ACCT 1211 Exam 3
Ballman Corporation uses the allowance method to account for uncollectible receivables. At the beginning of the year, Allowance for Bad Debts had a credit balance of $2,000. During the year, Ballman wrote off uncollectible receivables of $4,200. Ballman also recorded an adjusting entry for $4,000 of bad debt for the current year. What is Ballman's year-end balance in Allowance for Bad Debts?
$1,800 Beginning balance $2,000 - Accounts written off (debit Allowance) $4,200 + Credit to Allowance for current year $4,000 = $1,800.
During the year, Wendell Company had net credit sales of $46,000. At the end of the year, before adjusting entries, the balance in Accounts Receivable was $14,500 (debit) and the balance in Allowance for Bad Debts was $600 (credit). If the company uses an income statement approach to estimate bad debts at 3%, what is the ending balance in the Allowance for Bad Debts account?
$1,980
Carson Company has a piece of machinery that costs $500,000 and is expected to have a useful life of 4 years. Residual value is expected to be $50,000. Using the straight-line method, what is depreciation expense for the first year?
$112,500 Straight-line depreciation allocates an equal amount of depreciation to each year and is calculated by dividing the cost less residual value by the useful life. In this problem, annual depreciation is ($500,000 - $50,000) / 4 years = $112,500.
A piece of equipment costs $300,000 and has $60,000 of depreciation expense each year using the straight-line method. What is the book value at the end of the third year?
$120,000 After 3 years, accumulated depreciation would be ($60,000 * 3 years) = $180,000. Book value is calculated by taking the cost of $300,000 - $180,000 accumulated depreciation = $120,000. previous
The Accounts Receivable balance is $20,000 and the Allowance for Bad Debts has a credit balance of $4,000 at the end of the year. What is the net realizable value of Accounts Receivable at the end of the year?
$16,000 The net realizable value is Accounts Receivable of $20,000 - $4,000 Allowance for Bad Debts = $16,000.
Base Electronics has a piece of machinery that costs $400,000 and is expected to have a useful life of 5 years. Residual value is expected to be $50,000. Using the double-declining-balance method, what is depreciation expense for the first year?
$160,000 Double-declining-balance rate is 2 * (1 / 5 years) = 40%. To calculate depreciation expense for the first year take the (cost of $400,000 - $0 accumulated depreciation) * .40 rate = $160,000.
Jones Company has the following liabilities at the end of the current year: Notes Payable (current) $10,000 Notes Payable (long-term) 20,000 Accounts Payable 5,000 Salaries Payable 2,000 Bonds Payable 50,000 Sales Tax Payable 2,000 What is the amount of Current Liabilities to be reported on the Balance Sheet at the end of the current year?
$19,000 The Current Liabilities are: Notes Payable (current) $10,000 Accounts Payable 5,000 Salaries Payable 2,000 Sales Tax Payable 2,000 Total Current Liabilities $19,000
A piece of equipment was purchased two years ago for $50,000 and now has accumulated depreciation of $46,000. Suppose the piece of equipment was sold for $1,000. What is the result of this disposal transaction?
$3,000 loss The book value at the time of the sale is ($50,000 - $46,000) = $4,000. It sold for $1,000 which is $3,000 below book value, so there would be a $3,000 loss.
Top Line Electronics has a piece of machinery that costs $600,000 and is expected to have a useful life of 4 years. Residual value is expected to be $100,000. Using the double-declining-balance method, what is depreciation expense for the first year?
$300,000 The double-declining-balance method multiplies the asset's book value (cost less accumulated depreciation) times twice the straight-line rate. Double-declining-balance rate is 2 * (1 / 4 years) = 50%. To calculate depreciation expense for the first year take the (cost of $600,000 - $0 accumulated depreciation) * .50 rate = $300,000. Residual value is only taken out of the last year in double-declining-balance method.
