Accounting 201Chapter 08 Practice Test Flashcards
Assume that Klein Company’s current ratio is greater than 1. Which of the following will decrease Klein’s current ratio? A) Purchasing inventory on account. B) Collecting an accounts receivable. C) Issuing common stock for cash. D) Purchasing equipment, signing a long-term note.
A
Schmitt Corporation sells its products with a three-year manufacturing warranty. Schmitt’s sales revenue is $600,000 during 2012. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during 2012. How much warranty expense should the company record in 2012? A) $30,000. B) $25,000. C) $10,000. D) $ 5,000.
A
Refer to the previous question. How much is the estimated warranty liability reported in the balance sheet in 2012? A) $30,000. B) $25,000. C) $10,000. D) $ 5,000.
B
If Speedy Inc. borrows $50 million on September 1, 2012 for one year at 9% interest, how much interest expense should it record for the year ended December 31, 2012? A) $4.5 million. B) $3.0 million. C) $1.5 million. D) $0.
C
Suppose that Neuman Corporation has filed a lawsuit against a competitor for an alleged copyright violation. At the end of the year, Neuman’s attorney estimates that the company will win the lawsuit and be awarded between $1.5 and $2 million, with the most likely amount being $1.8 million. How much should Neuman record as a gain? A) $2.0 million. B) $1.8 million. C) $1.5 million. D) $0.
D
Which of the following increases an employer’s payroll costs? A) FICA withholding from the employee. B) State income tax. C) Federal income tax. D) Employer’s FICA contribution.
D
Which of the following is reported as a current liability? A) Notes payable due in two years. B) Notes payable due in 15 months. C) Notes payable due in 11 months. D) Unused line of credit.
C
Which of the following is not included in calculating the acid-test ratio? A) Accounts receivable. B) Current investment in marketable securities. C) Accounts payable. D) Inventory.
D
A contingent liability that is probable and can be estimated must be A) Disclosed. B) Not disclosed. C) Recorded. D) Paid.
C
Which the following represents a characteristic of a liability? A) A probable future sacrifice of economic benefits. B) Arising from present obligations to other entities. C) Resulting from past transactions or events. D) All of these are characteristics of a liability.
D
