Question 1

Which of the following is true regarding the relationship between the current ratio and the acid-test ratio?

Accepted Answer

A)  The current ratio will always be equal to or larger than the acid-test ratio for a specific company.
B)  The acid-test ratio will always be equal to or larger than the current ratio for a specific company.
C)  Either the current ratio or the acid-test ratio could be larger for a specific company.D) All of the above
E) A) and C)

Question 2

Which financial ratio relates most closely to a company's ability to pay its short-term debts?

Accepted Answer

A)  Receivables turnover
B)  Debt to equity ratio
C)  Return on assets
D)  Current ratioE) A) and C)
F) C) and D)

Question 3

Patriot Paddleboards sells a paddleboard model that carries a one-year warranty on all included accessories.Past experience indicates that 15% of those sold will have defective accessories within a year and that average repair cost is $20 per paddleboard.If 1,000 were sold this year and 50 have already been repaired under warranty,the entry to record warranty expense for the year would include a debit to:

Accepted Answer

A)  Warranty Expense of $2,000
B)  Warranty Liability of $2,000
C)  Warranty Liability of $3,000
D)  Warranty Expense of $3,000E) All of the above
F) A) and B)

Question 4

Companies selling products subject to sales taxes are responsible for collecting the sales tax directly from customers and periodically remitting the sales taxes collected to the state and local governments.

Accepted Answer

A) True 
 B)False

Question 5

Assuming a current ratio of 1.0 and an acid-test ratio of 0.80,how will the borrowing of cash by issuing a six-month note payable affect each ratio?

Accepted Answer

A)  Increase the current ratio and increase the acid-test ratio.
B)  No change to the current ratio and increase the acid-test ratio.
C)  Decrease the current ratio and decrease the acid-test ratio.D) A) and C)
E) None of the above

Question 6

The current portion of long-term debt should be

Accepted Answer

A)  Reported as a current liability on the balance sheet.
B)  Reported as a long-term liability on the balance sheet.
C)  Combined with the rest of the long-term debt on the balance sheet.D) A) and B)
E) A) and C)

Question 7

Given a choice,most companies would prefer to report a liability as long-term rather than current because:

Accepted Answer

A)  It may cause the firm to appear less risky to investors and creditors.
B)  It may reduce interest rates on borrowing.
C)  It may cause the company to appear more stable,commanding a higher stock price for new stock listings.
D)  All of these.E) B) and C)
F) C) and D)

Question 8

United Supply has a $5 million liability at December 31,2018,of which $1 million is payable in each of the next five years.United Supply reports the liability on the balance sheet as a:

Accepted Answer

A)  $5 million current liability.
B)  $5 million long-term liability.
C)  $1 million current liability and a $4 million long-term liability.D) All of the above
E) A) and B)

Question 9

Assuming a current ratio of 1.2 and an acid-test ratio of 0.80,how will an increase in accounts receivable affect each ratio?

Accepted Answer

A)  No change to the current ratio and decrease the acid-test ratio.
B)  Increase the current ratio and increase the acid-test ratio.
C)  Decrease the current ratio and decrease the acid-test ratio.D) A) and C)
E) A) and B)

Question 10

Which of the following statements regarding liquidity ratios is false?

Accepted Answer

A)  A high current ratio generally indicates the ability to pay current liabilities on a timely basis.
B)  A high acid-test ratio generally indicates the ability to pay current liabilities on a timely basis.
C)  All current assets are due within one year and therefore have essentially equal liquidity.D) A) and C)
E) None of the above

Question 11

Brian Inc.borrowed $8,000 from First Bank and signed a promissory note.What entry should Brian Inc.record?

Accepted Answer

A)  Debit Cash,$8,000;Credit Notes Receivable,$8,000.
B)  Debit Notes Receivable,$8,000;Credit Cash,$8,000.
C)  Debit Cash,$8,000;Credit Notes Payable,$8,000.D) None of the above
E) B) and C)

Question 12

In December 2017,Quebecor Printing received magazine subscriptions for 2018 from a customer,who paid $500 in cash.What would be the appropriate journal entry for this event?