Jones Corporation purchases a piece of land for $300,000. Jones Corp. paid $3,000 in brokerage commissions, $10,000 to clear and remove an unwanted building, $5,000 for building permits to construct a new building, $500,000 to construct a new building, and $5,000 in delinquent property taxes. What is the amount to be capitalized (debited) to the Land account from this purchase
$318,000 Amounts to be capitalized to Land would be the purchase price of $300,000, $3,000 in brokerage commissions, $10,000 to clear and remove an unwanted building, and $5,000 in delinquent property taxes for a total of $318,000.
Beta Electronics issued its 5%, 10-year bonds payable at a price of $845,000 (face value is $800,000). The company uses the straight-line amortization method for the bond discount or premium. Interest expense for the first year is:
$35,500 The bond was sold at a premium of $45,000 (calculated by $845,000 - $800,000). Since the premium is amortized using the straight-line method, Premium on Bonds Payable will be debited for $4,500 ($45,000/10 years = $4,500 per year). The amount of cash paid for interest is $800,000 * .05 = $40,000. Because the bond was issued at a premium, the premium amortization of $4,500 is debited and reduces the Bond Interest Expense reported on the income statement, making the net Bond Interest Expense $40,000 - $4,500 = $35,500.
Ballman Company has the following information regarding receivables at the end of the current year: 1 - 30 days past due $1,000 31 - 60 days past due 200 Over 60 days past due 100 Using the aging-of-receivable method, Ballman has determined the following percentages for expected uncollectiblity: 1 - 30 days past due 1% 31 - 60 days past due 5% Over 60 days past due 20% What is the amount that should be in the Allowance for Bad Debts at the end of the year?
$40 1 - 30 days past due $1,000 * 0.01 = $10 31 - 60 days past due $200 * 0.05 = $10 Over 60 days past due $100 * 0.20 = $20 $40
Emily Austin Antiques issued its 6%, 10-year bonds payable at a price of $660,280 (face value is $700,000). The company uses the straight-line amortization method for the bond discount or premium. Interest expense for each year is (Round your answer to the nearest whole dollar.)
$45,972
Jones Company has $500,000 of 10-year bonds payable outstanding. These bonds had a discount of $40,000 at issuance, which was 5 years ago. The company uses the straight-line amortization method. The current carrying amount of these bonds is
$480,000 The bonds were sold for $500,000 less the discount of $40,000 = $460,000 Since the discount is amortized using the straight-line method, Discount on Bonds Payable will be credited for $40,000/10 years = $4,000 per year. After five years, the total credits to the Discount account will be 5 * $4,000 = $20,000 and the ending balance in the Discount account will be $40,000 - $20,000 = $20,000. The net carrying value of the bonds is the maturity value less the discount or $500,000 - $20,000 = $480,000.
Nicholas Smith Fitness Gym has $500,000 of 10-year bonds payable outstanding. These bonds had a discount of $30,000 atissuance, which was 5 years ago. The company uses thestraight-line amortization method. The current carrying amount of these bonds payable is
$485,000.
Jones Corporation purchases a piece of land for $300,000. Jones Corp. paid $3,000 in brokerage commissions, $10,000 to clear and remove an unwanted building, $5,000 for building permits to construct a new building, $500,000 to construct a new building, and $5,000 in delinquent property taxes. What is the amount to be capitalized (debited) to the Building account?
$505,000 Capitalized (debited) to the Building account would be the $5,000 for building permits to construct a new building and the $500,000 to construct a new building for a total of $505,000. The other items are capitalized to Land.
Jones Company has $500,000 of 10-year bonds payable outstanding. These bonds had a premium of $60,000 at issuance, which was 5 years ago. The company uses the straight-line amortization method. The current carrying amount of these bonds is:
$530,000 At issuance, the Premium on Bonds Payable account will have a credit balance of $60,000. Since the premium is amortized using the straight-line method, Premium on Bonds Payable will be debited for $60,000/10 years = $6,000 per year. After five years, the total debits to the Premium account will be 5 * $6,000 = $30,000 and the ending balance in the Premium account will be $60,000 - $30,000 = $30,000. The net carrying value of the bonds is the maturity value plus the remaining premium or $500,000 + $30,000 = $530,000.
