Intermediate Accounting II - Test 1 (Chapter 13, 14 & 15)

Ripa, Inc. issued $8,000,000 of bonds at par. The bonds contained nondetachable stock warrants. Similar bonds without the warrants were selling at 99. By what amount will Additional Paid-in Capital-Stock Warrants be credited? A) $0 B) $160,000 C) $7,760,000 D) $80,000

A) $0

Lifeline Biofuels built an oil rig at a cost of $4.5 million that it places into service on the first day of the current year. The company estimates the oil rig will have a useful life of 20 years (with no salvage value), after which Federal regulations require that the oil rig must be dismantled and the land area restored. The expected fair value of this asset retirement project is $845,000. The present value of these asset retirement costs is $126,000 based on the 10% after-tax discount rate. Under U.S. GAAP, what is the company's accretion expense for the first year? A) $12,600 B) $42,250 C) $6,300 D) $0

A) $12,600

Onopea Inc. considered two contingencies at the end of 2016: ** a probable loss in the range of $200,000 to $800,000 ** a reasonably possible loss of $150,000 Under U.S. GAAP, what is the balance for contingent liabilities at the end of 2016? A) $200,000 B) $500,000 C) $350,000 D) $650,000

A) $200,000

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $300,000 on December 31, 2020 and asked for a 2% interest rate. At the time, Hornet's incremental borrowing rate was 7%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the carrying value of the note at the end of 2018? (Round any intermediary calculations and your final answer to the nearest dollar.) A) $272,879 B) $260,635 C) $285,981 D) $300,000

A) $272,879

On June 1, 2018, Superior Insurance Company collected $490,000 for a 2-year insurance policy beginning on the same date. The company has a December 31 year end. What is the balance of the unearned revenue account after adjusting entries on December 31, 2018? (Do not round any intermediary calculations. Round your final answer to the nearest dollar.) A) $347,083 B) $142,917 C) $245,000 D) $102,083

A) $347,083

Harrison Corporation borrowed $31,000 from F&M Bank on June 1 of the current year. The bank required 9% interest. Interest will be paid when the nine-month note becomes due. What is the interest expense for the subsequent year in which the note is due and paid? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) $465 B) $2,093 C) $1,628 D) $1,395

A) $465

A company gives each of its 50 employees (assume they were all employed continuously through 2018 and 2019) 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 2018, they made $17.50 per hour and in 2019 they made $20 per hour. During 2019, 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. Under U.S. GAAP, what amount of vacation liability would be reflected on the 2018 and 2019 balance sheets, respectively? A) $84,000; $117,000 B) $96,000; $108,000 C) $84,000; $24,000 D) $96,000; $24,000

A) $84,000; $117,000

Given the following information from an amortization table, compute the interest expense and the carrying value for the next line of the table, rounding your answer to the nearest dollar: 2% Cash Interest - $800 1% Effective Interest - $412 Premium Amortization - $388 Carrying Value - $40,812 A) Interest Expense $408; Carrying Value $40,420 B) Interest Expense $408; Carrying Value $41,220 C) Interest Expense $412; Carrying Value $40,420 D) Interest Expense $412; Carrying Value $41,220

A) Interest Expense $408; Carrying Value $40,420

Barauch Corporation issued $10,000,000 of 10-year bonds on January 1, 2010. The bonds have a bond sinking fund with a balance of $900,000. At December 31,2018, the bonds should be classified as ________. A) Short-term $9,100,000; Long-term $900,000 B) Short-term $10,000,000 C) Long-term $10,000,000 D) Short-term $900,000; Long-term $9,100,000

A) Short-term $9,100,000; Long-term $900,000

A beneficial conversion option for convertible bonds payable is ________. A) a conversion option that is in the money on the issue date B) any conversion option with a bond C) a conversion option that becomes in the money after the issue date D) a conversion option that is eventually profitable to the bondholder

A) a conversion option that is in the money on the issue date

A promotional item offered to buyers of specific products is called ________. A) a premium B) an accretion C) an assurance-type warranty D) a service-type warranty

A) a premium

In U.S. GAAP, bond issue costs are considered ________. A) an element in determining the carrying value of the bonds outstanding B) a cost of borrowing that reduces the effective interest expense C) a period cost D) an initial cost that is expensed when the bonds are issued

