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1 | |
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. |
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2 | |
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. |
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3 | |
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. |
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4 | |
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 |
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5 | |
In reference to the Discount on Bonds Payable and Premium on Bonds Payable accounts, which statement is true? |
| | A) | The Discount on Bonds Payable account is a contra asset. |
| | B) | The Discount on Bonds Payable account reduces working capital. |
| | C) | The Discount on 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. |
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6 | |
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. |
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7 | |
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. |
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8 | |
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. |
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9 | |
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 owners' 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. |
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10 | |
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. |
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2002 McGraw-Hill Higher Education