed plus accrued interest due six months later on May 1,2013.The Bagel Factory records the appropriate adjusting entry for the note on December 31,2012.In recording the payment of the note plus accrued interest at maturity on May 1,2013,The Bagel Factory would


A) Debit Interest Expense,$2,000.
B) Debit Interest Expense,$1,000.
C) Debit Interest Payable,$2,000.
D) Debit Interest Expense,$3,000.

E) B) and C)
F) A) and D)

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We record gain contingencies when the gain is probable and can be reasonably estimated.

A) True
B) False

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The current portion of long-term debt should be


A) Reported as a current liability on the balance sheet.
B) Reported as a long-term liability on the balance sheet.
C) Combined with the rest of the long-term debt on the balance sheet.
D) Paid immediately.

E) A) and B)
F) B) and C)

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Airlines do not record revenue when a ticket is sold,but wait to record revenue until the actual flight occurs.

A) True
B) False

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On November 1,2012,New Morning Bakery signed a $200,000,6%,six-month note payable with the amount borrowed plus accrued interest due six months later on May 1,2013.New Morning Bakery should record which of the following adjusting entries at December 31,2012?


A) Debit Interest Expense and credit Interest Payable,$2,000.
B) Debit Interest Expense and credit Cash,$2,000.
C) Debit Interest Expense and credit Interest Payable,$6,000.
D) Debit Interest Expense and credit Cash,$6,000.

E) A) and D)
F) B) and C)

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Given a choice,most companies would prefer to report a liability as long-term rather than current because:


A) It may cause the firm to appear less risky to investors and creditors.
B) It may reduce interest rates on borrowing.
C) It may cause the company to appear more stable commanding a higher stock price for new stock listings.
D) All of the other answers are true.

E) None of the above
F) B) and C)

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The Copper Grill has the following current assets: cash,$12 million; receivables,$50 million; inventory,$44 million; and other current assets $4 million.The Copper Grill has the following liabilities: accounts payable,$38 million; current portion of long-term debt,$7 million; and long-term debt,$12 million.Based on these amounts,calculate the current ratio and the acid-test ratio for The Copper Grill.

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Two competing advertising agencies provide similar services,but record sales using different methods. 1.Diversified Advertising records sales and sales taxes in separate accounts.For the month of March,sales total $10,000 and sales taxes are $600. 2.Centralized Advertising records sales and sales taxes together.For the month of March,sales total $5,300,including a 6% sales tax. Record sales revenue and the related sales tax payable for (1)Diversified Advertising and (2)Centralized Advertising.

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Which of the following is a contingency that should be recorded?


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.

E) A) and C)
F) None of the above

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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.

E) All of the above
F) A) and B)

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Skypt Co.is involved in a lawsuit and sued by Quart Co.for $500,000.Skypt feels it is probable that it will lose the lawsuit.What should Skypt Co.and Quart Co.record or disclose concerning the lawsuit?


A) Skypt Co.should record a $500,000 contingent liability; Quart Co.should record a $500,000 contingent gain.
B) Skypt Co.should record a $500,000 contingent liability; Quart Co.should not record or disclose a contingent gain.
C) Skypt Co.should disclose a $500,000 contingent liability; Quart Co.should disclose a $500,000 contingent gain.
D) Skypt Co.should not record or disclose a contingent liability; Quart Co.should record a $500,000 contingent gain.

E) A) and B)
F) B) and C)

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