Accounting Final

Question 0

Double declining method

Answer 0

Accelerated method. Produces more depreciation expense in the early years.

Question 1

Straight line method

Answer 1

Same amount of depreciation expense each year

Question 2

Units of production method

Answer 2

Produces varying amounts of depreciation expense. Depending on number of units.

Question 3

Reduce the cost of an asset

Answer 3

1. Use contra asset account called accumulated depreciation
2. Credit balance
3. Book value - also called carrying value
   Book value = asset value - accumulated depreciation

Question 4

End of year adjustment

Answer 4

Depreciation expense

Accumulated depreciation

Question 5

Units of production depreciation

Answer 5

bases depreciation expense on actual asset usage

Question 6

Unit of production

Answer 6

Cost - Salvage / total estimated units of production * units of production in current year = annual depreciation expense

Question 7

Contingent liability

Answer 7

Potential obligation arising from a past event

Question 8

Future obligation

Answer 8

Probable reasonably estimated. Then recognize. Includes vacation pay, sick leave, warranties.

Question 9

Future obligation

Answer 9

Reasonably possible not reasonably estimated. Not reported on balance sheet. Legal challenges environmental damage. Disclosed on financial statements.

Likelihood remote - no liability recognized

Question 10

Gross Earnings

Answer 10

Total amount of earnings prior to deductions

Question 11

Federal income tax

Answer 11

Claim withholding allowances on form W-4

Journal entry
Salary expense
Employee tax payable
Cash

Question 12

Social Security Medicare Taxes (FICA)

Answer 12

Social security provides benefits to the old survivors and disabilities insurance.

Medicare provides health insurance.

Question 13

Net Pay

Answer 13

Gross monthly salary
Deductions 
           Federal income taxes
           FICA Taxes social security taxes
           FICA Taxes Medicare 
           Medical insurance premium   
           American cancer society

Question 14

Federal Unemployment Tax (FUTA)

Answer 14

Employers pay this tax to help support the unemployed

Question 15

Current Ratio

Answer 15

Current asset / Current liability - ratio used to evaluate liquidity (ability to pay obligations)

Question 16

Solvency

Answer 16

Ability to pay liability in the long run.

Question 17

Amortizing loans

Answer 17

Loans that require payment of principal and interest at regular intervals. There called installment notes.

Question 18

Bond certificate

Answer 18

A way that companies borrow money directly from the public.

The seller or issue of the bond is the borrower, the buyer of the bond or the bond holder is the lender.

Question 19

Face value of the bond

Answer 19

The amount due at maturity.

Question 20

Secured Bonds

Answer 20

Mortgage bonds

They have a priority legal claim on assets

Question 21

Convertible bond

Answer 21

Liabilities that can be exchanged at the option of the bond holder for common stock.

Question 22

Callable bonds

Answer 22

Allow the company to redeem or pay off the bond before maturity date.

Call price exceeds face value of bond

Call price - face value = call premium

Question 23

Bond ratings

Answer 23

Three financial services analyze risk - Fitch, Moody, and Standard and Poors. AAA is best

Question 24

Bonds issued as a discount

Answer 24

Borrower excepts less then the face value of the bond

The bond discount increases the interest the company pays

Question 25

The effective interest rate

Answer 25

The actual interest rate a company pays on a bond

Question 26

Bond prices

Answer 26

Normally express as a percentage of the face value

Question 27

Discount on bonds payable

Answer 27

Contra liability account

Bonds payable - discount on bonds payable = carrying value

Question 28

Bond premium

Answer 28

The difference between the sold price and the face value when bonds are sold for their face value.

Question 29

Sole proprietorship

Answer 29

Owned by a single individual

Question 30

Partnership

Answer 30

Two or more individuals share ownership

Question 31

Corporation

Answer 31

Separate legal entity. Paper work complex.

Ownership interest by stock certificates.

Question 32

Securities exchange commission

Answer 32

Legal authority to establish accounting principals for corporations, deferred rule making authority to private sector under FASB

Question 33

Sarbanes-Oxley Act of 2002

Answer 33

5 member (PCAOB) authority to audit. And enforce ethics.

Question 34

Limited liability corporations

Answer 34

Offer benefits of corporate ownerships yet our taxed as partnerships.

Question 35

Par value

Answer 35

Not all states require assigning of par value to stock.

Par value * number of shares represent the minimum amount of assets that must be kept in the company as protection for creditors.

Question 36

Stated Values

Answer 36

Book value per share is total stock holders equity (assets - liabilities / number of shares owned by investors)

Question 37

Treasury stock

Answer 37

Stock re-punched by the company from the public.

Outstanding stock - total issued stock minus treasury stock

Question 38

Common Stock

Answer 38

Bears highest risk
Greatest rewards
Right to vote

Question 39

Preferred stock

Answer 39

Have certain privileges 
Limited dividends 
Usually no vomiting rights 
Preference to assets in case of company bankruptcy
Preference to divideds