A) an element in determining the carrying value of the bonds outstanding

To compute the selling price of the bond, calculate the present value of par value using the present value of $1 ________. A) and the interest payments using the present value of an ordinary annuity, discounted at the market interest rate for both B) at the stated rate and the interest payments using the present value of an ordinary annuity discounted at the market rate C) and the interest payments using the present value of an ordinary annuity, discounted at the stated rate for both D) at the market rate and the interest payments using the present value of an ordinary annuity discounted at the stated rate

A) and the interest payments using the present value of an ordinary annuity, discounted at the market interest rate for both

Which of the following is the proper way to report a probable contingent asset? A) as a disclosure only B) as a deferred revenue C) as an accrued revenue D) as an increase to receivables

A) as a disclosure only

The contract between a corporation and its bondholders is a ________. A) bond indenture B) bond covenant C) restriction for compensating balances D) secured bond

A) bond indenture

Which of the following is not an operating liability? A) bonds payable B) unearned revenue C) customer deposits D) compensated absences

A) bonds payable

Bull's Eye Department Stores, Inc. records $200,000 in gift card sales and receives cash in year 1. Customers redeemed 10% of the gift cards to purchase merchandise in year 2. Which of the following would be included in the summary journal entry to reflect the year 2 redemption transactions? A) debit Unearned Revenue $20,000 B) credit Unearned Revenue $20,000 C) debit Sales Revenue $180,000 D) credit Sales Revenue $180,000

A) debit Unearned Revenue $20,000

Pegasus Corp. signed a three-month, 10% note on November 1, 2019 for the purchase of $246,000 of inventory. If Pegasus makes adjusting entries only at the end of the year, the entry made at January 31, 2020 will include a ________. (Do not round any intermediary calculations. Round your final answer to the nearest dollar.) A) debit to Note Payable for $246,000 B) debit to Interest Expense for $4,100 C) credit to Note Payable for $246,000 D) debit to Interest Expense for $6,150

A) debit to Note Payable for $246,000

What are compensated absences? A) paid time off B) unpaid time off C) payroll deductions D) healthcare benefits

A) paid time off

If a company is able to estimate the rate of redemption for gift cards, they should use the ________ method to account for breakage. A) proportional B) accrual C) remote D) credit

A) proportional

When a company has current debt that can be reclassified as long-term, it should do so because ________. A) the debt will no longer require the use of current assets or the creation of another current liability B) short-term debt improves the financial position of the company C) it improves the credit rating of the company D) it is a more conservative approach to the balance sheet

A) the debt will no longer require the use of current assets or the creation of another current liability

Which of the following would not be considered when evaluating whether to record a contingent loss for pending litigation? A) the type of litigation involved B) the ability to make a reasonable estimate of the amount of the loss C) time period in which the underlying cause of action occurred D) the probability of an unfavorable outcome

A) the type of litigation involved

On June 1, 2018, Superior Insurance Company collected $490,000 for a 2-year insurance policy beginning on the same date. The company has a December 31 year end. How much Insurance Revenue will be recognized in 2018? (Do not round any intermediary calculations. Round your final answer to the nearest dollar.) A) $347,083 B) $142,917 C) $245,000 D) $102,083

B) $142,917

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $280,000 on December 31, 2020 and asked for a 5% interest rate. At the time, Hornet's incremental borrowing rate was 7%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the selling price of the machine given the terms and rates provided? (Do not round any intermediate calculations. Round your final answer to the nearest dollar.) A) $316,740 B) $265,304 C) $280,000 D) $270,563

B) $265,304

Jorge Corp. issued $520,000 of 6%, 10-year bonds on January 2, 2018 for $510,000. In addition, the company incurred $50,000 in bond issue costs. Interest is paid annually on December 31. What is the correct amount of bond interest expense to be recorded on December 31, 2018 using GAAP? A) $31,200 B) $35,420 C) $40,020 D) Unable to determine.

