From a liquidity standpoint, it is more desirable for a company

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1. From a liquidity standpoint, it is more desirable for a company to have

A. current assets equal current liabilities.
B. current liabilities exceed current assets.
C. current assets exceed current liabilities.
D. current liabilities exceed long-term liabilities.

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Answer: current assets exceed current liabilities.

2. A corporation recognizes a gain or loss

A. only when bonds are redeemed before maturity.
B. only when bonds are converted into common stock.
C. when bonds are redeemed at or before maturity.
D. when bonds are converted into common stock and when they are redeemed before maturity.

Answer: only when bonds are redeemed before maturity.

3. Lulzbot.com sells 6,000 units of its product for $500 each. The selling price includes a one-year warranty on parts. It is expected that 3% of the units will be defective and that repair costs will average $50 per unit. In the year of sale, warranty contracts are honored on 120 units for a total cost of $6,000. What amount should Lulzbot.com accrue on December 31 for estimated warranty costs?

A. $9,000
B. $6,000
C. $3,000
D. $45,000

Answer: $3,000

4. If a corporation issued $3,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

A. $3,000,000
B. $45,000
C. $150,000
D. $105,000

Answer: $105,000

5. A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called

A. a bond indenture.
B. a bond debenture.
C. trading on the equity.
D. a term bond.

Answer: a bond indenture.

6. A note payable is in the form of

A. a contingency that is reasonably likely to occur.
B. a written promissory note.
C. an oral agreement.
D. a standing agreement.

Answer: a written promissory note.

7.On January 1, 2014, Mazzeo Company, a calendar-year company, issued $1,600,000 of notes payable, of which $400,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2014, is

A. Current Liabilities, $1,600,000.
B. Long-term Debt, $1,600,000.
C. Current Liabilities, $800,000; Long-term Debt, $800,000.
D. Current Liabilities, $400,000; Long-term Debt, $1,200,000.

Answer: Current Liabilities, $400,000; Long-term Debt, $1,200,000.

8. If the market interest rate is 5%, a $10,000, 6%, 10-year bond, that pays interest semiannually would sell at an amount

A. less than face value.
B. equal to face value.
C. greater than face value.
D. that cannot be determined.

Answer: greater than face value.

9.The following totals for the month of April were taken from the payroll register of Asplend Company.

Salaries and wages $72,000
FICA taxes withheld 5,508
Income taxes withheld 15,000
Medical insurance deductions 2,700
Federal unemployment taxes 192
State unemployment taxes 1,296
The entry to record the accrual of federal unemployment taxes would include a

a.debit to Salaries and Wages Payable for $47,304.

b.debit to Salaries and Wages Payable for $48,792.

c.debit to Salaries and Wages Payable for $43,284.

d.credit to Cash for $54,300

Answer: debit to Salaries and Wages Payable for $48,792.

10.The interest charged on a $400,000 note payable, at the rate of 8%, on a 90-day note would be

A. $32,000.
B. $17,776.
C. $8,000.
D. $2,666.

Answer: $8,000.

11. On January 1, 2014, Key Company, a calendar-year company, issued $250,000 of notes payable, of which $62,500 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2014, is

A. Current Liabilities, $250,000.
B. Long-term Debt , $250,000.
C. Current Liabilities, $62,500; Long-term Debt, $187,500.
D. Current Liabilities, $187,500; Long-term Debt, $62,500.

Answer: Current Liabilities, $62,500; Long-term Debt, $187,500.

12. Autumn Company purchased a building on January 2 by signing a long-term $630,000 mortgage with monthly payments of $5,400. The mortgage carries an interest rate of 10 percent.

The entry to record the first monthly payment will include a (Points : 1)

A. debit to the Cash account for $5,400.
B. credit to the Cash account for $5,250.
C. credit to the Mortgage Payable account for $5,400.
D. debit to the Interest Expense account for $5,250.

Answer: debit to the Interest Expense account for $5,250.

13.When an interest-bearing note matures, the balance in the Notes Payable account is

A. less than the total amount repaid by the borrower.
B. the difference between the maturity value of the note and the face value of the note.
C. equal to the total amount repaid by the borrower.
D. greater than the total amount repaid by the borrower.

Answer: less than the total amount repaid by the borrower.

14. Pan Company received proceeds of $188,000 on 10-year, 6% bonds issued on January 1, 2013. The bonds had a face value of $200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Pan uses the straight-line method of amortization.

What is the amount of interest expense Pan will show with relation to these bonds for the year ended December 31, 2014?

A. $12,000
B. $11,200
C. $13,200
D. $10,800

Answer:$10,800

15. Bond interest paid is

A. higher when bonds sell at a discount.
B. lower when bonds sell at a premium.
C. the same whether bonds sell at a discount or a premium.
D. higher when bonds sell at a discount and lower when bonds sell at a premium.

Answer: the same whether bonds sell at a discount or a premium.

16. Koppernaes Company has total proceeds (before segregation of sales taxes) from sales of $9,540. If the sales tax is 6%, the amount to be credited to the account Sales Revenue is:

A. $9,540.
B. $8,968.
C. $10,112.
D. $9,000.

Answer: $9,000.

17.Sales taxes collected by a retailer are recorded by

A. crediting Sales Tax Revenue.
B. debiting Sales Tax Expense.
C. debiting Sales Taxes Payable.
D. crediting Sales Taxes Payable.

Answer: crediting Sales Taxes Payable.

18. Autotether, Inc. sells 1,200 units of a product that has a one-year warranty on parts. The average cost of honoring one warranty contract is $60. During the year 60 contracts are honored at a cost of $3,600. It is estimated that 120 contracts will be honored in the following year. The adjusting entry at the end of the current year will include a (Points : 1)

A. credit to Warranty Liability for $7,200.
B. credit to Warranty Liability for $10,800.
C. debit to Warranty Expense for $3,600.
D. debit to Warranty Expense for $10,800.

Answer: credit to Warranty Liability for $7,200.

19. A bond with a face value of $200,000 and a quoted price of 102 1/8 has a selling price of

A. $240,225
B. $204,025
C. $200,225
D. $204,250

Answer:$204,250

20. From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

A. bond interest is deductible for tax purposes.
B. interest must be paid on a periodic basis regardless of earnings.
C. income to stockholders may increase as a result of trading on the equity.
D. the bondholders do not have voting rights.

Answer: interest must be paid on a periodic basis regardless of earnings.

Consider the following solvent pairs when mixed: which are immiscible miscible?

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