Accounting, Exam #4, Ch 12- Ch 14
The present value factor at 8% for one period is 0.92593, for two periods is 0.85734, for three periods is 0.79383, for four periods is 0.73503, and for five periods is 0.68058. Given these factors, what amount should be deposited in a bank today to grow to $100 three years from now?
$100 X 0.79383
On April 1, 20X1, German Corporation issued $100,000 of 7%, 5-year bonds dated April 1, 20X1, at 101. Interest is paid on March 31 and September 30. The proper entries to record bond interest expense for the (entire) year ended 20X1 would include a decrease in interest expense for premium amortization in the amount of (round to the nearest dollar and assume straight-line amortization):
$150
You are thinking of borrowing $250,000 to buy a new house. If you are going to finance this purchase at 12% interest per annum, and make 360 level monthly payments to pay off the loan, how much will your payments be?
$250,000/present value factor for annuity of 360 months at 1% per period
Burgundy Drug Store paid $137,000 in salaries during 20X1. Salary expense for the year was $148,500 and salaries payable at the end of 20X1 amounted to $17,300. What was the amount of salaries payable as of January 1, 20X1?
$5,800
The gross payroll for Zurich Corporation was $100,000. Federal income tax withheld from employee paychecks amounted to $24,000, state income tax withheld amounted to $3,000, Social Security amounted to $8,500 (both the employee and employer portion), and Medicare amounted to $3,500 (both the employee and employer portion). Furthermore, employees elected to have $1,000 of insurance and charitable contributions withheld from their paychecks. How much was net pay?
$66,000
Assume that Kamchatny Vladimir borrowed $100,000 on January 1 of Year 1, at 5% interest per annum. On December 31, of Year 1, an $8,000 payment is made. On December 31, of year 2, another $8,000 payment is made. Using normal assumptions about interest and principal reduction, how much is the unpaid balance of Vladimir's loan after the second payment?
$93,850
Jeske Company issued $1,000,000 of 8% bonds at a time when the market rate of interest was 10%. If the bonds were issued at a $50,000 discount and interest was paid annually, how much was interest expense for the first full year of the bond issue (utilize the effective-interest amortization technique)?
$95,000
On June 1, Whit Corporation purchased a truck for $30,000. To pay for the truck, Whit issued and recorded a six-month note payable for $31,500. No other entry was recorded for the note until payment on December 1. The journal entry to record payment of the note would include:
A debit to Interest Expense for $1,500.
When bonds are issued between interest payment dates, the first interest payment will involve cash flow for:
A full period's interest
When bonds are issued between interest payment dates, the first interest payment will involve cash flow for:
A full period's interest
Another name for an accrued liability is an _____________ _____________.
Accrued expense
An _____________ is a series of equal cash flows.
Annuity
The stream of level cash flows is known as a(n):
Annuity
Bonds payable should be disclosed on the balance sheet.
At their face value plus any unamortized premiums.
The provisions of a bond issue are normally stipulated in an accompanying document called a _____________ _____________ .
Bond indenture
Gains and losses may result on:
Bond retirements
Gains and losses may result on:
Bond retirements
The FICA tax is levied on:
Both employees and employers.
T/F When a bond is retired, any unamortized premium or discount should continue to be amortized over the remaining periods the bond would have been outstanding.
False (Recorded as gains or losses and the bond is completely removed)
T/F Bond interest expense for a period is equal to the cash paid for interest plus the premium amortized.
False (minus)
T/F It is a safe bet that all contractual commitments involving future payments are reported on the balance sheet as a liability.
False (usually recorded in the footnotes.)
T/F Secured bonds are often known as debentures.
False. (debentures lack specific collateral)
The _____________ _____________ _____________ _____________ , commonly called Social Security/Medicare, provides retirement, financial, and medical benefits to aged, disabled, widows, and orphans.
Federal insurance contributions act
_____________ _____________ is the amount to which an outlay will grow by the end of a designated time period, while present value is the inverse or reciprocal technique.
