Chapter 7 ACCY 200

A transaction that is likely to cause an increase in a current liability is: payment of accrued wages. accrual of interest expense. depreciation of equipment. accrual of bad debts expense.

The adjusting entry to accrue Interest Expense results in: an increase in Interest Expense. a decrease in Interest Expense. a decrease in Cash. a decrease in Interest Payable.

An Accounts Payable normally results from which of the following transactions? Purchasing accounts for cash. Purchasing property, plant and equipment on credit. Purchasing goods and services from suppliers on credit. All of the above.

A transaction that is likely to cause an increase in a current liability is: accrual of interest expense. accrual of bad debts expense. payment of accrued wages. depreciation of equipment.

The liability for product warranty claims is an example of a liability that: has been calculated using estimates. has been recorded in the process of matching revenue and expense. also resulted in a reduction of net income. all of the above.

Many current liabilities are affected by accrual accounting entries. This happens because: accrual accounting involves recognizing liabilities before they are paid. the only way to reduce a liability account balance is with an adjusting entry. accrual accounting frequently involves recognizing liabilities before they are incurred. liabilities are usually paid when they are incurred.

The current liability for Wages Payable (or Accrued Payroll) represents the: gross pay earned by employees for which they have not yet been paid. net pay earned by employees for which they have not yet been paid. employer's federal and state payroll tax obligation. employer's liability for various withholdings that taken out of the gross pay earned by employees.

The payment of a current liability will: decrease working capital. increase working capital. decrease net income. not affect working capital.

A magazine publisher has an account called "Unearned Subscription Revenue." The transaction that causes the balance of this account to decrease is: cash is received from new subscribers. magazines are printed for the publisher. magazines are mailed to subscribers. subscriptions are sold to new subscribers.

A working capital loan will generally: not have an interest rate. not affect working capital. be classified as a noncurrent liability. require that interest (if any) be paid monthly.

The adjusting entry to accrue Interest Expense results in: a decrease in Interest Payable. an increase in Interest Expense. a decrease in Cash. a decrease in Interest Expense.

Interest on a Note Payable is most appropriately accrued: when the note is signed. as of the end of each accounting period during which the note is a liability. when the interest is paid. when principal payments on the note are made.

All of the following are examples of "accrued expense" types of liabilities except the liability for: A) short-term notes taken out at a bank during the year. B) payroll taxes owed by the employer for the year. C) property taxes owed to local governments for the year. D) salaries and wages owed to employees at the end of the year. E) estimated product warranty costs on products sold during the year.

When choosing between issuing common stock and issuing bonds, managers of corporations should take into account: A) the tax advantages to the company of deducting the interest costs on bonds. B) the demands placed upon their company by stockholders who expect to be paid quarterly dividends. C) the risks associated with having to make fixed interest payments on bonds at predetermined times. D) the impact that the choice will have on their company's leverage. E) all of the above are considerations.

The recognition of liabilities often results in: A) the recognition of expenses. B) a more conservative representation of financial position. C) a decrease in net income. D) a decrease in ROI. E) all of the above.

Which of the following is not typically classified as a current liability? A) Accounts Payable. B) Notes Payable. C) Bonds Payable. D) Unearned Subscription Revenue. E) Interest Payable.

In reference to the Discount on Bonds Payable and Premium on Bonds Payable accounts, which statement is true? A) The Discount on the Bonds Payable account is a contra asset. B) The Discount on the Bonds Payable account reduces working capital. C) The Discount on the Bonds Payable account is amortized by a credit entry each period. D) As the Premium on Bonds Payable account is amortized each period, the Interest Expense account is increased to the amount it would have been, had the bonds been sold at par. E) The premium on Bonds Payable account is a contra liability.

When borrowing money, the most important objective of the borrower should be to: A) minimize monthly payments. B) minimize the APR. C) avoid borrowing on a discount basis. D) make the maturity date as far in the future as possible. E) reading all of the hidden terms and conditions.

Interest on a note payable is most appropriately accrued: A) when the note is signed. B) as of the end of each accounting period during which the note is a liability. C) when principal payments on the note are made. D) when the interest is paid. E) at the maturity date of the note.

Which of the following is (are) a true statement(s) pertaining to bonds? A) Bonds can be sold at a discount, par, or payable. B) Bonds can be sold at a discount, par, or premium. C) The SEC sets the market price of a bond. D) The issuing firm sets the price of a bond. E) None of the above.

Financial leverage refers to which of the following? A) The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE). B) The difference between the rate of return earned on current assets and the rate of return earned on retained earnings. C) The leverage a firm obtains from increasing production. D) Decreasing fixed costs per unit by increasing production. E) None of the above.

Consolidated financial statements refer to: A) Financial statements reported on an industry-wide basis. B) The parent's and subsidiary's financial statements are reported on a separate basis. C) The parent's and subsidiary's financial statements are reported on a combined basis. D) The parent's and subsidiary's financial statements are reported ignoring interest, depreciation, and taxes. E) None of the above.