Question : 61. In the accounting records of a defendant, lawsuits: A. Are estimated liabilities. B. Should : 1225226

 

61. In the accounting records of a defendant, lawsuits: 

A. Are estimated liabilities.

B. Should always be recorded.

C. Should always be disclosed.

D. Should be recorded if payment for damages is probable and the amount can be reasonably estimated.

E. Should never be recorded.

62. Uncertainties such as natural disasters: 

A. Are not contingent liabilities because they are future events not arising from past transactions or events.

B. Are contingent liabilities because they are future events arising from past transactions or events.

C. Should be disclosed because of their usefulness to financial statements.

D. Are estimated liabilities because the amounts are uncertain.

E. Arise out of transactions such as debt guarantees.

63. The times interest earned ratio reflects: 

A. A company’s ability to pay its operating expenses on time.

B. A company’s ability to pay interest even if sales decline.

C. A company’s profitability.

D. The relation between income and debt.

E. The relation between assets and liabilities.

64. Fixed expenses: 

A. Create risk.

B. Can be an advantage when a company is growing.

C. Include interest expense.

D. Do not fluctuate with changes in sales.

E. All of these.

65. Times interest earned is calculated by: 

A. Multiplying interest expense times income.

B. Dividing interest expense by income before interest expense.

C. Dividing income before interest expense and income taxes by interest expense.

D. Multiplying interest expense by income before interest expense.

E. Dividing income before interest expense by interest expense and income taxes.

66. If the times interest ratio: 

A. Increases, then risk increases.

B. Increases, then risk decreases.

C. Is greater than 1.5, then 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 had fixed interest expense of $6,000, its income before interest expense and any income taxes is $18,000, and its net income is $8,400. The company’s times interest earned ratio equals: 

A. 0.33.

B. 0.71.

C. 1.40.

D. 3.00.

E. 12,000.

68. The 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 taxes is $250,000 and its interest expense is $100,000. Its times interest earned ratio is: 

A. 0.40

B. 2.50

C. 1:2.5

D. 2.5:1

E. 0.50

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.

 

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