chapter 10: liabilities

the debt-to-asset ratio indicates _____

the percentage of assets financed by debt a higher ratio means greater financing risk

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

liabilities to increase assets to decrease stockholders' equity to decrease

companies that have issued bonds will report the bonds as a(n)

liability at the bonds' carrying value which is equal to the face value plus related premiums or minus related discounts

current portion of long-term debt reports the amount of _____ and is reported on the _____

long-term debt that is reclassified because it is due within the year; balance sheet

bonds are issued at a discount when the bond's stated interest rate is _____ the market interest rate

lower than

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

notes payable

the stated rate _____

remains the same throughout the life of the bonds

sales taxes are recorded by the retailer as _____

sales tax payable

net pay is calculated by _____

subtracting payroll deductions from gross pay

the entry to record the issuance of bonds at face value includes a debit to cash and a credit to _____

bonds payable

which of the following are long-term liabilities?

bonds payable due in 20 years notes payable due in 3 years

the entry to record the early retirements of bonds when the cash paid is more than the bonds' carrying value will include a _____

debit to a loss on early retirement

geez inc debited cash and credited bonds payable for $100,000. which of the following is an appropriated description for this transaction?

issued 100, $1000 bonds at face value

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

it will decrease

assets are financed with _____ and stockholders' equity

liabilities

the journal entry to record employer payroll taxes affects _____

liabilities and stockholders' equity

a bond's issue price is determined by the _____

investors

the discount on bonds payable account _____

is a contra account to bonds payable

a bond's issue price is the amount of money that a lender pays (and the company receives) when a bond is _____

issued

match the interest rates with the related bond prices

6% stated interest rate and 4% market interest rate- premium: investors will pay more than face value 6% stated interest rate and 6% market interest rate- investors will pay face value 6% stated interest rate and 8% market interest rate- discount: investors will pay less than face value

T/F: the bond issue price is determined by the company issuing the bonds

False

a $1,000 bond was issued at 107.26. the 107.26 is _____

a percent and means the bond sold for $1,072.60

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

cash FICA payable withheld income tax payable

if abc company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value, the transaction will be recorded with a debit to _____

cash and a credit to bonds payable of $100,000

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

cash; notes payable

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

contingent

when recording the adjusting entry to accrue the interest owed on a bond that was issued at face value, the debit to interest expense will be _____

equal to the credit to interest payable

T/F: companies issue bonds at a discount when the bond's stated interest rate is lower than the market interest rate

true

a bond's stated interest rate is _____

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

long-term liabilities are accounted for in the same way as short-term liabilities, except that long-term liabilities are on the books fro more than one _____

year

abc corporation issued bonds that pay interest each march 1 and September 1. the corporation's December 31 adjusting entry may include a _____

credit to interest payable

a company recorded the issuance of its bonds with a debit to cash for $107,260 and a credit to bonds payable for $100,000 and a _____ on bonds payable for $7,260

credit to premium

the entry to record the issuance of 100, $1,000 bonds for 98,000 includes a _____

credit to bonds payable for $100,000 debit to cash fro $98,000 debit to discount on bonds payable for $2,000

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

accounts payable

the discount on a bonds payable becomes _____

additional interest expense over the life of the bonds

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

assets will increase stockholders' equity will increase liabilities will increase

the issue price of a bond is _____

based on what the market is wiling to pay based on a present value of calculation

discounts on bonds payable are recorded with a debit and are _____

contra-liabilities

bonds that can be exchanged for stock are called ______ bonds

convertible

if abc company issues 100 of its $1,000 bonds at a price of 105.00, ie. 105%, the journal entry to record the transaction includes _____

credit to premium on bonds payable of $5,000 a debit to cash of $105,000 a credit to bonds payable of $100,000

_____ on a classified balance sheet report the obligations that will be paid or met within the company's operating cycle or within 1 year, whichever is longer

current liabilities

accounts (or trade) payable is a _____ and increases when _____ and decreases when _____

current liability; purchases are made on credit; bills are paid

a liability is first recorded at the amount of cash a creditor would accept to immediately settle the liability, which _____ interest

excludes

if a $1,000 bond is issued at 100,000, then the bond is 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

T/F: your employer is allowed to keep the amounts deducted from your gross pay

false

market rates of interest ______

fluctuate due to changes in economic events

if a company forgets to record the journal entry to accrue interest expense then its net income is too _____ and its liabilities are too _____

high; low

the amortization of a bond discount makes the carrying value of the bond _____ over time

increase

the entry to record the initial borrowing of cash by issuing a promissory note causes a(n) _____

increase in assets increase in liabilities

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. the effect of recording this entry causes _____

liabilities to be understated assets to be understated

when a company records a debit to bonds payable and a credit to cash, it is the bonds' _____

maturity date

when the times internet earned ratio is less than 1.0, a company is _____

not generating enough income to cover its interest expense

US corporations pay federal taxes on _____

payroll & income

employees' gross earnings differ from their net pay because of _____

payroll deductions FICA taxes federal and state income taxes

a bond that was issued at face value will have a carrying value that _____ with each interest payment.

remain the same

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 his gross pay?

salaries and wages expense increases $600

which of the following are current liabilities?

salaries and wages payable note payable due in 3 months accounts payable

abc inc issued $100,000 of 10%, 5-year bonds on January 1 for $92,280. interest is paid annually and December 31. 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

abc company is the process of issuing bonds. the bonds have a stated interest rate of 6% which is 2% above the current market rate. what effect will the two internet rates have on the bond issue price?

the issue price will be above the bond's face value

on November 1, deli llama inc. issued 2 notes payable 12% per year for $10,000 each. one is a 3-month note and the other is a 2-year note. the amount of interest owed at December 31 will be ______

the same amount for both notes

the journal entry to record the payment of salaries and wages to employees includes a _____

credit to cash debit to salaries and wages expense credit to withheld income tax payable credit to FICA payable

issuing a note payable for cash immediately results in a(n)

increase in assets and an increase in liabilities

issuing a note payable for cash immediately results in a(n) _____

increase in assets and an increase in liabilities

accruing a liability always involves _____ expenses and _____ liabilities

increasing; increasing

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

interest expense

the adjusting entry to record interest accrued on a note payable is debit _____

interest expense and credit interest payable

if an entry is recorded that debits interest payable and interest expense and credits cash, what must be the case?

interest incurred from the current and prior period is being paid

the stated rate is the rate used to determine the _____

interest payment