ACC 253 test 3 study questions

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TRUE OR FALSE AND MUTIPLE CHOICE SAMPLES:

1. The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as horizontal analysis.

2. The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as vertical analysis.

3. The relationship of each asset item as a percent of total assets is an example of vertical analysis.

4. Statements in which all items are expressed in relative terms are called common-size statements.

5. The relationship of 120 to 100 can be expressed as 1.2, 1.2:1, or 120%.

6. Factors which reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency and profitability.

7. Factors which reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as equity and leverage.

8. Current position analysis indicates a company's ability to liquidate current liabilities.

9. The terms acid-test ratio and quick ratio refer to the same ratio - the instant debt-paying ability of a company.

10. The ability of a business to meet its financial obligations as they come due is referred to as profitability.

11. The excess of current assets over current liabilities is referred to as leverage.

12. The excess of current assets over current liabilities is referred to as working capital.

13. The ratio of current assets to current liabilities is referred to as the acid-test ratio.

14. The ratio of the sum of cash, receivables, and marketable securities to current liabilities is referred to as the current ratio.

15. Cash, receivables, and marketable securities are called quick assets.

16. If a firm has a current ratio of 2, the subsequent receipt of a 60-day note receivable on account will cause the ratio to decrease.

17. If a firm has a current ratio of 3, the subsequent issuance of a 90-day note payable for an account payable will cause the ratio to remain unchanged at 3.

18. If a firm has an acid-test ratio of 1, the subsequent payment of an account payable will cause the ratio to increase.

19. If a firm has an acid-test ratio of 1, the subsequent payment of an account payable will cause the ratio to remain unchanged.

20. The number of days' sales in receivables is one means of expressing the relationship between credit sales and accounts receivable.

21. If the accounts receivable turnover for the current year has decreased when compared with the ratio for the preceding year, there has been an acceleration in the collection of receivables.

22. If the current credit terms are 2/10, n/30 for Jones Inc., an accounts receivable turnover of 3 for the current year would be considered normal.

23. The number of days' sales in inventory is one means of expressing the relationship between the cost of goods sold and inventory.

24. Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, a decrease in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in the management of inventory.

25. Assuming that the quantities of inventory on hand during the current year were sufficient to meet all demands for sales, an increase in the inventory turnover for the current year when compared with the turnover for the preceding year indicates an improvement in the management of inventory.

26. An increase in the ratio of stockholders' equity to liabilities indicates an improvement in the margin of safety for creditors.

27. In computing the rate earned on total assets, interest expense is added to net income before dividing by total assets.

28. The statement of cash flows is one of the four basic financial statements.

29. Cash, as the term is used for the statement of cash flows, could indicate either cash or cash equivalents.

30. The statement of cash flows is an optional financial statement.

31. The statement of cash flows reports a firm's major sources of cash receipts and major uses of cash payments for a period.

32. Cash flows from operating activities, as part of the statement of cash flows, includes cash transactions that enter into the determination of net income.

33. Cash flows from investing activities, as part of the statement of cash flows, includes cash transactions that enter into the determination of net income.

34. Cash flows from financing activities, as part of the statement of cash flows, includes receipts from the sale of investments.

35. Cash flows from financing activities, as part of the statement of cash flows, includes receipts from the issuance of equity securities.

36. Cash flows from financing activities, as part of the statement of cash flows, includes payments for dividends.

37. Cash flows from investing activities, as part of the statement of cash flows, includes payments for the purchase of treasury stock.

38. Cash flows from investing activities, as part of the statement of cash flows, includes receipts from the sale of fixed assets.

39. Cash flows from investing activities, as part of the statement of cash flows, includes payments for the acquisition of fixed assets.

40. Cash flows from investing activities, as part of the statement of cash flows, includes receipts from the issuance of bonds payable.

41. There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the indirect method.

42. There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the reciprocal method.

43. If land costing $80,000 was sold for $125,000, the $45,000 gain on the sale would be deducted from net income in converting the net income reported on the income statement to cash flows from operating activities for the statement of cash flows prepared by the indirect method.

