acct 13 14
On December 31, 2018, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $3,000,000 note with $300,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $1,450,000, an original cost of $2,400,000, and accumulated depreciation of $1,150,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2021, reduces the face amount of the note to $1,250,000, and reduces the interest rate to 6%, with interest payable at the end of each year. *105. Nolte should record interest expense for 2021 of a. $0. b. $75,000. c. $150,000. d. $225,000.
a. $0.
92. On September 1, Horton purchased $39,900 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges were $840. Payment for the purchase was made on September 18. Assuming Horton uses the perpetual inventory system and the net method of accounting for purchase discounts, what amount is recorded as inventory from this purchase? a. $39,501. b. $40,341. c. $40,740. d. $39,900.
a. $39,501.
104. Elmer Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of common stock. If the stock is sold for $30 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? a. $1,500,000 b. $2,500,000 c. $1000,000 d. $0
a. $1,500,000
68. A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2020 balance sheet? a. $14,709,481 b. $15,000,000 c. $14,718,844 d. $14,706,232
a. $14,709,481
Vanco Company has 70 employees who work 8-hour days and are paid hourly. On January 1, 2020, the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2020 may first be taken on January 1, 2021. Information relative to these employees is as follows: Hourly Vacation Days Earned Vacation Days Used Year Wages by Each Employee by Each Employee 2020 $20.50 10 0 2021 22.50 10 8 2022 25.50 10 10 Vanco has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned. 111. What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2022? a. $168,000. b. $394,800. c. $142,800. d. $193,200.
a. $168,000.
96. On January 1, 2020, 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, 2022. 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 $187,825. What amount of interest income should Ms. Price recognize in 2020? a. $18,783. b. $25,000. c. $75,000. d. $56,350.
a. $18,783.
103. Jump Corporation has $3,000,000 of short-term debt it expects to retire with proceeds from the sale of 85,000 shares of common stock. If the stock is sold for $25 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? a. $2,125,000 b. $3,000,000 c. $875,000 d. $0
a. $2,125,000
132. In 2020, Pollard Corporation began selling a new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows: First year of warranty 3% Second year of warranty 5% Sales and actual warranty expenditures for 2020 and 2021 are presented below: 2020 2021 Sales $750,000 $1,050,000 Actual warranty expenditures 45,000 75,000 What is the estimated warranty liability at the end of 2021?(assume the accrual method) a. $24,000. b. $96,000. c. $144,000. d. $30,000.
a. $24,000.
72. A company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2020 balance sheet? a. $24,515,802 b. $25,000,000 c. $24,531,405 d. $24,510,385
a. $24,515,802
On January 1, 2020, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6%........................................... .627 Present value of 1 for 8 periods at 8%........................................... .540 Present value of 1 for 16 periods at 3%......................................... .623 Present value of 1 for 16 periods at 4%......................................... .534 Present value of annuity for 8 periods at 6%................................. 6.210 Present value of annuity for 8 periods at 8%................................. 5.747 Present value of annuity for 16 periods at 3%............................... 12.561 Present value of annuity for 16 periods at 4%............................... 11.652 60. The present value of the principal is a. $3,204,000. b. $3,240,000. c. $3,738,000. d. $3,762,000.
a. $3,204,000.
On January 1, 2020, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6%........................................... .627 Present value of 1 for 8 periods at 8%........................................... .540 Present value of 1 for 16 periods at 3%......................................... .623 Present value of 1 for 16 periods at 4%......................................... .534 Present value of annuity for 8 periods at 6%................................. 6.210 Present value of annuity for 8 periods at 8%................................. 5.747 Present value of annuity for 16 periods at 3%............................... 12.561 Present value of annuity for 16 periods at 4%............................... 11.652 62. The issue price of the bonds is a. $5,301,360. b. $5,308,920. c. $5,337,360. d. $5,997,600.
a. $5,301,360.
On October 1, 2020 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 premiums or discounts amortized on a straight-line basis. 78. Bond interest expense reported on the December 31, 2020 income statement of Macklin Corporation would be a. $69,000. b. $75,000. c. $81,000. d. $138,000.
a. $69,000.