Base Electronics has a piece of machinery that costs $400,000 and is expected to have a useful life of 5 years or 100,000 hours. Residual value is expected to be $50,000. Using the units-of-production method, what is depreciation expense for the first year assuming it was used 16,000 hours?
$56,000 The units-of-production method allocates depreciation based on the usage of the asset. The first step is calculating depreciation per unit by dividing the cost less residual value by the useful life in units. In this problem, we calculate ($400,000 - $50,000) / 100,000 hours = $3.50 per machine hour as the deprecation rate per unit. This amount is multiplied by the actual usage for the year. In this case, 16,000 hours * $3.50 depreciation rate = $56,000 for depreciation expense.
Kimble Electronics issued its 6%, 20-year bonds payable at a price of $855,000 (face value is $900,000). The company uses the straight-line amortization method for the bond discount or premium. Interest expense for the first year is:
$56,250 The bond was sold at a discount of $45,000 (calculated by $900,000 - $855,000). Since the discount is amortized using the straight-line method, Bond Interest Expense will be debited and Discount on Bonds Payable will be credited for $45,000/20 years = $2,250 per year. The amount of cash paid for interest is $900,000 * .06 = $54,000. Since it was a discount, the amortization is added to cash paid to get interest expense so $2,250 + $54,000 = $56,250 interest expense.
Thomas Marley Antiques issued its 12%, 10-year bonds payable at a price of $468,480 (face value is $500,000). The company uses the straight-line amortization method for the bond discount or premium. Interest expense for each year is (Round your answer to the nearest whole dollar.)
$63,152.
Jones Company has the following liabilities at the end of the current year: Notes Payable (current) $10,000 Notes Payable (long-term) 20,000 Accounts Payable 5,000 Salaries Payable 2,000 Bonds Payable 50,000 Sales Tax Payable 2,000 What is the amount of long-term Liabilities to be reported on the Balance Sheet at the end of the current year?
$70,000 Long-term Liabilities would be: Notes Payable (long-term) $20,000 Bonds Payable 50,000 Total Long-Term Liabilities $70,000
An oil well costs $500,000 and is estimated to hold 100,000 barrels of oil. There is no residual value. If 15,000 barrels are extracted and sold during the year, what is the depletion expense?
$75,000 Depletion expense is calculated using the units-of-production method, which allocates depletion based on the usage of the natural asset. The first step is calculating depletion per unit by dividing the cost less residual value by the useful life in units. In this problem, we calculate ($500,000 - $0) / 100,000 barrels = $5 per barrel as the depletion rate. This amount is multiplied by the actual usage for the year, giving us 15,000 barrels * $5 per barrel depletion rate = $75,000 for depletion expense.
Joe Smith wishes to have $100,000 in five years. If he can earn annual interest of 3%, how much must he invest today?
$86,300 To calculate the amount, or present value, that must be deposited today to grow to $100,000 in 5 years, use Table B-1 in Appendix B to find the present value factor for a single sum at 3% and 5 years. This factor is 0.863 (rounded). Multiplied by the future value of $100,000, we find that we must deposit $86,300 today to have accumulated $100,000 in five years.
Carolina McKnight Fitness Gym has $300,000 of 20-year bonds payable outstanding. These bonds had a discount of $18,000 atissuance, which was 10 years ago. The company uses thestraight-line amortization method. The current carrying amount of these bonds payable is
. $291,000.
Lake Company reported beginning and ending Total Assets of $25,000 and $35,000 respectively. The Net Sales for the year were $15,000. What is the asset turnover ratio?
0.50 The asset turnover ratio is calculated by dividing net sales by average total assets, or 15,000 / ((25,000 + 35,000)/2) = 0.50.
Smith Company has the following information on the financial statements: Total assets $150,000 Total liabilities 50,000 Total equity 100,000 What is the debt to equity ratio?
0.50 The debt to equity ratio is total liabilities of $50,000 / $100,000 of total equity = 0.50.
At year end, Smith Corporation has Cash of $12,000, current Accounts Receivable of $24,000, Merchandise Inventory of $3,000, and Prepaid Expenses totaling $5,000. Liabilities of $20,000 must be paid next year. What is the acid-test ratio?