44. In preparing the cash flows from operating activities section of the statement of cash flows by the indirect method, the net decrease in inventories from the beginning to the end of the period is added to net income for the period.

45. In determining the cash flows from operating activities for the statement of cash flows by the indirect method, the depreciation expense for the period is deducted from the net income for the period.

46. In preparing the cash flows from operating activities section of the statement of cash flows by the indirect method, the amortization of bond discount for the period is deducted from the net income for the period.

47. If cash dividends of $50,000 were declared during the year and the decrease in dividends payable from the beginning to the end of the year was $2,500, the statement of cash flows would report $52,500 in the financing activities section.

48. When the indirect method of reporting cash flows from operating activities is used, depreciation is added to net income.

49. If land costing $100,000 was sold for $150,000, the amount reported in the financing activities section of the statement of cash flows would be $100,000.

50. If land costing $100,000 was sold for $150,000, the $50,000 gain on the sale would be deducted from net income in converting the net income reported on the income statement to cash flows from operating activities for the statement of cash flows prepared by the indirect method.

51. If cash dividends of $50,000 were declared during the year and the increase in dividends payable from the beginning to the end of the year was $2,500, the statement of cash flows would report $52,500 in the financing activities section.

52. Liabilities that are due and payable within one year or the operating cycle, whichever is longer, are termed current liabilities.

53. The maturity value of a $20,000, 60-day note payable that is discounted at 12% is $20,600.

54. The rate used in computing interest on a discounted note is called the discount rate.

55. The net amount available to the borrower from discounting a note payable is called the discount.

56. The proceeds from discounting a $20,000, 60-day, note payable at 12% is $20,400.

57. During the first year of operations, a company granted warranties on its products. The estimated cost of the product warranty liability at the end of the year is $12,750. The product warranty expense of $12,750 should be recorded in the years the expenditures to repair the products covered by the warranty will be paid.

58. Obligations that depend on future events and are based on past transactions are contingent liabilities.

59. Obligations that depend on past events and that are based on future transactions are contingent liabilities.

60. In order to be a contingent liability, the liability must be possible and easily estimated.

61. The total earnings of an employee for a payroll period is referred to as the net pay.

62. The total earnings of an employee for a payroll period is referred to as take-home pay.

63. Most employers are required to withhold a portion of the earnings of each employee for FICA tax.

64. If, prior to the last weekly payroll period of the calendar year, the cumulative earnings for an employee are $49,800, earnings subject to social security tax are $60,000, and the tax rate is 7.5%, the employer's social security tax on the $800 gross earnings paid on the last day of the year is $60.

65. There is no ceiling on the annual earnings of each employee subject to federal income tax.

66. Gross earnings for a payroll period less the payroll deductions is referred to as the gross pay.

67. Most employers are required to withhold federal unemployment taxes from employee earnings.

68. Prior to the last weekly payroll period of the calendar year, cumulative earnings for an employee are $59,300, maximum earnings subject to FICA tax at 7.5% are $60,000, and the FICA tax rate on earnings over $60,000 is 1.5%. The employer's FICA tax on $1,000 gross earnings for work performed during the current calendar year and paid in January of the coming year is $52.50.

69. Net pay is the same as take-home pay.

70. FICA tax is a payroll tax that is paid by both the employee and the employer.

71. FICA tax is a payroll tax that is paid only by employers.

72. Federal unemployment compensation tax is a tax that is paid only by employers.

73. Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid.

74. FICA tax becomes a liability to the federal government at the time an employee's payroll is prepared.

75. Payroll taxes levied against employers become an employer liability at the time the employee wages are paid.

76. The multicolumn form used in assembling and summarizing the data needed at the end of the payroll period is called the payroll register.

77. The form used to maintain a record of each employee's earnings is called the employee's earnings record.

78. The form used to maintain a cumulative record of each employee's earnings is called the payroll register.

79. An example of a variable component of a payroll system is the hours worked by employees.

80. Internal controls for cash payments also apply to payrolls.

81. For proper matching of revenues and expenses, the estimated cost of fringe benefits must be recognized as an expense of the period during which the employee earns the benefits.

82. Depending upon when an unfunded pension liability is to be paid, it will be classified on the balance sheet as either a long-term or a current liability.