120. 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. During 2021, $700,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Sawyer Company for 2021? a. $700,000 in losses and no insurance expense b. $700,000 in losses and $675,000 in insurance expense c. $0 in losses and $1,600,000 in insurance expense d. $0 in losses and $2,000,000 in insurance expense
a. $700,000 in losses and no insurance expense
100. In the recent year Hill Corporation had net income of $210,000, interest expense of $50,000, and tax expense of $90,000. What was Hill Corporation's times interest earned for the year? a. 7.0 b. 6.0 c. 5.2 d. 4.2
a. 7.0
113. Qualpoint provides its employees two weeks of paid vacation per year. As of December 31, 65 employees have earned two weeks of vacation time to be taken the following year. If the average weekly salary for these employees is $960, what is the required journal entry? a. Debit Salaries and Wages Expense for $124,800 and credit Salaries and Wages Payable for $124,800. b. No journal entry required. c. Debit Salaries and Wages Payable for $124,295 and credit Salaries and Wages Expense for $124,295. d. Debit Salaries and Wages Expense for $62,400 and credit Salaries and Wages Payable for $62,400.
a. Debit Salaries and Wages Expense for $124,800 and credit Salaries and Wages Payable for $124,800.
121. A company offers a cash rebate of $2 on each $6 package of batteries sold during 2021. Historically, 10% of customers mail in the rebate form. During 2021, 5,000,000 packages of batteries are sold, and 175,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2021 financial statements dated December 31? a. $1,000,000; $1,000,000 b. $1,000,000; $650,000 c. $650,000; $650,000 d. $350,000; $650,000
b. $1,000,000; $650,000
98. On January 1, 2021, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $5,000,000 zero-interest-bearing note payable in 5 equal annual installments of $800,000, with the first payment due December 31, 2021. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $3,605,000 at January 1, 2021. What should be the balance of the Discount on Notes Payable account on the books of Leary at December 31, 2021 after adjusting entries are made, assuming that the effective-interest method is used? a. $0 b. $1,070,550 c. $1,116,000 d. $1,395,000
b. $1,070,550
124. Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2021, the company sold 1,350,000 boxes of Frosted Flakes and customers redeemed 660,000 boxtops receiving 220,000 bowls. If the bowls cost Palmer Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2021? a. $540,000 b. $100,000 c. $150,000 d. $276,000
b. $100,000
95. Cortez Company issues $6,000,000 face value of bonds at 96 on January 1, 2019. The bonds are dated January 1, 2019, 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, 2022, $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, 2022? a. $360,000 loss b. $163,200 loss c. $216,000 loss d. $271,500 loss
b. $163,200 loss
91. The 10% bonds payable of Nixon Company had a net carrying amount of $2,850,000 on December 31, 2020. The bonds, which had a face value of $3,000,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2021, several years before their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2018 was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2021? Ignore taxes. a. $60,000. b. $189,000. c. $168,000. d. $210,000.
b. $189,000.
On January 1, 2020, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6%........................................... .627 Present value of 1 for 8 periods at 8%........................................... .540 Present value of 1 for 16 periods at 3%......................................... .623 Present value of 1 for 16 periods at 4%......................................... .534 Present value of annuity for 8 periods at 6%................................. 6.210 Present value of annuity for 8 periods at 8%................................. 5.747 Present value of annuity for 16 periods at 3%............................... 12.561 Present value of annuity for 16 periods at 4%............................... 11.652 61. The present value of the interest is a. $2,068,920. b. $2,097,360. c. $2,235,600. d. $2,260,980.
b. $2,097,360.
Posner Co. is a retail store operating in a state with a 7% retail sales tax. The retailer may keep 2% of the sales tax collected. Posner Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was $754,350. 100. The amount of sales taxes (to the nearest dollar) for May is a. $62,286. b. $49,350. c. $67,893. d. $52,806.
b. $49,350.
