ACC 304 WEEK 8 QUIZ 5
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ACC 304 WEEK 8 QUIZ 5
ACC 304 Week 8 Quiz 5 – STR NEW
ACC 304 Week 8 Quiz 5
All Questions Included.
TRUE-FALSE—Conceptual
1. A zero-interest-bearing note payable that is issued at
a discount will not result in any interest expense being recognized.
2. Dividends in arrears on cumulative preferred stock
should be recorded as a current liability.
3. Magazine subscriptions and airline ticket sales both
result in unearned revenues.
4. Discount on Notes Payable is a contra account to Notes
Payable on the balance sheet.
5. All long-term debt maturing within the next year must
be classified as a current liability on the balance sheet.
6. A short-term obligation can be excluded from current
liabilities if the company intends to refinance it on a long-term basis.
7. Many companies do not segregate the sales tax collected
and the amount of the sale at the time of the sale.
8. A company must accrue a liability for sick pay that
accumulates but does not vest.
9. Companies report the amount of social security taxes
withheld from employees as well as the companies’ matching portion as current
liabilities until they are remitted.
10. Accumulated rights exist when an employer has an
obligation to make payment to an employee even after terminating his
employment.
11. Companies should recognize the expense and related
liability for compensated absences in the year earned by employees.
12. Companies should accrue an estimated loss from a loss
contingency if information available prior to the issuance of financial
statements indicates that it is probable that a liability has been incurred.
13. A company discloses gain contingencies in the notes
only when a high probability exists for realizing them.
14. The expected profit from a sales type warranty that
covers several years should all be recognized in the period the warranty is
sold.
15. The fair value of an asset retirement obligation is
recorded as both an increase to the related asset and a liability.
16. The cause for litigation must have occurred on or
before the date of the financial statements to report a liability in the
financial statements.
17. Under the expense warranty approach, companies charge
warranty costs only to the period in which they comply with the warranty.
18. Prepaid insurance should be included in the numerator
when computing the acid-test (quick) ratio.
19. Paying a current liability with cash will always reduce the
current ratio.
20. Current liabilities are usually recorded and reported
in financial statements at their full maturity value.
MULTIPLE CHOICE—Conceptual
21. Liabilities are
a. any accounts having credit balances after closing
entries are made.
b. deferred credits that are recognized and measured
in conformity with generally accepted accounting principles.
c. obligations to transfer ownership shares to other
entities in the future.
d. obligations arising from past transactions and
payable in assets or services in the future.
22. Which of the following is a current
liability?
a. A long-term debt maturing currently, which is to
be paid with cash in a sinking fund
b. A long-term debt maturing currently, which is to
be retired with proceeds from a new debt issue
c. A long-term debt maturing currently, which is to
be converted into common stock
d. None of these
23. Which of the following is true about
accounts payable?
1. Accounts payable should not be reported at their
present value.
2. When accounts payable are recorded at the net
amount, a Purchase Discounts account will be used.
3. When accounts payable are recorded at the gross
amount, a Purchase Discounts Lost account will be used.
a. 1
b. 2
c. 3
d. Both 2 and 3 are true.
24. Among the short-term obligations of
Lance Company as of December 31, the balance sheet date, are notes payable
totaling $250,000 with the Madison National Bank. These are 90-day notes,
renewable for another 90-day period. These notes should be classified on
the balance sheet of Lance Company as
a. current liabilities.
b. deferred charges.
c. long-term liabilities.
d. intermediate debt.
25. Which of the following is not true about the
discount on short-term notes payable?
a. The Discount on Notes Payable account has a debit
balance.
b. The Discount on Notes Payable account should be
reported as an asset on the balance sheet.
c. When there is a discount on a note payable, the
effective interest rate is higher than the stated discount rate.
d. All of these are true.
26. Which of the following may be a
current liability?
a. Withheld Income Taxes
b. Deposits Received from Customers
c. Deferred Revenue
d. All of these
27. Which of the following items is a
current liability?
a. Bonds (for which there is an adequate sinking
fund properly classified as a long-term investment) due in three months.
b. Bonds due in three years.
c. Bonds (for which there is an adequate
appropriation of retained earnings) due in eleven months.
d. Bonds to be refunded when due in eight months,
there being no doubt about the marketability of the refunding issue.
28. Which of the following should not be included in the
current liabilities section of the balance sheet?
a. Trade notes payable
b. Short-term zero-interest-bearing notes payable
c. The discount on short-term notes payable
d. All of these are included
29. Which of the following is a current
liability?
a. Preferred dividends in arrears
b. A dividend payable in the form of additional
shares of stock
c. A cash dividend payable to preferred stockholders
d. All of these
30. Stock dividends distributable should
be classified on the
a. income statement as an expense.
b. balance sheet as an asset.
c. balance sheet as a liability.
d. balance sheet as an item of stockholders’ equity.
