Times Interest Earned - Answer-Income before interest expense and income taxes ÷ Interest Expense
Debt-to-Equity Ratio - Answer-Total Liabilities ÷ Total Equity
Basic Earnings per Share - Answer-Net Income - Preferred Dividends ÷ Weighted-average common shares outstanding
Price-earnings...
Financial Accounting Chapters 9, 10, 11
Exam Questions with Correct Answers
Times Interest Earned - Answer-Income before interest expense and income taxes ÷
Interest Expense
Debt-to-Equity Ratio - Answer-Total Liabilities ÷ Total Equity
Basic Earnings per Share - Answer-Net Income - Preferred Dividends ÷ Weighted-
average common shares outstanding
Price-earnings (PE) Ratio - Answer-Market Value (price) per share ÷ Earnings per share
Dividend Yield - Answer-annual cash dividends per share ÷ market value per share
Book value per common share - Answer-Stockholders' equity applicable to common
shares ÷ Number of common shares outstanding
Book Value per Preferred Shares Calculated - Answer-stockholders' equity applicable to
preferred shares ÷ number of preferred shares outstanding
What is a liability? - Answer-Probable future payment of assets or services that a
company is presently obligated to make as a result of past transactions or events
What are three crucial factors of a liability? - Answer-1. A past transaction or event
2. A present obligation
3. A future payment of assets or services
Accounting for liabilities involves addressing what three questions? - Answer-1. Whom
to pay
2. When to pay
3. How much to pay
What are definitely determinable liabilities? - Answer-Known liabilities; obligations of a
company with little uncertainty, set by agreements, contracts, or laws.
Record a cash sale of $6,000 with a 5% sales tax. - Answer-Cash 6300
Sales 600
Sales Tax Payable 300
Record the unearned ticket revenue for $5,000. - Answer-Unearned Ticket Revenue
5000
Ticket Revenue 5000
, The adjusting entry when the deferred ticket revenue is earned. - Answer-Cash 5000
Unearned Ticket Revenue 5000
Record entry to pay $500, 60 day note with 12% interest - Answer-Notes Payable 500
Interest Expense 10
Cash 510
What is the difference between gross pay and net pay? - Answer-Gross-total
compensation earned by an employee
Net-gross pay-all deductions (aka take-home pay)
How are the employee payroll deductions recorded? - Answer-Salaries Expense 2000
FICA - Social Security Taxes Payable 124
FICA - Medicare Taxes Payable 29
Employee Federal Income Taxes Payable 213
Employee Medical Insurance Payable 85
Salaries Payable 1549
A car salesman sells a car with a 200 warranty. What is the journal entry? - Answer-
Estimated Warranty Liability 200
Auto Parts Inventory 200
Contingent Liability - Answer-Obligation to make a future payment if, and only if, an
uncertain future event occurs.
How are contingencies handled? - Answer-Full disclosure principle; requires information
relevant to decision makers be reported and not ignored. Accounting for them depends
on the likelihood that a future event will occur and the ability to estimate the future
amount owed if this event occur.
What is the par value of a bond? - Answer-Amount the bond issuer agrees to pay at
maturity and the amount on which cash interest payments are based; aslo called face
amount or face value
What are the advantages of issuing bonds? - Answer-1. bonds do not affect owner
control
2. interests on bonds is tax deductible
3. bonds can increase return on equity
What are the disadvantages of bonds? - Answer-1. bonds can decrease return of equity
2. bonds require payments of both periodic interest and the par value at maturity
What is bond indenture? - Answer-Contract between the bond issuer and the
bondholders; identifies the parties' rights and obligations
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