Future Value
Deductions from employee earnings, plus net pay, equals:
Gross earnings
In calculating the times interest earned ratio, what amount is included in both the numerator and denominator?
Interest expense
The Discount on Notes Payable:
Is a contra liability account.
Contingent liabilities should be recorded in the accounts when:
It is probable that the future event will occur. and when The amount of the liability can be reasonably estimated
If a bond is issued at a premium, what relation will interest expense bear to the amount of cash paid for interest each period over the life of the bond?
Less than
If a bond is issued at a premium, what relation will interest expense bear to the amount of cash paid for interest each period over the life of the bond?
Less than
Amounts withheld from employees' paychecks are recorded on the employer's books as a:
Liability
A _____________ _____________ is an agreement between a company and its employees that provides for retirement benefits.
Pension plan
When a bond's contract interest rate is higher than the market (effective) rate of interest at the time of issue, the bonds will be issued at a:
Premium
When a bond's contract interest rate is higher than the market (effective) rate of interest at the time of issue, the bonds will be issued at a:
Premium
When bonds are sold at more than face value, the difference between the issue price and the face value is commonly referred to as a _____________.
Premium
Which of the following would not be a typical current liability?
Prepayments (advances) to suppliers
Typical current liabilities include:
Prepayments by customers.
To determine the issue price of a bond, one would need to discount the future cash flow of the bond using factors related to:
Present Value
To determine the issue price of a bond, one would need to discount the future cash flow of the bond using factors related to:
Present Value
Most bonds issued in recent years have been:
Registered
An example of an accrued liability is:
Salaries payable
Which of the following amortization techniques result in a level amount of interest expense over the life of a bond issue?
Straight-line
Which of the following amortization techniques result in a level amount of interest expense over the life of a bond issue?
Straight-line
As a general rule, which type of note payable involves interest-only payments, with the full principal being due at maturity?
Term loan
As a general rule, which type of note payable involves interest-only payments, with the full principal being due at maturity?
Term loan
If the journal entry to record an accrued liability were accidentally recorded twice, it would:
Understate income for the year.
Which of the following payroll taxes is borne exclusively by the employer?
Unemployment tax
The employee's withholding allowance certificate is popularly referred to as a:
W-4
Withholding allowances are determined by reference to the:
W-4
A formal name for the Form W-2 is the _____________ _____________ _____________ _____________ .
Wage and tax statement
The process of reducing the discount by recognizing interest expense is frequently referred to as discount _____________.
amortization
The stream of level cash flows is known as a(n):
annuity
A fund that is set aside to provide for the eventual repayment of bonds at maturity is known as a _____________ _____________ _____________.
bond sinking fund
If a bond is retired early, a gain will result if the retirement price is below the net _____________ _____________ of the bond.
carrying value
Liabilities that are not definite and absolute, but instead give rise to potential liabilities, are known as _____________ _____________.
contingent liabilities
In contrast to secured bonds, _____________ _____________ have no assets pledged as security.
debenture bonds
Premium amortization causes interest expense to _____________.
decrease
The amortization of a premium will cause interest expense to:
decrease
The interest rate printed on the face of a bond certificate is called the contract interest rate, whereas the actual interest rate is the _____________ _____________ _____________.
effective interest rate
Which amortization technique is theoretically superior?
effective-interest
Ratio analysis of indebtedness provides clues about the financial strength of an entity, but the user of the financial statements should look to the notes to determine additional information about other commitments (alternative financing) and _____________ rates on debt.
interest
In calculating the times interest earned ratio, what amount is included in both the numerator and denominator?
interest expense
For bonds issued between interest dates, the issuer will receive accrued interest on the issue date, and repay this interest on the next _____________ date.
payment
The guidelines for recording contingent liabilities into the accounts stipulate that the future event be probable and the amount of liability be _____________ etimable.
reasonably
Most bonds issued in recent years have been:
registered
Employers typically finance retirement plans by making periodic cash payments directly into a _____________ _____________.
