Chapter 10 Smartbook

Using the effective-interest method, the amount of Interest Expense recorded on a bond issued at discount will be ______ the Interest Expense recorded in previous interest payments. Multiple choice question. A. greater than B. less than C. the same as

A

What effect will issuing more bonds have on the times interest earned ratio over time? Multiple choice question. A. It will decrease. B. It will have no effect. C. It will increase.

A

When recording the adjusting entry to accrue the interest owed on a bond that was issued at face value, the debit to Interest Expense will be ______. Multiple choice question. A. equal to the credit to Interest Payable B. less than the credit to Cash C. greater than the credit to Cash D. equal to the credit to Cash E. greater than the credit to Interest Payable F. less than the credit to Interest Payable

A

Accruing a liability always involves ______ expenses and ______ liabilities. A. decreasing; decreasing B. increasing; decreasing C. increasing; increasing D. decreasing; increasing

C

Bond premium is the amount by which a bond's issue price ______ its face value. Multiple choice question. A. is less than B. equals C. exceeds

C

A bond with an issue price of $10,100 and a face value of $10,000 was issued at ______. Multiple choice question. A. a premium B. face value C. a discount

A

A company's debt-to-assets ratio is 0.7 or 70%. If the company issues common stock for cash, then the debt-to-assets ratio will ______. A. decrease B. increase C. stay the same

A

ABC Airlines collects $300 for a round-trip ticket from Chicago to Los Angeles. The flights will not occur until the next accounting period. How should ABC Airlines record the $300 collected in advance? A. A debit to Cash of $300 and a credit to Deferred Revenue of $300 B. A debit to Revenue of $300 and a credit to Cash of $300 C. A debit to Cash of $300 and a credit to Revenue of $300 D. A debit to Deferred Revenue of $300 and a credit to Cash of $300

A

Accrued Liabilities are ______. A. current liabilities resulting from adjusting entries that record amounts incurred but not yet paid B. current liabilities resulting from the purchase of inventory on account C. long-term liabilities resulting from the purchase of inventory on account D. long-term liabilities resulting from adjusting entries that record amounts incurred but not yet paid

A

Assuming the effective-interest method of amortization is used, the 2nd annual interest payment on bonds issued at a premium will result in a ______ compared to the 1st annual interest payment. Multiple choice question. A. lower debit to Interest Expense and higher debit to Premium on Bonds Payable B. higher debit to Interest Expense and lower debit to Premium on Bonds Payable C. lower debit to Interest Expense and higher credit to Premium on Bonds Payable D. higher debit to Interest Expense

A

For investors, the ______ provide independent, easy-to-use measurements of relative credit risk. A. credit rating agencies B. Financial Accounting Standards Board C. Sarbanes-Oxley D. Securities & Exchange Commission

A

For investors, the ______ provide independent, easy-to-use measurements of relative credit risk. A. credit rating agencies B. Financial Accounting Standards Board C. Sarbanes-Oxley D. Securities & Exchange Commission

A

On November 1, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31 of the following year. Assuming the November 1 transaction was properly recorded, how would the December 31, year-end adjusting entry affect the accounting equation? A. Liabilities increase and stockholders' equity decreases. B. Both assets and stockholders' equity increase. C. Liabilities increase and stockholders' eq

A

On the maturity date, the bondholders of $100,000 of bonds that were issued at a $90,000 will receive ______. Multiple choice question. A. $100,000 in cash plus the interest owed B. $90,000 in cash plus the interest owed C. nothing since there is no transaction on the maturity date

A

Sea the World Cruises Maturity: 2026 stated interest: 1.85 market interest: 2.70 bond price: 93.14 Lilly Maturity: 2020 stated interest: 6.00 market interest: 4.00 bond price: 107.26 McDonald's maturity: 2045 stated interest: 4.88 market interest: 4.10 bond price: 112.89 Which of the following statements is true about Sea the World Cruises' $1,000 bond price? Multiple choice question. A. They sold for $931.40 each. B. They sold for $93.14 each. C. They sold for $9,314 each.

A

The debt-to-assets ratio best answers which financial question? A. What is the percentage of assets financed by debt? B. What is the amount of income earned for each dollar invested in assets? C. What is the income earned for each dollar of sales?