B) $35,420

The Hudson Company borrowed $250,000 to purchase machinery and agreed to pay 4% interest for six years on an installment note. Each note payment is $47,690. How much interest is Hudson paying over the life of the loan? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) $50,000 B) $36,140 C) $23,845 D) $60,000

B) $36,140

During 2017, Blevert 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 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual Warranty Expenditures 2017 $400,000 7,000 2018 1,800,000 23,000 2019 2,000,000 100,000 $4,200,000 $130,000 What amount should Blevert report as warranty expense for 2017? A) $7,000 B) $44,000 C) $51,000 D) $37,000

B) $44,000

On January 1, the Hudson Company borrowed $160,000 to purchase machinery and agreed to pay 4% interest for six years on an installment note. Each note payment is $30,522 and is due on the last day of the year. How much interest will Hudson report for the first year of the loan? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) $30,522 B) $6,400 C) $24,122 D) $1,221

B) $6,400

E-Z Electronics is running a video game promotion. For every 15 video games purchased, the customer receives a coupon upon checkout to receive a free game. The coupons expire in one year. E-Z estimates that about half of its video game customers will qualify to receive a coupon. In the past, the store has recognized a gross profit margin of 20% of the selling price on video games. What would the expected redemption percentage be to calculate the premium expense and related contingent liability? (Remember to use the gross profit margin to arrive at cost.) A) 4.33% of total video game sales B) 2.67% of total video game sales C) 6.67% of total video game sales D) 15% of total video game sales

B) 2.67% of total video game sales

Jorge Corp. issued $550,000 of 6%, 10-year bonds on January 2, 2018 for $540,000. In addition, the company incurred $50,000 in bond issue costs. Interest is paid annually. What is the effective interest rate for the bonds given the information provided? Round your answer to two decimal places. A) 8.59% B) 7.6% C) 6.00% D) 6.89%

B) 7.6%

Given the following information from an amortization table, compute the interest expense, discount amortization, and the carrying value for the next line of the table, rounding your answer to the nearest dollar:: 6% Cash Interest - $42,000 7% Effective Interest - $47,340 Discount Amortization - $5340 Carrying Value - $681,630 A) Interest Expense $47,340; Discount Amortization $5,340; Carrying Value $676,290 B) Interest Expense $47,714; Discount Amortization $5,714; Carrying Value $687,344 C) Interest Expense $47,714; Discount Amortization $5,340; Carrying Value $676,290 D) Interest Expense $47,340; Discount Amortization $5,340; Carrying Value $681,630

B) Interest Expense $47,714; Discount Amortization $5,714; Carrying Value $687,344

What is the main difference in computing the selling price of a zero-coupon bond and the selling price of a traditional bond? A) There is no difference. B) Zero coupon bonds have zero interest paid during the term of the bond. C) No present value calculations are necessary. D) Zero-coupon bonds typically sell at a premium.

B) Zero coupon bonds have zero interest paid during the term of the bond.

Which of the following represents amounts owed for goods, supplies, or services purchased? A) bonds payable B) accounts payable C) customer -related payable D) liability for compensated absences

B) accounts payable

Under U.S. GAAP, what is the expense resulting from the increase in the carrying amount of an asset retirement obligation? A) contingent expense B) accretion expense C) vested expense D) depletion expense

B) accretion expense

In February 2019, an explosion occurred at a Dinkol Company plant, causing damage to area properties. By April 15, 2019, no claims had yet been asserted against Dinkol. However, Dinkol's management and legal counsel have concluded that it is possible but not probable that Dinkol might be held responsible for negligence. Furthermore, they have determined that a reasonable estimate for damages might be as much as $7,000,000. Dinkol's comprehensive public liability policy contains a $800,000 deductible clause. For Dinkol's December 31, 2018 financial statements, for which the auditor's fieldwork was completed in April 2019, how should this possible casualty loss be reported, if at all? A) as an accrued liability of $800,000 B) as a note disclosing a contingent loss of $800,000 C) as a note disclosing a contingent loss of $7,000,000 D) No disclosure or accrual is required.

B) as a note disclosing a contingent loss of $800,000

Derecognition of debt occurs when all of the following occur, except when the ________. A) bonds mature B) bonds are revalued to fair market value C) bonds are retired early to take advantage of lower market rates of interest D) bondholders elect to convert the bonds to common stock

B) bonds are revalued to fair market value

Which of the following terms refers to gift card sales that are never redeemed? A) spoilage B) breakage C) roughage D) liftage

B) breakage

Lifeline Biofuels built an oil rig at a cost of $4.5 million. At the time that construction was complete, the company estimated the oil rig would have a useful life of 20 years (with no salvage value), after which Federal regulations would require that the oil rig be dismantled and the land area restored. The fair value of this asset retirement project was $815,000 and the present value of these asset retirement costs was $307,000 based on the 5% after-tax discount rate. At the end of the 20 year life, the company dismantles the oil rig and restores the land at a cost of $890,000. Following U.S. GAAP, the journal entry to record the completion of the restoration process would include: A) credit Loss on Settlement of Asset Retirement Obligation for $583,000 B) debit Loss on Settlement of Asset Retirement Obligation for $75,000 C) credit Asset Retirement Obligation for $75,000 D) debit Loss on Settlement of Asset Retirement Obligation for $583,000

