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Accounting 1A Chapters 10 and 11

Chapter 10

1. T F Commonly, current liabilities are payable within one year and long-term liabilities are payable more than one year from now.

2. T F Given a choice, most companies would prefer to report a liability as current rather than long-term because it may cause the firm to appear less risky. (Page 506)

3. T F The term for bonds that have specific assets pledged as collateral is Convertible bonds.

4. T F Sales taxes collected from customers by the seller are not an expense, instead they represent current liabilities payable to the government.

5. T F Kelly Corp issues $200,000, 5 year, 7% bonds at face value. The entry to record the issuance of these bonds would include a debit to Bonds payable for $200,000. (Page 516)

6. An employee has gross earnings of $1,600 and withholdings of $25 for income taxes, $5 for social security taxes and $3 for medicare taxes. The employer also pays a total of $5 for social security and $3 for medicare taxes, $12 for FUTA and $2 for SUTA. What is the total cost of this employee to the employer? Assume no other information.

7. Which of the following is not a liability?

a. An unused line of credit b. Current portion of long-term debt c. Sales tax collected from customers d. Unearned revenues

8. On December 11, 2017, Jaron Co received magazine subscriptions for 2018 in cash for $200. Make the entry to record the receipt of this cash in 2015.

9. If you buy lunch for $16.35 that includes 9% sales tax, how much did the restaurant charge you for lunch AND how much do they owe for sales taxes?

10. United Supply has a $25 million liability at December 31, 2017, of which $5 million is payable in each of the next five years. What portion of the $25 million is current and what amount is long term at 12/31/17?

Current:_________________________ Long-term: ___________________________

11. The information below relates to Axel Inc - for their January 15th payroll. Make the appropriate journal entries in good form to record the payroll.

Wages and salaries 2,750,000.00$ Federal income tax withheld 400,000.00$ State income tax withheld 140,000.00$ Contributions to 401(k) plan by employees 35,000.00$ FICA rate 7.65% Federal and state unemployment tax rate (combined rate) 6.20%

12. Listed below are several terms and phrases associated with current liabilities. Match each List A to List B

List A List B ________ 1. Current assets divided by current a. The riskiness of a business's

liabilities obligations ________ 2. Events with uncertain outcomes that may b. Discount on bond

represent potential liabilities c. Interest expense ________ 3. Gift cards d. FICA ________ 4. Long-term debt maturing within one year e. Accrual Accounting. ________ 5. Social Security and Medicare f. Current Ratio ________ 6. A form of interest bearing notes payable g. Current portion of long-term

issued by corporations, govenments debt ________ 7. Interest expense is recorded in the period h. Unearned revenue

interest is incurred rather than in the period i. Bonds interest is paid j. Contingencies

_________ 8. Difference between the face value of a bond and the selling price, when bond sold at less than face value.

________ 9. Classifying liabilities as either current or long-term helps investors and creditors assess this

________ 10. Incurred on a notes payable

13. A $100,000 in bonds is issued at 95. Prepare the journal entry to record the issuance of this bond.

14. California Corporation's accounting equation on the 12/31/17 balance sheet is: Assets: $850,000 Calculate CA Corp's Debt to Assets ratio Liabilities: $435,000 Stockholders Equity: $415,000

15. What is a lease called that is essentially the purchase of an asset with debt financing?

16. A 10 year bond, with an interest rate of 5% is issued for $1,000,000. Make the journal entry in good form to record the semi-annual interest. (Page 516)

Chapter 11

1. T F All publicly held corporations are regulated by the Securities and Exchange Commission.

2. T F Limited liability means that even in the event of bankruptcy, stockholders in a corporation can lose no more than the amount they invested in the company.

3. T F An S corporation allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership.

4. T F Par value is the legal capital per share of stock that's assigned when the corporation is first founded.

5. T F A company credits additional paid-in capital for the portion of the cash proceeds above par value received for the issuance of stock.(Pages 576-578)

6. T F Treasury stock is the repurchase of a company's own issued stock.

7. T F If a company purchases shares of another company, it records this transaction as treasury stock.

8. T F Stock repurchases reduce the number of shares outstanding, thereby increasing earnings per share.

9. T F Dividends are paid on all shares issued by the company including treasury stock.

10. T F Return on common stockholders' equity (ROE) measures the profitability from the stockholders' point of view.

11. List two advantages of the corporate form of business.

12. List two disadvantages of the corporate form of business.

13. A company issues 10,000 shares of $5 par value common stock for $50 per share. Make the entry to record this transaction.

14. Preferred stock is called preferred because it usually has two preferences over common stock. What are they?

15. Which of the following is true regarding the accounting for Treasury Stock? a. Treasury stock is reported on the balance sheet in the equity section. b. The sale of Treasury Stock has no impact on the income statement c. Treasury Stock represents a negative equity amount d. All of these are true

16. The ending retained earnings balance of Lambert Inc, increased by $1.5 million from the beginning of the year. The company's net income for the year was $3.5 million. What amount of dividends did Lambert Inc declare and pay? (see Statement of Stockholders' Equity on 4 financial statement sheet)

17. Give one reason that a company might repurchase their own stock (Treasury Stock).

18. The two principle components of stockholders' equity are: (see Statement of Stockholders' Equity) a. Common stock and retained earnings. b. Net income and Common stock c. Assets and Retained Earnings d. Stockholders' Equity and Property, Plant and Equipment

19. Panhandle Corporation was organized on January 3, 2017. The firm was authorized to issue 100,000 shares of $5 par common stock. During 20175 they had the following transactions:

a. Issued 30,000 shares of common stock at $7 per share b. Issued 20,000 shares of common stock at $8 per share c. Reported a net income of $100,000 d. Paid dividends of $50,000.

Calculate the following (Pages 577-578): A. Dollar amount in Common Stock B. Dollar amount in Additional Paid in Capital C. Dollar amount in Retained Earnings

20. Northwest Clothing Supply has 3,000 shares of common stock outstanding. Please make the proper entries to record their payment of dividends. If no entry, write "No Entry".

1-Dec Declares a cash dividend of $1 per share to all shareholders of record on on December 15th.

15-Dec Date of record

31-Dec Pays the cash dividend declared on December 1

21. Indicate what the effect is on the accounting equation - increase (I), decrease (D), or no effect (NE) for the following:

Total Total Total Assets Liabilities S/E

Issue common Stock Purchase treasury stock Declare cash dividend Pay cash dividend