31. Of the following items, the only one
which should not be classified as a current liability is
a. current maturities of long-term debt.
b. sales taxes payable.
c. short-term obligations expected to be refinanced.
d. unearned revenues.
32. An account which would be classified
as a current liability is
a. dividends payable in the company’s stock.
b. accounts payable—debit balances.
c. losses expected to be incurred within the next
twelve months in excess of the company’s insurance coverage.
d. none of these.
33. Which of the following is a
characteristic of a current liability but not a long-term liability?
a. Unavoidable obligation.
b. Present obligation that entails settlement by
probable future transfer or use of cash, goods, or services.
c. Liquidation is reasonably expected to require use
of existing resources classified as current assets or create other current
liabilities.
d. Transaction or other event creating the liability
has already occurred.
34. Which of the following is not
considered a part of the definition of a liability?
a. Unavoidable obligation.
b. Transaction or other event creating the liability
has already occurred.
c. Present obligation that entails settlement by
probable future transfer or use of cash, goods, or services.
d. Liquidation is reasonably expected to require use
of existing resources classified as current assets or create other current
liabilities.
35. Why is the liability section of the
balance sheet of primary importance to bankers?
a. To evaluate the entity’s credit quality.
b. To assist in understanding the entity’s
liquidity.
c. To better understand sources of repayment.
d. To evaluate operating efficiency.
36. What is the relationship between
current liabilities and a company’s operating cycle?
a. Liquidation of current liabilities is reasonably
expected within the company’s operating cycle (or one year if less).
b. Current liabilities are the result of operating
transactions.
c. Current liabilities can’t exceed the amount
incurred in one operating cycle.
d. There is no relationship between the two.
37. What is the relationship between
present value and the concept of a liability?
a. Present values are used to measure certain
liabilities.
b. Present values are not used to measure
liabilities.
c. Present values are used to measure all
liabilities.
d. Present values are only used to measure long-term
liabilities.
38. What is a discount as it relates to
zero-interest-bearing notes payable?
a. The discount represents the lender’s costs to
underwrite the note.
b. The discount represents the credit quality of the
borrower.
c. The discount represents the cost of borrowing.
d. The discount represents the allowance for
uncollectible amounts.
39. Where is debt callable by the
creditor reported on the debtor’s financial statements?
a. Long-term liability.
b. Current liability if the creditor intends to call
the debt within the year, otherwise a long-term liability.
c. Current liability if it is probable that creditor
will call the debt within the year, otherwise a long-term liability.
d. Current liability.
40. Which of the following is not a
condition necessary to exclude a short-term obligation from current
liabilities?
a. Intend to refinance the obligation on a long-term
basis.
b. Obligation must be due with one year.
c. Demonstrate the ability to complete the
refinancing.
d. Subsequently refinance the obligation on a
long-term basis.
41. Which of the following does not
demonstrate evidence regarding the ability to consummate a refinancing of
short-term debt?
a. Management indicated that they are going to
refinance the obligation.
b. Actually refinance the obligation.
c. Have capacity under existing financing agreements
that can be used to refinance the obligation.
d. Enter into a financing agreement that clearly
permits the entity to refinance the obligation.
42. A company has not declared a
dividend on its cumulative preferred stock for the past three years. What is
the required accounting treatment or disclosure in this situation?
a. Record a liability for cumulative amount of
preferred stock dividends not declared.
b. Disclose the amount of the dividends in arrears.
c. Record a liability for the current year’s
dividends only.
d. No disclosure or recognition is required.
43. Which of the following situations
may give rise to unearned revenue?
a. Providing trade credit to customers.
b. Selling inventory.
c. Selling magazine subscriptions.
d. Providing manufacturer warranties.
44. Which of the following statements is
correct?
a. A company may exclude a short-term obligation
from current liabilities if the firm intends to refinance the obligation on a
long-term basis.
b. A company may exclude a short-term obligation
from current liabilities if the firm can demonstrate an ability to consummate a
refinancing.
c. A company may exclude a short-term obligation
from current liabilities if it is paid off after the balance sheet date and
subsequently replaced by long-term debt before the balance sheet is issued.
d. None of these.
45. The ability to consummate the
refinancing of a short-term obligation may be demon- strated by
a. actually refinancing the obligation by issuing a long-term
obligation after the date of the balance sheet but before it is issued.
b. entering into a financing agreement that permits
the enterprise to refinance the debt on a long-term basis.
c. actually refinancing the obligation by issuing
equity securities after the date of the balance sheet but before it is issued.
d. all of these.