B) debit Loss on Settlement of Asset Retirement Obligation for $75,000

National Refuse requires customers to pay $40 for each toter used for trash collection and charges this amount when delivered. When toters are returned, the amount is refunded to the customer. If a customer cancels the trash collection contract, but does not return the toter, the amount is forfeited by the customer. During the current year, 30 customers cancelled their contracts and failed to return their toter, while 105 toters are returned upon cancellation. Which of the following would be included in the journal entry to reflect the forfeiture? A) debit to Deposit Liability for $4,200 B) debit to Deposit Liability for $1,200 C) credit to Deposit Liability for $4,200 D) credit to Deposit Liability for $5,400

B) debit to Deposit Liability for $1,200

Pegasus Corp. signed a three-month, 6% note on November 1, 2019 for the purchase of $260,000 of inventory. If Pegasus makes adjusting entries only at the end of the year, the adjusting entry made at December 31, 2019 will include a ________. (Do not round any intermediary calculations. Round your final answer to the nearest dollar.) A) debit to Note Payable for $2,600 B) debit to Interest Expense for $2,600 C) credit to Note Payable for $15,600 D) debit to Interest Expense for $3,900

B) debit to Interest Expense for $2,600

Pegasus Corp. signed a three-month, zero-interest-bearing $323,000 note on November 1, 2019 for the purchase of $250,000 of inventory. If Pegasus makes adjusting entries only at the end of the year, the adjusting entry made at December 31, 2019 will include a ________. A) debit to Note Payable for $24,333 B) debit to Interest Expense for $48,667 C) credit to Note Payable for $24,333 D) credit to Interest Expense for $48,667

B) debit to Interest Expense for $48,667

Mingle, Inc., a manufacturer of cleaning products, is preparing annual financial statements at December 31, 2018. Because of a recently proven health hazard in one of its cleaning products, the U.S. government has clearly indicated its intention of having Mingle recall all bottles of that product sold in the last six months. The management of Mingle estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation? A) expense and equity restriction of $800,000 B) expense and contingent liability of $800,000 C) note disclosure only D) no recognition

B) expense and contingent liability of $800,000

Under GAAP, a provision for a contingent loss is considered to be probable if the probability of its occurrence is ________. A) slight B) likely to occur C) virtually certain D) reasonably possible

B) likely to occur

A primary benefit of reclassification of short-term debt into long-term debt is to improve ________. A) solvency ratios B) liquidity ratios C) cash flow D) profitability

B) liquidity ratios

Which type of contingency are companies most likely to disclose in their annual report? A) warranty B) litigation C) insurance D) government investigations

B) litigation

When bonds are sold at a discount between interest dates, the buyer ________. A) pays no interest to the issuer B) pays the issuer interest from the date on the bonds to the purchase date C) receives interest from the issuer from the date on the bonds to the purchase date D) receives a discount from the issuer for the loss of the interest before purchase

B) pays the issuer interest from the date on the bonds to the purchase date

In a service-type warranty, warranty revenue is ________. A) not recognized B) recognized equally over the warranty period C) recognized only in the last year of the warranty period D) recognized in the year of sale of the associated product

B) recognized equally over the warranty period

Debt covenants include all of the following except ________. A) restrictions for holding compensating balances of cash B) restrictions on purchase of supplies C) maintaining set ratios or working capital values D) restrictions on future borrowings

B) restrictions on purchase of supplies

Jackson Mechanics issues $9,000,000 of bonds with nondetachable stock warrants. For the investors, this means that the bondholders ________. A) will own both the bonds and the stock B) will own either the bonds or the stock C) can sell the bonds and keep the stock warrants D) can sell the stock warrants and keep the bonds

B) will own either the bonds or the stock

Lifeline Biofuels built an oil rig at a cost of $10.5 million. The company estimates the oil rig will have a useful life of 20 years (with no salvage value), after which Federal regulations require that the oil rig must be dismantled and the land area restored. The fair value of the costs of this asset retirement project is $900,000. The present value of these asset retirement costs is $280,000 based on the 6% after-tax discount rate. Under U.S. GAAP, what is the initial capitalized carrying value of the oil rig at the completion of construction? A) $10,500,000 B) $10,220,000 C) $10,780,000 D) $630,000

C) $10,780,000

Barker Industries issued 2,000 $1,000 bonds at 103. Each bond contains 20 detachable stock warrants that allow the bondholder to purchase a share of Barker's common stock for $50. Immediately after the issue, the warrants were selling for $4 each and the bonds without the warrants were selling for $986. How much will be credited to Additional Paid-in Capital-Stock Warrants? (Round intermediate calculations to four decimal places and your final answer to the nearest dollar.) Use the proportional method.

