Accounting
the interest charged on a $300,000 note payable, at the rate of 6%, on a 3-month note would be
$4,500
The interest charged on a $300,000 note payable, at the rate of 6%, on a 3-month note would be
$4,500 $300,000 x .06% x 3/12=$4,500 (Face value x .6% x 90/360)
Bonds with a face value of $500,000 and a quoted price of 102¼ have a selling price of
$511,250 $500,000 x $1.0225= $511,250 Face val. x 102.25%
The journal entry to record the issuance of bonds at a discount will include a
debit to cash for the face amount of the bonds minus the amount of the discount
payroll taxes expense results
from three taxes that governmental agencies levy on employers taxes: FICA tac Federal unemployment tax state unemployment tax
Which of the following most likely would be classified as a current liability?
interest payable
which of the following is not true regarding par value
it is related to market value of a stock
common types of contingencies
lawsuits, product warranties, environmental cleanup obligations
If bonds are issued at a discount, it means that the
market interest rate is higher than the contractual interest rate
Steps in the Accounting Cycle
1. analyze business transactions 2. journalize transactions 3. Posting to ledger 4. Prepare trial balance 5. journalize and post adjustments 6. Prepare Adjusted Trial Balance 7. Prepare Financial Statements 8. journalize & Prepare Closing Entries 9. Prepare post-closing trial balance
the issuance of dividends affects retained earnings but not paid-in capital
true
Five thousand bonds with a face value of $1,000 each, are sold at 102. The entry to record the issuance is
Debit Cash 5,100,000 Credit Premium on bonds payable 100,000 Credit Bonds Payable f. 5,000,000 (5,000 x 1,000) x 1.02=$5,100,000 (Number of bonds x $1,000) x 1.02
West County Bank agrees to lend Drake Builders Company $400,000 on January 1. Drake Builders Company signs a $400,000, 6%, 6-month note. What entry will Drake Builders Company make to pay off the note and interest at maturity assuming that interest has been accrued to June 30?
Debit Notes Payable 400,000; Debit interest payable 12,000; Credit Cash 412,000 $400,000x .06 x 6/12= $12,000 (Face val. x 6% x 6/12)
West County Bank agrees to lend Drake Builders Company $400,000 on January 1. Drake Builders Company signs a $400,000, 6%, 6-month note. The entry made by Drake Builders Company on January 1to record the proceeds and issuance of the note is
Debit cash $400,000; Credit notes payable $400,000
As soon as a corporation is authorized to sell stock, an accounting journal entry should be made recording the total value of the shares authorized.
False
The contractual interest rate is always equal to the market rate of interest on the date that bonds are issued.
False
Kaplan Manufacturing Corporation purchased 2,500 shares of its own previously issued $10 par common stock for $62,500. As a result of this event,
Kaplan's total stockholders' equity decreased $62,500
solvency ratios
Measures of the ability of the company to survive over a long period of time.
liquidity ratios
Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.
Notes payable usually require the borrower to pay interest.
True
the amount of stock that may be issued according to the corporations charter is referred to as the
authorized stock
The current portion of long-term debt should
be reclassified as a current liability
Tomlinson Packaging Corporation began business in 2017 by issuing 50,000 shares of $5 par common stock for $8 per share. At year end, the common stock had a market value of $10. On its December 31, 2017 balance sheet, Tomlinson Packaging would report
common stock of $250,000
Explain how to account for bond transactions.
When companies issue bonds, they debit Cash for the cash proceeds and credit Bonds Payable for the face value of the bonds. In addition, they use the accounts Premium on Bonds Payable and Discount on Bonds Payable to show the bond premium and bond discount, respectively.
revenues that are received before goods are delivered or services are performed
1 company increases (debits) Cash and increases (credits) a current liability account, Unearned revenue 2 when the company recognizes revenue, it decreases (debits) the unearned revenue account and increases (credit) a revenue account
determining the payroll involves computing three amounts
1-gross earnings 2-payroll deductions 3-net pay
a corporation records bond transaction when it
1-issues or redeems bonds 2-when bondholders convert bonds into common stock
a debt that a company expects to pay
1. from existing current assets or through the creation of other current liabilities 2. within one year or the operating cycle, whichever is longer
Explain how to account for current liabilities.
A current liability is a debt that a company can reasonably expect to pay (a) from existing current assets or through the creation of other current liabilities, and (b) within one year or the operating cycle, whichever is longer. The major types of current liabilities are notes payable, accounts payable, sales taxes payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest payable.
Two sisters operate a bed and breakfast on the coast of Maine. As customers make reservations They are required to pay cash in advance equal to one-half of the rate for their stay. How should the sisters account for the cash received as reservations are made?
Cash - Unearned service revenue
Johnson Company issued 900 shares of no-par common stock for $17,100. Which of the following journal entries would be made if the stock has no stated value?
Cash 17,100 Common-stock No par value 17,100 $17,100 (no-par stock)
Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1to record the proceeds and issuance of the note is
Cash.............................500,000 Notes Payable.........500,000
Discuss how liabilities are reported and analyzed
Current liabilities appear first on the balance sheet, followed by long-term liabilities. Companies should report the nature and amount of each liability in the balance sheet or in schedules in the notes accompanying the statements.
Madison Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 90,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions?
Debit Cash............900,000 Cred. Unearned subscription revenue.......900,000 $90,000x $10= $900,000
If bonds are issued at a discount, the issuing corporation will pay a principal amount less than the face amount of the bonds on the maturity date.
False
The issuance of common stock affects both paid-in capital and retained earnings.
False
the issuance of common stock affects both paid-in capital and retained earnings
False
West County Bank agrees to lend Drake Builders Company $400,000 on January 1. Drake Builders Company signs a $400,000, 6%, 6-month note. What is the adjusting entry required if Drake Builders Company prepares financial statements on March 30?