A

Employees' gross earnings differ from their net pay because of ______. Multiple choice question. A. unemployment taxes B. accounts payable C. payroll deductions D. corporate income taxes E. sale taxes

C

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 ______. Multiple choice question . A. $6,000 B. $4,500 C. $1,000 D. $5,500 E. $11,000

A 3,000-1,000+4,000 = 6,000

ABC purchased $500 of merchandise on account. ABC's journal entry to record this transaction includes a ______. (Check all that apply.) A. credit to Accounts Payable of $500 B. debit to Inventory of $500 C. credit to Inventory of $500

AB

The entry to record the payment of previous purchases made on account includes a ______. (Select all that apply.) Multiple select question. A. credit to Cash B. debit to Accounts Payable C. credit to Accounts Payable

AB

On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. The entry ABC would record at maturity when the note is repaid, assuming adjusting entries were made correctly at December 31 but have not been made since then, would include a(n) ______. (Check all that apply.) A. debit to Interest Expense of $1,250 B. debit to Interest Payable of $1,000 C. debit to Notes Payable of $50,000 D. credit to Cash of $52,250 E. credit to Cash of $50,000 F. debit to

ABCD

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. Assuming the payroll deductions are paid in the following month, ABC would record John's pay with a journal entry that includes a ______. (Check all that apply.) A. debit to Salaries and Wages Expense of $600 B. credit to Cash of $486.10 C. credit to FICA Payable of $45.90 D. debit to Salaries and Wages Expense of

ABCE

As of December 31, $110 of interest had been accrued on a 12%, 1-year, $1,000 note payable. On January 31, the entry to record the payment of the note's principal and interest requires a ______. (Select all that apply.) A. $110 debit to Interest Payable B. $1,120 credit to Cash C. $10 debit to Interest Expense D. $110 credit to Interest Payable E. $120 debit to Interest Expense F. $1,000 debit to Notes Payable

ABCF

If ABC Company issues 100 of its $1,000 bonds at a price of 110.00, i.e., $1,100 each, the journal entry to record the transaction includes a ______. (Select all that apply.) Multiple select question. A. credit to Bonds Payable of $100,000 B. credit to Premium on Bonds Payable of $10,000 C. debit to Cash of $90,000 D. debit to Cash of $11,000,000 E. debit to Discount on Bonds Payable of $10,000 F. debit to Cash of $110,000

ABF

ABC Company issues a bond with a face value of $100,000 at par on January 1. ABC prepares financial statements only at December 31, so no adjusting entries are made during the year to accrue interest. If the bond carries a stated interest rate of 6% payable in cash on December 31 of each year, the journal entry to record the first bond interest payment includes a ______ of $6,000. (Select all that apply.) A. debit to Interest Expense B. debit to Interest Payable C. credit to Cash D. credit to I

AC

For investors, credit rating agencies provide independent, easy-to-use measurements of relative credit risk. The most well-known credit rating agencies are ______. (Check all that apply.) Multiple select question. A. Moody's B. Sarbanes-Oxley C. Standard & Poor's D. Securities and Exchanges

AC

The issue price of a bond is ______. (Select all that apply.) Multiple select question. A. based on what the market is willing to pay B. determined by the financial advisers C. based on a present value calculation D. determined by the company issuing the bonds

AC

Which of the following are true when a bond is issued at a premium? (Check all that apply.) Multiple select question. A. The bond will issue for an amount above its face value. B. Interest Expense will exceed the cash interest payments. C. The issue price will be quoted at a number greater than 100. D. The market interest rate is lower than the stated interest rate.

ACD

On November 1, 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 of the following year. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, ABC's year end, would include a ______. (Check all that apply.) Multiple select question. A. debit to Interest Expense of $1,000 B. credit to Cash of $1,000 C. debit to Interest Expense of $6,000 D. credit to Interest Payable of $1,

AD

XYZ borrowed $50,000 on December 31, 2020. Half of the loan will be repaid in in the following year and the remainder will be paid in the year after that, which is longer than XYZ's operating cycle. On its balance sheet at December 31, 2020, XYZ will show ______. (Check all that apply.) Multiple select question. A. current portion of long-term debt of $25,000 B. current portion of long-term debt of $50,000 C. long-term debt of $50,000 D. long-term debt of $25,000

AD

The journal entry to record the payment of salaries and wages for work performed in the current accounting period causes ______. (Select all that apply.) Multiple select question. A. stockholders' equity to decrease B. stockholders' equity to increase C. assets to increase D. liabilities to increase E. assets to decrease F. liabilities to decrease

ADE liabilities increase because payroll deductions increase liabilities

On January 1, XYZ Corporation issued $200,000 of 8%, 5-year bonds when the market rate of interest was 6%. The bonds were issued for $216,849 and interest will be paid annually on December 31. At the end of the year, what is the carrying value of Bonds Payable (including the premium) on the December 31 balance sheet using the effective-interest method? Multiple choice question. A. $200,000 B. $213,860 C. $202,989 D. $203,838

B The carrying (book) value equals the initial bond carrying value of $216,849 minus the premium amortization of $2,989. The amortization equals $16,000 (=$200,000 x 8%) cash paid minus the $13,011 (=$216,849 x 6%) interest expense.

