Accounting final
Bonds are sold at a premium if the
market rate of interest was less than the coupon rate at the time of issue.
When bonds are issued at a premium, the interest expense for the period is the amount of interest payment for the period
minus the premium amortization for the period
When bonds are issued at a discount, the interest expense for the period is the amount of interest payment for the period
plus the discount amortization for the period
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.
Which of these could not involve a liability?
purchasing a vehicle for cash
Warranty expense is
recorded in the period of sale
Which of the following is not an intangible asset?
research and development costs
The amount of cash or trade-in consideration that the company expects to receive when an asset is retired from service
residual value
Normal repair and maintenance of an asset is an example of what?
revenue expenditure
To record warranties, the adjusting journal entry would be
debit warranty expense, credit to warranty liability
A process of cost allocation, not an attempt to measure the fair value of an asset
depreciation
When bonds are issued by a company, the accounting entry typically shows an
increase in assets and an increase in liabilities
Which of the following is not a current liability?
Bonds payable due in 5 years
Sean Corp. issued a $40,000, 10-year bond, with a stated rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period?
$1,600
In 2019, Drew Company issued $200,000 of bonds for $189,640. If the stated rate of interest was 6% and the yield was 6.73%, how would Drew calculate the interest expense for the first year on the bonds using the effective interest method?
$189,640 x 6.73%
Bonds in the amount of $100,000 with a life of 10 years were issued by the Roundy Company. If the stated rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds?
$60,000
Kinsella Corporation's balance sheet showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the long-term debt to equity ratio?
0.25
McLaughlin Corporation's balance sheet showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the debt to total assets ratio?
0.50
Willow Corporation's balance sheet showed the following amounts: current liabilities, $5,000; bonds payable, $1,500; lease obligations, $2,300. Total stockholders' equity was $6,000. The debt to equity ratio is
1.47
Which of the following statements regarding bonds payable is true?
A convertible bond can be converted into stock of the issuing company.
Installment bonds differ from typical bonds in what way?
A portion of each installment bond payment pays down the principal balance.
Serenity Company issued $100,000 of 6%, 10-year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,732. Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually.
Amortization of the premium for the first interest period will be $613.
How is the current ratio calculated?
Current Ratio = Current Assets / Current Liabilities
Kramerica Inc. sold 350 oil drums to Thompson Manufacturing for $75 each. In addition to the $75 sale price per drum, there is a $1 per drum federal excise tax and a 7% state sales tax. What journal entry should be made to record this sale?
Debit Accounts Receivable 28,438; credit Excise Taxes Payable (Federal) 350; credit Sales Taxes Payable (State) 1,838; credit Sales Revenue 26,250.
Kinsella Seed borrowed $204,000 on October 1, 2023, at 10% interest. The interest and principal are due on October 1, 2024. In addition to a debit to Note Payable for $204,000, what should the journal entry for repayment on October 1, 2024 include?
Debit Interest Expense $15,300; debit Interest Payable $5,100; credit Cash $20,400.
Kinsella Seed borrowed $210,000 on October 1, 2023, at 10% interest. The interest and principal are due on October 1, 2024. What journal entry should be recorded on December 31, 2023?
Debit Interest Expense 5,250; credit Interest Payable 5,250
The Bower Company sold $100,000 of 20-year bonds for $95,000. The stated rate on the bonds was 7%, and interest is paid annually on December 31. What entry would be made on December 31 when the interest is paid? (Numbers are omitted.)
Debit to Interest expense and credits to Discount on Bonds Payable and Cash
When depreciation is recorded each period, what account is debited? The fixed asset account involved
Depreciation expense
Potential loss on environmental cleanup suit against company; a court judgment against the company is considered less than probable but more than remotely likely.
Do not record as a liability but disclose in a footnote to the financial statements.
Potential loss under class-action suit by a group of customers; during the current year, the likelihood of a judgment against the company has increased from remote to possible but less than probable.
Do not record as a liability but disclose in a footnote to the financial statements.
Estimated cost of future services under a product warranty related to past sales
Estimate the amount of liability and record.
Estimated cost of pension benefits related to past employee services that has yet to be funded.
Estimate the amount of liability and record.
Income taxes related to revenue included in net income this year but taxable in a future year.
Estimate the amount of liability and record.
Loss from out-of-court settlement of lawsuit that is likely to occur toward the end of next year.
Estimate the amount of liability and record.
Potential costs in future periods associated with performing warranty services on products sold this period.
Estimate the amount of liability and record.
Payroll taxes typically include all of the following except
Federal excise taxes
Which of the following statements regarding the new accounting rules, which take effect in 2019, for leases is false?
If the lease term is less than one year, a liability must be recognized.
. Potential loss from a downturn in future economic activity.
Neither record as a liability nor disclose in a footnote to the financial statements.
Estimated cost of future services under a product warranty related to future sales.
Neither record as a liability nor disclose in a footnote to the financial statements.
Potential loss under an affirmative action suit by a former employee; the likelihood of a judgment against the company is considered to be remote.
Neither record as a liability nor disclose in a footnote to the financial statements.
ABC Advisors is being sued by a former customer. ABC's lawyers say that it is possible, but not probable, that the company will lose the lawsuit and the trial should last approximately 18 more months. Should ABC lose, they will most likely have to pay approximately $750,000. How should this lawsuit be reported in the financial statements?
No effect on the balance sheet or income statement, but described in the footnotes.
Which of the following is true?
No journal entries or footnotes are necessary if the probability of a contingent liability is remote
When reporting liabilities on a balance sheet, in theory, what measurement should be used?
Present value of the future outflow
Which of the following statements is true regarding depreciation methods?
The use of a higher estimated life and a higher residual value will lower the annual amount of depreciation expense recognized on the income statement.
When a credit is made to federal income taxes withholding payable account related to taxes withheld from an employee, the corresponding debit is made to
Wages Expense
If bonds are issued at 101.25, this means that
a $1,000 bond sold for 1,012.5 percent of par value
Which of the following is not an example of an accrued liability?
accounts payable
The total amount of depreciation expense that has been recorded for an asset since the asset was acquired
accumulated depreciation
The cost principle requires that companies record fixed assets at
acquisition cost
The premium on bonds payable account is shown on the balance sheet as
an addition to a long-term liability.
Bonds are a popular source of financing because
bond interest expense is deductible for tax purposes, while dividends paid on stock are not
The cost of the asset minus its accumulated depreciation
book value
What best describes the discount on bonds payable account?
contra liability
All of the following represent taxes commonly collected by businesses from customers except
unemployment taxes
The period of time over which the company anticipates deriving benefit from the use of the asset
useful life
When should a contingent liability be recognized?
when a reasonable estimation can be made and when the contingent liability is probable