Interest Expense..................6,000 Interest Payable.......6,000 $400,000 x .06% x 3/12=$6,000 (Face value x 6% x 3/12)
Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. What is the adjusting entry required if Sadowski Brick Company prepares financial statements on June 30?
Interest Expense.............15,000 Interest Payable......15,000 $500,000 x .06 x 6/12=$15,000 Face val. x 6% x 6/12
Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. What entry will Sadowski Brick Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30?
Notes Payable...............500,000 Interest Payable...............22,500 Cash........................522,500 $500,000 x .06 x 9/12=$25,000 Face val. x 6% x 9/12
Paid-in capital in excess of par value is the portion of the proceeds from issuing common stock or preferred stock that is above par value.
True
Paid-in capital is the amount paid in to the corporation by stockholders in exchange for shares of ownership.
True
Preferred stockholders generally do not have the right to vote for the board of directors.
True
Purchase of treasury stock affects the number of shares outstanding but does not affect the number of shares issued.
True
The classification of a liability as current or noncurrent is important because it may affect the evaluation of a company's liquidity
True
The contractual rate is the rate used to determine cash interest paid
True
The issuance of dividends affects retained earnings but not paid-in capital.
True
paid-in capital in excess of par value is the portion of the proceeds from issuing common stock or preferred stock that is above par value
True
Treasury stock is
a corporation's own stock, which has been reacquired and held for future use
Which of the following is NOT a current liability on December 31, 2017?
a lawsuit judgement to be decided on January 10, 2018
bond prices are quoted as
a percentage of face value
Interest expense on an interest-bearing note is
accrued over the life of the note
In the balance sheet, the account Premium on Bonds Payable is
added to bonds payable
The amount of stock that may be issued according to the corporation's charter is referred to as the
authorized stock
Five thousand bonds with a face value of $1,000 each, are sold at 97. The entry to record the issuance is
cash.................................4,850,000 Discount on bonds payable..............................150,000 Bonds Payable.....5,000,0000 (5,000 x $1000) x .97= $4,850,000 (Number of bonds x $1,000) x 97%
Tomlinson Packaging Corporation began business in 2017 by issuing 50,000 shares of $5 par common stock for $8 per share. At year end, the common stock had a market value of $10. On its December 31, 2017 balance sheet, Tomlinson Packaging would report
common stock of $250,000 50,000 x $5= $250,000
Bonds that may be exchanged for common stock at the option of the bondholders are called
convertible bonds
current ratio
current assets divided by current liabilities
On January 1, 2017, Keisler Company, a calendar-year company, issued $900,000 of notes payable, of which $225,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2017, is
current liabilities, $225,000; Long-term debt, $675,000 $900,000-$225,000=$675,000
On January 1, 2017, Ermler Company, a calendar-year company, issued $2,000,000 of notes payable, of which $500,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2017, is
current liabilities, $500,000; Long-term debt, $1,500,000 $2,000,000-$500,000= $1,500,000 (Total note payable - annual payable)
the journal entry to record the issuance of bonds at a discount will include a
debit to cash for the face amount of the bonds minus the amount of the discount
The following totals for the month of April were taken from the payroll records of Noll Company. Salaries $120,000 FICA taxes withheld 9,180 Income taxes withheld 25,000 Medical insurance deductions. 4,500 Federal unemployment taxes 320 State unemployment taxes 2,160 The entry to record accrual of employer's payroll taxes would include a
debit to payroll tax expense for $11,660
The long-run solvency of a company may be analyzed by computing the
debts to assets ratio
In the balance sheet, the account Discount on Bonds Payable is
deducted from bonds payable
in the balance sheet. the account discount on bonds payable is
deducted from bonds payable
Which of the following most likely would be classified as a current liability?
dividends payable
With an interest-bearing note, the amount of assets received upon issuance of the note is generally
equal to the. notes face value
contingencies
events with uncertain outcomes that may represent potential liabilities
When a promissory note is interest-bearing, the amount of assets received upon the issuance of the note is generally equal to the
face value of the note, and interest expense is accrued over the life of the note. At maturity, the amount paid is equal to the face value of the note plus accrued interest.
bonds may be issued at
face value, below face value (discount), or above face value (premium)
From an accounting standpoint, all of the following are contingencies that must be evaluated for off-balance sheet purposes except
general business risks
current liabilities
include notes payable, accounts payable, unearned revenues
bond is a form of
interest-bearing notes payable
if bonds are issued at a discount, it means that the
market interest rate is higher than the contractual interest rate
The statement "Bond prices vary inversely with changes in the market rate of interest" means that if the
market rate of interest decreases, then bond prices will go up
Unearned Rent Revenue is
reported as a current liability
regular dividends are declared out of
retained earnings
the term payroll pertains to both
salaries and wages
accrued liabilities
taxes, salaries and wages, and interest
As the company recognizes revenue, a transfer from unearned revenue to revenue occurs. Companies report
the current maturities of long-term debt as a current liability in the balance sheet.
The liquidity of a company may be analyzed by computing
the current ratio
What does issued shares represent?
the number of shares that have been sold to stockholders
what does issued shares represent
the number of shares that have been sold to stockholders
Which one of the following is NOTan ownership right of a stockholder in a corporation?
to declare dividends on the common stock
which one of the following is not an ownership right of a stockholder in a corporation
to declare dividends on the common stock
notes payable usually require the borrower to pay interest
true
preferred stockholders generally do not have the right to vote for the board of directors
true
the classification of a liability as a current or concurrent is important because it may affect the evaluation of a company's liquidity
true
the contractual rate is the rate used to determine cash interest paid
true