Exam 3 Ch 10

companies can use accounting methods that minimize net income for tax purposes and other methods that maximize net income for reporting to shareholders.

Deferred income taxes arise because:

is a contra-liability account. is deducted from bonds payable on the corporate balance sheet. has a normal debit balance.

Discount on Bonds Payable

Contra-liability

Discount on Bonds Payable should be considered what type of account?

"proceeds from issuing bonds" and "proceeds from the issuance of stock".

Financing activities include

$120,000

GLC Corp. had the following information available on its year-end balance sheet. What will the total of long-term liabilities be? Accounts payable $10,000 Salaries payable $5,000 Bonds payable $100,000 Notes Payable due in 3 years $20,000

debit to cash for $470,000.

GLC Corp. issued the following Bond: Date of issue and sale: April 1 Principal amount: $500,000 Denomination: $1,000 Life of Bonds: 10 years Stated rate: 9%, payable semiannually each April 1 and October 1 If the market rate is 10%, the journal entry to record the sale of the bonds at 94 on April 1 will include a

As a decrease in cash in the Financing Activities category.

If a long-term liability account decreases, how should it be presented on the statement of cash flows?

as an increase in cash in the Financing category.

If a long-term liability account increases, how should it be presented?

redemption price < carrying value.

If bonds are retired early, a gain will be recorded if the:

decrease over the life of the bond.

If bonds are sold at a premium, the carrying value of the bonds will:

the bonds will be issued at a premium.

If the market rate of the bond at the time of issuance is greater than the face rate:

Depreciation expense of $6,710 will be recorded each year.

Jacob Corporation leased a building from Anthony Company. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true?

$265,000.

On January 1 of Year 1, GLK Co. issued $3,500,000 of face value bonds for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The face rate of interest is 7% while the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,000 every six months. The amount of interest expense recognized by GLK on the bond issue in Year 1 would be:

the bonds would have been issued at a premium.

On January 1, 2012, Omega Corporation issued a three-year, $1,000 bond with a nominal interest rate of 9%. At the time, the market rate of interest was 9%. If the market rate had been 10% at the time Omega issued the bonds:

an outflow of cash of $15,000 in the financing activities category.

On January 1, 2012, the long-term liability section of GLK Company's balance sheet showed a balance of $35,000 in the bonds payable account. On December 31, 2012, the balance in that same account was $20,000. This change would appear on the statement of cash flows as

$3,700 gain.

Rolo Co. has bonds with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at 99, the gain or loss on this retirement is:

$400

Suppose that on January 1, 2016, ABC Co. wants to issue bonds with a face value of $10,000. The face, or coupon, rate of interest has been set at 8%. The bonds will pay interest semiannually, and the principal amount is due in four years. Also, suppose that the market rate of interest for other similar bonds is currently 10%. What amount will the semiannual interest payment amount to?

.60 to 1

The Sky Umbrella Co. had the following items reported on its financial statements Cash: $20,000 Temporary investments: $25,000 Accounts receivable: $10,000 Inventory: $55,000 Total assets: $400,000 Current liabilities: $66,000 Total liabilities: $150,000 Total stockholders' equity: $250,000 Net sales: $752,000 Interest expense: $40,000 Depreciation expense: $125,000 Net income: $220,000 The debt-to-equity ratio for Sky is

the dollar amount that arises due to the difference between accounting for financial statements and accounting for tax purposes.

The deferred income taxes for a corporation represent

a premium.

The excess of the issue price over the face value of the bond is referred to as:

$(15,000)

The following information was taken from the financial statements of GLC Company as of December 31, 20-A and 20-B. Net income $10,000 Balance sheet data: 20-B 20-A Accounts receivable $33,000 $28,000 Accounts payable 13,700 6,500 Inventory $50,000 $75,000 Equipment $95,000 $70,000 Note Payable $0 $15,000

the times interest earned ratio.

The ratio of income before interest and taxes to interest expense is

The carrying value of the bond was larger than the redemption price.

What does a gain on the redemption of bonds indicate?

is greater than the cash payment for interest.

When a bond is issued at a discount, the interest expense each year:

is less than the cash payment for interest.

When a bond is issued at a premium, the interest expense each year:

A deferred tax liability.

When a company uses the straight-line depreciation method for financial reporting purposes and an accelerated depreciation method for tax purposes, what is the result?

the lease liability should be presented on the balance sheet of the lessee.

When a lease is classified as a capital lease:

the lease liability should be presented on the balance sheet of the lessor.

When a lease is classified as an operating lease:

a low value is generally viewed favorably.

When an investor views the debt-to-equity ratio of a company:

a high value is generally viewed favorably.

When an investor views the times interest earned ratio of a company:

no gain or loss.

When bonds are retired or repaid at their due date, there generally will be:

the face value of the bonds.

When bonds are sold, the Bonds Payable account is always credited for:

The lessee can purchase the property for $1 at the end of the lease term.

Which of the following circumstances would result in a capital lease to the lessee?

If a lease is classified as an operating lease, the lessee records a lease liability on its balance sheet.

Which of the following statements regarding leases is not true?

1.47.

Wong Corporation's balance sheet showed the following amounts: Current Liabilities, $5,000; Bonds Payable, $1,500; Lease Obligations, $2,000, and Deferred Income Taxes, $300. Total stockholders' equity was $6,000. The debt-to-equity ratio is:

Callable bonds

___________________________ may be retired before their specified due date.

$1,500 loss.

A company has bonds with a face value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds at 97. What amount would be the gain or loss on this retirement?

accounts payable.

All of the following are considered long-term liabilities except

long-term liability.

An obligation that will not be satisfied within one year or the current operating cycle is known as a

"referred to as a debenture bond" and "backed solely by the general credit of the corporation".

An unsecured bond is

debit to premium on bonds payable for $158.

Assume at interest payment date, interest expense was debited for $642 and cash was credited for $800. The journal entry to record this interest payment would include a

either annually or semiannually.

Bonds usually pay interest