Chapter 10 ACCT 2010

market rates of interest

fluctuate due to changes in economic events

net pay equals

gross pay - payroll deductions

US Corporations pay federal taxes on ____.

income payroll

the times interest earned ratio equals net income plus interest expense and income tax expense, divided by

interest expense

the issue price of 1000, 5%, $1000 bonds issued at 100.00 is

1,000,000

a bond with a face value of $1 000 has a current price quote of 102.880 what is the conds current price in dollars

1,028.80 (1000 x 1.02880)

true or false: a classified balance sheet separates liabilities into current and non-current categories

True: the classified balance sheets separate both liabilities and assets into categories

A $1,000 bond's carrying value will be greater if the bond is sold ____.

When the stated rate is greater than the market rate of interest at a premium

notes payable

a liability that represents the amount the company owes to others as a result of issuing a promissory note

bonds that can be paid off by the issuing company at any time are called

callable bonds

on the maturity date, the journal entry to record the payment of 1,000,000 of bonds payable that were issued at a 70,000 discount includes a

credit cash 1,000,000 debit bonds payable 1,000,000

The entry to record the employer's obligation for FICA and state unemployment taxes includes a ____.

credit to FICA Payable debit Payroll Tax Expense credit Unemployment Tax Payable

XYZ borrowed $50,000 on December 31,2018. Half of the loan will be repaid in 2019 and the remainder will be paid the following year, which is longer than XYZ's operating cycle. On its balance sheet at the end of this year, XYZ will show:

current portion of long term debt of $25,000 long term debt of $25,000

the entry to record the issuance of 100, 1,000 bonds for 98.000 includes a

debit to Discount on Bonds Payable for $2,000 debit to cash for $98,000 credit to Bonds Payable for $100,000

Texable, Inc. is required to match $45,900 for its portion of FICA and to pay $4,700 for federal and state unemployment taxes. The entry to record Texable's payroll taxes includes ____.

debit to payroll tax expense for $50,600 credit to unemployment tax payable of $4,700 credit to FICA payable for $45,900

how to find a company's debt to asset ratio is 0.7 or 70%. if the company issues common stock for cash, then the debt to assets ratio will

decrease

from the issuing company perspective, a bond is a liability. from a bondholders perspective, the bond is an

investment

the discount on bond payable account

is a contra account to bonds payable

Under US GAAP, a contingent liability should

not be reported if the loss is remote and unable to be estimated be in the notes to the financial statements if the loss may possibily occur and can be reasonably estimated be reported on the balance sheet if the loss will probably occur and can be reasonably estimated

employees gross earnings differ from their net pay because of

payroll deductions

contingent liabilites

potential liabilities that arise as a result of past transactions or events and are reported on the balance sheet if the loss will probably occur and can be reasonably estimated

what effect will issuing more bonds have on the times interest earned ratio over Time?

it will decrease

a bond with an issue price of 10,100 and a face value of 10,000 was issued at

premium

bond amortization

the process that causes the balance in premium on bonds payable to decline each period

the journal entry to record the payment of salaries and wages for work performed in the current accounting period causes

- Stockholders equity to decrase - Liabilities to increase - Assets to decrease

the following 12% 1000 notes have varying periods to maturity but all were issued on December 1. which of the following are the correct calculations of interest for these notes on December 31 of this same year?

4 month interest = 1000 x 12% x 1/12 2 year interest = 1000 x 12% x 1/12 3 month interest = 1000 x 12% x 1/12

if abc company issues 100 of its 1,000 bonds at a price of 110.00, the journal entry to record the transaction includes a

A credit to bonds payable of $110,000 A debit to cash of $110,000 also a credit to premium on bonds payable of 10,000

deli llama operates in a state with a sales tax. what will be the effect if it records a cash sale to a customer?

A, L, and SE will increase

The law requires ____ to pay FICA taxes

Both the employee and the employer

On January 1, ABC, Inc., issued $100,000 of 10%, 5year bonds on January 1, 2015, for $92,280. Interest is due semiannually. When ABC records the first interest payment, which will be greater the debit to Interest Expense or the credit to Cash?

The debit to Interest Expense will be greater because the market rate is greater than the stated interest rate

accounts payable

a current liability that represents the amount owed for goods or services purchased on credit and is generally interest free

the debt to asset ratio is calculated by dividing total liabilities by total

assets

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. Assuming that john gets paid in cash and payroll deductions will be paid the following month, how would ABC record the payroll deductions? Current liabilities increase $113.90 Current assets increase $113.90 Salaries and Wages Expense decreases $113.90

current liabilities increase 113.90

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll payroll deductions are: Social Security $37.20; Medicare $8.70; Federal Income Tax $58; and State Income Tax $10. Assuming the payroll deductions are paid in the following month, ABC would record John's pay with a journal entry that includes a ________. debit to Salaries and Wages Expense of $600 credit to State and Federal Income Tax Payable $68 credit to FICA Payable of $45.90 credit to cash $486.10 debit to Salaries and Wages Expense of $486.10

debit to Salaries and Wages Expense of $600 credit to State and Federal Income Tax Payable $68 credit to FICA Payable of $45.90 credit to cash $486.10

accruing a liability always includes recording both a...

expense and a liability

if a 1000 bond is issued at 100,000 then bond sold at

face value

if a company receives 100,000 cash in exchange for issuing 100 bonds at 1,000, the bonds were issued at

face value

Assets are financed with ___ and stockholders' equity.

liabilites

The entry to record the issuance of a note for cash was recorded with a debit to Cash and a credit to Notes Receivable instead of Notes Payable. This effect of recording this entry causes

liabilities to be understatedassets to be understated

what kind of account is deferred revenue?

liability account

long term liabilities are accounted for in the same way as short term liabilities except that...

long term liabilities are on the books for more than one year

key elements of a bond

maturity date, face value, stated interest rate

discount bond

stated rate < market rate of interest

face value bond

stated rate = market rate of interest

premium bond

stated rate > market rate interest

todays fashions has a debt that has been properly reported as a long term liability before this year. part of this debt is due this year. if todays fashion continues to report the current position of the debt as a long term liability then

the current ratio will be overstated

true or false: companies issue bonds at a discount when the bonds stated interest rate is lower than the market interest rate

true: bonds issue at a discount when the stated interest rate is lower than the market interest rate

a bonds stated interest rate is

used to calculate interest payments always expressed as an annual interest rate

Liabilities are classified as current if they

will be paid with current assets within one year or the current operating cycle, whichever is longer.

the issue price of a bond is

-based on a present value calculation -based on what the market is willing to pay

which of these payroll taxes are paid only by the employer?

SUTA (state unemployment tax act) FUTA (federal unemployment tax act)

ABC Company issues a bond with a face value of $100,000 at par on January 1. The bond carries a stated annual interest rate of 6% payable in cash on December 31 of each year. If ABC issues monthly financial statements, it must make an adjusting entry on January 31 that includes a:

credit interest payable $500 debit interest expense $500

entry to record the early retirement of bonds when the cash paid is less than the bonds carrying value will include a

credit to a gain on early retirement

for investors, credit rating agencies provide independent, easy to use measurements of relative credit risk. the most well known credit rating agencies are

moodys standard and poors