ACCT 2081 Chapter 9SB Homework

If the going rate of interest is 10%, which has the greater present value?

$1 received today

On January 1, 2018, Moonbucks, Inc., received $79,380 and agreed to pay $100,000 in 3 years on December 31, 2020. The market rate of interest is 8% compounded annually. For the year ended December 31, 2018, Interest Expense on this note payable equals $________ (Round to the nearest whole dollar.)

6350

When is interest typically recorded as a liability?

As an adjusting entry with the passage of time

Payroll deductions ______. (Check all that apply.)

are amounts subtracted from employees' gross earnings to determine their net pay; decrease the amount of cash an employee receives

Accounts payable are considered good sources of financing because they ______.

are non-interest bearing (does not normally accrue on accounts payable)

If a company forgets to record the journal entry to accrue interest expense, then its net income is too ______ and its liabilities are too ______.

high; low

US corporations pay federal taxes on ______.

income; payroll

Issuing a note payable for cash results in a(n) ______.

increase in assets and an increase in liabilities

________ expense is accrued with the passage of time as a result of debt.

interest/accrued

On January 1, 2018, Vango, Inc. purchased a $30,000 van and promised to pay $11,223.34 on December 31 for the next 3 years. The market rate of interest is 6% compounded annually. The entry to record the 2nd payment on December 31, 2019 will include a ______ than in the 1st payment. (Check all that apply.)

larger debit to Notes Payable; smaller debit to Interest Expense

A ________ is a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time. (Enter one word per blank.)

lease

Assets are financed with ________ and stockholders' equity.

liabilities

The journal entry to record employer payroll taxes owed affects ______.

liabilities and stockholders' equity

What kind of account is deferred (or unearned) revenue?

liability account

Accrued Taxes Payable is a(n) ______ and reports the amount ______.

liability; owed for federal income taxes

Which of the following is a guarantee that protects a customer from product defects for a specified period of time?

warranty

The adjusting entry to record the amount of vacation earned, but not yet taken, includes a ______. (Check all that apply.)

credit to Accrued vacation liability; debit to Compensation expense

Acme Enterprises began the new year owing its suppliers $3,000 for merchandise purchased last year. Acme then sold half of this merchandise for $5,000 on account. Two weeks later, Acme paid its suppliers $1,000 and bought another $4,000 of merchandise on account. Acme now has an Accounts payable balance of ______.

$6,000 3000 - 1000 + 4000 = 6000 accounts payable balance

The present value of paying $10,000 at the end of each year for 3 years and then $100,000 at the end of the 3rd year with a 12% interest per year equals $________ (Round to the nearest $1.)

95288

Which of the following factors will result in a higher present value of $1? (Check all that apply.)

A compounding of interest less frequently; A lower interest rate

Purchase of inventory; Cash paid for employee compensation; Cash received in advance from customers; Cash paid for income taxes

Accounts Payable; Accrued Salaries; Deferred Revenues; Accrued Taxes Payable

Ace Electronics signed a 10-year, $100,000, 4% note payable on January 1. When the note is signed, Ace should record a liability of ______.

$100,000 interest only arrises when time passes

On January 1, 2017, Burrows, Inc. received $16,834 and agreed to pay off the note and interest owed on January 1, 2019. The market rate of interest is 9% compounded annually. The payment made on January 1, 2019 equals a ______ credit to Cash. (round to the nearest $1)

$20,000

A good strategy is to purchase inventory ______.

on credit debit inventory and credit accounts payable

ABC Airlines collects $300 for a round-trip ticket from Chicago to Los Angeles. The flights will not occur until the next accounting period. ABC Airlines records the $300 collected in advance with a debit to ______.

Cash and credit to Deferred (or Unearned) revenue

Which of the following statements are true? (Check all that apply.)

Compounding interest monthly will result in a higher return than compounding annually; Compounding interest at 10% over a 20-year period results in earning more in interest than the original amount invested; Compounding interest means earning interest on interest

Starcents, Inc. purchased equipment and agreed to pay the supplier $10,000 each year for the next 3 years and an additional $100,000 at the end of the 3rd year. The supplier charges 6% interest per year. The entry to record this purchase includes a debit to Equipment of _______.