Accepted Answer

A)  Debit Cash,$500;credit Subscription Revenue,$500.
B)  Debit Cash,$500;credit Deferred Revenue,$500.
C)  Debit Subscription Revenue,$200;credit Cash,$200.D) All of the above
E) A) and B)

Question 13

In a classified balance sheet,we categorize all liabilities as current.Liabilities may be classified as either current or long-term.

Accepted Answer

A) True 
 B)False

Question 14

Volt Electronics sells equipment that includes a three-year warranty.Repairs under the warranty are performed by an independent service company under a contract with Volt.Based on prior experience,warranty costs are estimated to be $25 per item sold.Volt should recognize these warranty costs:

Accepted Answer

A)  When the equipment is sold.
B)  When the repairs are performed.
C)  When payments are made to the service firm.D) B) and C)
E) A) and C)

Question 15

The current ratio is

Accepted Answer

A)  Current assets divided by current liabilities.
B)  Cash and short-term investments divided by current liabilities.
C)  Cash,short-term investments,and accounts receivable divided by current liabilities.D) None of the above
E) All of the above

Question 16

Additional employee benefits paid for by the employer are often referred to as fringe benefits.

Accepted Answer

A) True 
 B)False

Question 17

In January 2018,Summit Co.sells a gift card for $50 and receives cash.What would be the appropriate journal entry for this event?

Accepted Answer

A)  Debit Cash,$50;credit Sales Revenue,$50.
B)  Debit Cash,$50;credit Deferred Revenue,$50.
C)  Debit Sales Revenue,$20;credit Cash,$20.D) A) and C)
E) All of the above

Question 18

Given a choice,most companies would prefer to report a liability as current rather than long-term,because doing so may cause the firm to appear less risky.Companies prefer to report a liability as long-term,because long-term debt makes a company appear less risky.

Accepted Answer

A) True 
 B)False

Question 19

Regarding a contingent liability,when no amount within a range of potential losses appears more likely than others,we record the maximum amount in the range.When no amount within a range of potential losses appears more likely than others,we record the minimum amount in the range.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following are employer payroll costs? I.FICA taxes.II.Federal and state unemployment taxes.III.Federal and state income taxes.IV.Employer contributions to a retirement plan.

Accepted Answer

A)  I and IV
B)  I,III,and IV
C)  I,II,and IVD) A) and C)
E) A) and B)

Exam 8: Current Liabilities

Given a choice,most companies would prefer to report a liability as current rather than long-term,because doing so may cause the firm to appear less risky.Companies prefer to report a liability as long-term,because long-term debt makes a company appear less risky.

Correct Answer
verified

Regarding a contingent liability,when no amount within a range of potential losses appears more likely than others,we record the maximum amount in the range.When no amount within a range of potential losses appears more likely than others,we record the minimum amount in the range.

Correct Answer
verified

Assuming a current ratio of 1.2 and an acid-test ratio of 0.80,how will an increase in accounts receivable affect each ratio?

Correct Answer
verified

The current portion of long-term debt should be

Correct Answer
verified

Correct Answer
verified

In a classified balance sheet,we categorize all liabilities as current.Liabilities may be classified as either current or long-term.

Correct Answer
verified

Brian Inc.borrowed $8,000 from First Bank and signed a promissory note.What entry should Brian Inc.record?

Correct Answer
verified

Companies selling products subject to sales taxes are responsible for collecting the sales tax directly from customers and periodically remitting the sales taxes collected to the state and local governments.

Correct Answer
verified

In January 2018,Summit Co.sells a gift card for $50 and receives cash.What would be the appropriate journal entry for this event?

Correct Answer
verified

Given a choice,most companies would prefer to report a liability as long-term rather than current because:

Correct Answer
verified

Which of the following is true regarding the relationship between the current ratio and the acid-test ratio?

Correct Answer
verified

In December 2017,Quebecor Printing received magazine subscriptions for 2018 from a customer,who paid $500 in cash.What would be the appropriate journal entry for this event?

