Question : 66.If the times interest earned ratio: A. Increases, then risk increases. B. Increases, then : 1258988

 

 

66.If the times interest earned ratio:   

A. Increases, then risk increases.

 

B. Increases, then risk decreases.

 

C. Is greater than 1.5, the company is in default.

 

D. Is less than 1.5, the company is carrying too little debt.

 

E. Is greater than 3.0, the company is likely carrying too much debt.

 

 

 

 

67.A company’s had fixed interest expense of $5,000, its income before interest expense and income taxes is $17,000, and its net income is $9,400. The company’s times interest earned ratio equals:    

A. 0.5.

 

B. 1.8.

 

C. 1.9.

 

D. 3.4.

 

E. 0.3.

Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest ExpenseTimes Interest Earned Ratio = $17,000/$5,000 = 3.4

 

 

 

68.The correct times interest earned computation is:    

A. (Net income + Interest expense + Income taxes)/Interest expense.

 

B. (Net income + Interest expense – Income taxes)/Interest expense.

 

C. (Net income – Interest expense – Income taxes)/Interest expense.

 

D. (Net income – Interest expense + Income taxes)/Interest expense.

 

E. Interest expense/(Net income + Interest expense + Income taxes expense).

 

 

 

 

69.A company’s income before interest expense and income taxes is $350,000 and its interest expense is $100,000. Its times interest earned ratio is:   

A. 0.29

 

B. 3.50

 

C. 2.50

 

D. 1.75

 

E. 0.50

Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest ExpenseTimes Interest Earned Ratio = $350,000/$100,000 = 3.50

 

 

 

70.A company’s fixed interest expense is $8,000, its income before interest expense and income taxes is $32,000. Its net income is $9,600. The company’s times interest earned ratio equals:   

A. 0.25.

 

B. 0.30.

 

C. 0.83.

 

D. 3.33.

 

E. 4.0.

Times Interest Earned Ratio = Income before Interest Expense and Income Taxes/Interest ExpenseTimes Interest Earned Ratio = $32,000/$8,000 = 4.0

 

 

 

71.The difference between the amount received from issuing a note payable and the amount repaid at maturity is referred to as:   

A. Interest.

 

B. Principle.

 

C. Face Value.

 

D. Cash.

 

E. Accounts Payable.

 

 

 

 

72.A short-term note payable:   

A. Is a written promise to pay a specified amount on a definite future date within one year or the company’s operating cycle, whichever is longer.

 

B. Is a contingent liability.

 

C. Is an estimated liability.

 

D. Is not a liability until the due date.

 

E. Cannot be used to extend the payment period for an account payable.

 

 

 

 

73.Short-term notes payable:   

A. Cannot replace an account payable.

 

B. Can be issued in return for money borrowed from a bank.

 

C. Are not negotiable.

 

D. Are a conditional promise to pay.

 

E. Rarely involve interest charges.

 

 

 

 

74.On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. What amount of interest expense is accrued at December 31 on the note?   

A. $0

 

B. $75

 

C. $900

 

D. $225

 

E. $300

Interest Expense = Principal * Interest Rate * TimeInterest Expense = $15,000 * 0.06 * 30/360; Interest Expense = $75

 

 

 

75.On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the adjusting entry for the accrued interest at December 31 on the note?   

A. Debit interest expense, $0; credit interest payable, $0.

 

B. Debit interest payable, $120; credit interest expense, $120.

 

C. Debit interest expense, $120; credit interest payable, $120.

 

D. Debit interest expense, $720; credit interest payable, $720.

 

E. Debit interest payable, $240; credit interest expense, $240.

Interest Expense = Principal * Interest Rate * TimeInterest Expense = $9,000 * 0.08 * 60/360; Interest Expense = $120