ACCOUNTING FOR MANAGERS CH7

The Warranties Payable account appears on which of the following financial statements?

Balance sheet

Paying a warranty claim will affect which of the following financial statements?

Balance sheet AND statement of cash flows

Recognizing accrued interest expense would affect which of the following financial statements?

Balance sheet, Income statement, and Statement of changes in stockholders' equity.

The payment on an installment loan will:

be shown in the operating activities section of the statement of cash flows; be shown in the financing activities section of the statement of cash flows.

The seller of a bond is called the ____________, while the buyer of a bond is called the ____________.

borrower; lender

On January 1, year 1, Dixon Company issued bonds with a $50,000 face value at 104. The bonds had a 10 year term and an 8% stated rate of interest. Recognizing the bond issue, would:

caused the Bonds Payable account to increased by $50,000.: The face value of the bonds is recorded in the Bonds Payable account. The account balance is not affected by the premium.

Warranties normally:

cover a specific time period, guarantee repair or replacement, and are based on estimates.

A payment on an installment loan ____________ the amount of total assets, _____________ the amount of net income, and _______________ the amount of cash flow from financing and operating activities.

decreases; decreases; decreases

Agreements that restrict additional borrowing, limit dividend payments, limit dividend payments, or restrict salary increases are examples of _____________ covenants.

restrictive

Simms Accountants charged a client $2,000 cash plus tax for services provided in a state where the service sales tax rate is 6%. As a result of this event, Simms would recognize:

$2,000 of Service Revenue, a $2,120 increase in total assets, and a $120 liability on the Balance Sheet.

When a company makes a cash payment for interest due on a line of credit, the amount of:

cash flow from operating activities decreases AND net income decreases

When a bond is issued at a premium, the stated rate of interest is higher than the _____________ rate of interest.

effective

Recognizing a cash revenue event that is subject to state sales tax will cause a(n) __________ in the Cash account; a(n) ___________ in the Sales Tax Payable account; and a(n) ____________ in the Revenue account.

increase; increase; increase

The maker of a promissory note is sometimes called the _______________.

issuer

A line of credit:

normally has fluctuating interest rates AND is normally renewable on a one year term.

Assume that a $1000 face value bond sells at a $200 discount. If the bond has a 6.2% stated rate of interest and a 20 year term to maturity, the effective rate of interest is approximately:

9.0%: Total annual interest = ($1000, x 6.2%) + ($200 / 20) discount = $72. Effective interest rate = $72 annual interest / $800 amount borrowed = .09 or 9%.

A warranty is an obligation that:

Does not have to be discussed in the notes to the statements, has to be reported as a liability in the balance sheet, is reasonably likely to occur, and has an estimable amount.

When Grey Company borrowed money by issuing bonds, the balance in the Bonds Payable account ________ and the balance in the Cash account ___________.

Increased; increased

A company experienced an event that caused assets, liabilities and cash flow from financing activities to increase, but had no effect on net income. Which of the following events could have caused these effects?

Issuing a bond with a 20 year term

Fran Company recognized accrued interest expense. How would this event affect Fran Company's financial statements?

Net income decreases (Interest expense decreases net income) AND Cash flow from operating activities is not affected (Interest expense being accrued not paid. Therefore, cash flows are not affected).

When a company makes a cash payment for interest on a bond that was issued at face value, the:

statement of changes in stockholders' equity is affected AND the income statement is affected.

On January 1, Year 1, Dixon Company issued bonds with a $50,000 face value at 96. The bonds had a 10 year term and a 8% stated rate of interest. Based on this information:

the Statement of Cash flows would show a $48,000 cash inflow from financing activities: The carrying value of the bonds is equal to the $50,000 of Bonds Payable minus the $2,000 discount. The statement of cash flows would show a $48,000 cash inflow from financing activities.