Question : 51.Pension expense is a.accrued each period as employees require payments. b.recognized as : 1241706

 

 

51.Pension expense is

a.accrued each period as employees require payments.

b.recognized as a long-term deferred asset.

c.accrued as employees earn their rights to future benefits.

d.calculated by dividing an employee’s annual salary into the number of years the employee is expected to require pension payments.

 

 

 

52.Simpson Incorporated sells fishing lures and monofilament leader material. During June, Simpson distributed 6,000 coupons to receive a free lure to each customer who purchased a dozen spools of monofilament leader material. Through December 31, 2015, Simpson honored 1,200 coupons redeemed. Simpson expects a total of 5,200 total coupons to be redeemed. Simpson sells lures for $1.00 each. The cost of each lure to Simpson is 45 cents. How much should Simpson report as a liability at December 31, 2015?

a.$6,000

b.$1,800

c.$3,600

d.$2,340

 

Solution:($5,200 ? $1,200) x $0.45 = $1,800

 

 

53.Jake Company borrowed $100,000 from Guaranty Trust Bank to finance the purchase of new equipment.  The loan contract provides for a 12 percent annual interest rate and states that the principal must be paid in full in ten years.  The contract also requires that Jake maintains a current ratio of 1.5:1.  Before Jake borrowed the $100,000, the company’s current assets and current liabilities were $120,000 and $68,000 respectively.

 

If Jake invests $50,000 of the borrowed funds in equipment and keeps the rest as cash or short-term investment, what would be its current ratio?

a.  1.76

b.  2.50

c.  1.44

d.3.24

 

Solution:

 

Current Ratio=Current Assets ÷ Current Liabilities

=($120,000 + $50,000) ÷ $68,000=2.50

 

 

 

54.Jake Company borrowed $100,000 from Guaranty Trust Bank to finance the purchase of new equipment.  The loan contract provides for a 12 percent annual interest rate and states that the principal must be paid in full in ten years.  The contract also requires that Jake maintains a current ratio of 1.5:1.  Before Jake borrowed the $100,000, the company’s current assets and current liabilities were $120,000 and $68,000 respectively.

 

If Jake invests $50,000 of the borrowed funds in equipment and keeps the rest as cash or short-term investment, what is the maximum amount of current liabilities it could have without violating the debt contract?

a. $45,333

b. $146,667

c. $125,333

d. $113,333

 

Solution:

 

Current assets cannot fall below 1.5 times current liabilities. Therefore, dividing current assets by 1.5 indicates the maximum level that Jake can allow current liabilities to grow to without violating the debt covenant. So current liabilities can grow to $113,333 ($170,000 ÷ 1.5).

 

 

55.Jake Company borrowed $100,000 from Guaranty Trust Bank to finance the purchase of new equipment.  The loan contract provides for a 12 percent annual interest rate and states that the principal must be paid in full in ten years.  The contract also requires that Jake maintains a current ratio of 1.5:1.  Before Jake borrowed the $100,000, the company’s current assets and current liabilities were $120,000 and $68,000 respectively.

 

If Jake invests $80,000 of the borrowed funds in equipment and keeps the rest as cash or short-term investment, what would be its current ratio?

 

a. 2.94

b. 3.24

c. 2.06

d. 0.83

 

Solution:

 

Current Ratio=($120,000 + $20,000) ÷ $68,000= 2.06

 

 

 

56.Jake Company borrowed $100,000 from Guaranty Trust Bank to finance the purchase of new equipment.  The loan contract provides for a 12 percent annual interest rate and states that the principal must be paid in full in ten years.  The contract also requires that Jake maintains a current ratio of 1.5:1.  Before Jake borrowed the $100,000, the company’s current assets and current liabilities were $120,000 and $68,000 respectively.

 

If Jake invests $80,000 of the borrowed funds in equipment and keeps the rest as cash or short-term investment, what is the maximum amount of current liabilities it could have without violating the debt contract?

 

a. $93,333

b. $133,333

c. $146,667

d. $102,000

 

Solution:

 

Current assets cannot fall below 1.5 times current liabilities. Therefore, dividing current assets by 1.5 indicates the maximum level that Jake can allow current liabilities to grow to without violating the debt covenant. So current liabilities can grow to $93,333 ($140,000 ÷ 1.5).

 

 

57.Jake Company borrowed $100,000 from Guaranty Trust Bank to finance the purchase of new equipment.  The loan contract provides for a 12 percent annual interest rate and states that the principal must be paid in full in ten years.  The contract also requires that Jake maintains a current ratio of 1.5:1.  Before Jake borrowed the $100,000, the company’s current assets and current liabilities were $120,000 and $68,000 respectively.

 

If Jake invests the entire $100,000 of the borrowed funds in equipment and keeps the rest as cash or short-term investment, what would be its current ratio?

 

a. 3.24

b. 1.76

c. 1.31

d. 1.50

 

Solution:

 

Current Ratio=($120,000 + $0) ÷ $68,000=1.76

 

 

 

58.Jake Company borrowed $100,000 from Guaranty Trust Bank to finance the purchase of new equipment.  The loan contract provides for a 12 percent annual interest rate and states that the principal must be paid in full in ten years.  The contract also requires that Jake maintains a current ratio of 1.5:1.  Before Jake borrowed the $100,000, the company’s current assets and current liabilities were $120,000 and $68,000 respectively.

 

If Jake invests the entire $100,000 of the borrowed funds in equipment, what is the maximum amount of current liabilities it could have without violating the debt contract?

 

a. $146,667

b. $102,000

c. $80,000

d. $125,333

 

 

 

59.  Meadville Industries sells gift certificates that are redeemable in merchandise.  During 2015, Meadville sold gift certificates for $88,000.  Merchandise with the total price of $52,000 was redeemed during the year.  For Meadville, the cost of the merchandise sold was $32,000.  Meadville sold gift certificates for the first time in 2015.  The journal entry recording the sale of the gift certificates will include:

 

a. a debit to Certificate Liability for $88,000

b. a debit to Deferred Revenue for $88,000

c. a credit to Sales for $88,000

d. a credit to Deferred Revenue for $88,000

 

Solution:

 

Cash (+A)…………………………………..              88,000

Deferred Revenue (+L)………………………….                            88,000

 

 

 

60.  Meadville Industries sells gift certificates that are redeemable in merchandise.  During 2015, Meadville sold gift certificates for $88,000.  Merchandise with the total price of $52,000 was redeemed during the year.  For Meadville, the cost of the merchandise sold was $32,000.  Meadville sold gift certificates for the first time in 2015.  Assuming that Meadville uses the perpetual inventory method, the journal entry recording the redemption of the gift certificates during 2015 will include:

 

a. a credit to Cost of Goods Sold for $32,000

b. a debit to Deferred Revenue for $88,000

c. a credit to Sales for $52,000

d. a credit to Deferred Revenue for $52,000

 

Solution:

 

Deferred Revenue (–L)………………………….              52,000

Sales (R, +SE)……………………………….                            52,000

 

Cost of Goods Sold (E, –SE)………………………              32,000

Inventory (–A)………………………………..                            32,000