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? Multiple choice question. A. $130,000 B. $78,150 C. $70,000 D. $61,850 E. $100,000

C

A bond discount is ______. Multiple choice question. A. reported on the income statement as a loss on the issuance of a bond B. a result of the interest payments being less than the cost of borrowing C. a result of the interest payments being more than the cost of borrowing D. essentially free money

B

A bond's maturity date is the date on which the ______. Multiple choice question. A. issuance price of the bonds is paid B. face value of the bonds are paid C. bond are issued

B

A liability is first recorded at the amount of cash a creditor would accept to immediately settle the liability, which ______ interest. A. includes B. excludes

B

An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) ______ account. Multiple choice question. A. asset B. revenue C. liability D. expense

B

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. Assuming that John gets paid in cash and payroll deductions will be paid the following month, how would ABC record the payroll deductions? A. Salaries and Wages Expense decreases $113.90. B. Current liabilities increase $113.90. C. Current assets increase $113.90.

B

Net pay is calculated by ______. Multiple choice question. A. adding payroll deductions to gross pay B. subtracting payroll deductions from gross pay C. subtracting payroll deductions and employer's payroll taxes from gross pay D. adding payroll deductions and employer's payroll taxes to gross pay

B

On November 30, Burrows, Inc. issued 2 notes payable at 6% per year for $10,000 each. One is a 3-month, 6%, note and the other is a 6-month, 6% note. The amount of interest owed at December 31 will be ______. Multiple choice question. A. greater for the 3-month note B. the same amount for both notes C. greater for the 6-month note

B

Sales taxes are recorded by the retailer as ______. Multiple choice question. A. Sales Tax Expense B. Sales Tax Payable C. Sales Revenue

B

The discount on a bond is ______ and ______ the discount each period. Multiple choice question. A. increased; credited to B. amortized; decreases C. depreciated; increases D. expensed; increases

B

The normal balance for Discount on Bonds Payable is a ______. Multiple choice question. A. credit B. debit

B

When using the effective-interest method of bond amortization, Interest Expense ______ each payment if the bonds were issued at a premium. A. increases B. decreases C. stays the same

B

Which type of contingent liability would most likely be found on a balance sheet prepared under US GAAP? Multiple choice question. A. Remote contingent liability B. Probable contingent liability that can be estimated C. Reasonably possible contingent liability

B

A bond's maturity date is ______. Multiple choice question. A. the date on which periodic interest payments are due B. the date the bond was issued C. the date on which the face value of the bond will be repaid in full

C

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. Assuming that John gets paid in cash and payroll deductions will be paid the following month, how would ABC record his gross pay? Multiple choice question. A. Cash decreases $600. B. Salaries and Wages Expense increases $600. C. Salaries and Wages Payable increases $600. D. Cash increases $600.

B The wage is being paid and thus is not owed. The entry to record the payment is a $600 debit to Salaries and Wages Expense, a $45.90 credit to FICA Payable, a $68 credit to Withheld Income Tax Payable, and a $486.10 credit to Cash.

Today's Fashions has a debt that has been properly reported as a long-term liability 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 ______. A. net income will be overstated B. the current ratio will be overstated C. total liabilities will be understated D. interest expense will be understated

B Total liabilities is correctly stated; but the current portion of the long-term liability should be reclassified to current liabilities. Thus current liabilities are understated which makes the current ratio (=current assets/current liabilities) overstated.

A bond's stated interest rate is ______. (Check all that apply.) Multiple select question. A. increased when the market price of the bond falls B. always expressed as an annual interest rate C. used to calculate interest payments D. affected by the price investors pay for the bond

BC

On the maturity date, the journal entry to record the payment of $1,000,000 of bonds payable that were issued at a $70,000 discount includes a ______. (Select all that apply.) A. debit to discount on bonds payable of 70,000 B. debit to bonds payable of 1,000,000 C. credit to cash of 1,000,000 D. credit to cash of 1,070,000

BC

The entry to record the issuance of 100, $1,000 bonds for 98.000 includes a ______. (Select all that apply.) Multiple select question. A. debit to Bonds Payable for $100,000 B. credit to Bonds Payable for $100,000 C. debit to Cash for $98,000 D. debit to Discount on Bonds Payable for $2,000 E. credit to Discount on Bonds Payable for $2,000

