CHAPTER 10 QUIZ PRACTICE **** YOU EAGLE SCOUT

The following totals for the month of June were taken from the payroll records of a certain company: Salaries, $100,000 FICA taxes withheld, $7,650 Income taxes withheld, $18,000 Federal unemployment taxes, $450 State unemployment taxes, $2,100 The entry to record accrual of employer's payroll taxes would include a

Payroll taxes = FICA+Fed unemployment taxes+state unempl. taxes 7650+450+2100 = 10,200 Journal Entry = Debit to Payroll Tax Expense 10,200

On January 1, a corporation issued $1,000,000, 14%, 5-year bonds. The bonds sold for $1,084,096. This price resulted in an effective interest rate of 13% on the bonds. Interest is payable annually on January 1. Use the effective-interest method to determine the amount of interest expense for the first year.

determine interest expense = selling price x effective interest rate 1,084,096 x 13% = 140,932

On January 1, a company issued $3,500,000 of 10%, 7-year bonds for $3,180,537. Interest is payable annually on January 1. The effective interest rate on the bonds is 12%. Use the effective-interest method to determine the amount of interest expense for the first year.

381,664 Effective Interest Method = Interest rate x Carry Value = Bond's Interest Expense 12% x 3,180,537 = 381,664

On January 1, a corporation issued $400,000 of 8%, 5-year bonds at 106, which pays interest annually. Assuming straight-line amortization, what is the carrying value of the bonds at the end of the first year?

400k x 1.06 (issued at 106) = 424k ISSUED AT A PREMIUM so, (carry value - face value)/(life in years) = premium (424k-400k)/5 = 4.8k 424k-4.8k = 419,200 (answer)

In the current year, a corporation had sales of $500,000, net income of $150,000, interest expense of $30,000, and tax expense of $20,000. Its net sales were $1,000,000 and its cost of goods sold was $200,000. What was its times interest earned for the year?

6.67 Times Interest Earned = Income (before interest and taxes) / Interest Expense (150k + 30k +20k)/30k = 6.67 Before interest and taxes means you ADD THE TAXES AND EXPENSES TO INCOME THEN DIVIDE BY EXPENSE

The carrying value of a company's $900,000 face value bonds is $896,600. If the bonds are retired at 102, what would the amount corporation pay its bondholders?

900kx1.02 = 918k

When the effective-interest method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated multiplying the

Carry Value (beginning price) x Interest Rate

A company's cash register tape shows cash sales of $12,000 not including sales tax. The sales tax rate is 5% of sales. The journal entry to record the cash sales with sales tax includes a

12k x 5%=600, 600 is the sales tax payable Debit: Cash for 12.6k Credit: Sales 12k, Sales Tax Payable 600$

At the start of the current year, a company issued a $500,000 note to a bank. The company must pay the bank $50,000 plus interest each January 1 for the next ten years starting at the beginning of next year. The company will report the note payable on its current year's balance sheet as

Current Liabilities: 50k Long Term Debt: 450k they have to pay 50k within the next year, making it current. The rest is long term

A company reports the following selected accounts and balances after posting adjusting entries: Accounts payable, $12,000 10-month, 8%, note payable, $42,000 Income tax expense, $5,000 Salaries and wages expense, $23,000 3-year, 10% note payable, $200,000 Salaries and wages payable, $6,000 Mortgage payable ($18,000 due next year), $1,000,000 Rent payable, $4,000 Its current assets are $265,000 at year-end. How much is its current ratio at year-end?

Current ratio = current assets/current liabilities CURRENT= within the next 12 months (hint will have payable at the end) 12k+42k+6K+18k+4k=82k Answer: 3.23

A company issues a $200,000, 6%, 6-month note on December 1. It has a December 31 year-end. The entry made by the the company on December 1 to record the issuance of the note is

Debit: CASH 200k Credit: Notes Payable 200k

A corporation issues $4,000,000 10-year, 8% bonds dated January 1 at 103. The journal entry to record the issuance will include

Debit: Cash (4mil x 1.03=) 4.12MIL Credit: Bonds Payable 4MIL Premium: 120k

On January 1, a corporation issues $200,000 of 5-year, 7% bonds at face value. Which one of the following is one effect of the entry to record the issuance of the bonds?

Debit: Cash 200k Credit: Bonds Payable 200k It was issued at face value, so no premium or discount, also no interest because its journaled on the issue date

Bonds with a $4,000,000 face value are issued by a certain corporation at 102. The corporation's journal entry to record the issuance is

Debit: Cash 4.08 MIL Credit: Bonds Payable 4.08 MIL 4 mil x 1.03 = 4.08 mil

The year-end balance of the Discount on Bonds Payable is

Deducted from bonds payable on the balance sheet

A $750,000 bond was redeemed at 103 when the carrying value of the bond was $777,500. The entry to record the redemption would include a (find gain or loss on bond redemption and how much)

Gain on bond redemption of 5k 777.5k - (750kx1.03) = 5k

A corporation issues a $250,000, 8%, 30-year mortgage note. The terms provide for annual installment payments of $22,207. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment?

HOW TO FIND (LONG) 1.) Find first years interest: interest rate (8%) x issued price (250k) = 20k 2.) Take annual payment (22,207) and subtract the first years interest (20k) = 2,207 3.) Take original price (250k) and subtract the 2,207 and you get 247,793 Answer: 247,793

A corporation issues a $500,000, 7%, 15-year mortgage note. The terms provide for annual installment payments of $54,897. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

HOW TO FIND (LONG) 1.) Take original price (500k) and times the interest rate (7%) = 35k (first years interest) 2.) Take annual payment (54,897) and subtract first years interest (35k)= 19,897 3.) Take original payment (500k) ad subtract found number (19,897) = 480,103 THAT IS THE FIRST YEAR UNPAID BUDGET 4.) You take THE NEW OUTSTANDING PRINCIPAL (480,103) and restart the steps. The process will be (480,103x7%=33,607, 54,897-33,607 = 21,290, 480,103 - 21,290 = 458,813 ANSWER: 458,813

Which of the following is true with regards to bond discounts?

Reporting a bond discount on the balance sheet decreases the bond's carrying value