83. The portion of the unfunded pension liability that is to be paid within the coming year is reported on the balance sheet as a current liability.

84. Depending upon when it is to be paid, the vacation liability will be classified in the balance sheet as either a current or a long-term liability.

85. The portion of the vacation liability that represents vacation time that will be taken by employees during the coming year is reported on the balance sheet as a current liability.

86. During the first year of operations, employees earned vacation pay of $50,000. The vacations will be taken during the second year. The vacation pay expense should be recorded in the second year as the vacations are taken by the employees.

87. A defined contribution plan promises employees a fixed annual pension benefit.

88. Quick assets include cash, cash equivalents, accounts receivable, and inventory.

89. The higher the quick ratio, the more liquid a company is.

90. Current liabilities are:

a. due, but not receivable for more than one year
b. due, but not payable for more than one year
c. due and receivable within one year
d. due and payable within one year

91. The interest deducted from the maturity value of a note is called:

a. proceeds
b. discount
c. face value
d. maturity value

92. The net amount due the borrower from discounting a note payable is:

a. proceeds
b. face value
c. discount
d. interest

93. The maturity value of an interest-bearing note payable is the:

a. face value plus the interest
b. face value minus the interest
c. interest
d. face value

94. The interest charged by the bank, at the rate of 12%, on a 90-day, discounted, note payable for $100,000 is:

a. $12,000
b. $3,000
c. $1,000
d. $2,000

95. The maturity value of a $50,000, 90-day, 10% note payable is:

a. $51,250
b. $48,750
c. $1,250
d. $5,000

96. Proceeds of $48,750 were received from discounting a $50,000, 90-day, note at a bank. The discount rate used by the bank in computing the proceeds was:

a. 12%
b. 14%
c. 10%
d. 6%

97. Jergens Co. issued a $35,000, 60-day, discounted note to River City Bank. The discount rate is 9%. What is the maturity value of the note?

a. $35,525
b. $36,050
c. $35,000
d. $34,475

98. Jergens Co. issued a $35,000, 60-day, discounted note to River City Bank. The discount rate is 9%. The cash proceeds to Jergens Co. are:

a. $35,000
b. $34,475
c. $33,950
d. $35,525

99. Jergens Co. issued a $25,000, 60-day, discounted note to River City Bank. The discount rate is 9%. The cash proceeds to Jergens Co. are:

a. $25,375
b. $25,000
c. $22,750
d. $24,625

100. The journal entry a company uses to record the issuance of a note for the purpose of converting an existing account payable would be:

a. debit Accounts, Payable; credit Cash
b. debit Cash; credit Accounts Payable
c. debit Accounts Payable; credit Notes Payable
d. debit Cash; credit Notes Payable

101. The journal entry a company uses to record the issuance of a note for the purpose of borrowing funds for the business is:

a. debit Notes Payable; credit Cash
b. debit Cash and Interest Expense; credit Notes Payable
c. debit Accounts Payable; credit Notes Payable
d. debit Cash; credit Notes Payable

102. The journal entry a company uses to record the issuance of a discounted note for the purpose of borrowing funds for the business is:

a. debit Notes Payable; credit Cash
b. debit Cash and Interest Expense; credit Notes Payable
c. debit Accounts Payable; credit Notes Payable
d. debit Cash and Interest Payable; credit Notes Payable

103. The journal entry a company uses to record the payment of a discounted note is:

a. debit Notes Payable; credit Cash
b. debit Notes Payable and Interest Expense; credit Cash
c. debit Accounts Payable; credit Cash
d. debit Cash; credit Notes Payable

104. The journal entry a company uses to record the payment of an ordinary note is:

a. debit Notes Payable and Interest Receivable; credit Cash
b. debit Notes Payable and Interest Expense; credit Cash
c. debit Accounts Payable; credit Cash
d. debit Cash; credit Notes Payable

105. The journal entry a company uses to record the estimated accrued product warranty liability is:

a. debit Product Warranty Payable; credit Product Warranty Expense
b. debit Product Warranty Expense; credit Cash
c. debit Product Warranty Payable; credit Cash
d. debit Product Warranty Expense; credit Product Warranty Payable