BCD

Which accounts are credited when the journal entry to pay employees is recorded? (Select all that apply.) A. Salaries and Wages Expense B. FICA Payable C. Cash D. Withheld Income Tax Payable

BCD

Which of the following are current liabilities? (Check all that apply.) A. Accounts Receivable B. Salaries and Wages Payable C. Note Payable due in 3 months D. Note Payable due in 23 months E. Accounts Payable

BCE

Which of the following are long-term liabilities? (Check all that apply.) A. Note Payable due in 3 months B. Note Payable due in 3 years C. Common Stock D. 20-year Mortgage Payable Wages Payable

BD

The following 12%, $1,000 notes have varying periods to maturity but all were issued on December 1. Which of the following are the correct calculations of interest for these notes on December 31 of this same year? Multiple select question. A. A 2-year note's interest equals $1,000 x 12% x 1/24 B. A 3-month note's interest equals $1,000 x 12% x 1/12 C. A 4-month note's interest equals $1,000 x 12% x 1/4 D. A 2-year note's interest equals $1,000 x 12% x 1/12 E. A 4-month note's interest equal

BDE

The entry to record the issuance of 100 bonds at their $1,000 face value causes ______. (Select all that apply.) Multiple select question. A. assets to decrease by $100,000 B. liabilities to increase by $100,000 C. liabilities to decrease by $100,000 D. liabilities to increase by more than $100,000 E. assets to increase by more than $100,000 F. assets to increase by $100,000

BF

The entry to record the payment of 6-months of interest on a note in which 2 months of interest was recorded as an adjusting entry in the prior accounting period includes ______. (Select all that apply.) Multiple select question. A. debit Cash for 6 months of interest B. debit Interest Payable for 2 months of interest C. credit Interest Expense for 4 months of interest D. credit Cash for 4 months of interest E. credit Interest Payable for 2 months of interest F. debit Interest Expense for

BFI

A bond that was issued at a discount will have a carrying value that ______ with each interest payment. Multiple choice question. A. remains the same B. decreases C. increases

C

A bond's issue price is determined by the ______. Multiple choice question. A. issuing company B. stockholders C. investors D. SEC

C

If ABC Company issues 100 of its $1,000 bonds at a price of 110.00, i.e., $1,100 each, the journal entry to record the transaction includes ______. Multiple choice question. A. a debit to Cash of $100,000 B. a debit to Cash of $90,000 C. a credit to Premium on Bonds Payable of $10,000 D. a credit to Bonds Payable of $110,000 E. a debit to Discount on Bonds Payable of $10,000

C

If a bond's stated rate is 4% and the market rate is 4%, this bond will sell at ______. Multiple choice question. A. a discount B. a premium C. face value

C

If a bond's stated rate is 4% and the market rate is 6%, this bond will sell at ______. Multiple choice question. A. face value B. a premium C. a discount

C

Issuing a note payable for cash immediately results in a(n) ______. Multiple choice question. A. increase in liabilities and a decrease in stockholders' equity B. decrease in assets and a decrease liabilities C. increase in assets and an increase in liabilities D. decrease in assets and an increase in liabilities

C

On the maturity date, the journal entry to record the payment of $1,000,000 of bonds payable that were issued at a $70,000 discount includes a ______. Multiple choice question. A. debit to Discount on Bonds Payable of $70,000 B. credit to Cash of $1,070,000 C. debit to Bonds Payable of $1,000,000

C

The law requires ______ to pay FICA taxes. A. the employer B. the employee C. both employee and employer

C

When bonds are issued at a premium, the bond issuer receives more cash on the issue date than it repays at maturity. The difference, a premium, is a reduction in the cost of borrowing, which has to be ______. Multiple choice question. A. capitalized B. ignored C. amortized D. depreciated

C

When the times interest earned ratio is less than 1.0, a company is ______. A. generating enough income to cover its interest expense B. unlikely to experience financial distress C. not generating enough income to cover its interest expense

C

When using the effective-interest method of bond amortization, Interest Expense ______ each payment if the bonds were issued at a discount. Multiple choice question. A. decreases B. stays the same C. increases

C

Using the effective-interest method of amortization on a bond issued at a premium, the entry to record each interest payment will include a debit to Interest Expense that is ______ the credit to Cash. Multiple choice question. A. greater than B. the same as C. less than

C A bond sells at a premium when the stated rate is greater than the market rate. The debit to Interest Expense (+E,-SE) is based on the lower market rate and the credit to Cash (-A) is based on the higher stated rate with the difference being debited to Premium on Bonds Payable (-L).