1.80 So (12,000 + 24,000) / 20,000 = 1.80. The acid-test ratio is calculated by taking Cash of 12,000 + 24,000 in Accounts Receivable and then dividing by Current Liabilities of 20,000
Bend Company uses the allowance method to account for uncollectible receivables. At the beginning of theyear, Allowance for Bad Debts had a credit balance of $1,300. During the year Bend wrote off uncollectible receivables of $1,800. Bend recorded Bad Debts Expense of $2,500. Bend's year-end balance in Allowance for Bad Debts is $2,000. Bend's ending balance of Accounts Receivable is $19,900. Compute the net realizable value of Accounts Receivable atyear-end.
17,900
Beluga Corporation uses the allowance method to account for uncollectible receivables. At the beginning of theyear, Allowance for Bad Debts had a credit balance of $1,000. During the year Beluga wrote off uncollectible receivables of $1,900. Beluga recorded Bad Debts Expense of $3,200. What is Beluga's year-end balance in Allowance for BadDebts?
2,300
A bond with a face value of $100,000 is retired at 96. There is still a balance in Discount on Bonds Payable of $1,200. What is the gain or loss on the retirement of the bond?
2,800 gain If the bond is retired at 96, the company will pay out cash of 96% of the face value of $100,000 or $96,000. The book value of the bonds is the $100,000 face value less the $1,200 discount - $98,800. Since the bonds were retired at an amount lower than the book value, there is a gain of $98,800 - $96,000 = $2,800 on the retirement.
Blue Company's net credit sales for the year is $100,000. The beginning Accounts Receivable balance is $30,000 and the ending Accounts Receivable balance is $40,000. What is the accounts receivable turnover?
2.86 times The accounts receivable turnover is calculated by Net Credit Sales / Average Accounts Receivable. In this case, take 100,000 / ((30,000 + 40,000)/2) = 2.86 times.
The accounts receivable turnover for the year is 9.5. Net sales for the period are $100,000. What is number of days' sales are in receivable
38.4 days 365 days in a year / accounts receivable turnover. To calculate take 365 / 9.5 turnover = 38.4 days.
An Americana Airway jet costs $42,000,000 and is expected to fly 350,000,000 miles during its 10-year life. Residual value is expected to be zero because the plane was used when acquired. If the plane travels 56,000,000 miles the firstyear, how much depreciation should Americana Airway record under theunits-of-production method? (Round the depreciation per unit to two decimalplaces.)
6,720,000
Andrews Company accepted a note receivable from a credit customer who failed to pay their $2,000 Accounts Receivable balance. The customer signed a promissory note which was accepted for 9 months at 5% interest. At the end of the 9 months, the customer does not pay, so it becomes a dishonored note receivable. What is the journal entry for the dishonored note?
Accounts Receivable 2,075 Notes Receivable credit 2,000 Interest Revenue credit 75
Using the direct write off method, a $3,000 balance of the Accounts Receivable was written off. Two months later, the customer unexpectedly pays the $3,000 balance. The journal entry to reverse the previous write off would be
Accounts Receivable 3,000 Bad Debts Expense credit 3,000
After writing off a $300 account balance for Ballman Company using the allowance method, Ballman Company sends in the payment. The journal entry to reverse the write off using the allowance method is:
Accounts Receivable Debit 300 Allowance for Bad Debts credit 300
After writing off a $600 account balance for Filmore Company using the allowance method, Filmore Company sends in the payment. The journal entry to reverse the write off using the allowance method is:
Accounts Receivable Debit 600 Allowance for Bad Debts Credit 600
Basic Learning provides $6,000 in services to customer Thompson on account. The revenue is recorded (ignore Cost of Goods Sold) as follows:
Accounts Receivable - Thompson 6,000 Sales Revenue credit 6,000
Which method of accounting for uncollectibles allows for a more accurate balance for assets on the Balance Sheet?
