ACC Chapter 9 and 10

Use the information provided in the time value of money tables (Tables 9-1 through 9-4) in the text to answer the question that follows.Global Company issued $1,000,000, 8%, 7 year bonds, interest payable semiannually. The market rate of interest was 6%. The issuance price of the bonds is

$1,112,840

How much would have to be deposited in a savings account earning 6%, so that equal annual withdrawals of $200 can be made at the end of each of 10 years? The balance at the end of the last year would be zero.

$1,472

Bennington Corp. issued a $40,000, 10-year bond at the face rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period?

$1,600

The total amount of simple interest calculated annually on a $4,000 note payable in 5 years at 9% is:

$1,800.00

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.The future value of $6,000 at 12% compounded quarterly for 5 years is

$10,836

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. The total amount of interest compounded quarterly on a $2,000 note payable for 1 year at 8% is

$164.86

If a company purchases $3,200 worth of inventory with terms of 2/10, n/30 on March 3 and pays April 2, then the amount paid to the seller would be

$3,200

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.The present value of $7,000 to be received in 7 years at 7% compounded annually is

$4,359

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. The future value of equal semi-annual payments of $500 at 8% compounded semiannually for 4 years is

$4,607

Kingston inherited $140,000 from an aunt. If Kingston decides not to spend his inheritance but to leave the money in his savings account until he retires in 15 years, how much money will he have assuming an annual interest rate of 8%, compounded semiannually?

$454,076

On January 2, 2016, Roof Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. At the maturity date, besides an interest payment, Roof Master would repay the bondholders

$500,000

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.If interest is compounded annually, the total amount of interest on an $18,000 note payable for 4 years at 10% is

$8,352

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. David, a high school math teacher, wants to set up an IRA account into which he will deposit $2,000 per year. He plans to teach for 20 more years and then retire. If the interest on his account is 7% compounded annually, how much will be in his account when he retires?

$81,990

Line Corporation's balance sheet showed the following amounts for their liability and stockholders' equity accounts: Current Liabilities, $5,000; Bonds Payable, $1,500; Lease Obligations, $2,000; and Deferred Income Taxes, $300. Total stockholders' equity was $6,000. The debt-to-equity ratio is

1.47

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.To calculate the future value of an amount that is invested at 12%, compounded quarterly, at the end of three years, the interest factor used would be

3% for 12 periods

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. If you must calculate the present value of an amount at 12% compounded quarterly for 2 years, then the interest factor used in the calculation is

3% for eight periods

A company has $200 in cash, $500 in accounts receivable, and $700 in inventory. If current liabilities are $400, then the current ratio would be

3.50 to 1

You are interested in accumulating $10,000 so that you can take a cruise in 3 years. If you trying to solve for the amount that you need to invest each year, earning 6% interest compounded annually, the $10,000 represents:

A future value

Which of the following is an example of a contingent liability?

A lawsuit pending against a restaurant chain for improper preparation of food.

Boston Trombley Company is a defendant in a lawsuit alleging damages of $3 billion. The litigation is anticipated to continue for several years, but no reasonable estimate can be made at this time regarding ultimate financial responsibility. This situation is an example of:

A loss contingency that should be disclosed in the notes to Boston's financial statements.

Which of the following items should notappear in the long-term liability section of the balance sheet?

Accrued income taxes

All of the following are characteristics of current liabilities except:

All three of the above are characteristic of current liabilities.

Which of the following statements is true of liabilities?

Classification of current liabilities is important because of the liquidity concept.

Which of the following statements regarding contingencies is true?

Contingencies that are probable and not estimable are disclosed in the notes to the financial statements.

The current portion of long-term debt is a balance sheet item for Flavorful Products Company. How would it most likely be classified on the balance sheet?

Current liability

Which of the following is not classified as a noncurrent liability?

Current portion of long-term debt

On November 1, Greenfield Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. If you assume 360 days in year, the November 30 adjusting entry will be:

Debit Interest Expense $550 and credit Interest Payable $550.

One way analysts measure the ability of a company to meet its obligations is to calculate the times interest earned ratio for any outstanding debt the company may have. For Tempo Solutions Corporation, $10,000 of bonds paying 6.5% annually is outstanding. Income before interest and taxes is $7,000. How would Tempo Solutions Corporation calculate the times interest earned ratio?

Income before interest and taxes divided by the interest expense.

Which of the following statements regarding serial bonds is true?

The bonds do not all mature on the same date.

Fox Chapel Company wishes to issue $400,000 of 5-year, 6% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the selling price?

The face amount of the bonds, the stated rate of interest, the market rate of interest, and the bond life.

Which of the following lease conditions would result in a capital lease to the lessee?

The lessee can purchase the property for $1 at the end of the lease term.

To determine whether a lottery winner would prefer to receive the money in a single lump sum immediately or receive an equal amount over a period of years, you would use which type of time value of money calculation?

The present value of an annuity.

When determining the amount of interest to be paid on a bond, which of the following information is not necessary?

The selling price of the bonds

If bonds are issued at 101.25, this means that

a $1,000 bond sold for $1,012.50

The Discount on Bonds Payable account is shown on the balance sheet as

a contra long-term liability

A decreasing long-term liability account is presented on the statement of cash flows as

a decrease in cash in the Financing Activities category.

If a company borrows money from its bank and the bank deducts the interest in advance, the company would record the amount of the interest deduction as

a discount

The Premium on Bonds Payable account is shown on the balance sheet as

an addition to a long-term liability.

On January 1, 2016, the long-term liability section of Eden Company's balance sheet showed a balance of $35,000 in the bonds payable account. On December 31, 2016, the balance in that same account was $20,000. This change would appear on the statement of cash flows as

an outflow of cash of $15,000 in the financing activities category.

Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%. This means that the bonds were issued

at a discount

When bonds are sold for less than the face amount, this means that the

face rate of interest is less than the market rate of interest.

When bonds are issued by a company, the accounting entry shows an

increase in assets and an increase in liabilities.

The bond issue price is determined by calculating the

present value of the stream of interest payments and the present value of the maturity amount.

What type of interest is calculated on the balance of the principal only?

simple interest

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.The table factor for the future value of an annuity for 4 annual deposits at 8% is

the same as using the future value of $1 factors at 8% for 3, 2, 1 and 0 periods.