ch 10 accounting

a contractual agreement allowing one party (the lessee) to use the asset of another party (the lessor) accounted for as a rental

Operating leases

The difference btwn the selling price and the face value of a bond is sold for more than its face value

Premium

what do people use mortgage notes payable for

Purchasing homes, acquiring plant assets

How to compute ammortization amount with effective interest method

bond interest expense/ bond interest paid

a form of interest bearing notes payable issued by corporations, universities, and governmental entities

bonds

The value today of an amount to be received at some date in the future after taking into account current interest rates

the present value

what does liquidity rartios measure

the short term ability of a company to pay its maturing obligations and to meet unexpected needs for cash

debt to assets ratio equation

total liabilities/ total assets

Semiannual interest payments on bonds are equal to the face value times the stated rate times 6/12. true or false

true

The market rate is the rate investors demand for loaning funds. true or false

true

The present value of a bond is the value at which it should sell in the market. true or false

true

On January 1, Anthony Corporation issued $1,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $1,072,096. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, how much is the debit entry to Bond Interest Expense? $125,581 $128,652 $140,000 $120,000

$128,652 Bond interest expense for the first interest date = $1,072,096 × 12% = $128,652.

rate established when bonds are issued that maintains a constant balue for interest expene as a percentage of bond carrying value in each interest period

Effective interest rate

When company recognizes revenue, ------------- unearned revenue account and-------- a revenue account

(1) decreases (debits) unearned revenue account (2) increases (credits) revenue account

When the company receives an advance, it------------ cash and ---------- current liabilities identifying the source of the unearned revenue

(1) increases (debit) cash (2) increases (credit) current liabilities account

How to determine sales tax amount when companies do not enter sales taxes seperately on cash register

(1) subtract sales from total receipts (2) Multiply sales by sales tax rate

Ivanhoe Company issues $265,000, 20-year, 10% bonds at 103. Prepare the journal entry to record the sale of these bonds on June 1, 2017

(Dr.) Cash 272950 (26500 x 103%) (Cr.) premium on bonds payable 7950 bonds payable 265000

Bramble University sells 6,500 season basketball tickets at $55 each for the entire 13-game home schedule. Give the entry to record the revenue recognized after playing the first home game.

(Dr.) Unearned ticket revenue 27500 (Cr.) ticket revenue 27500 (6500 x 55 = 357500; 357500/ 13= 27500)

Riverbed Corp issued $512,000 of 11-year bonds at a discount. Prior to maturity, when the carrying value of the bonds was $496,640, the company redeemed the bonds at 98.

(Dr.) bonds payable 512000 loss on bond redemption (501760-496640) (Cr.) cash 501760 (512000 x 98%) discounts on bonds payable 15360

Kingbird, Inc. issues $250,000, 10-year, 6% bonds at 96. Prepare the journal entry to record the sale of these bonds on March 1, 2017.

(Dr.) cash 240000 (250,000 x 96%) discount on bonds payable 10000 (250000-240000) (Cr.) bonds payable 250000 (selling price)

Bramble University sells 6,500 season basketball tickets at $55 each for the entire 13-game home schedule. Give the entry to record the sale of the season tickets

(Dr.) cash 357500 (Cr.) unearned ticket revenue 357300 (6500 x 55 =357500)

Greenspan Supply does not segregate sales and sales taxes at the time of sale. The register total for March 16 is $8,400. All sales are subject to a 5% sales tax.

(Dr.) cash 8400 (Cr.) sales revenue 8000 (8400/1.05) sales taxes payable 400

Sandhill Co. borrows $98,400 on July 1 from the bank by signing a $98,400, 10%, 1-year note payable. Prepare the journal entry to record the proceeds of the note.

(Dr.) cash 98400 (Cr.) Notes payable 98400

Sandhill Co. borrows $98,400 on July 1 from the bank by signing a $98,400, 10%, 1-year note payable. Prepare the journal entry to record the accrued interest at December 31, assuming adjusting entries are made only at the end of the year

(Dr.) interest expense 4920 (Cr.) interest payable 4920 (98400 x 10% x 6/12 = 4920)

formula to find times interest earned

(net income+ interest expense+income tax expense)/ Interest expense

If $41,790 is collected in advance on November 1 for 7-month magazine subscriptions, what amount of subscription revenue should be recognized on December 31?

11940 (41970 x 2/7)

The cash register total including sales taxes is $41,790, and the sales tax rate is 5%. What is the sales taxes payable?

1990 (1 + .05 (5%)) (41790/ 1.05 =39800; 41790-39800)

If cash is borrowed on a $66,000, 11-month, 10% note on August 1, how much interest expense would be incurred by December 31?

2750 (66000 x 10% x 5/12) (5 months)

Buttner Company borrows $88,500 on September 1, 2017, from Harrington State Bank by signing an $88,500, 12%, one-year note. How much is accrued interest at December 31, 2017? $4,425 $10,620 $3,540 $2,655

3540 Interest is calculated by multiplying the principal times the annual interest rate times the time period the note is outstanding. At December 31, four months of interest should be accrued: $88,500 × 12% × 4/12 = $3,540.

Kant Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $103,745. Which of the following is part of the entry to record the bond redemption? A credit of $1,255 to Gain on Bond Redemption A debit of $5,000 to Premium on Bonds Payable A credit of $3,745 to Loss on Bond Redemption A debit of $3,745 to Premium on Bonds Payable

A debit of $3,745 to Premium on Bonds Payable he entry to record this transaction will have debits to Bonds Payable for $100,000, Premium on Bonds Payable for $3,745 and Loss on Retirement for $1,255. The credit will be to cash for $105,000.

