241 - Unit 4

Recognizing accrued interest expense affects the ____.

• Statement of Cash Flows

• Income Statement

• Statement of Changes in Stockholders' Equity

• Balance Sheet

Simms Accountants charged a client $100 cash plus tax for services in a state where the sales tax rate is 5%. As a result of this event, the ____.

• Sales tax liability account increases by $5

• Revenue account increases by $105

• Cash flow from operating activities is not affected

• Cash account increases by $105

Warranty expense is recognized ____.

• When the guaranteed merchandise is sold

• When merchandise is returned for exchange or repair

If the likelihood of a future obligation arising is probable (likely) and its amount can be reasonably estimated ______.

• The estimated amount must be disclosed in the notes to the financial statements

• A liability must be reported on the balance sheet.

• The estimated amount is determined for internal purposes and is not shown in the financial statements or related notes.

• The estimated amount is shown as a loss (expense) on the income statement.

The cash payment for a warranty repair is recorded as an expense.

• True

• False

What is the current ratio of a company with the following items:

-$100,000 in current assets

-$1,000,000 in total assets

-$50,000 in current liabilities

-$750,000 in total liabilities

• 1.33

• 2.00

• 0.50

• 0.75

Which of the following statements are true?

• A bond certificate acknowledges the issuer's obligation to repay the principal amount on the maturity date.

• Bond interest is normally paid only on the maturity date.

• The principal amount of a bond is called the face value of the bond.

• The interest rate on a bond normally fluctuates from month to month.

Loans that require payments of principal and interest at regular intervals are called ____.

• balloon notes

• accounts payable

• installment notes

• lines of credit

Bond obligations ____.

• do not require interest payments.

• usually have shorter terms than notes issued to banks.

• normally carry lower interest rates than banks charge.

• normally have longer terms to maturity than bank notes.

Issuing a bond to borrow money affects the ____.

• Statement of Changes in Stockholders' Equity

• Income Statement

• Balance Sheet

• Statement of Cash Flows