acc test 3

Question 1

What is the difference between current and long-term liabilities?

Answer 1

Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.

Question 2

What accounts belong to current and long-term liability accounts?

Answer 2

Examples of current liabilities include accounts payable, salaries payable, taxes payable, and the current portion of long-term debt. Long-term liability examples are bonds payable, mortgage loans, and pension obligations.

Question 3

calculate interest expense 10-1

Answer 3

Interest Expense = Principal x Rate x Time

Question 4

calculate total liabilities related to the note payable 10-1

Question 5

calculate sales tax payable 10-2

Answer 5

sales tax = purchase price x sales tax rate.

Question 6

What are employer payroll expenses?

Answer 6

It encompasses taxes, benefits, deductions, overtime pay, Social Security and Medicare contributions,

Question 7

is bond typically a long- or short-term liability?

Answer 7

Long-term liabilities

Question 8

record (JE) bong issuance with a premium 10-6

Answer 8

Cash is debited for the entire proceeds, and the bonds payable account is credited for the face amount of the bonds.

Question 9

Why can the company sell bonds at a premium?

Answer 9

A bond might trade at a premium because its interest rate is higher than the current market interest rates.

Question 10

Why can the company sell bonds at a
discount?

Answer 10

Bonds are sold at a discount when the market interest rate exceeds the coupon rate of the bond.

Question 11

calculate total equity 11-1

Answer 11

The formula to calculate total equity is Equity = Assets - Liabilities.

Question 12

Authorized Stock

Answer 12

Authorized stocks refers to the number of shares which can be issued by the company. It is the limit above which shares cannot be issued and this limit is specified in the company’s charter or the articles of incorporation.

Question 13

Treasury stock

Answer 13

Is the shares which are bought back by the company. Treasury stock reduces the outstanding number shares of the company. These shares can be either retired by the company or can be resold.

Question 14

Outstanding Stock

Answer 14

These shares are actually the issued shares less the treasury stock. It may be equal to or less than the issued shares. Outstanding shares does not include the treasury stock.

Question 15

Issued Stock

Answer 15

It refers to the shares which are owned by the stockholders of the company. It may be equal to or less than the authorized shares. It is the shares which are sold to the public out of the authorized shares.

Question 16

What is the name for shares that are currently owned by the shareholders?

Answer 16

outstanding shares

Question 17

calculate # of outstanding shares 11-2

Answer 17

The number of shares outstanding for a company is equal to the number of shares issued minus the number of shares held in the company’s treasury.

Question 18

What is the main reason for stock issuance?

Answer 18

Stocks are issued by companies to raise capital to grow the business or undertake new projects.

Question 19

What are the reasons to buy stocks back?

Answer 19

Share buybacks can create value for investors in a few ways: Repurchases return cash to shareholders who want to exit the investment. With a buyback, the company can increase earnings per share, all else equal. The same earnings pie cut into fewer slices is worth a greater share of the earnings.

Question 20

record common stock issuance with par value 11-3

Answer 20

Those proceeds are allocated first to the par value of the shares (if any), with any excess over par value allocated to additional paid-in capital.

Question 21

record treasury stock =stock buyback 11-5

Answer 21

Purchase: The journal entry is to debit treasury stock and credit cash for the purchase price. For example, if a company buys back 10,000 shares at $5 per share, the amount debited and credited is $50,000 (10,000 x $5).

Question 22

calculate effect of multiple stock issuances on the total Equity 11-6

Question 23

What is the effect of the stock split on the financial statements?

Answer 23

It also may affect the par value and market price per share, reducing them proportionately. However, the total dollar value of the shares outstanding does not change. No journal entry is required for a stock split.

Question 24

calculate the number of shares outstanding after the stock split 11-9

Answer 24

Total number of shares post stock split = number of shares held * number of new shares issued for each existing share.

Question 25

calculate dividend based on dividend per share and shares outstanding

Question 26

What is cumulative effect of dividend declaration and dividend payment on Asset, Liabilities
and Equity?

Answer 26

Therefore, the cumulative effect of the declaration and payment of a cash dividend is a reduction in the total assets and stockholders’ equity.

Question 27

recognize current assets

Answer 27

cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets.

Question 28

recognize current liabilities

Answer 28

Notes Payable, Accounts Payable, Short-Term Loans, Accrued Expenses, Unearned Revenue, Current Portion of Long-Term Debts, Other Short-Term Debts.

Question 29

calculate the percentage change of different accounts from year to
year 13-1

Answer 29

To find the percent change, you first subtract the earlier index value from the later one, then divide that difference by the earlier index value, and finally multiply the result by 100.

Question 30

perform balance sheet and income statement vertical analysis 13-2 13-3

Answer 30

The formula for performing vertical analysis is VA = Item / Base amount (100). In this formula, VA represents vertical analysis or the percent of the whole that your item represents.

Question 31

What solvency and liquidity ratios measures respectively?

Answer 31

Liquidity refers to both an enterprise’s ability to pay short-term bills and debts and a company’s capability to sell assets quickly to raise cash. Solvency refers to a company’s ability to meet long-term debts and continue operating into the future.

Question 32

What type of ratios are the most important to shareholders? long- and short-term
lenders?

Answer 32

price-to-earnings (P/E) ratio Debt-to-Cash Flow Ratio (typically called the Leverage Ratio), Debt Service Coverage Ratio, and. Quick Ratio.

Question 33

What do solvency ratios measures?

Answer 33

A solvency ratio measures how well a company’s cash flow can cover its long-term debt.

Question 34

The long-term borrowers are legally
obligated to pay dividends to the lenders

Answer 34

false