106. On June 5, Apex Co. issued a $60,000, 8%, 120-day note payable to Jones Co. What is the due date of the note?

a. October 2
b. October 5
c. October 3
d. October 1

107. On June 5, Apex Co. issued a $60,000, 8%, 120-day note payable to Jones Co. What is the maturity value of the note?

a. $60,160
b. $58,400
c. $61,600
d. $59,840

108. On June 5, Apex Co. issued a $60,000, 8%, 120-day note payable to Jones Co. Assume that the fiscal year of Apex Co. ends June 30. What is the amount of interest expense recognized by Apex in the current year?

a. $333.33
b. $153.33
c. $666.67
d. $1,266.67

109. On June 5, Apex Co. issued a $60,000, 8%, 120-day note payable to Jones Co. Assume that the fiscal year of Jones Co. ends June 30. What is the amount of interest revenue recognized by Jones in the following year?

a. $153.33
b. $333.33
c. $1,266.67
d. $666.67

110. On June 5, Apex Co. issued a $60,000, 8%, 120-day note payable to Jones Co. on account. Assume that the fiscal year of Apex Co. ends June 30. Which of the following relationships is true?

a. Apex is the creditor and credits Accounts Receivable
b. Jones is the creditor and debits Accounts Receivable
c. Jones is the borrower and credits Accounts Payable
d. Apex is the borrower and debits Accounts Payable

111. The interest deducted from the maturity value of a note is called:

a. proceeds
b. discount
c. face value
d. maturity value

112. The net amount due the borrower from discounting a note payable is:

a. proceeds
b. face value
c. discount
d. interest

113. The maturity value of an interest-bearing note payable is the:

a. face value plus the interest
b. face value minus the interest
c. interest
d. face value

114. The interest charged by the bank, at the rate of 12%, on a 90-day, discounted, note payable for $100,000 is:

a. $12,000
b. $3,000
c. $1,000
d. $2,000

115. The maturity value of a $50,000, 90-day, 10% note payable is:

a. $51,250
b. $48,750
c. $1,250
d. $5,000

116. Proceeds of $48,750 were received from discounting a $50,000, 90-day, note at a bank. The discount rate used by the bank in computing the proceeds was:

a. 12%
b. 14%
c. 10%
d. 6%

117. Jergens Co. issued a $35,000, 60-day, discounted note to River City Bank. The discount rate is 9%. What is the maturity value of the note?

a. $35,525
b. $36,050
c. $35,000
d. $34,475

118. Jergens Co. issued a $35,000, 60-day, discounted note to River City Bank. The discount rate is 9%. The cash proceeds to Jergens Co. are:

a. $35,000
b. $34,475
c. $33,950
d. $35,525

119. Jergens Co. issued a $25,000, 60-day, discounted note to River City Bank. The discount rate is 9%. The cash proceeds to Jergens Co. are:

a. $25,375
b. $25,000
c. $22,750
d. $24,625

120. The journal entry a company uses to record the issuance of a note for the purpose of converting an existing account payable would be:

a. debit Accounts, Payable; credit Cash
b. debit Cash; credit Accounts Payable
c. debit Accounts Payable; credit Notes Payable
d. debit Cash; credit Notes Payable

121. The journal entry a company uses to record the issuance of a note for the purpose of borrowing funds for the business is:

a. debit Notes Payable; credit Cash
b. debit Cash and Interest Expense; credit Notes Payable
c. debit Accounts Payable; credit Notes Payable
d. debit Cash; credit Notes Payable

122. The journal entry a company uses to record the issuance of a discounted note for the purpose of borrowing funds for the business is:

a. debit Notes Payable; credit Cash
b. debit Cash and Interest Expense; credit Notes Payable
c. debit Accounts Payable; credit Notes Payable
d. debit Cash and Interest Payable; credit Notes Payable

123. The journal entry a company uses to record the payment of a discounted note is:

a. debit Notes Payable; credit Cash
b. debit Notes Payable and Interest Expense; credit Cash
c. debit Accounts Payable; credit Cash
d. debit Cash; credit Notes Payable

