(E3.P2) We out here drippin in finesse…

Which of these is not included in an employer's payroll tax expense?

Federal income taxes

If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting

Unrealized Holding Gain/Loss-Income.

On January 3, 2026, Benton Corp. owned a machine that had cost $400,000. The accumulated depreciation was $240,000, the estimated salvage value was $24,000, and the fair value was $640,000. On January 4, 2026, this mack was irreparably damaged by Pogo Corp. and became worthless. In October 2026, a court awarded damages of $480, against Pogo in favor of Benton. At December 31, 2026, the final outcome of this case was awaiting appeal and was, therefore, uncertain. However, in the opinion of Benton's attorney, Pogo's appeal will be denied. At December 31. 20, what amount should Benton accrue for this gain contingency?

$0

Cortez Company issues $6,000,000 face value of bonds at 96 on January 1, 2023. The bonds pay interest semiannually at 8% on June 30 and December 31 and mature in 10 years. Straight-line amortization is used for discounts and premiums On September 1, 2026, $3,600,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2026?

$163.200 loss ($5,760,000 + [$240.000 × (3 2/3 ÷ 10)] × .60 = $3,508,800; $3,672,000 - $3,508,800 = $163,200.

On January 1, 2024, Ann Price loaned $187,825 to Joe Kiger. A zero-interest-bearing note (face amount, $250,000) was exchanged solely for cash,; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2026 The prevailing rate of interest for a loan of this type is 10%. The present value of $250,000 at 10% for three years is $187,830. What amount of interest income should Ms. Price recognize in 2024?

$18,783 $187,830*.10=$18,783

On October 1, 2024 Macklin Corporation issued 5%, 10-year bonds with a face value of $6,000,000 at 104. Interest is paid on October 1 and April 1, with any premium or discount amortized on a straight-line basis. The entry to record the issuance of the bonds will include a credit of

$240,000 to premium on bond payable ($6,000,000*1.04)-$6,000,000

On January 1, 2024, Jacobs Company sold property to Dains Company which originally cost Jacobs $2,660,000. There no established exchange price for this property. Danis gave Jacobs a $4,200,000 zero-interest-bearing note payable in three equal annual installments of $1,400,000 with the first payment due December 31, 2024. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $4,200,000 note payable in three equal annual installments of $1,400,000 at a 10% rate of interest is $3,481,590. What is the amount of interest income that should be recognized by Jacobs in 2024 if the effective-interest method is used?

$348,159 $3,481,590*.10=$348,159

Venible newspapers sold 6,000 of annual subscriptions at $150 each on June 1. How much unearned revenue will exist as of December 31?

$375,000 ($6,000*$150)*5/12

Batali Italian Foods Company offers its customers a pizza wheel cutter if they send in 4 proof of purchase seals from its frozen pizza boxes and $1. The company estimates that 60% of the proof of purchase seals will be redeemed. In 2026, the company sold 800,000 frozen pizzas and customers redeemed 352,000 proof of purchase seals receiving 88,000 pizza wheel cutters. If the pizza wheel cutters cost Batali $2 each, how much liability for outstanding premiums should be reported at the end of 2026?

$64,000 [I(800,000 × 60%) - 352,000] ÷ 4} × $2 = $64,000 f[Number of units sold × estimated redemption rate) - proof of purchase seals redeemed] ÷ number of seals required for premium] × cost of premium = Premium liability

Sawyer Company self-insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $2,000,000 per year. The company estimates that, on average, it will incur losses of $1,600,000 per year. In 2026, $700,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Sawyer Company for 2026?

$700.000 in losses and no insurance expense

Furniture Inc. had its best month of the year in September because the state government offered tax-free holiday weekend. Ordinarily, sales tax is 5%. Total sales for that weekend were $800,000. Total sales tax collected for the month was $400.000. The amount recorded in the Sales Revenue account during September was

$8,800,000 $400,000 ÷ 5% sales tax = $8,000,000 sales + $800,000 tax-free sales = $8,800,000 (Total sales tax collected + sales tax percent) = Taxed sales revenue + tax-free sales = Sales revenue)

At December 31, 2024, the following balances existed on the books of Tweedy Corporation: Bonds Payable $6,000,000 Discount on Bonds Payable 840,000 Interest Payable 150,000 If the bonds are retired on January 1, 2025, at 102, what will Tweedy report as a loss on redemption?

$960,000 ($6,000,000*1.02)-($6,000,000-$840,000)

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

credit to Interest Expense.

Avalon Company gives each of its 75 employees 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2025, they made an average of $21 per hour and in 2026 they made an average of $24 per hour. In 2026, employees took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. Assuming that all of the employees were employed continuously through 2025 and 2026, what amount of vacation liability would be reported on the 2025 and 2026 balance sheets, respectively?

151,200:$216,000 75 × 12 × 8 × $21 = $151.200: 75 × 15 × 8 × $24 = $216.000 (Number of employees × vacation days per year × hours per day × 2025 hourly pay rate = vacation liability 2025; Number of employees × vacation days per year × hours per day × 2026 hourly pay rate - vacation liability 2026)

On August 1, Rock Tavern Consulting Group collected $9,000 on a 6-month contract to provide SEO services to Kruger Brothers, Inc. Assuming that the amount is earned equally over the 6 months and that Rock Tavern prepares financial statements monthly, the company's August 31 adjusting entry will include

A debit to Unearned Revenue and a credit to Service Revenue for $1,500 $9.000 × 1/6 = $1,500 Unearned rev. × 1/6 = Aug. rev.