46. Which of the following statements
is false?
a. A company may exclude a short-term obligation
from current liabilities if the firm intends to refinance the obligation on a
long-term basis and demonstrates an ability to complete the refinancing.
b. Cash dividends should be recorded as a liability
when they are declared by the board of directors.
c. Under the cash basis method, warranty costs are
charged to expense as they are paid.
d. FICA taxes withheld from employees’ payroll
checks should never be recorded as a liability since the employer will
eventually remit the amounts withheld to the appropriate taxing authority.
47. Which of the following is not a correct statement
about sales taxes?
a. Sales taxes are an expense of the seller.
b. Many companies record sales taxes in the sales
account.
c. If sales taxes are included in the sales account,
the first step to find the amount of sales taxes is to divide sales by 1 plus
the sales tax rate.
d. All of these are true.
S48. If a short-term obligation is
excluded from current liabilities because of refinancing, the footnote to the
financial statements describing this event should include all of the following
information except
a. a general description of the financing
arrangement.
b. the terms of the new obligation incurred or to be
incurred.
c. the terms of any equity security issued or to be
issued.
d. the number of financing institutions that refused
to refinance the debt, if any.
S49. In accounting for compensated
absences, the difference between vested rights and accumulated rights is
a. vested rights are normally for a longer period of
employment than are accumulated rights.
b. vested rights are not contingent upon an
employee’s future service.
c. vested rights are a legal and binding obligation
on the company, whereas accumulated rights expire at the end of the accounting
period in which they arose.
d. vested rights carry a stipulated dollar amount
that is owed to the employee; accumulated rights do not represent monetary
compensation.
P50. An employee’s net (or take-home) pay
is determined by gross earnings minus amounts for income tax withholdings and
the employee’s
a. portion of FICA taxes and unemployment taxes.
b. and employer’s portion of FICA taxes, and
unemployment taxes.
c. portion of FICA taxes, unemployment taxes, and
any voluntary deductions.
d. portion of FICA taxes and any voluntary
deductions.
51. Which of these is not included in an
employer’s payroll tax expense?
a. F.I.C.A. (social security) taxes
b. Federal unemployment taxes
c. State unemployment taxes
d. Federal income taxes
52. Which of the following is a
condition for accruing a liability for the cost of compensation for future
absences?
a. The obligation relates to the rights that vest or
accumulate.
b. Payment of the compensation is probable.
c. The obligation is attributable to employee
services already performed.
d. All of these are conditions for the accrual.
53. A liability for compensated absences
such as vacations, for which it is expected that employees will be paid, should
a. be accrued during the period when the compensated
time is expected to be used by employees.
b. be accrued during the period following vesting.
c. be accrued during the period when earned.
d. not be accrued unless a written contractual
obligation exists.
54. The amount of the liability for
compensated absences should be based on
1. the current rates of pay in effect when employees
earn the right to compensated absences.
2. the future rates of pay expected to be paid when
employees use compensated time.
3. the present value of the amount expected to be
paid in future periods.
a. 1.
b. 2.
c. 3.
d. Either 1 or 2 is acceptable.
55. What are compensated absences?
a. Unpaid time off.
b. A form of healthcare.
c. Payroll deductions.
d. Paid time off.
56. Which gives rise to the requirement
to accrue a liability for the cost of compensated absences?
a. Payment is probable.
b. Employee rights vest or accumulate.
c. Amount can be reasonably estimated.
d. All of the above.
57. Under what conditions is an employer
required to accrue a liability for sick pay?
a. Sick pay benefits can be reasonably estimated.
b. Sick pay benefits vest.
c. Sick pay benefits equal 100% of the pay.
d. Sick pay benefits accumulate.
58. Which of the following taxes does
not represent a common payroll deduction?
a. Federal income taxes.
b. FICA taxes.
c. State unemployment taxes.
d. State income taxes.
59. What is a contingency?
a. An existing situation where certainty exists as
to a gain or loss that will be resolved when one or more future events occur or
fail to occur.
b. An existing situation where uncertainty exists as
to possible loss that will be resolved when one or more future events occur.
c. An existing situation where uncertainty exists as
to possible gain or loss that will not be resolved in the foreseeable future.
d. An existing situation where uncertainty exists as
to possible gain or loss that will be resolved when one or more future events
occur or fail to occur.
60. When is a contingent liability
recorded?
a. When the amount can be reasonably estimated.
b. When the future events are probable to occur and
the amount can be reasonably estimated.
c. When the future events are probable to occur.
d. When the future events will possibly occur and
the amount can be reasonably estimated.
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