C) $154,597

During 2017, Blevert 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, 3% in the year after sale, and 5% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual Warranty Expenditures 2017 $500,000 8,000 2018 1,600,000 20,000 2019 2,300,000 100,000 $4,400,000 $128,000 What amount should Blevert report as a liability at December 31, 2018? A) $144,000 B) $124,000 C) $161,000 D) $181,000

C) $161,000

On January 1, the Hudson Company borrowed $190,000 to purchase machinery and agreed to pay 8% interest for six years on an installment note. Each note payment is $41,100 and is due on the last day of the year. What is the carrying value of the loan at the end of the first year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) $148,900 B) $190,000 C) $164,100 D) $205,200

C) $164,100

Harrison Corporation borrowed $36,000 from F&M Bank on June 1 of the current year. The bank required 8% interest. Interest will be paid when the nine-month note becomes due. What is the interest expense for the current year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) $0 B) $2880 C) $1680 D) $1440

C) $1680

Jacobsen, Inc. borrowed $700,000 from F&M Bank on June 15 of the current year. The bank required 6% interest. Interest will be paid when the 12-month note becomes due. What amount should be accrued as Interest Payable for the December 31 year-end of the current year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) $19,250 B) $21,000 C) $22,750 D) $42,000

C) $22,750

Zambrano Corp. decided to go into the market to repurchase bonds before their due date. The following are the balances of the accounts on the date of the retirement: Bonds Payable $5,000,000 Discount on Bonds Payable $76,000 If Zambrano pays $4,900,000 to retire the bond, what is the gain or loss on the early extinguishment of the debt? A) $84,000 loss B) $76,000 loss C) $24,000 gain D) No gain or loss is recognized.

C) $24,000 gain

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $300,000 on December 31, 2020 and asked for a 6% interest rate. At the time, Hornet's incremental borrowing rate was 10%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the carrying value of the note at the end of the second year? (Round any intermediary calculations and your final answer to the nearest dollar.) A) $279,174 B) $270,158 C) $289,091 D) $300,000

C) $289,091

If a $6,000 bond is issued with a conversion feature that allows the bond to be convertible into 20 shares of common stock, what is the implied exercise price of the shares? A) $0 B) $6,000 C) $300 D) $20

C) $300

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press was installed on January 2, 2018. The press had no known market value. Hornet agreed to pay $260,000 on December 31, 2020 and asked for a 2% interest rate. At the time, Hornet's incremental borrowing rate was 10%. The seller agreed to the terms and requested interest payments on December 31 each year. What is the amount of cash interest paid at the end of 2018? A) $0 B) $26,000 C) $5,200 D) $20,800

C) $5,200

Mainord Corporation issues $100,000 of 10-year, 6% convertible bonds. Each $1,000 bond is convertible into 30 common shares. On the date of the issue, the shares had a market value of $50 per share. What is the intrinsic value of the conversion feature? (Round any intermediary calculations to the nearest cent, and round your final answer to the nearest dollar.) A) $5,000 B) $150,000 C) $50,010 D) $3,000

C) $50,010

Hornet Motors purchased a custom-made metal press for use in repairing wrecked cars. The press had no known market value. Hornet agreed to pay $300,000 at the end of three years and asked for a 3% interest rate. At the time, Hornet's incremental borrowing rate was 7%. How should the seller and buyer record the transaction? A) Each should record the sale/purchase at $300,000. B) The seller should record the sale at $300,000 and Hornet at the present value of $300,000. C) Each should record the transaction at the present value of the note payable/receivable. D) Hornet should record the sale at $300,000 and the seller at the present value of $300,000.

C) Each should record the transaction at the present value of the note payable/receivable.