Topper Corporation issued $5,000,000 of bonds at face value on January 1, 2024. Topper chose the fair value option for these bonds. At December 31, 2024, the value of the bonds is now $4,500,000 because the market interest rates have increased. The entry on Topper's books would include

A debit to unrealized Holding Gain of $500,000 $5,000,000-$4,500,000=$500,000

Where is debt callable by the creditor reported on the debtor's financial statements?

current liability

Which of the following is the proper way to report some gain contingencies?

As a disclosure only.

Carr Corporation retires its $500,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $518,725. Carr's entry to record the redemption will include a

Debit of $18,725 to premium on bond payable $518,725-$500,000

The rate of return earned by bond holders is called the

Effective rate

Which of the following is a characteristic of a current liability but not a long-term liability?

Its liquidation is reasonably expected to require the use of existing resources classified as current assets or create other current liabilities.

The amount of the liability for compensated absences should be based on 1. the current rates of pay in effect when employees earn the right to compensated absences. 2 the future rates of pay that are expected to be paid when employees use compensated time. 3. the present value of the amount expected to be paid in future periods.

Not "1"

Which of the following transactions decrease unearned revenue?

Not "All of these transactions decrease unearned revenue."

Which of the following items would be reported as a current liability?

Not "Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue"

If a company holds a debt until maturity, how should the extinguishment of debt be recorded?

Not "The difference between the carrying value of the bond and the face value of the bond will be recorded as a gain or loss on extinguishment"

If a company holds a debt until maturity, how should the extinguishment of debt be recorded?

Not "The difference between the carrying value of the bond and the face value of the bond will be recorded as a gain or loss on extinguishment."

A project financing arrangements refers to

Not "an arrangement where a company borrows from its subsidiary to finance a project."

Of the following items, the only one that should not be classified as a current liability is

Not "current maturities of long-term."

Wolfe Co. issued for cash a $100,000, 3-year note bearing interest at 8% to Hounds, Inc. The market rate of interest for a note of similar risk is 10%. One step in calculating the cash received from the issuance of the note is to multiply the face value by the table value for

Not "• 3 periods and 10% from the present value of an ordinary annuity table"

Which of the following is not a condition allowing a company to exclude a short-term obligation from current liabilities?

Obligation must be due within one year.

Overton Corporation, a manufacturer of household paints, is preparing annual financial statements as of December 31, 2025. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Overton recall all cans of this paint sold in the last six months. The management of Overton estimates that this recall could cost the company $800,000. What accounting recognition, if any, should be accorded this situation?

Operating expense of $800,000 and liability of $800,000

The replacement's of an existing bond issuance with a new one is called

Refunding

Which of the following situations may give rise to unearned revenue?

Selling magazine subscriptions.

Which of the following is a characteristic of a current liability but NOT a long-term liability?

Settlement is reasonably expected to require use of existing resources classified as current assets or creation of other current liabilities.

A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation?

The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period.

Which of the following is not true regarding the classification of maturing obligations as current liabilities?

The liability can be excluded from current liabilities if management indicates that they are going to refinance the obligation.

"In-substance defeasance" is a term used to refer to an arrangement whereby

a company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust.

Wooten Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the residents to be exposed to highly toxic chemicals from its plant. Wooten's lawyer states that it is probable that Wooten will lose the suit and be found liable for a judgment costing Wooten anywhere from $1,800,000 to $9,000,000. However, the lawyer states that the most probable cost is $5,400,000. As a result of the above facts, Wooten should accrue

a loss contingency of $5,400,000 and disclose an additional contingency of up to $3,600,000.

Accrued liabilities are disclosed in financial statements by

appropriately classifying them as regular liabilities in the balance sheet.

Long-term debt that matures within one year and is to be converted into stock should be reported

as noncurrent and accompanied with a note explaining the method to be used in its liquidation

Big Bear BBQ Company sold 200 smokers during 2025 for $1,700 each together with a 1-year warranty. Warranty claims are estimated to be $150 per smoker. Actual warranty claims on the smokers in 2025 were $12,550. Actual warranty claims on the smokers in 2026 are $18,500. The entry to record claims on 2026 warranty expenditures includes

debit to Warranty Liability for $17.450. (200 × $150) = $30,000 - $12,550 = $17,450; Excess of $18,500 - $17,450 = $1,050 charged to Warranty Expense

Blasio Company collects a deposit from a customer when a custom piece of machinery is ordered. Blasio uses a periodic inventory system. The entry recorded when the machinery is delivered to the customer

decreases liabilities and increases equity.

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to

the market rate multiplied by the beginning-of-period carrying amount of the bonds.

A gain on extinguishment will be recorded when

the reacquisition price is less than the carrying value of the bond.

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity of ten years from date of issue. If the bonds were issued at a premium, this indicates that

the state rate of interest exceeded the market rate.

On January 1, 2024, Ruettgers Company issued for cash a $500,000, 5 year note bearing annual interest at 10% to Smith. Inc. The market rate of interest for a note of similar risk is 12%. What interest expense would be recorded on December 31, 2024?

•$55,675 12% × $463.954 = $55,675.

Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $481,250. The entry to record the redemption will include a

•debit of $28,750 to Loss on Bond Redemption. $510,000-$481,250=$28,750 loss