Test 4
On January 1, Pierce Corporation issues $500,000, 5-year, 10% bonds at 98 with interest payable on January 1. Which of the following is one part of the entry on December 31 to record accrued bond interest and the amortization of the bond discount using the straight-line method?
A credit to Discount on Bonds Payable, $2,000
Kant Corporation retires its $100,000 face value bonds at 104 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $102,745. Which of the following is part of the entry to record the bond redemption?
A debit of $1,255 to Premium on Bonds Payable
Gain/Loss on Redemption
Carrying Value - (Principal x redemption rate)
Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should Sensible report as a current liability for Unearned Insurance Premiums at December 31?
$4,500
On January 1, Forever Ceramics issued $1,000,000, 9% bonds for $951,000. This price resulted in an effective interest rate of 10% on the bonds. Interest is payable annually on January 1. The company uses the effective-interest method of amortizing bond discount. At the end of the first year, how much should Forever Ceramics report as unamortized bond discount?
$43,900
At April 30, Mendoza Company has the following bank information: Cash balance per bank, $7,200 Outstanding checks, $560 Deposits in transit, $1,100 Credit memo for interest, $20 Bank service charge, $40 What is Mendoza's adjusted cash balance on April 30?
$7,740.
Fraud Triangle
(1) opportunity, (2) financial pressure (3) rationalization
Company income before taxes
(Interest Expense * TIE Ratio) - Interest Expense
Which of the following are a stockholder's right?
(i) to vote in the election of the board of directors, (ii) to share in corporate earnings through receipt of dividends, (iii) to keep the same percentage ownership when new shares are issued (i.e., preemptive right), (iv) share in assets upon liquidation in proportion to their stock holdings.
Market, Yield, Effective rate(s) vs.
Contractual rate(s)
On which dates are entries for cash dividends required?
Declaration date and the payment date
If 1,000 shares of $6 par common stock are reacquired by a corporation for $10 a share, by how much will total stockholders' equity be reduced?
$10,000
Green Tree Inc. sells 10%, 10-year bonds with a face value of $100,000 for $98,000. Using the effective-interest amortization method, how much is the interest expense for the first year if the effective interest rate is 10.53%?
$10,319
Springer Company listed outstanding checks totaling $4,500 on its September bank reconciliation. In October, the company issued checks totaling $45,700. The October bank statement shows that checks totaling $39,800 cleared the bank. In addition, a check from one of Springer's customers in the amount of $500 was returned as NSF. The outstanding checks on the October bank reconciliation should total
$10,400.
On January 1, Anthony Corporation issued $1,000,000, 13%, 5-year bonds. The bonds sold for $1,100,596. This price resulted in an effective interest rate of 14% on the bonds. Interest is payable annually on January 1. Use the effective-interest method to determine the amount of interest expense for the first year.
$154,083
A corporation issues $200,000, 9%, 10-year bonds on January 1 for $192,000. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized in the year issued is
$18,800
In a recent year, Ley Corporation had net income of $150,000, interest expense of $25,000, and a times interest earned ratio of 9.00. What was the company income before taxes for the year?
$225,000
Ramona, Inc. has 3,000 shares of 6%, $100 par, cumulative preferred stock and 80,000 shares of $4 par common stock outstanding. Last year the board of directors declared and paid a $12,000 dividend. This year the dividend declared and paid was $25,000. What amount of this dividend will be paid to the preferred stockholders?
$24,000
Nelson Company gathered the following reconciling information in preparing its August bank reconciliation: Cash balance per books, Aug. 31, $21,000 Bank charge for check printing, $120 Outstanding checks, $12,000 NSF check, $1,020 Deposits in transit, $900 Notes receivable and interest collected by bank, $5,100 The adjusted cash balance per books on August 31 is
$24,960.
Andre Company does not segregate sales and sales taxes when it charges customers at the register. Its register total for a given day is $3,255, which includes a 4% sales taxes. How much should be recognized as sales revenue and sales taxes payable, respectively?
$3,125 and $125
Suarez Corporation issued 10-year bonds with a face value of $600,000 and a contractual rate of interest of 7% at 98 on July 1. What is the total cost of borrowing for Suarez Corporation?
$432,000
On January 1, Pierce Corporation issues $500,000, 5-year, 12% bonds at 97 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period if amortization is $3,000 per year using the straight-line amortization method?
$494,000
On January 1, $500,000, 5-year, 6% bonds, were issued for $475,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discounts and premiums on bonds payable, the annual amortization amount is
$5,000
A $500,000 bond is redeemed at 98 when the carrying value of the bond is $485,000. Which of the following is one effect of recording the redemption?