124. The journal entry a company uses to record the payment of an ordinary note is:

a. debit Notes Payable and Interest Receivable; credit Cash
b. debit Notes Payable and Interest Expense; credit Cash
c. debit Accounts Payable; credit Cash
d. debit Cash; credit Notes Payable

125. The journal entry a company uses to record the estimated accrued product warranty liability is:

126. The cost of a product warranty should be included as an expense in the:

a. period the cash is collected for a product sold on account
b. future period when the cost of repairing the product is paid
c. period of the sale of the product
d. future period when the product is repaired or replaced

127. Most employers are required to withhold from employees which of the following employment taxes?

a. only FICA tax
b. FICA tax, state and federal unemployment compensation tax
c. only state unemployment compensation tax
d. only federal unemployment compensation tax

128. An employee receives an hourly rate of $25, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 42; federal income tax withheld, $350; cumulative earnings for year prior to current week, $59,700; social security tax rate, 6.0% on maximum of $60,000; and Medicare tax rate, 1.5% on all earnings. What is the gross pay for the employee?

a. $725.00
b. $1,075.00
c. $702.50
d. $1,052.50

129. An employee receives an hourly rate of $25, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 42; federal income tax withheld, $350; cumulative earnings for year prior to current week, $59,700; social security tax rate, 6.0% on maximum of $60,000; and Medicare tax rate, 1.5% on all earnings. What is the net amount to be paid the employee?

a. $725.00
b. $702.50
c. $1,052.50
d. $690.88

130. For which of the following taxes is there no ceiling on the amount of employee annual earnings subject to the tax?

a. only FICA tax
b. only federal income tax
c. only federal unemployment compensation tax
d. only state unemployment compensation tax

131. Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $59,250 and $21,000 respectively. Their earnings for the last completed payroll period of the year are $850 each. The amount of earnings subject to social security tax at 6.0% is $60,000. All earnings are subject to a Medicare tax of 1.5%. Assuming that the payroll will be paid on December 29, what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each?

a. $127.50
b. $121.50
c. $0
d. $25.50

132. Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $59,250 and $21,000 respectively. Their earnings for the last completed payroll period of the year are $850 each. The amount of earnings subject to social security tax at 6.0% is $60,000. All earnings are subject to a Medicare tax of 1.5%. Assuming that the payroll will be paid on January 3, what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each?

a. $121.50
b. $0
c. $127.50
d. $25.50

133. Gross earnings for a payroll period less payroll deductions is referred to as:

a. overtime pay
b. bonus pay
c. gross pay
d. take-home pay

134. The total earnings of an employee for a payroll period is referred to as:

a. take-home pay
b. pay net of taxes
c. net pay
d. gross pay

135. Payroll taxes levied against employees become liabilities:

a. the first of the following month
b. at the time the liability for the employee's wages is paid
c. when earned by the employee
d. at the end of an accounting period

136. Most employers are required to withhold from employees for:

a. both federal and state unemployment compensation
b. only federal unemployment compensation tax
c. only federal income tax
d. only state unemployment compensation tax

137. For which of the following taxes is there a ceiling on the amount of employee annual earnings subject to the tax?

a. social security, federal and state unemployment tax
b. only federal unemployment tax
c. only state unemployment tax
d. only social security

138. For which of the following taxes is there a ceiling on the amount of employee annual earnings subject to the tax?

a. only federal income tax
b. federal and state unemployment tax
c. only state unemployment compensation tax
d. only federal unemployment compensation tax

139. For which of the following taxes is there no ceiling on the amount of employee annual earnings subject to the tax?

a. both federal and state unemployment tax
b. only state unemployment compensation tax
c. only federal unemployment compensation tax
d. federal income tax