Allowance Method
Ballman Corporation determines that it cannot collect a total of $300 from a customer. Using the allowance method, the journal entry to write off the amount would be:
Allowance for Bad Debts 300 Accounts Receivable cred 300
Which cost is not recorded as part of the cost of a building?
Annual building maintenance
Assume Travis Company determines it will not be able to collect $1,500 from Customer Tammy Hilger for sale of merchandise on account. The journal entry to write off the amount using the direct write off method would be:
Bad Debts Expense 1,500 Accounts Receivable - Tammy Hilger cred 1,500
Rose Company uses the allowance method and estimates that 2% of its $10,000 Accounts Receivable are uncollectible. The entry to record this adjustment would be
Bad Debts Expense 200 Allowance for Bad Debts credit 200
Assume Jones Company determines it will not be able to collect $500 from Customer Joe Smith for sale of merchandise on account. The journal entry to write off the amount using the direct write off method would be:
Bad Debts Expense 500 Accounts Receivable - Joe Smith cred 500
Which is not a true statement regarding a company issuing bonds over stock to raise additional capital?
Bonds give ownership in a business. Bonds are a liability and do NOT give ownership in a business. One of the advantages of bonds is that bond interest is deductible for taxes. However, unlike stock, bonds mature and must be repaid.
Nash Recreation's trial balance shows $155,000 face value of bonds with a discount balance of $1,600. The bonds mature in 10 years. How will the bonds be presented on the balancesheet?
Bonds payable $153,400 (net of $1,600 discount) will be listed as a long-term liability.
Boyd Mechanical's trial balance shows $158,000 face value of bonds with a discount balance of $1,200. The bonds mature in 10 years. How will the bonds be presented on the balancesheet?
Bonds payable $156,800 (net of 1,200 discount) will be listed as a long- term liability
Which cost is not recoded as part of the cost of land?
Building permits
Which of the following is not an intangible asset?
Cash Cash is not an intangible asset. Intangible assets include patents, copyrights, trademarks, and goodwill.
suppose a piece of equipment cost $35,000 and has accumulated depreciation of $10,000. It is sold for $15,000 cash. What is the journal entry to record the sale of the equipment?
Cash 15,000 Accumulated Depreciation 10,000 Loss on Disposal 10,000 All debits ^ credit: equipment 35,000 At the time of the sale, the book value of the equipment is its cost less accumulated depreciation or $35,000 - $10,000 = $25,000. If the equipment is sold for $15,000, there is a loss of $15,000 - $25,000 = ($10,000). To record the sale of this asset, you would debit Cash for $15,000, debit Accumulated Depreciation for $10,000 (to zero the account) and debit Loss on Disposal for $10,000. You would credit Equipment for $35,000 (to zero the account).
Jones Company writes off $500 of the Accounts Receivable owed by Joe Smith. Joe Smith did end up paying the $500, so Jones Company reversed the write off. Using the allowance method, what is the journal entry to show receiving the cash from Joe Smith after the write off on his account is reversed?
Cash 500 Accounts Receivable credit 500
Cart Corporation accepted a note receivable from a credit customer who failed to pay their $2,000 Accounts Receivable balance. The customer signed a promissory note which was accepted for 45 days at 5% interest. At the end of 45 days, the customer pays the balance on Notes Payable and interest. What is the journal entry for receiving the payment of the note and interest?
Cash debit 2,012.50 Interest Revenue credit 12.50 Notes Receivable credit 2,000.00
Which cost is not recorded as part of the cost of a new building?
Cost of clearing the land and removing an unwanted building
At December 31 year-end, Corporation has note receivable from a customer. Interest of % has accrued for months on the note. What will income statement for the year ended December 31 report for this situation? B. Interest revenue of $174 C.Note receivable of $8,700 D.Both b and c
D
Which of the following is a limitation of the direct write-off method of accounting for uncollectibles? A. The direct write-off method does not set up an allowance for uncollectibles. B.The direct write-off method overstates assets on the balance sheet. C.The direct write-off method does not match expenses against revenue very well. D.All of the above
D. Allof the above
Vasquez issued a $400,000 face value, 8%, 20-year bond at 95. Which of the following is the correct journal entry to record the retirement of the bond at maturity?