Bond carrying value equals Bonds Payable ______. (Check all that apply.) Multiple select question. A. minus Premium on Bonds Payable B. plus Discount on Bonds Payable C. plus Premium on Bonds Payable D. minus Discount on Bonds Payable

CD

Deli Llama operates in a state with a sales tax. What will be the effect if it records a cash sale to a customer? (Select all that apply.) Multiple select question. A. Liabilities will decrease. B. Stockholders' equity will decrease. C. Assets will increase. D. Liabilities will increase. E. Stockholders' equity will increase. F. Assets will decrease.

CDE

If an adjusting entry is required for interest owed, then the ______ will report ______. (Check all that apply.) A. income statement; Interest Payable B. balance sheet; Interest Revenue C. balance sheet; Interest Payable D. income statement; Interest Expense E. income statement; Notes Payable F. balance sheet; Notes Payable

CDF

A bond's issue price is the amount of money that a lender pays (and the company receives) when a bond is ______. Multiple choice question. A. in default B. sold from one investor to another investor C. repaid D. issued

D

Current portion of Long-Term Debt reports the amount of ______ and is reported on the ______. Multiple choice question. A. long-term debt that is reclassified because it is due within the year; income statement B. debt borrowed in the current year that is not due within the year; income statement C. debt borrowed in the current year that is not due within the year; balance sheet D. long-term debt that is reclassified because it is due within the year; balance sheet

D

If a company forgets to record the journal entry to accrue interest expense, then its net income is too ______ and its liabilities are too ______. Multiple choice question. A. low; low B. high; high C. low; high D. high; low

D

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ______ and a credit to ______. Multiple choice question. A. Notes Payable; Cash B. Bonds Payable; Cash C. Cash; Bonds Receivable D. Cash; Bonds Payable

D

A bond that was issued at a premium will include a ______. Multiple choice question. A. debit to Interest Expense that is greater than the credit to Cash each interest payment. B. credit to the Premium on Bonds Payable each interest payment C. debit to the Premium on Bonds Payable when the bonds are issued D. debit to the Premium on Bonds Payable each interest payment

D A bond sells at a premium when the stated rate is greater than the market rate. The debit to Interest Expense (+E,-SE) is based on the lower market rate and the credit to Cash (-A) is based on the higher stated rate with the difference being debited to Premium on Bonds Payable (-L).

A $1,000 bond's carrying value will be greater if the bond is sold ______. (Select all that apply.) Multiple select question. A. at a discount B. when the stated rate is less than the market rate of interest C. when the stated rate is equal to the market rate of interest D. at a premium E. when the stated rate is greater than the market rate of interest

DE

At the beginning of the year, a firm had $120,000 in total assets and a debt-to-assets ratio of 0.5 or 50%. During the year, the firm's assets increased by $40,000, and its liabilities increased by $36,000. What is the debt-to-assets ratio at the end of the year? A. 1.7 or 170% B. 0.9 or 90% C. 0.4 or 40% D. There is not enough information to determine the debt-to-assets ratio. E. 0.6 or 60%

E

The Discount on Bonds Payable account ______. Multiple choice question. A. is expensed only at the bond's maturity B. is a miscellaneous revenue account C. is an expense account D. has a normal credit balance E. is a contra account to Bonds Payable

E

True or false: All payroll deductions are required by law.

False

True or false: The bond issue price is determined by the company issuing the bonds. True false question.True

False

True or false: Your employer is allowed to keep the amounts deducted from your gross pay.

False

Bond ____ is the process that causes the balance in premium on bonds payable to decline each period

amortization

From the issuing company's perspective, a bond is a liability. From a bondholder's perspective, the bond is a(n) _____.

asset

_____ Liabilities are potential liabilities that arise as a result of past transactions or events and are reported on the balance sheet if the loss will probably occur and can be reasonably estimated.

contingent

Bonds are financial _____ that outline the future payments a company promises to make in exchange for receiving a sum of money now

instruments

_____ ______is a liability that represents the amount the company owes to others as a result of issuing a promissory note.

notes payable

The ___ rate on a bond is the rate used to determine the interest payments

stated

True or false: When using the effective-interest amortization method, the Premium on Bonds Payable decreases with each interest payment if the bonds sold at a premium.

true

True or false: When a $1,000 bond retires at maturity, the entry is recorded with a debit to Bonds Payable and credit to Cash of $1,000 regardless of whether the bond was issued at a premium or discount.

true, Regardless of whether a bond was issued at a premium, a discount or face value, the carrying value of the bond will equal the $1,000 face value when the bond is paid off at maturity.