140. The amount of earnings subject to social security tax at 6.0% is $60,000. All earnings are subject to a 1.5% Medicare tax. Prior to the current pay period, Employee A has cumulative earnings of $59,500. Employee A's earnings for the current period are $1,100. The employer's total FICA tax for the current payroll to be paid on December 30 of the current year is:

a. $82.50
b. $46.50
c. $0
d. $37.50

141. The amount of earnings subject to social security tax at 6.0% is $60,000. All earnings are subject to a 1.5% Medicare tax. Prior to the current pay period, Employee A has cumulative earnings of $59,500. Employee A's earnings paid on December 30 for the current period are $1,100. The employer's total FICA tax expense for Employee A for the entire year is:

a. $4,545
b. $0
c. $4,509
d. $4,500

142. Most employers are levied a tax on payrolls for:

a. sales tax
b. medical insurance premiums
c. federal unemployment compensation tax
d. union dues

143. Most employers are levied a payroll tax for:

a. FICA taxes, federal and state employment compensation tax
b. only state unemployment compensation tax
c. only federal unemployment compensation tax
d. only FICA taxes

144. The multicolumn form used to assemble and summarize the data needed at the end of each payroll period is called:

a. wage and tax statement
b. payroll register
c. employee's earnings record
d. payroll distribution

145. The detailed record indicating the data for each employee for each payroll period and the cumulative total earnings for each employee is called the:

a. payroll register
b. payroll check
c. employee's earnings record
d. employer's earnings record

146. An employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40 during the week. Payroll data for the current week are as follows: hours worked, 44; federal income tax withheld, $120; cumulative earnings for the year prior to this week, $24,500; social security tax rate, 6.15% on maximum of $60,000; and Medicare tax rate, 1.5% on all earnings; federal unemployment compensation tax, 5.4% on the first $7,000; state unemployment tax, 0.8% on the first $7,000. What is the gross pay for the employee?

a. $660.00
b. $600.00
c. $690.00
d. $720.00

147. An employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40 during the week. Payroll data for the current week are as follows: hours worked, 44; federal income tax withheld, $120; cumulative earnings for the year prior to this week, $24,500; social security tax rate, 6.15% on maximum of $60,000; and Medicare tax rate, 1.5% on all earnings; federal unemployment compensation tax, 5.4% on the first $7,000. What is the net amount to be paid the employee?

a. $448.51
b. $434.10
c. $517.22
d. $474.43

148. An employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40 during the week. Payroll data for the current week are as follows: hours worked, 44; federal income tax withheld, $120; cumulative earnings for the year prior to this week, $24,500; social security tax rate, 6.15% on maximum of $60,000; and Medicare tax rate, 1.5% on all earnings; federal unemployment compensation tax, 5.4% on the first $7,000; state unemployment tax, 0.8% on the first $7,000. What is the employer's payroll tax expense?

a. $ -0-
b. $52.79
c. $93.27
d. $42.78

149. Which of the following is an example of a variable component of a payroll system?

a. hours worked
b. Medicare tax rate
c. rate of pay
d. social security tax rate

150. Which of the following is an example of a constant component of a payroll system?

a. both rate of pay and hours worked
b. hours worked
c. rate of pay
d. amount of social security tax per period

151. An aid in internal control over payrolls that indicates employee attendance is:

a. "In and Out" card
b. voucher system
c. payroll register
d. employee's earnings record

152. Which of the following is not an internal control procedure for payroll?

a. employees observed clocking in and out
b. payroll depends on a fired employee's supervisor to notify them when an employee has been fired
c. payroll depends on personnel to notify them if employees have been fired
d. changes in pay rates on a computerized system must be tested by someone independent of payroll

153. A pension plan which requires the employer to make annual pension contributions, with no promise to employees regarding future pension payments, is termed:

a. funded
b. unfunded
c. defined benefit
d. defined contribution

154. During its first year of operations, a company granted employees vacation privileges and pension rights estimated at a cost of $22,500 and $18,000. The vacations are expected to be taken in the next year and the pension rights are expected to be paid in the future 5-30 years. What is the total cost of vacation pay and pension rights to be recognized in the first year?

a. $28,500
b. $0
c. $40,500
d. $22,500

155. A pension plan which promises employees a fixed annual pension benefit, based on years of service and compensation, is called a(n):

a. defined contribution plan
b. defined benefit plan
c. unfunded plan
d. funded plan

156. Vacation pay payable is reported on the balance sheet as:

a. current liability or long-term liability, depending upon when the vacations will be taken by employees
b. current liability
c. stockholders’ equity
d. long-term liabilities