$5,000 of loss
Double Company collected the following information to prepare its June bank reconciliation: Cash balance per bank, June 30, $67,300. Note receivable of $2,500 plus $250 of interest collected, $2,750. Outstanding checks, $17,100. Deposits in transit, $12,900. Bank service charges, $50. NSF check, $500. Double Company erroneously recorded a $560 on its books as a $650 cash outflow. Also, the bank erroneously added $500 to Double Company's checking account. The bank should have added the money to a different customer's account. How much is the adjusted cash balance per bank on June 30?
$62,600
On January 1, $5,000,000, 10-year, 8% bonds were issued at $5,150,000. Interest is paid semi-annually each January 1 and July 1. The straight-line method of amortization is used to amortize the premium. How much is the first semi-annual amortization?
$7,500
On January 1, Blick Corp. issues $200,000 of 5-year, 7% bonds at 97. Assume interest is paid annually each January 1. What is the total cost of borrowing associated with this bond?
$76,000
Black Tires Inc. issues a $1,000,000, 12%, 20-year mortgage note. The terms provide for semiannual installment payments of $66,462. What is the remaining unpaid principal balance of the mortgage payable account after the second semiannual payment?
$986,688
Black Tires Inc. issues a $1,000,000, 10%, 20-year mortgage note. The terms provide for semiannual installment payments of $58,278. What is the remaining unpaid principal balance of the mortgage payable account after the first semiannual payment?
$991,722
Average Price / Share =
(Paid In Capital + Common Stock) - (Common Stock / Par Value)
EPS =
(net income - preferred dividends) / average common shares outstanding
For which of the following might a bank issue a debit memorandum to a depositor's account?
- Monthly Service Charges - NSF Checks
Principles of internal control
- segregation of duties, - documentation of procedures, - establishment of responsibility, - human resource controls, - physical controls, and - independent internal verification.
Five components of internal control
1) control environment, (2) risk assessment, (3) control activities, (4) information and communication (5) monitoring.
Jay John Inc. recently paid a $50,000 installment on its 20-year mortgage. Out of the $50,000 total payment, $20,000 went towards reducing the principal, and the balance went towards interest. The journal entry to record this transaction includes a
debit Mortgage Payable for $20,000.
In order for a liability to be classified as a current liability, it must be a debt that the company
expects to pay from existing current assets or through the creation of other current liabilities.
The time period for classifying a liability as a current liability rather than as a long-term liability can be determined by whether it is expected to be paid
within one year or the operating cycle, whichever is longer.
The cash register tape indicates sales are $1,000 and sales taxes are $75. What journal entry is needed to record this information?
Debit the Cash account for $1,075, credit the Sales account for $1,000, and credit the Sales Taxes Payable for $75.
The Laramie Company operates a consulting practice. New clients are required to pay the firm in two transactions. First, clients must pay $200 before receiving consulting services. Second, clients must pay $1,800 once the consulting firm finishes providing services to the client. How does The Laramie Copmpany account for the second transaction?
Debit the Cash account for $1,800, debit the Unearned Revenue account for $200, and credit the Service Revenue account for $2,000.
On September 1, Banner Company borrowed $70,000 from the City Bank for six months at 9%. Interest was properly accrued on December 31. The journal entry needed to record the payment of the note and interest on the due date includes
Debit: Notes Payable for $70,000 Debit: Interest Payable for $2,100 Debit: Interest Expense for $1,050 Credit: Cash for $73,150
Which of the following will not require an adjusting entry on the company's books as a result of a bank reconciliation?
Deposits in Transit
Carrying value of bonds =
Face value of bonds + premium on bonds - discount on bonds
Bonds payable with a face value of $300,000 and a carrying value of $306,000 are redeemed prior to maturity at 101. Which of the following will result?
Gain on redemption of $3,000
Which of these is a disadvantage of corporations?
Government regulations
What is the effect of amortizing a bond discount?
It increases the carrying value of the bonds.
In the stockholders' equity section of the balance sheet, where and how is treasury stock reported?
It is reported as a deduction appearing after both total paid-in capital and retained earnings.
Interest Expense =
Loan's Principal(Carrying Value) * Annual Rate * Time period in which Interest Accrued
Bonds payable with a face value of $200,000 and a carrying value of $197,000 are redeemed prior to maturity at 99. Which of the following will result?
Loss on redemption of $1,000
Return on Common Stockholder's Equity =
Net Income - Preferred Stock Dividends / Average Common Stockholders' Equity
Adler Company declared a cash dividend of $1.00 per share on 20,000 shares of common stock on January 15. The dividend is to be paid one month later on February 15 to stockholders of record on January 31. Which of the following summarizes the effects of the journal entry recorded on the date of record on January 31?
No journal entry is recorded on the date of record.
Low Flow Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued for $204,000, what does this indicate?
The contractual interest rate exceeds the market interest rate. (Issuance > Face Value)
Which one of the following is true with regard to a corporation's stock?
The number of authorized shares equals or exceeds the number of outstanding shares.
A corporation issued 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $12.00 per share. Which of the following will be debited to record the repurchase of the shares?
Treasury Stock for $1,200
