Questions and Answers
Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet?
Current liabilities include
Chicago Company sold merchandise to a customer for $600 cash in a state with a 6% sales tax rate. The total amount of cash collected from the customer was
Bonds payable are usually classified on the balance sheet as:
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Which of the following statements is correct?
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The following form of business gives its owners limited liability from lawsuits.
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_______ stock is always in the hands of the owner?
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_________ is purchased by the company that issued the stock.
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Purchase of treasury stock would be shown on the statement of cash flows as
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The declaration of a cash dividend will
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Which of the following is an objective of ratio analysis?
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A ratio for assessing a company's liquidity is...
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A ratio for assessing a company's solvency is...
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A ratio for assessing company management's effectiveness is...
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A ratio for assessing a company's position in the stock market is...
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Study Notes
Current Liabilities
- Accounts Payable, Wages Payable, and Interest Payable are examples of current liabilities; Bonds Payable is typically classified as a long-term liability.
- Current liabilities encompass various short-term obligations including notes payable, taxes payable, and the current portion of long-term liabilities.
Sales Transactions
- When a company sells merchandise for $600 cash in a state with a 6% sales tax, the total cash collected amounts to $636 ($600 + $36 sales tax).
Bonds Payable
- Bonds payable are recorded on the balance sheet as long-term liabilities, distinguishing them from current liabilities.
- A bond's discount occurs when its issue price is less than its face value, while a premium arises when the issue price exceeds face value.
- Amortizing the bond discount results in reduced bond interest expense; conversely, amortizing a premium increases bond interest expense.
Business Structures
- Corporations provide limited liability protection to their owners from lawsuits, unlike sole proprietorships and general partnerships.
Stock Types
- Outstanding stock refers to shares currently held by shareholders, while treasury stock is bought back by the issuing company.
- Authorized stock represents the total shares that a corporation is allowed to issue.
Cash Flows
- The purchase of treasury stock is classified as a financing activity on the statement of cash flows.
Dividends
- Declaring a cash dividend increases liabilities and decreases equity, as it creates an obligation to shareholders while reducing retained earnings.
Ratio Analysis Objectives
- The main objectives of ratio analysis include assessing past performance, evaluating future performance prospects, and determining debt repayment capabilities.
Liquidity Ratios
- The Current Ratio is a key measure for assessing a company's liquidity, indicating its ability to cover short-term obligations.
Solvency Ratios
- The Debt to Assets ratio serves as an essential indicator for assessing a company's solvency, reflecting the proportion of assets financed by debt.
Management Effectiveness Ratios
- The Net Margin ratio is utilized to assess the effectiveness of company management, showing the proportion of revenue remaining after all expenses.
Market Position Ratios
- Earnings Per Share (EPS) is a critical metric for evaluating a company's position in the stock market, indicating profitability on a per-share basis.
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Description
Test your knowledge with these flashcards covering key concepts in accounting, specifically focusing on current liabilities. Ideal for students preparing for Exam 3, these cards will help reinforce essential terms and definitions. Review your understanding of balance sheets and liabilities in a fun and interactive way!