Correct Answer
verified

The current ratio is

Correct Answer
verified

Which of the following are employer payroll costs? I.FICA taxes.II.Federal and state unemployment taxes.III.Federal and state income taxes.IV.Employer contributions to a retirement plan.

Correct Answer
verified

Additional employee benefits paid for by the employer are often referred to as fringe benefits.

Correct Answer
verified

United Supply has a $5 million liability at December 31,2018,of which $1 million is payable in each of the next five years.United Supply reports the liability on the balance sheet as a:

Correct Answer
verified

Assuming a current ratio of 1.0 and an acid-test ratio of 0.80,how will the borrowing of cash by issuing a six-month note payable affect each ratio?

Correct Answer
verified

Which financial ratio relates most closely to a company's ability to pay its short-term debts?

Correct Answer
verified

Volt Electronics sells equipment that includes a three-year warranty.Repairs under the warranty are performed by an independent service company under a contract with Volt.Based on prior experience,warranty costs are estimated to be $25 per item sold.Volt should recognize these warranty costs:

Correct Answer
verified

Which of the following statements regarding liquidity ratios is false?

Correct Answer
verified

Exam 8: Current Liabilities

Given a choice,most companies would prefer to report a liability as current rather than long-term,because doing so may cause the firm to appear less risky.Companies prefer to report a liability as long-term,because long-term debt makes a company appear less risky.

Correct AnswerverifiedShow Answer

Regarding a contingent liability,when no amount within a range of potential losses appears more likely than others,we record the maximum amount in the range.When no amount within a range of potential losses appears more likely than others,we record the minimum amount in the range.

Correct AnswerverifiedShow Answer

Assuming a current ratio of 1.2 and an acid-test ratio of 0.80,how will an increase in accounts receivable affect each ratio?

Correct AnswerverifiedShow Answer

The current portion of long-term debt should be

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a classified balance sheet,we categorize all liabilities as current.Liabilities may be classified as either current or long-term.

Correct AnswerverifiedShow Answer

Brian Inc.borrowed $8,000 from First Bank and signed a promissory note.What entry should Brian Inc.record?

Correct AnswerverifiedShow Answer

Companies selling products subject to sales taxes are responsible for collecting the sales tax directly from customers and periodically remitting the sales taxes collected to the state and local governments.

Correct AnswerverifiedShow Answer

In January 2018,Summit Co.sells a gift card for $50 and receives cash.What would be the appropriate journal entry for this event?

Correct AnswerverifiedShow Answer

Given a choice,most companies would prefer to report a liability as long-term rather than current because:

Correct AnswerverifiedShow Answer

Which of the following is true regarding the relationship between the current ratio and the acid-test ratio?

Correct AnswerverifiedShow Answer

In December 2017,Quebecor Printing received magazine subscriptions for 2018 from a customer,who paid $500 in cash.What would be the appropriate journal entry for this event?

Correct AnswerverifiedShow Answer

The current ratio is

Correct AnswerverifiedShow Answer

Which of the following are employer payroll costs? I.FICA taxes.II.Federal and state unemployment taxes.III.Federal and state income taxes.IV.Employer contributions to a retirement plan.

Correct AnswerverifiedShow Answer

Additional employee benefits paid for by the employer are often referred to as fringe benefits.

Correct AnswerverifiedShow Answer

United Supply has a $5 million liability at December 31,2018,of which $1 million is payable in each of the next five years.United Supply reports the liability on the balance sheet as a:

Correct AnswerverifiedShow Answer

Assuming a current ratio of 1.0 and an acid-test ratio of 0.80,how will the borrowing of cash by issuing a six-month note payable affect each ratio?

Correct AnswerverifiedShow Answer

Which financial ratio relates most closely to a company's ability to pay its short-term debts?

Correct AnswerverifiedShow Answer

Volt Electronics sells equipment that includes a three-year warranty.Repairs under the warranty are performed by an independent service company under a contract with Volt.Based on prior experience,warranty costs are estimated to be $25 per item sold.Volt should recognize these warranty costs:

Correct AnswerverifiedShow Answer

Which of the following statements regarding liquidity ratios is false?

Correct AnswerverifiedShow Answer

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