94. Craig borrowed $700,000 on October 1, 2020 and is required to pay $720,000 on March 1, 2021. What amount is the note payable recorded at on October 1, 2020 and how much interest is recognized from October 1 to December 31, 2020? a. $700,000 and $0. b. $700,000 and $12,000. c. $720,000 and $0. d. $700,000 and $20,000.
b. $700,000 and $12,000.
On December 31, 2018, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $3,000,000 note with $300,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $1,450,000, an original cost of $2,400,000, and accumulated depreciation of $1,150,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2021, reduces the face amount of the note to $1,250,000, and reduces the interest rate to 6%, with interest payable at the end of each year. *103. Nolte should recognize a gain or loss on the transfer of the equipment of a. $0. b. $200,000 gain. c. $300,000 gain. d. $950,000 loss.
b. $200,000 gain.
75. On January 1, 2020, Huber Co. sold 12% bonds with a face value of $2,000,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,154,500 to yield 10%. Using the effective-interest method of amortization, interest expense for 2020 is a. $200,000. b. $214,836. c. $215,400. d. $240,000.
b. $214,836.
82. On January 1, Patterson Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of a. $274,500. b. $285,500. c. $258,050. d. $255,000.
b. $285,500.
On February 10, 2021, after issuance of its financial statements for 2020, Higgins Company entered into a financing agreement with Cleveland Bank, allowing Higgins Company to borrow up to $8,000,000 at any time through 2023. Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan. Higgins Company presently has $3,000,000 of notes payable with Star National Bank maturing March 15, 2021. The company intends to borrow $5,000,000 under the agreement with Cleveland and liquidate the notes payable to Star National Bank. The agreement with Cleveland also requires Higgins to maintain a working capital level of $12,000,000 and prohibits the payment of dividends on common stock without prior approval by Cleveland Bank. From the above information only, the total short-term debt of Higgins Company as of the December 31, 2020 balance sheet date is
b. $3,000,000.
93. The 12% bonds payable of Nyman Co. had a carrying amount of $4,160,000 on December 31, 2020. The bonds, which had a face value of $4,000,000, were issued at a premium to yield 10%. Nyman uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2021, several years before their maturity, Nyman retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is a. $0. b. $32,000. c. $49,600. d. $160,000.
b. $32,000.
83. On January 1, Martinez Inc. issued $6,000,000, 11% bonds for $6,390,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of: a. $370,260 b. $369,000 c. $347,000 d. $330,000
b. $369,000
96. Venible newspapers sold 6,000 of annual subscriptions at $150 each on June 1. How much unearned revenue will exist as of December 31? a. $0. b. $375,000. c. $450,000. d. $900,000.
b. $375,000.
118. A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2021. Historically, 10% of customers mail in the rebate form. During 2021, 3,750,000 packages of light bulbs are sold, and 200,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2021 financial statements dated December 31? a. $375,000; $375,000 b. $375,000; $175,000 c. $175,000; $175,000 d. $200,000; $175,000
b. $375,000; $175,000
Posner Co. is a retail store operating in a state with a 7% retail sales tax. The retailer may keep 2% of the sales tax collected. Posner Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was $754,350. 101. The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is a. $37,719. b. $48,363. c. $62,286. d. $51,750.
b. $48,363.
126. Crispy Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from Crispy Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2021, the company sold 800,000 boxes of Frosted Flakes and customers redeemed 352,000 boxtops receiving 88,000 bowls. If the bowls cost Crispy Company $2 each, how much liability for outstanding premiums should be recorded at the end of 2021? a. $240,000 b. $64,000 c. $96,000 d. $134,400
b. $64,000
81. At the beginning of 2020, Wallace Corporation issued 10% bonds with a face value of $6,000,000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $5,558,400 to yield 12%. Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2020? (Round your answer to the nearest dollar.) a. $688,320 b. $669,018 c. $667,000 d. $665,000
b. $669,018
94. Didde Company issues $25,000,000 face value of bonds at 96 on January 1, 2019. The bonds are dated January 1, 2019, 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, 2022, $15,000,000 of the bonds are called at 102 plus accrued interest. What loss would be recognized on the called bonds on September 1, 2022? a. $1,500,000 loss b. $680,000 loss c. $900,000 loss d. $1,133,750 loss
b. $680,000 loss
134. Flavor Food Company distributes to consumers coupons which may be presented (on or before a stated expiration date) to grocers for discounts on certain products of Flavor. The grocers are reimbursed when they send the coupons to Flavor. In Flavor's experience, 50% of such coupons are redeemed, and generally one month elapses between the date a grocer receives a coupon from a consumer and the date Flavor receives it. During 2021 Flavor issued two separate series of coupons as follows: Consumer Amount Disbursed Issued On Total Value Expiration Date as of 12/31/21 1/1/21 $500,000 6/30/21 $236,000 7/1/21 840,000 12/31/21 350,000 The only journal entry recorded to date is: debit to coupon expense and credit to cash of $815,000. The December 31, 2021 balance sheet should include a liability for unredeemed coupons of: a. $0. b. $70,000. c. $184,000. d. $420,000.
