Accounting Exam 3: Chapter 10

A current liability is a debt that can reasonably be expected to be paid (a) out of currently recognized revenues (b) between 6 months and 18 months (c) out of cash currently on hand (d) within one year or the operating cycle, whichever is longer

From a liquidity standpoint, it is more desirable for a company to have current (a) liabilities exceed current assets (b) assets exceed current liabilities (c) liabilities exceed long-term liabilities (d) assets equal current liabilities

Interest expense on an interest-bearing note is (a) only recorded at maturity when the note is paid (b) only recorded at the time the note is issued (c) accrued over the life of the note (d) always equal to zero

The entry to record the payment of an interest-bearing note at maturity after all interest expense has been recognized is (a) debit notes payable credit cash (b) debit notes payable credit interest expense credit cash (c) debit notes payable debit interest payable credit cash (d) debit notes payable credit cash credit interest payable

unearned rent revenue is (a) debited when rent is received in advance (b) a contra account to rent revenue (c) a revenue account (d) reported as a current liability

current assets divided by current liabilities

current liabilities generally appear (a) in increasing order of magnitude on the balance sheet (b) after long-term debt in the balance sheet (c) in order of maturity on the balance sheet (d) in decreasing order of magnitude on the balance sheet

a major disadvantage resulting from the use of bonds is that (a) taxes may increase (b) earnings per share may be lowered (c) bondholders have voting rights (d) interest must be paid on a periodic basis

Which of the following is not an advantage of issuing bonds instead of common stock? (a) Stockholder control is not affected. (b) Earnings per share on common stock may be lower. (c) Income to common stockholders may increase. (d) Tax savings result.

is a debt that a company expects to pay within in one year or the operating cycle, whichever is longer

-Written promissory note -Frequently issued to meet short-term financing needs -Requires the borrower to pay interest -Issued for varying periods

-sales taxes are expressed as a stated percentage of the sales price -selling company (retailer) -collects tax from the customer -enters tax separately in cash register or includes in total receipts -remits the collections to the state's department of revenue

received before the company -delivers goods or -provides services

-current liabilities is under liabilities and stockholder equity -most expensive liability to least expensive

a form of interest-bearing notes payable

1. stockholder control is not affected: bondholders have no voting rights 2. tax savings result: bond interest is deductible for tax purposes, dividends on stock are not 3. return on common stockholders' equity may be higher: no additional share of common stock issued

1. Secured 2. Unsecured 3. Convertible 4. Callable

specific assets of the issuer pledged as collateral for the bonds

issued against the general credit of the company

Bonds that can be converted into common stock at the bondholder's option

bonds that the issuing company can redeem (buy back) at a stated dollar amount prior to maturity

1. dollar amount to be received 2. length of time until the amounts are received, and 3. market rate of interest -is the rate investors demand for loaning funds