Debit Bonds Payable - 400,000 Credit Cash - 400,000
How should you record a capital expenditure?
Debit an asset
Suppose an automobile cost $30,000 and has accumulated depreciation of $8,000. It is sold for $25,000 cash. What is the journal entry to record the sale of the automobile?
Debit: Cash 25,000 Accumulated Depreciation 8,000 Credit Automobile30,000 Gain on Disposal3,000 At the time of the sale, the book value of the automobile is its cost less accumulated depreciation or $30,000 - $8,000 = $22,000. If the automobile is sold for $25,000, there is a gain of $25,000 - $22,000 = $3,000. To record the sale of this asset, you would debit Cash for $25,000 and debit Accumulated Depreciation for $8,000 (to zero the account). You would credit Automobile for $30,000 (to zero the account) and credit the Gain on Disposal for $3,000.
A piece of equipment was purchased two years ago for $50,000 and now has accumulated depreciation of $40,000. Suppose the piece of equipment was sold for $11,000. What is the result of this disposal transaction?
Gain of $1,000 The book value at the time of the sale is ($50,000 - $40,000) = $10,000. It sold for $11,000 which is $1,000 above book value, so there would be a $1,000 gain.
At December 31 of the current year, Cart Corporation has a $16,000 Notes Receivable from a customer. Interest of 5% has accrued for 9 months on the note. What will be reported on the Balance Sheet?
Interest Receivable of $600 Principal x interest x time $16,000 x 5% x 9/12 = $600
A copy machine cost $32,000when new and has accumulated depreciation of $31,000. Suppose ABC Printing discards this machine and receives nothing. What is the result of the disposal transaction?
Loss of 1000
Which cost is not recoded as part of the cost of machinery and equipment?
Maintenance on the machine after it is up and running
A copy machine cost $34,000 when new and has accumulated depreciation of $26,000. Suppose Hilton Copy Center sold the machine for $8,000. What is the result of this disposal transaction?
No gain or loss
an automobile costs $60,000 when new and has accumulated depreciation of $35,000. Suppose the automobile is exchanged for a new automobile. The new automobile has a market value of $70,000 and we pay $45,000 in cash. Assume the exchange has commercial substance. What is the result of this exchange?
No gain or loss There would be no gain or loss. The book value of the old automobile is ($60,000 - $35,000) = $25,000. The old automobile, worth $25,000 and $45,000 of cash is exchanged for a new automobile worth $70,000. The amount exchanged is equal to the amount received, so there is no gain or loss.
Cart Corporation accepted a note receivable from a credit customer who failed to pay their $2,000 Accounts Receivable balance. The customer signed a promissory note for 60 days at 5% interest. What is the journal entry to record the acceptance of the notes receivable?
Notes Receivable 2,000 Accounts Receivable credit 2,000
Bond prices depend on the market rate of interest, stated rate of interest, and time.
Requirement 1. Compute the price of the following 7% bonds of Country Telecom. a. The price of the $100,000 bond issued at 76.25 is $76,250 b. The price of the $100,000 bond issued at 104.75 is $104,750 c. The price of the $100,000 bond issued at 94.50 is $94,500 d. The price of the $100,000 bond issued at 102.25 is $102,250 Requirement 2. Which bond will Country Telecom have to pay the most to retire at maturity? Explain your answer. Country Telecom will pay $100,000 at maturity for all four of the bonds. The bonds all have the same maturity value.
Bond prices depend on the market rate of interest, stated rate of interest, and time.
Requirement 1. Compute the price of the following 8% bonds of Country Telecom. a. The price of the $200,000 bond issued at 74.50 is $149,000 b. The price of the $200,000 bond issued at 105.25 is $210,500 c. The price of the $200,000 bond issued at 95.50 is $191,000 d. The price of the $200,000 bond issued at 102.75 is $205,500 Requirement 2. Which bond will Country Telecom have to pay the most to retire at maturity? Explain your answer. Country Telecom will pay $200,000 at maturity for all four of the bonds. The bonds all have the same maturity value.