A legal document that indicates the name of the issuer, the face value of the bonds, and other data such as contractual interest rate and the maturity dat of the bonds

Bond certificate

equation to calculate bond discount amortization

Bond discount/ number of interest periods

How to calculate bond premium amortization

Bond premium/ number of interest periods

who is the person who buys bonds

Bondholder

whats considered long term liabilities

Bonds and long term notes

How is the market value of a bond issuance determined? By computing the present value of the principal. By adding the face value of the principal amount to the stated value of the interest payments. By adding the present value of the principal amount to the present value of the interest payments. By computing the present value of the interest payments.

By adding the present value of the principal amount to the present value of the interest payments.

Bonds that the issuing company can redeem (buy back) at a started dollar amount prior to maturity

Callable bonds

Rate used to determine the amount of interest the borrower pays and the investor receives

Contractual (stated) interest rate

bonds that can be converted into common stock at the bondholder's option

Convertible bonds

how do you measure liquidity (current ratio)

Current assets/current liabilities

A debt that a company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilites and (2) within one year or the operating cycle, whichever is longer

Current liability

the difference btwn face value of a bond and its selling price when a bond is sold for less than its face value

Discount ( on a bond)

How do you determine amount of sales when companies do not enter sales taxes seperately on cash register

Divide total receipts by 100% plus the sales tax percentage

superior university sells 10,000 season football tickets for $50 each for 5 games home schedule, Journal entry looks like

Dr. Cash 500,000 Cr. Unearned ticket revenue 500,000

As each game is completed superior records recogintion of $100,000 (500,000/ 5) of revenue, journal entry looks like

Dr. unearned ticket revenue 100,000 Cr. ticket revenue 100.000

Amount of principal due at the maturity date of the bond

Face value

how would you journalize contingencies (losing lawsuit)

Increasing (DR.) loss account increasing (Cr.) a liability (like lawsuit liability)

What is the effect of amortizing a bond discount? It decreases bond interest expense. There is no effect on the bond interest expense. It decreases the maturity value of the bonds. It increases the carrying value of the bonds.

It increases the carrying value of the bonds.

The rate investors demand for loaning funds to the corporation

Market interest value

The date on which the final payment on a bond is due from the bond issuer to the investor

Maturity date

In operating leasses, does asset or liabilities show up on the books?

Neither

the intentional effort by a company to structure its financing arrangements so as to avoid showing liabilities on its balance sheet

Off balance sheet financing

bonds that have specific assets of the issuer pledged as collateral

Secured bonds

a method of amortixing bond discount of bond premium that allocates the smae amount to interest expense in each interest period

Straight line method of amortization

a measure of a companys solvency, calculated by dividing the sum of net income, interest expense and income tax expense by interest expense

TImes interest earned

The relationship between time and money. A dollar received today is worth more than a dollar promised at some time in the future

Time value of money

The Jacksonville Jaguars sell season tickets to NFL football games. There are 10 home games during the season, which runs from August through December. During February, 65,000 season tickets were sold for $12,000,000 cash. Which account will be credited by the Jacksonville Jaguars upon receipt of the $12,000,000? Prepaid Tickets Unearned Ticket Revenue Tickets Receivable Ticket Revenue

Unearned Ticket Revenue

Bonds issued against the general credit of the borrower

Unsecured bonds

when do bonds sell at face value?

WHen contactual interst rate and the market interest rate are the same

For capital leases, does liabilities or assets increase?

both

indicate whether it should be classified as a current liability, noncurrent liability, or both. b) A 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments.

both

A contractual agreement allowing one party (the lessee) to use the assets of another party ( the lessor) accounted for like a debt financed purchase by the lessee

captial leases

how to compute the bond interest expense

carrying value of bonds at the beginningof interest period x effective interest rate

events with uncertain outcomes that may represent potential liabilities

contingencies

indicate whether it should be classified as a current liability, noncurrent liability, or both. (c) Interest payable of $15,000 on the mortgage.

current liability

indicate whether it should be classified as a current liability, noncurrent liability, or both. (d) Accounts payable of $60,000.

current liability

Qhat does sovency ratios measure

the ability of a company to survive over a long period of time

a method of amortizing bond discount or bond premium that results in periodic interest expense equal to a constant percentage of the carrying value of the bonds

effective interest method of amortization

How to compute bond interest paid

face value of bonds x contractual interest rate

Convertible bonds are also known as callable bonds. true or false

false

If the contractual rate of interest is lower than the market rate of interest, bonds will sell at a premium. True False

false

obligations that a company expects to pay more than one year in the future

long term liabiliities

The time period for classifying a liability as current is one year or the operating cycle, whichever is probable. shorter. possible. longer.

longer

A long term note secured by a mortgage that pedges title to specific assets as security for the loan

mortgage note payable

Which one of the following is not a typical current liability? Mortgages payable Current maturities of long-term debt Salaries payable Interest payable

mortgages payable

indicate whether it should be classified as a current liability, noncurrent liability, or both. (a) A note payable for $100,000 due in 2 years.

noncurrent liabilities

An obligatin in the form of a written note

notes payable

What are considered current liabilities

notes payable, accounts payable, unearned revenues, accured liabilities (taxes, salaries and wages, and interest)

how do you determine carrying value

subtracting balance of discounts account from balance of bonds payable account