b. $70,000.
87. At December 31, 2020 the following balances existed on the books of Foxworth Corporation: Bonds Payable $6,000,000 Discount on Bonds Payable 840,000 Interest Payable 150,000 If the bonds are retired on January 1, 2021, at 102, what will Foxworth report as a loss on redemption? a. $1,110,000 b. $960,000 c. $810,000 d. $600,000
b. $960,000
92. A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $1,500,000. To extinguish this debt, the company had to pay a call premium of $500,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes? a. Amortize $2,000,000 over four years. b. Charge $2,000,000 to a loss in the year of extinguishment. c. Charge $500,000 to a loss in the year of extinguishment and amortize $1,500,000 over four years. d. Either amortize $1,000,000 over four years or charge $1,000,000 to a loss immediately, whichever management selects.
b. Charge $2,000,000 to a loss in the year of extinguishment.
114. Sandy Shoes Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $800,000. What is the required journal entry as a result of this litigation? a. Debit Litigation Expense for $800,000 and credit Litigation liability for $800,000. b. No journal entry is required. c. Debit Litigation Expense for $320,000 and credit Litigation Liability for $320,000. d. Debit Litigation Expense for $480,000 and credit Litigation Liability for $480,000.
b. No journal entry is required.
90. On January 1, 2015, Hernandez Corporation issued $18,000,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hernandez at 105. Hernandez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method). On December 31, 2021, when the fair value of the bonds was 96, Hernandez repurchased $4,000,000 of the bonds in the open market at 96. Hernandez has recorded interest and amortization for 2021. Ignoring income taxes and assuming that the gain is material, Hernandez should report this reacquisition as a. a loss of $196,000. b. a gain of $196,000. c. a loss of $244,000. d. a gain of $244,000.
b. a gain of $196,000.
85. 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 a. credit of $18,750 to Loss on Bond Redemption. b. credit of $18,750 to Discount on Bonds Payable. c. debit of $28,750 to Gain on Bond Redemption. d. debit of $10,000 to Premium on Bonds Payable.
b. credit of $18,750 to Discount on Bonds Payable.
On October 1, 2020 Bartley Corporation issued 5%, 10-year bonds with a face value of $8,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. 79. The entry to record the issuance of the bonds would include a a. credit of $200,000 to Interest Payable. b. credit of $320,000 to Premium on Bonds Payable. c. credit of $7,680,000 to Bonds Payable. d. debit of $320,000 to Discount on Bonds Payable.
b. credit of $320,000 to Premium on Bonds Payable.
86. 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. The entry to record the redemption will include a a. credit of $18,725 to Loss on Bond Redemption. b. debit of $18,725 to Premium on Bonds Payable. c. credit of $6,275 to Gain on Bond Redemption. d. debit of $25,000 to Premium on Bonds Payable.
b. debit of $18,725 to Premium on Bonds Payable.
90. Greeson Corp. signed a three-month, zero-interest-bearing note on November 1, 2020 for the purchase of $500,000 of inventory. The face value of the note was $507,800. Greeson used a "Discount of Note Payable" account to initially record the note. Assuming that the discount will be amortized equally over the 3-month period and that there was no adjusting entry made for November, the adjusting entry made at December 31, 2020 will include a a. debit to Discount on Note Payable for $2,600. b. debit to Interest Expense for $5,200. c. credit to Discount on Note Payable for $2,600. d. credit to Interest Expense for $5,200.
b. debit to Interest Expense for $5,200.