Morrison Corporation borrowed $49,000 from Commercial Bank on June 1 of the current year. The bank required 8% interest. Interest will be paid every three months until the 9-month note is paid. What is the total Interest Expense and the Interest Payable at December 31 of the current year? (Do not round intermediate calculations. Only round your final answer to the nearest cent.) A) Interest Expense $2286.67; Interest Payable $2286.67 B) Interest Expense $326.67; Interest Payable $326.67 C) Interest Expense $2286.67; Interest Payable $326.67 D) Interest Expense $3920.00; Interest Payable $2286.67

C) Interest Expense $2286.67; Interest Payable $326.67

) Given the following information from an amortization table for December 31, prepare the journal entry to record the payment of interest. 6% Cash Interest - $42,000 7% Effective Interest - $35,651 Premium Amortization - $6,349 Carrying Value - $507,567

C) Journal Entry Debit Interest Expense 35,651 Debit Premium on Bonds Payable 6,349 Credit Cash 42,000

When working with bonds issued between interest dates, the accountant must ________. A) reevaluate the actual interest rate for the entire amortization table B) assume that the bonds were issued on the intended issue date C) adjust the first period of the amortization table D) omit the first interest period from the amortization table

C) adjust the first period of the amortization table

When bondholders decide to exercise their convertible bonds, the company values the common stock at the ________. Assume there is no beneficial conversion option at bond issue. A) market value of the stock B) par value of the stock C) carrying value of the bonds D) par value of the bonds

C) carrying value of the bonds

Which of the following best describes the accounting for assurance-type warranty costs? A) expensed when paid B) expensed when obligations are reasonably possible and estimable C) expensed based on estimates in year of sale of the associated product D) expensed when warranty claims are certain

C) expensed based on estimates in year of sale of the associated product

Actual default by a bond issuer occurs when the debtor ________. A) violates one of the debt covenants B) fails to meet working capital ratio requirement C) fails to make interest payments D) allows the retained earnings balance to fall below required levels

C) fails to make interest payments

A bond issuer incurs a technical default when it ________. A) fails to pay interest when due B) declines to repay the principal when specified C) fails to meet required debt covenants at year end D) pays interest before it is due for payment

C) fails to meet required debt covenants at year end

Acme Entertainment had $1,600,000 of 6%, $1,000 par callable bonds outstanding on December 31, 2019, with a carrying value of $1,700,000. Acme decides to call the bonds on January 2, 2020. The call price is 103. Compute the gain or loss on early extinguishment of debt. A) no gain or loss B) loss of $100,000 C) gain of $52,000 D) loss of $48,000

C) gain of $52,000

The effective interest rate properly reflects the effective cost of borrowing at the ________. A) stated rate for the bonds B) current market rate each year C) historical market rate at the date the bonds sold D) current stated rate for bonds with the same bond rating

C) historical market rate at the date the bonds sold

When bonds issued under GAAP with a beneficial conversion option are converted, the Additional Paid-In Capital-- Beneficial Conversion Feature ________. A) remains unchanged B) is recorded as a loss C) is appropriately removed D) is added in full to the paid-in capital in excess of par - common

C) is appropriately removed

The selling price of a bond is the ________. A) par value of the bond B) par value plus the discount of the bond or minus the premium of the bond C) present value of the par value plus the present value of the interest payments D) present value of the par value minus the present value of the interest payments

C) present value of the par value plus the present value of the interest payments

Which of the following is not a characteristic of a liability? A) obligation always arises from past events B) probably requires future sacrifice of resources C) requires sacrifice of cash or other current asset in the current period D) present obligation

C) requires sacrifice of cash or other current asset in the current period

A company has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. Under U.S. GAAP, what amount of loss contingency should be accrued? A) the maximum amount of the range B) the midpoint amount of the range C) the minimum amount of the range D) zero

C) the minimum amount of the range

What account is debited when the liability is initially capitalized for an asset retirement obligation to dismantle an ocean oil rig? A) a retirement expense account B) an accretion expense account C) the oil rig asset account D) a separate quasi-asset account

C) the oil rig asset account

Which of the following is also referred to as deferred credits? A) late fees B) sales taxes payable C) unearned revenues D) accrued revenues

C) unearned revenues

During 2017, Blevert 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, 3% in the year after sale, and 5% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual Warranty Expenditures 2017 $100,000 8,000 2018 1,100,000 30,000 2019 2,000,000 100,000 $3,200,000 $138,000 What amount should Blevert report as a liability at December 31, 2017? A) $8,000 B) $9,000 C) $17,000 D) $1,000