$110,690

What is the cost of a car if you make equal annual payments of $6,000 over 4 years compounded annually at 9%, rounded to the nearest $1?

$19,438 6000 * 3.2397

The present value of $1 received annually over 3 years compounded at 9% annually rounded to the nearest cent equals ______.

$2.53

Assuming no inflation, $1 invested today is worth ______.

more than $1 received in the future because interest can be earned over time

The number of periods (n) and interest rate (i) per period used in calculating the present value of an annuity that is paid monthly over 5 years at 12% annually are ______.

n=60; i=1%

Which of the following has the highest present value?

$1 annuity compounded annually over 3 years at 5%

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. What is John's net pay?

$480.10 600-37.20-8.70-58-10

The formula to compute the present value of a single payment is ______.

1/(1+i)^n x payment

On January 1, 2018, Moonbucks, Inc., received $79,380 and agreed to pay $100,000 in 3 years on December 31, 2020. The market rate of interest is 8% compounded annually. For the 2nd year ended December 31, 2019, Interest Expense on this note payable equals $________ (Round to the nearest whole dollar.)

6858

What are the key events that occur with any note payable? (Check all that apply.)

Accruing interest incurred, but not paid; Recording interest paid; Recording principal paid

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2019. The journal entry on November 1, 2018 would include which of the following? (Check all that apply.)

Debit to Cash for $100,000 Credit to Note payable for $100,000 not recorded until time passes

Which of the following may be classified as contingent liabilities?

Environmental problems; Product warranties; Future litigation losses

True or false: Employers are required to withhold income taxes from employees' pay checks.

True

Accruing a liability always involves recording both a(n)______ and a liability.

expense

Which financial statements are needed in order to calculate the accounts payable turnover ratio? (Check all that apply.)

income statement; balance sheet

On January 1, 2018, Vango, Inc. purchased a van and promised to pay $11,223.34 on December 31 for the next 3 years. The market rate of interest is 6% compounded annually. The amount of the purchase is calculated by ______.

multiplying $11,223.34 by the present value of an annuity with n=3 and i=6%.

Which of the following are the correct number of periods (n) and interest rate (i) per period to use to calculate the present value of a 12% loan that requires quarterly payments of $1,000 over 5 years? (Check all that apply.)

n=20; i=3%

Match the proper periods and interest rate per period to use in calculating the following present values.

n=24; i=0.5% --> 2-year, 6% annuity paid monthly; n=2; i=6% --> 2-year, 6% paid annually; n=4; i=3% --> 2-year, 6% semi-annual payments; n=8; i=1.5% --> 2-year, 6% quarterly payments

The current ratio and working capital are financial measures of ______.

liquidity

Today's Fashions has a debt that has been properly reported as long-term debt before this year. Part of this debt is due this year. If Today's Fashions continues to report the current position of the debt as a long-term liability, then ______.

the current ratio will be overstated

When a company borrows money from a bank and signs a formal written contract that specifies the amount borrowed, the date it must be repaid and the interest rate, the company will debit Cash and credit ________ ________ (Enter one word per blank.)

notes payable

Which of the following would result in a deferred revenue? (Select all that apply.)

sales of subscriptions; sales of gift cards

On January 1, 2018, Vango, Inc. purchased a van and promised to pay $11,223.34 on December 31 for the next 3 years. The market rate of interest is 6% compounded annually. The entry to record the purchase includes a ______. (Check all that apply.) Note: Present value of an annuity at 6% and 3 years = 2.6730; Present value of $1 at 6% and 3 years = 0.8396

$30,000 credit to Notes Payable; $30,000 debit to Equipment

On January 1, 2018, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, 2020. The market rate of interest is 6% compounded annually. For the year ended December 31, 2018, Interest Expense on this note payable equals ______. (Round to the nearest whole dollar.)

$534 8900 * 0.06 = 534 in 2018 8900 + 534 = 566 rounded in 2019

On January 1, 2018, Le Sea, Inc. purchased equipment by issuing a note that requires 10 annual payments of $10,000 based on an 8% effective interest rate. The entry to record the purchase on January 1, 2018 includes a ______. (Check all that apply.)