88. At December 31, 2020 the following balances existed on the books of Rentro Corporation: Bonds Payable $7,000,000 Discount on Bonds Payable 980,000 Interest Payable 168,000 If the bonds are retired on January 1, 2021, at 102, what will Rentro report as a loss on redemption? a. $700,000 b. $945,000 c. $1,120,000 d. $1,288,000
c. $1,120,000
67. A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using effective-interest amortization, how much interest expense will be recognized in 2020? a. $585,000 b. $1,170,000 c. $1,176,373 d. $1,176,249
c. $1,176,373
101. In recent year Cey Corporation had net income of $750,000, interest expense of $150,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year? a. $1,000,000 b. $1,350,000 c. $1,200,000 d. None of these answers are correct.
c. $1,200,000
71. A company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using effective-interest amortization, how much interest expense will be recognized in 2020? a. $975,000 b. $1,950,000 c. $1,960,623 d. $1,960,415
c. $1,960,623
107. A company gives each of its 75 employees (assume they were all employed continuously through 2020 and 2021) 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 2020, they made $21 per hour and in 2021 they made $24 per hour. During 2021, they 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. What amount of vacation liability would be reflected on the 2020 and 2021 balance sheets, respectively? a. $151,200; $210,600 b. $172,800; $216,000 c. $151,200; $216,000 d. $172,800; $210,600
c. $151,200; $216,000
117. Excom manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $300 per unit sold and reported a liability for estimated warranty costs $10.4 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $324 million and paid warranty claims of $12,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? a. $3,733,333. b. $6,000,000. c. $16,400,000. d. $18,000,000.
c. $16,400,000.
108. A company gives each of its 75 employees (assume they were all employed continuously through 2020 and 2021) 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 2020, they made $24.50 per hour and in 2021 they made $28 per hour. During 2021, they 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. What amount of vacation liability would be reflected on the 2020 and 2021 balance sheets, respectively? a. $176,400; $245,700 b. $201,600; $252,000 c. $176,400; $252,000 d. $201,600; $245,700
c. $176,400; $252,000
64. Feller Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2020 at 97 plus accrued interest. The bonds are dated January 1, 2020, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $19,400,000 b. $20,450,000 c. $19,700,000 d. $19,100,000
c. $19,700,000
95. Parton owes $3 million that is due on February 28. The company borrows $2,400,000 on February 25 (5-year note) and uses the proceeds to pay down the $3 million note and uses other cash to pay the balance. How much of the $3 million note is classified as long-term in the December 31 financial statements? a. $3,000,000. b. $0. c. $2,400,000. d. $600,000.
c. $2,400,000.
65. Everhart Company issues $25,000,000, 6%, 5-year bonds dated January 1, 2020 on January 1, 2020. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods .88385 .86261 .78353 .74726 Present value of a single sum for 10 periods .78120 .74409 .61391 .55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 a. $25,000,000 b. $26,082,470 c. $26,094,045 d. $26,086,540
c. $26,094,045
76. On January 2, 2020, a calendar-year corporation sold 8% bonds with a face value of $3,000,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,768,000 to yield 10%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2020? a. $240,000. b. $276,800. c. $277,720. d. $300,000.
c. $277,720.
66. Farmer Company issues $30,000,000 of 10-year, 9% bonds on March 1, 2020 at 97 plus accrued interest. The bonds are dated January 1, 2020, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $29,100,000 b. $30,675,000 c. $29,550,000 d. $28,650,000
c. $29,550,000
97. On January 1, 2021, Jacobs Company sold property to Dains Company which originally cost Jacobs $2,660,000. There was 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, 2021. 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 $3,481,800. What is the amount of interest income that should be recognized by Jacobs in 2021, using the effective-interest method? a. $0. b. $140,000. c. $348,180. d. $420,000.
c. $348,180.