157. An unfunded pension liability is reported on the balance sheet as:

a. current liability
b. stockholders’ equity
c. long-term liability
d. current liability or long-term liability, depending upon when the pension liability is to be paid

158. The journal entry a company uses to record accrued vacation privileges for its employees at the end of the year is:

a. debit Vacation Pay Expense; credit Vacation Pay Payable
b. debit Vacation Pay Payable; credit Vacation Pay Expense
c. debit Salary Expense; credit Cash
d. debit Salary Expense; credit Salaries Payable

159. The journal entry a company uses to record fully funded pension rights for its salaried employees, at the end of the year, is:

a. debit Salary Expense; credit Cash
b. debit Pension Expense; credit Unfunded Pension Liability
c. debit Pension Expense; credit Unfunded Pension Liability and Cash
d. debit Pension Expense; credit Cash

160. The journal entry a company uses to record partially funded pension rights for its salaried employees, at the end of the year, is:

161. The journal entry a company uses to record pension rights that have not been funded for its salaried employees, at the end of the year; is:

162. Quick assets include:

a. cash; cash equivalents, receivables, prepaid expenses, and inventory
b. cash; cash equivalents, receivables, and prepaid expenses
c. cash; cash equivalents, receivables, and inventory
d. cash; cash equivalents, and receivables

163. Which of the following is the most desirable quick ratio?

a. 1.20
b. 1.00
c. 0.95
d. 0.50

164. Another name for the quick ratio is:

a. quick cash ratio
b. current ratio
c. working capital ratio
d. acid-test ratio

165. Based on the following data, what is the acid-test ratio, rounded to one decimal point?

Accounts payable.................. $ 26,000
Accounts receivable............... 57,000
Accrued liabilities............... 5,000
Cash.............................. 25,000
Intangible assets................. 50,000
Inventory......................... 69,000
Long-term investments............. 80,000
Long-term liabilities............. 100,000
Marketable securities............. 40,000
Notes payable (short-term)........ 28,000
Fixed assets...................... 670,000
Prepaid expenses.................. 1,000

a. 2.1
b. 3.1
c. 4.3
d. 1.9

166. Liabilities that are due and payable within one year or the operating cycle, whichever is longer, are termed current liabilities.

167. The maturity value of a $20,000, 60-day note payable that is discounted at 12% is $20,600.

168. The rate used in computing interest on a discounted note is called the discount rate.

169. The net amount available to the borrower from discounting a note payable is called the discount.

170. The proceeds from discounting a $20,000, 60-day, note payable at 12% is $20,400.

171. During the first year of operations, a company granted warranties on its products. The estimated cost of the product warranty liability at the end of the year is $12,750. The product warranty expense of $12,750 should be recorded in the years the expenditures to repair the products covered by the warranty will be paid.

172. Obligations that depend on future events and are based on past transactions are contingent liabilities.

173. Obligations that depend on past events and that are based on future transactions are contingent liabilities.

174. In order to be a contingent liability, the liability must be possible and easily estimated.

175. The total earnings of an employee for a payroll period is referred to as the net pay.

176. The total earnings of an employee for a payroll period is referred to as take-home pay.

177. Most employers are required to withhold a portion of the earnings of each employee for FICA tax.

178. If, prior to the last weekly payroll period of the calendar year, the cumulative earnings for an employee are $49,800, earnings subject to social security tax are $60,000, and the tax rate is 7.5%, the employer's social security tax on the $800 gross earnings paid on the last day of the year is $60.

179. There is no ceiling on the annual earnings of each employee subject to federal income tax.

180. Gross earnings for a payroll period less the payroll deductions is referred to as the gross pay.

181. Most employers are required to withhold federal unemployment taxes from employee earnings.

182. Prior to the last weekly payroll period of the calendar year, cumulative earnings for an employee are $59,300, maximum earnings subject to FICA tax at 7.5% are $60,000, and the FICA tax rate on earnings over $60,000 is 1.5%. The employer's FICA tax on $1,000 gross earnings for work performed during the current calendar year and paid in January of the coming year is $52.50.