D) $1,000

In December, 2018, Shooger Candy Company began including one coupon in each package of candy and offered customers a Stuffed Shooger Bear in exchange for $5 and five coupons. The stuffed bears cost Shooger $5.10 each. Eventually, it is expected that 30% of the coupons will be redeemed. During December, Shooger sold 230,000 packages of candy and no coupons were redeemed. In its December 31, 2018 balance sheet, what amount should Shooger report as estimated liability for the coupons? A) $69,000 B) $70,380 C) $13,800 D) $1,380

D) $1,380

On June 1, 2018, Superior Insurance Company collected $490,000 for a 2-year insurance policy beginning on the same date. The company has a December 31 year end. What is the balance of the unearned revenue account after adjusting entries on December 31, 2019? (Do not round any intermediary calculations. Round your final answer to the nearest dollar.) A) $347,083 B) $142,917 C) $245,000 D) $102,083

D) $102,083

Neil Corporation issued 5,000 $1,000 bonds at 103. Each bond contains 15 detachable stock warrants that allow the bondholder to purchase a share of Neil's common stock for $50. Immediately after the issue, the bonds without the warrants were selling for $1,007. The stock warrants had no readily determinable value. How much will be credited to Additional Paid-in Capital-Stock Warrants?

D) $115,000

Wilson Corp. issued $7,000,000 of 6% bonds on April 30 at par value. The bonds were dated January 1. The company pays interest on June 30 and December 31 each year. How much will the buyer need to pay the company in accrued interest? (Round your final answer to the nearest dollar.) A) $420,000 B) $175,000 C) $210,000 D) $140,000

D) $140,000

Darouich Industries decided to retire an $3,000,000 bond issue before its due date. The bonds were callable by the company at 102. At the same time, the bonds were selling at 101 on the open market. The company was able to buy $1,500,000 of the bonds at 101 and called the remaining bonds. At that time, there was $375,000 in the Discount on Bonds Payable account. Compute the gain or loss on the retirement of the bonds repurchased in the market at 101. A) $202,500 gain B) $202,500 loss C) $217,500 gain D) $217,500 loss

D) $217,500 loss

$100,000 of five-year bonds are sold for $97,300 on the issue date. Interest of $4,000 is paid each year until the bonds are repaid. What is the total interest expense to the company for issuing these bonds? A) $17,300 B) $20,000 C) $19,460 D) $22,700

D) $22,700

Darouich Industries decided to retire an $4,000,000 bond issue before its due date. The bonds were callable by the company at 102. At the same time, the bonds were selling at 101 on the open market. The company was able to buy $2,000,000 of the bonds at 101 and called the remaining bonds. At that time, there was $500,000 in the Discount on Bonds Payable account. Compute the gain or loss on the retirement of the called bonds. A) $270,000 gain B) $270,000 loss C) $290,000 gain D) $290,000 loss

D) $290,000 loss

Harrison Corporation borrowed $30,000 from F&M Bank on June 1 of the current year. The bank required 9% interest. Interest will be paid when the nine-month note becomes due. What is the amount that will be paid upon maturity of the note? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.) A) $30,450 B) $32,700 C) $30,000 D) $32,025

D) $32,025

During 2017, Blevert 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, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual Warranty Expenditures 2017 $200,000 7,000 2018 1,400,000 29,000 2019 2,400,000 100,000 $4,000,000 $136,000 What amount should Blevert report as a liability at December 31, 2019? A) $288,000 B) $139,000 C) $156,000 D) $344,000

D) $344,000

Neil Corporation issued 5,000 $1,000 bonds at 103. Each bond contains 15 detachable stock warrants that allow the bondholder to purchase a share of Neil's common stock for $50. Immediately after the issue, the bonds without the warrants were selling for $1,007. The stock warrants had no readily determinable value. How much will be credited to Bonds Payable? A) $0 B) $5,035,000 C) $5,150,000 D) $5,000,000

D) $5,000,000

Barker Industries issued 6,000 $1,000 bonds at 102. Each bond contains 20 detachable stock warrants that allow the bondholder to purchase a share of Barker's common stock for $50. Immediately after the issue, the warrants were selling for $4 each and the bonds without the warrants were selling for $986. What will be the carrying value of Bonds Payable on the issue date? (Round intermediate calculations to four decimal places and your final answer to the nearest dollar.) A) $6,285,006 B) $6,120,000 C) $5,916,000 D) $5,660,712