$67,100 debit to Equipment; $67,100 credit to Note Payable

The present value of a 12% annuity requiring quarterly payments of $1,000 over 2 years, rounded to the nearest $1, equals ______.

$7,020 1,000 * 7.0197

During 2019, Barry Bees, Inc.'s Sales equal $30,000 and Cost of goods sold equals $10,000. Its December 31, 2018 Accounts payable was $800 and its December 31, 2019 Accounts payable is $1,200. Barry Bee's accounts payable turnover equals ______ times for the year ended December 31, 2019.

10 10,000/1,000* *(800+1200)/2

XYZ borrowed $50,000 this year. Half of the loan will be repaid next year and the remainder will be paid the following year. How will the $50,000 be reported on its balance sheet at the end of this year? (Check all that apply.)

Long-term debt of $25,000; Current portion of long-term debt of $25,000

Analysts say that a company has ________ if it has the ability to meet its current obligations. (Enter one word per blank.)

liquidity

An end-of-period adjusting entry that debits deferred (or unearned) revenue most likely will credit a(n) ______ account.

revenue

A bond's maturity date is the date ______.

on which the bond principal will be repaid in full

Many current liabilities on the balance sheet, such as Accounts payable, Accrued wages and Deferred revenue, have a direct relationship to ________ activities on the statement of cash flows. (Enter one word per blank.)

operating

Which of the following have the same present value given a 10% interest rate compounded annually? (Check all that apply.)

$1 today; $1.10 one year from today

List the present values from smallest (top) to largest (bottom). Assume compounding annually.

$1,000 received in 3 years at 9%; $1,000 received in 3 years at 6%; $1,000, 3-year annuity at 9%; $1,000 3-year annuity at 6%

On January 1, Year 1, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, Year 3. The market rate of interest is 6% compounded annually. Assuming Notes Payable includes the accrued interest through year-end December 31, Year 2, the journal entry to record the payment of this note on January 1, Year 3 includes a ______. (Check all that apply.)

$10,000 debit to Notes Payable; $10,000 credit to Cash

On January 1, 2018, Burrows, Inc. received $8,900 and agreed to pay $10,000 on January 1, 2020. The market rate of interest is 6% compounded annually. For the 2nd year of this note (i.e., ended December 31, 2019), Interest Expense on this note payable equals ______. (Round to the nearest $1.)

$566

Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal income tax $18,000 and State income tax $3,850. What is the net pay to employees?

$70,000 100,000-6,700-1,450-18,000-3850

The entry to record the purchase of equipment that requires a $10,000 payment in 2 years includes a ______. The market rate of interest is 9% compounded annually. (Check all that apply.)

$8,417 debit to Equipment; $8,417 credit to Notes Payable

On January 1, 2018, Vango, Inc. purchased a $30,000 van and promised to pay $11,223.34 on December 31 for the next 3 years. The market rate of interest is 6% compounded annually. The entry to record the 1st payment on December 31, 2018 includes ______. (Check all that apply.)

$9,423.34 debit to Notes Payable; $1,800 debit to Interest Expense; $11,223.34 credit to Cash

Which of these payroll taxes are paid only by the employer? (Check all that apply.)

FUTA; SUTA

True or false: An annuity is a series of unequal payments made at the same time each period.

False series of equal payments

Which of the following are long-term liabilities? (Check all that apply.)

Notes payable due in 3 years; Private placement of debt due in 3 years; Bonds payable

Which of the following would result in an accrued liability? (Select all that apply.)

Vacation owed; Health insurance coverage in retirement; Income taxes incurred but not yet paid

Bonds ______. (Check all that apply.)

are sold in established markets making them liquid; allow companies to raise more debt capital than a note payable because the bonds are issued to many creditors

A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n) ______.

lease

The journal entry to record the purchase of an asset in exchange for $100,000 due in 3 years at a market rate of interest of 12% compounded annually includes a debit to the asset in the amount of ______.

the present value of $100,000 discounted at 12% for 3 years

The feature that distinguishes loss contingencies from other liabilities is the ________ that a loss will occur. (Enter one word per blank.)

uncertainty

Sally Company manufactures large kitchen appliances. For the first year of purchase, the company will repair any manufacturing defect free of charge. Sally apparently sells its appliances with a ________ (Enter one word per blank.)

warranty