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Vogel Company purchased $8,000 of equipment by making a $500 down payment and issuing a note for the remainder.As a result of this event,assets increased by $8,000.

A) True
B) False

Correct Answer

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The current ratio is calculated as total current assets divided by total assets.

A) True
B) False

Correct Answer

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Indicate whether each of the following statements is true or false.

Premises
Net income is not affected by the payment of cash to settle a warranty claim.
Recording the payment of cash to settle a warranty claim increases expenses (Warranties Expense)and decreases liabilities (Warranties Payable).
Recognizing the warranty obligation increases the Warranties Payable account and decreases a revenue account.
Total assets are not affected by the adjustment to record the warranty obligation.
The extension of a warranty on goods sold normally represents a legal obligation to the seller of the goods.
Responses
True
False

Correct Answer

Net income is not affected by the payment of cash to settle a warranty claim.
Recording the payment of cash to settle a warranty claim increases expenses (Warranties Expense)and decreases liabilities (Warranties Payable).
Recognizing the warranty obligation increases the Warranties Payable account and decreases a revenue account.
Total assets are not affected by the adjustment to record the warranty obligation.
The extension of a warranty on goods sold normally represents a legal obligation to the seller of the goods.

If a company is in a region in which floods or earthquakes are deemed to be possible,the company should record a contingent liability.

A) True
B) False

Correct Answer

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A company's classified balance sheet shows current assets of $8,650 and current liabilities of $6,000.What is the company's current ratio?


A) 0.69 to 1
B) 1.44 to 1
C) 1.16 to 1
D) 3.26 to 1

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

Correct Answer

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Indicate whether each of the following statements is true or false.

Premises
The adjustment to recognize interest expense is an asset use transaction.
Interest expense is considered an operating expense on the income statement.
Payment of interest is considered an operating activity on the statement of cash flows.
Payment of interest on a one-year note due on March 1 will include a reduction in liabilities.
An eight-month,6% note for $10,000 will require the issuer to pay $600 in interest.
Responses
True
False

Correct Answer

The adjustment to recognize interest expense is an asset use transaction.
Interest expense is considered an operating expense on the income statement.
Payment of interest is considered an operating activity on the statement of cash flows.
Payment of interest on a one-year note due on March 1 will include a reduction in liabilities.
An eight-month,6% note for $10,000 will require the issuer to pay $600 in interest.

Greer Company pays Jamal Perry a salary of $3,000 per week.How much FICA tax must Greer pay with regards to this employee (including both the employee and employer portions) ? (Assume a Social Security rate of 6 percent on the first $110,000 of income and a Medicare rate of 1.5 percent on all earnings.)


A) $225
B) $360
C) $-0-
D) $450

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

Correct Answer

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Indicate whether each of the following statements is true or false. -A warranty obligation only occurs if a buyer purchases an extended warranty.

A) True
B) False

Correct Answer

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A company with a high current ratio should be concerned that it is not maximizing its earnings potential.

A) True
B) False

Correct Answer

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The following information is taken from the balance sheet of Atlanta Company: The following information is taken from the balance sheet of Atlanta Company: What is Atlanta Company's current ratio? A) 2.5 to 1 B) 1.6 to 1 C) 1.76 to 1 D) 0.66 to 1 What is Atlanta Company's current ratio?


A) 2.5 to 1
B) 1.6 to 1
C) 1.76 to 1
D) 0.66 to 1

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

Correct Answer

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Contingent liabilities are only recognized if they arise from past events.

A) True
B) False

Correct Answer

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Which of the following is a claims exchange transaction?


A) Accrual of interest on a note payable
B) Issued a note to purchase equipment
C) Repaid principal on a note payable
D) Paid interest on a note payable

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

Correct Answer

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[The following information applies to the questions displayed below.] Riley Company borrowed $36,000 on April 1, Year 1 from Titan Bank. The note issued by Riley carried a one-year term and a 7% annual interest rate. Riley earned cash revenues of $1,700 during Year 1 and $1,400 during Year 2. Assume no other transactions. -Based on this information alone,what amount of cash flow from operating activities would appear on the Year 2 statement of cash flows?


A) $770 inflow
B) $1,400 inflow
C) $38,520 outflow
D) $1,120 outflow

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

Correct Answer

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On September 1,Year 1,West Company borrowed $10,000 from Valley Bank.West agreed to pay interest annually at the rate of 6% per year.The note issued by West carried an 18-month term.West Company has a calendar year-end.What is the amount of interest expense that will be reported on West's income statement for Year 1?


A) $-0-
B) $150
C) $60
D) $200

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

Correct Answer

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What is the current ratio used to evaluate?


A) Solvency
B) Liquidity
C) Equity
D) Profitability

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

Correct Answer

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How does the going concern assumption affect accounting for notes payable?


A) It dictates that notes payable be reported at their face value.
B) It dictates that interest expense be accrued at the end of the accounting period.
C) It dictates that notes payable be reported at their net realizable value.
D) It dictates that interest expense be paid when the note matures.

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

Correct Answer

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Indicate whether each of the following is true or false.Perez Company borrowed money from its bank in July Year 1.The accrual of interest on the loan at the end of Year 1:

Premises
involves recognition of interest expense.
reduces cash flows.
does not affect income for Year 1.
involves recognition of a liability.
records a cash payment for interest.
Responses
True
False

Correct Answer

involves recognition of interest expense.
reduces cash flows.
does not affect income for Year 1.
involves recognition of a liability.
records a cash payment for interest.

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