retirement account
Warranty costs should be expensed in the period of _____________.
sale
Under _____________- _____________ _____________ , an equal amount of discount is allocated to each interest period, whereas, under the effective interest method of amortization, interest expense is calculated as a constant percentage of the bond carrying value.
straight line amortization
The tax imposed by Federal and state governments to financially assist unemployed workers is the _____________ _____________.
unemployment tax
The amount withheld for federal income taxes is based on employee earnings, frequency of pay, marital status, and the number of _____________ _____________ claimed.
withholding allowances
T/F It is a safe bet that all contractual commitments involving future payments are reported on the balance sheet as a liability.
False
T/F Secured bonds are often known as debentures.
False
T/F Stated simply, paid vacation time should be expensed while the employee is on vacation.
False
T/F The total amounts owed to employees for retirement benefits will appear on the balance sheet as a liability.
False
T/F When a bond is retired, any unamortized premium or discount should continue to be amortized over the remaining periods the bond would have been outstanding.
False
When the contract interest rate for a bond exceeds the effective interest rate of the bond, then:
The bond will be issued at a premium.
Sales tax is an example of a collection for a _____________ _____________ .
Third Party
T/F A Discount account should be established when interest is included in the face amount of the note.
True
T/F At the time a bond is issued, the Bonds Payable account is established for the face amount of the bond.
True
T/F At the time a bond is issued, the Bonds Payable account is established for the face amount of the bond.
True
T/F Collections for third parties should be recorded as a current liability.
True
T/F The process of reducing a discount by recognizing interest expense is frequently referred to as discount amortization.
True
Although one can readily determine the present value factors for a lump sum via tables or computers, a equally simple method is to just divide " _____________ " by "1 + i" raised to the "nth" power, where "n" is the number of periods and "i" is the interest rate per period.
1
The interest rate stated on the face of a bond is the:
Contract Rate
The interest rate stated on the face of a bond is the:
Contract rate
_____________ _____________ are debts or obligations that will be paid within one year or the operating cycle.
Current Liabilities
_____________ bonds permit the issuer to repay bondholders prior to the stipulated maturity date.
Callable
The set amount to be repaid on a bond's maturity date is known as face value, whereas, the bond payable amount less any unamortized discount or plus any unamortized premium is known as _____________ _____________.
Carrying Value
The discount on notes payable is reported as a _____________ _____________.
Contra liability
T/F Bond interest expense for a period is equal to the cash paid for interest plus the premium amortized.
False
On June 1, Surge Corporation issued $100,000 of 9%, 5-year bonds. The bonds are dated June 1, 20X1. The bonds were issued at 96, and pay interest on December 1 and June 1. The entry to record issuance of the bonds is:
Debit Cash for 96,000, Debit Discount on Bonds Payable for 4,000, and Credit Bonds Payable for 100,000
Landry paid $5,000 cash for warranty service work. If a Warranty Liability account had been previously established, the proper journal entry to record the service work would be:
Debit Warranty Liability for 5,000, and Credit Cash for 5,000
As the effective interest rate increases, the issue price of a bond (as determined by its discounted cash flow) will:
Decrease
As the effective interest rate increases, the issue price of a bond (as determined by its discounted cash flow) will:
Decrease
The amortization of a premium will cause interest expense to:
Decrease
In computing the periodic payments on a loan that involves equal payments over the entire term, such that the last payment extinguishes the final amount of obligation, what basic calculation is called for?
Divide the loan amount by an annuity present value
In computing the periodic payments on a loan that involves equal payments over the entire term, such that the last payment extinguishes the final amount of obligation, what basic calculation is called for?
Divide the loan amount by an annuity present value
Which amortization technique is theoretically superior?
Effective-interest
The guidelines for the recognition of contingent liabilities reflect that they should be recorded in the accounts when it is probable that the future event will occur and the amount of the liability can be reasonably:
Estimated
T/F By definition, contingent liabilities are improbable.
False