102. Valley, Inc., is a retail store operating in a state with a 5% retail sales tax. The state law provides that the retail sales tax collected during the month must be remitted to the state during the following month. If the amount collected is remitted to the state on or before the twentieth of the following month, the retailer may keep 3% of the sales tax collected. On April 10, 2020 Valley remitted $203,700 tax to the state tax division for March 2020 retail sales. What was Valley's March 2020 retail sales subject to sales tax? a. $4,074,000. b. $3,990,000. c. $4,200,000. d. $4,112,500.
c. $4,200,000.
84. At the beginning of 2020, Winston Corporation issued 10% bonds with a face value of $4,000,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $3,705,600 to yield 12%. Winston uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2020? (Round your answer to the nearest dollar.) a. $443,334 b. $444,666 c. $446,012 d. $458,880
c. $446,012
63. Downing Company issues $5,000,000, 6%, 5-year bonds dated January 1, 2020 on January 1, 2020. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods .88385 .86261 .78353 .74726 Present value of a single sum for 10 periods .78120 .74409 .61391 .55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 a. $5,000,000 b. $5,216,494 c. $5,218,809 d. $5,217,309
c. $5,218,809
109. The total payroll of Trolley Company for the month of October, 2020 was $960,000, of which $180,000 represented amounts paid in excess of $128,400 to certain employees. $600,000 represented amounts paid to employees in excess of the $7,000 maximum subject to unemployment taxes. $180,000 of federal income taxes and $18,000 of union dues were withheld. The state unemployment tax is 1%, the federal unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on an employee's wages to $128,400 and 1.45% in excess of $128,400. What amount should Trolley record as payroll tax expense? a. $87,360. b. $79,560. c. $68,760. d. $73,440.
c. $68,760.
On October 1, 2020 Bartley Corporation issued 5%, 10-year bonds with a face value of $8,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. 80. Bond interest expense reported on the December 31, 2020 income statement of Bartley Corporation would be a. $108,000. b. $184,000. c. $92,000. d. $100,000.
c. $92,000.
89. The December 31, 2020, balance sheet of Hess Corporation includes the following items: 9% bonds payable due December 31, 2026 $5,000,000 Unamortized premium on bonds payable 135,000 The bonds were issued on December 31, 2016, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2021, Hess retired $2,000,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. a. $94,000. b. $54,000. c. $93,000. d. $100,000.
c. $93,000.
135. Presented below is information available for Marley Company. Current Assets Cash $ 4,000 Short-term investments 55,000 Accounts receivable 61,000 Inventory 110,000 Prepaid expenses 30,000 Total current assets $260,000 Total current liabilities are $100,000. The acid-test ratio for Marley is: a. 2.60 to 1 b. 2.30 to 1 c. 1.20 to 1 d. 0.59 to 1
c. 1.20 to 1
133. On January 3, 2021, Benton Corp. owned a machine that had cost $400,000. The accumulated depreciation was $240,000, estimated salvage value was $24,000, and fair value was $640,000. On January 4, 2021, this machine was irreparably damaged by Pogo Corp. and became worthless. In October 2021, a court awarded damages of $480,000 against Pogo in favor of Benton. At December 31, 2021, 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, 2021, what amount should Benton accrue for this gain contingency? a. $640,000. b. $520,000. c. $400,000. d. $0.
d. $0.
70. A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. What is interest expense for 2021, using straight-line amortization? a. $1,540,208 b. $1,170,000 c. $1,176,894 d. $1,184,845
d. $1,184,845
74. A company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. What is interest expense for 2021, using straight-line amortization? a. $1,925,260 b. $1,950,000 c. $1,961,490 d. $1,974,741
d. $1,974,741
127. Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2020 and 2021 are as follows: 2020 2021 Bags of dog food sold 500,000 600,000 Leashes purchased 18,000 22,000 Coupons redeemed 120,000 150,000 The premium expense for 2020 is a. $250,000. b. $60,000. c. $100,000. d. $112,500.
d. $112,500.
129. Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2020 and 2021 are as follows: 2020 2021 Bags of dog food sold 500,000 600,000 Leashes purchased 18,000 22,000 Coupons redeemed 120,000 150,000 The premium liability at December 31, 2021 is
d. $112,500.
Vanco Company has 70 employees who work 8-hour days and are paid hourly. On January 1, 2020, the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2020 may first be taken on January 1, 2021. Information relative to these employees is as follows: Hourly Vacation Days Earned Vacation Days Used Year Wages by Each Employee by Each Employee 2020 $20.50 10 0 2021 22.50 10 8 2022 25.50 10 10 Vanco has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned. 110. What is the amount of expense relative to compensated absences that should be reported on Vanco's income statement for 2020?
d. $114,800.
69. A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2019. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2021? a. $14,752,672 b. $14,955,466 c. $14,725,374 d. $14,747,642v
d. $14,747,642
On December 31, 2020, Isle Co. has $6,000,000 of short-term notes payable due on February 14, 2021. On January 10, 2019, Isle arranged a line of credit with Beach Bank which allows Isle to borrow up to $4,500,000 at one percent above the prime rate for three years. On February 2, 2021, Isle borrowed $3,600,000 from Beach Bank and used $1,500,000 additional cash to liquidate $5,100,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2020 balance sheet which is issued on March 5, 2021 is
d. $2,400,000.
106. Roxy Co., which has a taxable payroll of $800,000, is subject to FUTA tax of 6.2% that includes a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Roxy Co.? a. $93,600 b. $65,600 c. $32,000 d. $22,400
d. $22,400
73. A company issues $25,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2019. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2021? a. $24,587,790 b. $24,925,780 c. $24,545,290 d. $24,579,403
d. $24,579,403
On October 1, 2020 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 premiums or discounts amortized on a straight-line basis. 77. The entry to record the issuance of the bonds would include a credit of a. $150,000 to Interest Payable. b. $240,000 to Discount on Bonds Payable. c. $5,760,000 to Bonds Payable. d. $240,000 to Premium on Bonds Payable.
d. $240,000 to Premium on Bonds Payable.
102. The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2021, contained the following accounts. 5-year Bonds Payable 8% $3,000,000 Interest Payable 50,000 Premium on Bonds Payable 100,000 Notes Payable (3 months.) 40,000 Notes Payable (5 yr.) 165,000 Mortgage Payable ($15,000 due currently) 200,000 Salaries and Wages Payable 18,000 Income Taxes Payable (due 3/15 of 2022) 25,000 The total long-term liabilities reported on the balance sheet are a. $3,365,000. b. $3,350,000. c. $3,465,000. d. $3,450,000.
d. $3,450,000.
123. During 2019, Rao Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: (assume the accrual method) Sales Actual Warranty Expenditures 2019 $ 1,600,000 $ 39,000 2020 2,500,000 65,000 2021 2,100,000 135,000 $6,200,000 $239,000 What amount should Rao report as a liability at December 31, 2021? a. $0 b. $71,000 c. $84,000 d. $319,000
d. $319,000
105. Palco Co., which has a taxable payroll of $1,200,000, is subject to FUTA tax of 6.2% that includes a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Palco Co.? a. $139,200 b. $98,400 c. $48,000 d. $33,600
d. $33,600
93. Slack Inc. borrowed $400,000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31? a. $0. b. $48,000. c. $32,000. d. $36,000.
d. $36,000.
On December 31, 2018, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $3,000,000 note with $300,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $1,450,000, an original cost of $2,400,000, and accumulated depreciation of $1,150,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2021, reduces the face amount of the note to $1,250,000, and reduces the interest rate to 6%, with interest payable at the end of each year. *104. Nolte should recognize a gain on the partial settlement and restructure of the debt of a. $0. b. $75,000. c. $275,000. d. $375,000.
d. $375,000.
128. Muggs Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Muggs $4 each. Muggs estimates that 45 percent of the coupons will be redeemed. Data for 2020 and 2021 are as follows: 2020 2021 Bags of dog food sold 500,000 600,000 Leashes purchased 18,000 22,000 Coupons redeemed 120,000 150,000 The premium liability at December 31, 2020 is a. $50,000. b. $72,000. c. $60,000. d. $52,500.
d. $52,500.
