In: Accounting
1. The accounts payable turnover ratio is equal to ________ divided by average ________.
A.cost of goods sold; accounts payable
B.debt; common stockholders' equity
C.longminus−term debt; common stockholders' equity
D.debt; total assets
2.The discount on bonds payable:
A.decreases the amount of cash paid to bondholders over the stated rate of interest
B.increases the amount of cash paid to bondholders over the stated rate of interest
C.increases interest expense on the income statement
D.reduces interest expense on the income statement
3.Under the effectiveminus−interest method of amortization, interest expense each period can be calculated by multiplying the:
A.carrying value of the bonds times theeffectiveminus−interest rate for the appropriate time period
B.face value of the bonds times the stated interest rate for the appropriate time period
C.face value of the bonds times theeffectiveminus−interest rate for the appropriate time period
D.carrying value of the bonds times the stated interest rate for the appropriate time period
4.Failure to record an accrued liability causes a company to:
A.overstate expenses
B.overstate liabilities
C.overstate owners' equity
D.overstate assets
1)Correct option is "A"- cost of goods sold; accounts payable
Accounts payable turnover ratio =cost of goods sold /Average accounts payable
2)correct option is "C'- .increases interest expense on the income statement
Discount on bond payable increases interest expense as it is calculated as :
Interest expense = Interest paid in cash + Discount amortized .
3)correct option is "A"- carrying value of the bonds times theeffectiveminus−interest rate for the appropriate time period
Interest expense using effecive interest method = carrying value of bond payable as on last period *effective interest rate for the appropriate time period
4)correct option is "C"- overstate owners' equity
Failure to record accrued liability results in understatement of expenses and understatement of liability .Not recording expenses (understatement of expenses )results in overstatement of net income ,retained earning (net income is closed to equity ) and so as stockholders equity.
The following entry is not made :
Account title | Debit | credit |
Accrued expenses (not recorded) | xxx | |
Accrued liability (not recorded) | xxx |