D) $5,660,712

Bull's Eye Department Stores, Inc. records $170,000 in gift card sales and receives cash in year 1. Customers redeemed 25% of the gift cards to purchase merchandise in year 1. The company estimates breakage as 13% and uses the proportional method. How much breakage revenue should be recorded at the end of year 1? (Round any intermediary percentages two decimal places, X.XX%. Round your final answer to the nearest dollar.) A) $22,100 B) $42,500 C) $5,525 D) $6,352

D) $6,352

On September 1, Dondra purchased $9,000 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges were $500. Payment for the purchase was made on September 18. Assuming Dondra uses the perpetual inventory system and the net method of accounting for purchase discounts, what amount is recorded on September 1 as accounts payable from this purchase? A) $9,500 B) $9,410 C) $9,000 D) $8,910

D) $8,910

Reducto Co. pays a weekly payroll of $95,000 that includes federal taxes withheld of $12,000 FICA taxes withheld of $7,250, and retirement withholdings of $6,000. What is the effect on assets and liabilities from this transaction? A) Assets decrease $95,000 and liabilities decrease $69,750. B) Assets decrease $95,000 and liabilities increase $95,000. C) Assets decrease $69,750 and liabilities decrease $25,250. D) Assets decrease $69,750 and liabilities increase $25,250.

D) Assets decrease $69,750 and liabilities increase $25,250.

Given the following information from an amortization table for December 31, prepare the journal entry to record the payment of interest at year end if the fiscal year of the company ends on December 31. 6% Cash Interest - $42,000 7% Effective Interest - $47,340 Discount Amortization - $5340 Carrying Value - $681,630

D) Journal Entry Debit Interest Expense 47,340 Debit Discount on Bonds Payable 5340 Credit Cash 42,000

Under what conditions is an employer required to accrue a liability for sick pay? A) Sick pay benefits are reasonably estimable. B) Sick pay benefits are non-vested and reasonably estimable. C) Sick pay benefits accumulate. D) Sick pay benefits are vested.

D) Sick pay benefits are vested.

Accounting for product warranty costs under an assurance-type warranty ________. A) is required for income tax purposes B) charges an expense account when the seller performs in compliance with the warranty C) is frequently justified on the basis of expediency when warranty costs are immaterial D) charges an expense in the year of sale of the associated product

D) charges an expense in the year of sale of the associated product

Kool's Stores made cash sales during the month of May of $79,000. The sales are subject to a 7% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the May sales transactions? A) debit Cash for $79,000 B) credit Sales Tax Payable for $73,470 C) credit Sales for $73,470 D) credit Sales Tax Payable for $5,530

D) credit Sales Tax Payable for $5,530

Xenia Corporation issued 3,000 term bonds with a face value of $1,000 each and no additional features for $3,200,000. The bonds' selling price indicated that the bonds were paying interest that was ________. A) lower than the market rate B) the rate the bond investors wanted C) equal to par value D) higher than the market rate

D) higher than the market rate

10) According to U.S. GAAP, asset retirement obligations are ________. A) measured as the present value of past resource usage B) obligations to replace old buildings and equipment with new assets C) sinking funds for bonds or other long-term liabilities D) long-term legal requirements to restore property

D) long-term legal requirements to restore property

Wilson Corp. issued $9,000,000 of 4% bonds on April 1 at par value. The bonds were dated January 1. The company pays interest on June 30 and December 31 each year. How much will the buyer need to pay the company in accrued interest at purchase and how much will the buyer receive in interest on June 30? A) pay April 1, $0; receive June 30 $180,000 B) pay April 1 $360,000; receive June 30 $360,000 C) pay April 1 $360,000; receive June 30 $180,000 D) pay April 1 $90,000; receive June 30 $180,000

D) pay April 1 $90,000; receive June 30 $180,000

When determining how to compute the present value of a bond, the buyer computes the ________. A) present value of the par value discounted at the market rate and the present value of the interest discounted at the stated rate B) future value of the par value and interest discounted at the stated interest rate C) present value of the interest discounted at the market rate and the present value of the par value discounted at the stated rate D) present value of the par value and the present value of the interest discounted at the market interest rate

D) present value of the par value and the present value of the interest discounted at the market interest rate

Which of the following situations typically results in unearned revenues? A) charging customers a deposit for returnable containers B) short-term zero-interest notes payable C) providing manufacturer warranties D) selling magazine subscriptions

D) selling magazine subscriptions