Econ 3B - Chapter 10 Practice

Betsy Strand's regular hourly wage rate is $16, and she receives an hourly rate of $24 for work in excess of 40 hours. During a January pay period, Betsy works 47 hours. Betsy's federal income tax withholding is $95, and she has no voluntary deductions. Compute Betsy Strand's gross earnings and net pay for the pay period. Assume that the FICA tax rate is 7.65%.

$651.19 regular pay (16*40) + overtime pay (24*7) = 808 less FICA taxes payable (808*7.65%) less Fed income tax (95) =651.19 Journal Entry to record pay for the period: Dr Sal& wages exp 808 Cr FICA 61.81, Cr Fed income TP 95, Cr Sal & wages Payable 651.19 JE to record payment of wages: Dr Sal & wages Pay 651.19 Cr Cash 651.19

total cost of borrowing

- calculated by totaling the annual interest payments over the live of the bond, less the bond premium of plus the bond discount, - discounts increase the cost of borrowing, premiums decrease the cost of borrowing

equation for bond discount amortization (SL)

= Discount / # of periods

Keck Industries is planning to issue $7 million in bonds with a six-year maturity date and an annual rate of 5.4 percent. How much will they pay in interest over the life of the bonds?

2,268,000 the formula for interest over the life of the bonds: face value*annual interest rate*time period in years

Simons Company has $400,000 of bonds outstanding. The unamortized premium is $7,400. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?

3,400 gain

If $400,000 bonds are issued on January 1 and pay $24,000 interest annually, what is the rate of interest?

6% --> 24000/400000

A potential bondholder is considering four companies for investment. Which company has the lowest likelihood of defaulting on their interest payments?

A higher times interest earned ratio has the lowest likelihood of defaulting on interesting payments

Balance sheet shows bonds payable of 2,000,000, and discount on bonds payable of 45,000. Company decides to redeem bonds at 102 after paying annual interest, the JE is:

Dr Bonds Payable 2,000,000 Dr Loss on Redemption 85,000 (2,040,000-1,955,000) Cr Cash 2,040,000 (2,000,000*1.02) Cr Discount on Bonds Payable 45,000

Greenspan Supply does not segregate sales and sales taxes at the time of sale. The register total for March 16 is $10,388. All sales are subject to a 6% sales tax. Compute sales taxes payable and make the entry to record sales taxes payable and sales.

Dr Cash 10,388 Cr Sales Rev 9800 (10388/1.06) Cr Sales taxes payable 588

Bridle Inc. issues $300,000, 10-year, 8% bonds at 98. Prepare the journal entry to record the sale of these bonds on March 1, 2022.

Dr Cash 294,000 (300,000*.98) Dr Discount on bond payable 6,000 Cr Bonds Payable 300,000

Ravine Company issues $400,000, 20-year, 7% bonds at 101. Prepare the journal entry to record the sale of these bonds on June 1, 2022.

Dr Cash 404,000 (400,000*1.01) Cr premium on bonds payable 4,000 Cr bonds Payable 400,000

Leiana's Cafe has cash proceeds from sales of $8,550. This amount includes $550 of sales taxes. Give the entry to record the proceeds.

Dr cash 8550, Cr Sales Rev 8000, Cr Sales Tax payable 550

Three taxes commonly paid by employers on employees' salaries and wages are

FICA, FUTA, SUTA

What are the three taxes withheld by employers on the employee's salaries and wages

FICA, State-income tax, federal-income tax

A bond originally purchased for $1,000 is listed in the financial press with a quoted price of 96.5. What does this state about the bond?

The current selling price of the bond is 96.5% of the face value, which is $965.

If the market rate of interest is 8% and the contractual rate of interest is 6%, the bonds will sell at

a discount

for the company issuing the bond, a bond that is due in eight years would be categorized as

a long-term liability, JE would be to credit bonds payables and debit cash

Clooney Corporation issued 3,000 7%, 5-year, $1,000 bonds dated January 1, 2022, at face value. Interest is paid each January 1. a) journal entry to record sale b) adjusting JE to record interest expense c) JE to record interest paid

a) Dr Cash 3,000,000 Cr Bonds Payable 3,000,000 (3000*1000) b) Dr Interest Expense 210,000 Cr Interest Payable 210,000 (3,000,000*.07) c) Dr Interest Payable 210,000 Cr Cash 210,000

Harvard Inc. issues $4 million, 5-year, 8% bonds at 102, with interest payable on January 1. The straight-line method is used to amortize bond premium. a) JE to record sale of bonds b)JE to record interest expense and bond premium amortization

a) Dr Cash 4,080,000 (4,000,000*1.02) Cr bonds Pay 4,000,000 Cr premium on bonds payable (4,000,000*.02) b) Dr Interest Expense 304,000 Dr Premium on Bonds Pay 16,000 (premium/# of periods) Cr Interest Payable 320,000 (4,000,000 * 8%)

Hive Company borrows $90,000 on July 1 from the bank by signing a $90,000, 7%, 1-year note payable. Prepare the journal entries to record (a) the proceeds of the note and (b) accrued interest at December 31, assuming adjusting entries are made only at the end of the year.

a) Dr Cash 90,000, Cr Notes Payable 90,000 b) Dr Interest expense 3150, Cr Interest payable 3150 (90,000*7%*6/12)

Alpine Company issues $2 million, 10-year, 7% bonds at 99, with interest payable on December 31. The straight-line method is used to amortize bond discount. a) record sale b) record interest expense and bond discount amortization

a) dr Cash 1,980,000 (2,000,000*.99) Cr disc on BP 20,000 Cr BP 2,000,000 b) Dr interest Expense 142,000 Cr Cash 140,000 (2,000,000*7%) Cr Discount on Bonds Payable 2,000 (20,000/10)

Bent Corporation issues 500, 10-year, 6%, $4,000 bonds dated January 1, 2022, at 96. The journal entry to record the issuance will show a

debit Cash 1,920,000 (500*4,000*.96), debit discount on bonds payable for 80,000 credit bonds payable 2,000,000

If a $10,000, 12%, 10-year bond that pays interest annually sells at an amount greater than face value, the market rate of interest could be ________ percent.

must be less than 12%

Formula for bond premium amortization using EIR

premium / # of interest periods

Carolina University sold 9,000 season football tickets at $100 each for its five-game home schedule. What entries should be made (a) when the tickets are sold and (b) after each game?

when tickets are sold.. Dr Cash 900,000 (9,000*100) Cr Unearned Sales Rev 900,000 After each game; Dr Unearned Sales Rev 180,000 (900,000/5) Cr Sales Rev 180,000