125. During 2019, Salton Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 1% of sales in the year of sale, 2% in the year after sale, and 3% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual Warranty Expenditures 2019 $ 1,400,000 $ 26,000 2020 1,000,000 40,000 2021 1,400,000 90,000 $3,800,000 $156,000 What amount should Salton report as a liability at December 31, 2021? a. $0 b. $14,000 c. $34,000 d. $72,000
d. $72,000
116. Composite provides extended service contracts on electronic equipment sold through major retailers. The standard contract is for four years. During the current year, Composite provided 42,000 such warranty contracts at an average price of $162 each. Related to these contracts, the company spent $800,000 servicing the contracts during the current year and expects to spend $4,200,000 more in the future. What is the net profit that the company will recognize in the current year related to these contracts? a. $1,804. b. $6,004,000. c. $800,000. d. $901,000.
d. $901,000.
99. Putnam Company's 2021 financial statements contain the following selected data: Income taxes $40,000 Interest expense 25,000 Net income 60,000 Putnam's times interest earned for 2021 is a. 2.4 times b. 3.4 times. c. 4.0 times. d. 5.0 times.
d. 5.0 times.
91. The effective interest on a 12-month, zero-interest-bearing note payable of $400,000, discounted at the bank at 7% is a. 6.54%. b. 7%. c. 14.29%. d. 7.53%.
d. 7.53%.
112. Qualpoint pays a weekly payroll of $255,000 that includes federal taxes withheld of $38,100, FICA taxes withheld of $23,670, and 401(k) withholdings of $27,000. What is the effect on assets and liabilities from this transaction? a. Assets decrease $255,000 and liabilities do not change. b. Assets decrease $193,230 and liabilities increase $61,770. c. Assets decrease $193,230 and liabilities decrease $61,770. d. Assets decrease $166,230 and liabilities increase $88,770.
d. Assets decrease $166,230 and liabilities increase $88,770.
97. Bargain Surplus made cash sales during the month of October of $375,000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions? a. Debit Accounts Receivable for $375,000. b. Credit Sales Taxes Payable for $21,226. c. Credit Sales Revenue for $347,483. d. Credit Sales Taxes Payable for $22,500.
d. Credit Sales Taxes Payable for $22,500.
115. Xtra Processes is involved with innovative approaches to finding energy reserves. Xtra recently built a facility to extract natural gas at a cost of $12 million. However, Xtra is also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $17 million (the present value of which is $6.5 million). What is the journal entry required to record the asset retirement obligation? a. No journal entry required. b. Debit Natural Gas Facility for $17,000,000 and credit Asset Retirement Obligation for $17,000,000 c. Debit Natural Gas Facility for $5,000,000 and credit Asset Retirement Obligation for $5,000,000. d. Debit Natural Gas Facility for $6,500,000 and credit Asset Retirement Obligation for $6,500,000.
d. Debit Natural Gas Facility for $6,500,000 and credit Asset Retirement Obligation for $6,500,000.
119. A company buys an oil rig for $3,000,000 on January 1, 2021. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000 (present value at 10% is $231,330). 10% is an appropriate interest rate for this company. What expense should be recorded for 2021 as a result of these events? a. Depreciation expense of $360,000 b. Depreciation expense of $300,000 and interest expense of $23,133 c. Depreciation expense of $300,000 and interest expense of $60,000 d. Depreciation expense of $323,133 and interest expense of $23,133
d. Depreciation expense of $323,133 and interest expense of $23,133
122. A company buys an oil rig for $5,000,000 on January 1, 2021. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $1,000,000 (present value at 10% is $385,550). 10% is an appropriate interest rate for this company. What expense should be recorded for 2021 as a result of these events? a. Depreciation expense of $600,000 b. Depreciation expense of $500,000 and interest expense of $38,555 c. Depreciation expense of $500,000 and interest expense of $100,000 d. Depreciation expense of $538,555 and interest expense of $38,555
d. Depreciation expense of $538,555 and interest expense of $38,555