Which depreciation method always gives you the same amount of depreciation expense each year?
Straight-line
At December 31 year-end, Corporation has note receivable from a customer. Interest of % has accrued for months on the note. What will financial statements report for this situation at December 31?
The balance sheet will report the note receivable of $10,000 and interest receivable of $200.
Pledging of receivables is when ________.
a business uses its receivables as security for a loan
The journal entry to retire a bond includes:
a debit to Bonds Payable When a bond is retired, Bonds Payable is debited and cash is credited. Any discount or premium will have been fully amortized.
Jones Company signed a 5-year note payable on January 1, 2019, of $100,000. The note requires annual principal payments each December 31 of $20,000 plus interest of 5%. The entry to record the annual payment on December 31, 2020, includes:
a debit to Interest Expense for $4,000 The journal entry would include a debit to Interest Expense for $4,000. This is calculated by $80,000 balance on notes payable * .05 = $4,000. There is an $80,000 balance because a payment of $20,000 would have been paid in 2018 (so $100,000 - $20,000 = $80,000).
Daniels's bonds payable carry a stated interest rate of 5%, and the market rate of interest is 7%. The issue price of the Daniels's bonds will be at
a discount.
When a business factors its receivables, it sells its receivables to _________.
a finance company or bank
Smith's bonds payable carry a stated interest rate of 6% and the market rate of interest is 5%. Smith's bonds will be issued at ________.
a premium When the interest rate being offered by the issuer of a bond is higher than the market rate, it is issued at a premium.
Bond prices depend on the market rate of interest, stated rate of interest, and time. Determine whether the following bonds payable will be issued at face value, at a premium, or at a discount: a. The market interest rate is 8%. Idaho issues bonds payable with a stated rate of 7.75%. b. Austin issued 9% bonds payable when the market interest rate was 8.25%. c. Cleveland's Cars issued 10% bonds when the market interest rate was 10%. d. Atlanta's Tourism issued bonds payable that pay the stated interest rate of 8.5%. At issuance, the market interest rate was 10.25%.
a. discount b. premium c. face value d. discount
A __________ bond can be paid off early at a specified price.
callable Term bonds, serial bonds, debentures, and secured bonds could all be callable if issued with these terms.
On December 31 of the current year, Jones Company purchased a building for $100,000, paying $40,000 in cash and signing a 15-year mortgage for the $60,000, taken out at 5% interest. The journal entry to record the purchase of the building would be:
debit: Building 100,000 credit: Mortgages Payable 60,000 Cash 40,000
What would be the journal entry to record $3,000 in depletion expense for the year?
debit: Depletion Expense - of Resources 3,000 credit: Accumulated Depletion - of Resources 3,000
Jones Company issued $500,000 of 5%, 10-year bonds payable at a price of 92. The market interest rate on the date of issuance was 6%, and the bonds pay interest semiannually. The journal entry to record the first semiannual interest payment using the effective interest amortization method is:
debit: Interest Expense 13,800 Credit: Discount on Bonds Payable 1,300 Cash 12,500 Cash is paid every 6 months so cash paid for interest is (5%/2) = 2.5% * 500,000 = $12,500. Interest expense on NPV at 3% = 13,800. So 13,800 - 12,500 = 1,300 discount on Bonds Payable. Interest expense is the $1,300 Discount on Bonds Payable + Cash of $12,500 = $13,800.
Assume that Jones Company made a payment on a mortgage. It included $100 of principal and $150 of interest. What would the journal entry be to record the payment?
debit: Mortgages Payable 100 Interest Expense 150 Credit: Cash 250
The excess of the cost of an acquired company over the sum of the market value of its net assets is __________.
goodwill
The effective rate is also known as the __________.
market rate
A bond that matures in installments at regular intervals is a __________.
serial bond
If the bond is issued at the same interest rate as the market rate then __________.
the bond is issued at face value
Which method almost always produces the most depreciation in the first year?
Double-declining-balance
Which method is used to compute depletion?
Units-of-production method