183. Net pay is the same as take-home pay.

184. FICA tax is a payroll tax that is paid by both the employee and the employer.

185. FICA tax is a payroll tax that is paid only by employers.

186. Federal unemployment compensation tax is a tax that is paid only by employers.

187. Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid.

188. FICA tax becomes a liability to the federal government at the time an employee's payroll is prepared.

189. Payroll taxes levied against employers become an employer liability at the time the employee wages are paid.

190. The multicolumn form used in assembling and summarizing the data needed at the end of the payroll period is called the payroll register.

191. The financial loss that each stockholder in a corporation can incur is limited to the amount invested by the stockholder.

192. Under the Internal Revenue Code, corporations are required to pay federal income taxes.

193. Cash dividends paid by a corporation from earnings are not taxed as income to stockholders receiving them.

194. Changes in ownership terminate the life of a corporation.

195. The stockholders of a corporation have unlimited liability.

196. Organization Costs is listed as an intangible asset on the balance sheet.

197. The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in the business.

198. Paid-in capital and retained earnings are the two major categories of stockholders' equity for a corporation.

199. If 20,000 shares are authorized, 15,000 shares are issued, and 500 shares are reacquired, the number of outstanding shares is 14,500.

200. Preferred stock with a preferential right to dividends in arrears is referred to as cumulative preferred.

201. Extraordinary items are events and transactions that are unusual and infrequent in their occurrence.

202. The gain resulting from condemnation of land by the city for recreation purposes is an example of an extraordinary item.

203. The amount of an extraordinary item should be reported on the appropriate financial statement net of the related income tax.

204. The amount of earnings per share based on the assumption that all convertible preferred stock and bonds are converted to common stock is referred to as diluted earnings per share.

205. Earnings per common share is a convenient way to compare companies of different sizes.

206. Earnings per share must be reported for continuing operations as well as other major items.

207. A prior-period adjustment should be reported as an adjustment to the retained earnings balance at the beginning of the period in which the adjustment was made.

208. A difference between estimated and actual warranty expense is considered an error and would be reported as a prior period adjustment.

209. Prior-period adjustments are rare in modern accounting.

210. Bondholder claims for interest and repayment rank behind the claims of stockholders.

211. Bondholder claims for interest and repayment rank ahead of the claims of stockholders.

212. Bonds issued on the basis of the general credit of the corporation are called debenture bonds.

213. Bonds issued on the basis of the general credit of the corporation are called secured bonds.

214. When the total amount of a bond issue matures at a certain date, the bonds are called serial bonds.

215. When the total amount of a bond issue matures at a certain date, the bonds are called term bonds.

216. When a corporation issues bonds, it executes a contract with the bondholders, known as a bond indenture.

217. When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.

218. The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date.

219. The concept of present value is that an amount of cash to be received at some date in the future is not the equivalent of the same amount of cash held at an earlier date.

220. If $500,000 of 10-year bonds, with interest payable semiannually, are sold for $447,020 based on (1) the present value of $500,000 due in 20 periods at 6% plus (2) the present value of twenty, $30,000 payments at 6%, the market rate of interest for the bonds was 12%.

221. If $500,000 of 10-year bonds, with interest payable semiannually, are sold for $500,000 based on (1) the present value of $500,000 due in 20 periods at 6% plus (2) the present value of twenty, $30,000 payments at 6%, the market rate of interest for the bonds was 12%.

222. If $500,000 of 10-year bonds, with interest payable semiannually, are sold for $500,000 based on (1) the present value of $500,000 due in 20 periods at 6% plus (2) the present value of twenty, $30,000 payments at 6%, the nominal or coupon rate and the market rate of interest for the bonds are both 12%.

223. If $500,000 of 10-year bonds, with interest payable semiannually, are sold for $562,316 based on (1) the present value of $500,000 due in 20 periods at 6% plus (2) the present value of twenty, $30,000 payments at 6%, the nominal or coupon rate and the market rate of interest for the bonds are both 12%.

224. If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a discount.

225. If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.

226. If the market rate of interest is 7% and a corporation's bonds bear interest at 8%, the bonds will sell at a premium.

227. If the market rate of interest is 9% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.