On January 2, 2015, Hi-Tech Master Construction, Inc. issued $500,000, 10-year bonds
for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8%
and the market rate is 6%. The annual cash payment (paid in semiannual payments) on
the bonds is
a. $40,000.
b. $30,000.
c. $20,000.
d. $15,000.
Match each of the following terms pertaining to liabilities to their definitions.
a. Current liability
b. Accounts payable
c. Notes payable
d. Discount on notes payable
e. Current maturities of long-term liabilities
f. Accrued liabilities
g. Contingent liability
h. Estimated liability
A liability that has been incurred but has not been paid as of the balance sheet date.
Provided below is a list of important users of accounting information.Below the list are
descriptions of a major need of each of the various users. Fill in the blank with the one
user group that is most likely to have the need described to the right of the blank. Some
user groups may be used more than once or not at all.
a. Capital stock
b. Asset
c. Owners’ equity
d. Time period
e. Dividends
f. Economic entity concept
g. Expense
h. Retained earnings
i. Cost principle
j. Creditor
k. Liability
l. Revenue
m. Going concern
n. Monetary unit
o. Corporation
The sale of goods or the performance of services.
Moore, Inc. purchased slot machines at the beginning of 2015 for $20,000. The
machines have an estimated residual value of $2,000 and an estimated life of 5 years or
20,000 hours of operation. Moore is looking at alternative depreciation methods for the
equipment. Calculate the following: A. Accumulated depreciation at December 31,
2016, using the straight-line depreciation method. B. Depreciation expense for 2015
using the units-of-production depreciation method. Assume that the machines are
operated for 5,000 hours in 2015 and 2,000 hours in 2016. C. Book value of the
equipment at December 31, 2016, using the double-declining-balance depreciation
method. D. What are the advantages of using straight-line depreciation for financial
reporting purposes?
Which of the following statements is true?
a. An entry in a general ledger account can be traced to the trial balance by referring to
the page listed in the posting reference column of that ledger account.
b. The posting of an amount recorded in the general journal can be verified by referring
to the account number listed in the posting reference column on that line in the general
journal.
c. Business transactions are recorded first in the general ledger; then that information is
transferred to the general journal.
d. No explanation is needed for each entry in the general journal.
Match the following business forms with their characteristics below.
a. Sole proprietorship
b. Partnership
c. Corporation
Owned by two or more individuals
For each of the following accounts, indicate whether it is a balance sheet account or an i
ncome statement account.
a. Balance sheet account
b. Income statement account
Retained Earnings
Net purchases equals purchases less purchase returns, allowances, and discounts plus
transportation-in.
a. True
b. False
A firm is required to estimate a liability for repairs for products sold with a warranty. If
the firm’s accountants later find that the estimated amount for repairs has been
overstated, the correct accounting procedure is to
a. make an adjusting entry to reduce the amount of estimate.
b. make a correcting entry because the overstatement is an error.
c. show the amount of overstatement on the income statement as a loss.
d. do nothing for the year in question and modify the next year’s estimate.
A balance sheet shows cash, $75,000; marketable securities, $115,000; accounts
receivable, $150,000 and $222,500 of inventories. Current liabilities are $225,000. The
current ratio is 2.5 to 1.
a. True
b. False
Which of the following is an account in stockholders’ equity?
a. Dividends Payable
b. Loss on Sale of Equipment
c. Retained Earnings
d. Net income
The Treasury Stock account should be considered an asset account.
a. True
b. False
While reconciling the checking account, an accountant with Sonic Corporation noticed
that an error had been made in recording a check received by the company. Sonic
recorded the receipt as $729 and the correct amount of the check was $279. What
reconciling adjustment is required?
a. Add $450 to the company’s book balance
b. Deduct $450 from the company’s book balance
c. Add $450 to the bank statement balance
d. Deduct $450 from the bank statement balance
According to the text, almost all current liabilities appear in the Operating Activities
category of the statement of cash flows, but there are exceptions. Explain the exceptions
and give an example.
Cargo Corporation Listed below is information from the financial records of Cargo
Corporation at December 31, 2015:
Read the information about Cargo Corporation. Required:
Calculate Cargo’s current ratio at December 31, 2015. What does this ratio tell you
about the “composition” of the current assets?
In the numerator of the debt service coverage ratio,is a good substitute for cash flow
from operations before interest and tax payments, especially where changes in these
accounts are insignificant.
The audit committee of the board of directors provides direct contact between the
______________________________ and the
________________________________________.
How does the definition of a current liability relate to that of a current asset?