ACG 3024 - Chapter 7 Quiz

West Company borrowed $60,000 on September 1, Year 1 from the Valley Bank. West agreed to pay interest annually at the rate of 6% per year. The note issued by West carried an 18-month term. Based on this information the amount of interest expense appearing on West's Year 1 income statement would be:

$1,200.

On January 1, Year 1, the Mahoney Company borrowed $175,000 cash from Sun Bank by issuing a five-year 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan based on the present value of annuity factor would be $40,900. The amount of principal repayment included in the December 31, Year 1 payment is:

$175,000 x 8% = $14,000 $40,900 - $14,000 = $26,900

Jones Company issued bonds with a $230,000 face value on January 1, Year 1. The five-year term bonds were issued at 98 and had a 8.00% stated rate of interest that is payable in cash on December 31st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information: The amount of interest expense shown on Jones's December 31, Year 1 income statement would be:

$19,320. $230,000 × 0.080 = $18,400 interest payment; $4,600 discount ÷ 5 years = $920 yearly amortization; $18,400 + $920 = $19,320 interest expense

Which of the following represents the impact of a taxable cash sale of $900 on the accounting equation if the sales tax rate is 4%?

An increase to cash for $936, an increase to sales tax payable for $36, and an increase to sales revenue for $900.

Pace Company issued at 97 bonds with a face value of $200,000. As a result of the issue:

Assets and liabilities would both increase by $194,000.

Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet?

Bonds Payable.

The party who borrows money in a note payable is known as the:

Both Maker and Issuer.

On January 1, Year 1, Burton Corporation recorded an event that increased its cash account by $196,000, increased its discount on bonds payable account by $4,000, and increased its bonds payable account by $200,000. Which of the following correctly describes that event?

Burton issued bonds at 98.

The Platte Corporation issues a 5-year note payable on January 1, Year 1 for $5,000. The interest rate is 5% and the annual payment of $1,156, due each December 31, includes both interest and principal. Which of the following answers correctly shows the effect of the issuance of the note on Platte's financial statements?

Choice A: Assets = Liab. + Equity Revenue - Expense = Net Inc. ; Cash Flow 5,000 = 5,000 + NA NA - NA = NA ; + FA

Johansen Company issued a bond at a discount. Which of the following choices accurately reflects how the issue would affect Johansen's financial statements?

Choice B: Assets = Liab. + Equity Revenue - Expense = Net Inc. ; Cash Flow + = + + NA NA - NA = NA ; + FA

Which of the following items is not classified as a current asset?

Office Equipment.

Monthly remittance of sales tax:

Reduces liabilities.

How does the amortization of the principal balance on an installment note payable affect the amount of interest expense recorded each succeeding year?

Reduces the amount of interest expense each year.

A five-year, $500,000 bond was issued on January 1, Year 1. The stated rate of interest was 8%, and the effective rate of interest was 10%. The interest is paid semiannually. Which of the following statements is correct?

The bond was issued at a discount, and each semiannual cash payment is $20,000.

Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet?

The outcome is probable and can be reasonably estimated.

The reason bonds are sometimes issued at a discount is:

The stated rate of interest is lower than the rate being paid on investments in the securities market with comparable risk.

When do the effects of product warranties appear on the statement of cash flows?

When there is a settlement of a warranty claim made by a customer.

Bonds payable are usually classified on the balance sheet as:

long-term liabilities.

Issuing bonds payable when the market rate of interest is less than the stated interest rate:

results in bonds being issued at a premium.