Chapter 10 LearnSmart

Current

Under US GAAP, if a company violates loan covenants on long-term debt but renegotiates the loan before releasing its financial statements, the debt remains classified as long-term. Under IFRS, the company must reclassify that long-term debt as an ____ liability

Maturity Date

When a company records a debit to Bonds Payable and a credit to Cash, it is the bonds' _____

Not generating enough income to cover its interest expense

When the times interest earned ratio is less than 1.0, a company is:

Face

Whether a bond is issued at par, premium or discount, when the bond matures the amount paid equals the ___ value

- FICA Payable - Unemployment Tax Payable

Which accounts are credited when Payroll Tax Expense is debited?

- Cash - Withheld Income Tax Payable - FICA Payable

Which accounts are credited when the journal entry to pay employees is recorded?

- Accounts Payable - Salaries and Wages Payable - Note Payable due in 3 months

Which of the following are current liabilities?

- 20 year mortgage payable - Note Payable due in 3 years

Which of the following are long-term liabilities?

- State unemployment tax (SUTA) - Charitable Contributions - Federal Unemployment Tax (FUTA)

Which of the following are not required payroll deductions from an employees' gross earnings?

- SUTA - FUTA

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

Probable contingent liability that can be estimated

Which type of contingent liability would most likely be found on a balance sheet prepared under US GAAP?

- Current portion of long-term debit of 25,000 - Long-term debt of 25,000

XYZ borrowed $50,000 this year. Half of the loan will be repaid next year 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 the year, XYZ will show:

A percent and means the bond sold for $1072.60

A $1000 bond was issued at 107.26. The 107.26 is ___

True

A classified balance sheet separates liabilities into current and non-current categories T/F

A debit to Cash of $300 and a credit to Unearned Revenue of $300

ABC Airlines collects $300 for a round-trip ticket from Chicago to LA. The flights will not occur until the next accounting period. How should ABC Airlines record the $300 collected in advance?

- Debit to Inventory of 500 - Credit to Accounts Payable of 500

ABC purchased 500 of merchandise on account. ABCs journal entry to record this transaction includes a:

Expense

Accruing a liability always involves recording both an ____ and a liability

Decrease; Increase; Equal

Amortizing a bond discount will ___ the discount balance and ____ the carrying value of the bond so that when the bond matures the carrying value will ___ the face value

Bond Premium

Arises when interest payments are higher than the cost of borrowing

$110 debit to Interest Payable, $10 debit to Interest Expense, $1000 debit to Notes Payable and a $1120 credit to Cash

As of December 31, 2018, $110 of interest had been accrued on a 12%, 1-year, $1000 note payable. On Jan 31, 2019, the entry to record the payment of the note's principal and interest requires a:

Liabilities

Assets are financed with ____ and stockholders' equity

- Minus discount on Bonds Payable - Plus premium on Bonds Payable

Bond carrying value equals Bonds Payable ____

Payroll deductions

Employees' gross earnings differ from their net pay because of:

Investment

From the issuing company's perspective, a bond is a liability. From a bondholder's perspective, the bond is an:

- Debit to Cash of 110,000 - Credit to Bonds Payable of 100,000 - Credit to Premium on Bonds Payable of 10,000

If ABC Company issues 100 of $1,000 bonds at a price of 110.00, i.e., $1,100 each, the journal entry to record the transaction includes a:

- Debit to Bonds Payable of 100,000 - Credit to Cash of 101,000 - Debit to Loss on Bond Retirement of 1000

In 2008, ABC issued 100,000 of 20-year bonds at face value. Ten years later, in 2018, the company retired the bonds early by purchasing them in the open market at 101,000. The entry to record this transaction includes a:

Discount on Bonds Payable account

Is a contra account to Bonds Payable

Bond Discount

Is a result of the interest payments being less than the cost of borrowing

Increase in assets and an increase in liabilities

Issuing a note payable for cash immediately results in an:

Year

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 ____

Liabilities increase and stockholders' equity decreases

On Nov 1, 2018, ABC Corp borrowed 100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on Oct 31, 2019. Assuming the Nov 1 transaction was properly recorded, how would the Dec 31, 2018, year-end adjusting entry affect the accounting equation?

- Credit to Interest Payable of 1,000 - Debit to Interest Expense of 1,000

On Nov 1, 2018, ABC Corp borrowed 100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on Oct 31, 2019. Given no prior adjusting entries have been recorded, the adjusting journal entry on Dec 31, 2018, ABCs year end, would include a ______

The same amount for both notes

On November 30, Burrows Inc issued 2 notes payable at 6% per year for 10,000 each. One is a 3-month, 6% note and the other is a 6-month, 6% note. The amount of interest owed at December 31 will be:

Stated Rate

Remains the same throughout the life of the bonds

Sales Tax Payable

Sales taxes are recorded by the retailer as:

- Credit to Unemployment Tax Payable of 4700 - Debit to Payroll Tax Expense for 50,600 - Credit to FICA Payable for 45,900

Texable Inc is required to match 45,900 for its portion of FICA and to pay 4700 for federal and state unemployment taxes. The entry to record Texable's payroll taxes includes:

Bonds payable minus any discount on bonds payable

The carrying value of bonds payable equals ____

- The percentage of assets financed by debt - A higher ratio means greater financing risk

The debt-to-asset ratio indicates:

Assets

The debt-to-asset ratio is calculated by dividing total liabilities by total ___

What is the percentage of assets financed by debt?

The debt-to-assets ratio best answers which financial question?

Amortized; Decreases

The discount on a bond is ____ and ____ the discount each period

- Recording of a gain or loss - Elimination of the liability - Payment of cash

The early retirement of a bond includes ____

Cash; Notes Payable

The entry to record the initial borrowing of cash by issuing a promissory note includes a debit to _____ and a credit to _____

- Debit to Accounts Payable - Credit to Cash

The entry to record the payment of previous purchases made on account includes a:

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

The issue price of a bond is ____

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

The issue price of a bond is:

Cash; Bonds Payable

The journal entry to record the issuing of 100 bonds at their $1000 face value will include a debit to ___ and a credit to ___

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

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

Both employee and employer

The law requires ____ to pay FICA taxes

Debit

The normal balance for Discount on Bonds Payable is a