Accounting 201 - Chapter 10
If a corporation issued $2,000,000 in bonds which pay 10% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?
$140,000
John Jansen, an employee of Redwood Company, had gross earnings for the month of May of $4,000. FICA taxes are 8% of gross earnings (all earnings are subject), federal income taxes amount to $675 for the month, state income taxes are 3% of gross earnings, and Jansen authorized voluntary deductions of $5 per month to the United Way. What is the net pay for John Jansen?
$2,880.
Maggie Sharrer Company borrows $88,500 on September 1, 2012, from Sandwich State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2012?
$3,540.
Andrews Inc. issues a $497,000, 10% 3-year mortgage note on January 1. The note will be paid in three annual installments of $200,000, each payable at the end of the year. What is the amount of interest expense that should be recognized by Andrews Inc. in the second year?
$34,670.
Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, the amount to be credited to Sales is:
$4,300.
On January 1, Hurley Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on July 1 and January 1. Assuming straight line amortization of bond discount, what is the carrying value of the bonds at the end of the third interest period?
$486,000.
On January 1, Besalius Inc. issued $1,000,000, 9% bonds for $939,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Besalius uses the effective-interest method of amortizing bond discount. At the end of the first year, Besalius should report unamortized bond discount of
$57,100.
Colson Inc. converts $600,000 of bonds sold at face value into 10,000 shares of common stock, par value $1. Both the bonds and the stock have a market value of $760,000. What amount should be credited to Paid-in Capital in Excess of Par-Common Stock as a result of the conversion?
$590,000.
Comly Communications issues a $600,000, 10%, 20-year mortgage note on January 1. The terms provide for semiannual installment payments of $34,966, exclusive of real estate taxes and insurance. After the first installment payment, the principal balance is
$595,034.
A retail store did not ring up sales tax separately. If the sales tax rate is 5% and the total receipts amounted to $126,000, what is the amount of the sales taxes owed to the taxing agency?
$6,000.
Andy Manion earns $14 per hour for a 40-hour week and $21 per hour for any overtime work. If Manion works 45 hours in a week, gross earnings are:
$665.
Buffon Electronics Company issues an $800,000, 10%, 20-year mortgage note on January 1. The terms provide for semiannual installment payments, exclusive of real estate taxes and insurance, of $46,621. After the first installment payment, the principal balance is
$793,379.
All of the following are long-term liabilities except A) Bonds Payable. B) Mortgage Payable. C) Lease Liabilities. D) All of these options are long-term liabilities.
All of these options are long-term liabilities.
True or False: A current liability is a debt that the company reasonably expects to pay from existing current assets.
False
True or False: The market interest rate is the rate used to determine the amount of cash interest the borrower pays.
False
Employer payroll taxes do not include:
Federal income taxes
The amount of sales tax collected by a retailer is recorded in the:
Sales Taxes Payable account.
True or False: Companies report any balance in an unearned revenue account as a current liability in the balance sheet.
True
True or False: Determining the payroll involves computing gross earnings, payroll deductions, and net pay.
True
True or False: If the market rate of interest is lower than the contractual interest rate, the bonds will sell at a premium.
True
True or False: Payroll tax expense for businesses consists of FICA tax, federal unemployment tax, and state unemployment tax.
True
True or False: The interest on a mortgage note decreases each period, while the portion applied to the loan principal increases.
True
True or False: The times interest earned ratio provides an indication of the company's ability to meet interest payments as they come due.
True
True or False: When the issuing company records a conversion of bonds into common stock, no gain or loss is recognized.
True
The market price of a bond is dependent on A) the payments amounts. B) the length of time until the amounts are paid. C) the interest rate. D) all of these.
all of these
All of the following are current liabilities except: A) sales taxes payable. B) unearned rental revenue. C) current maturities of long-term debt. D) all of these options are current liabilities.
all of these options are current liabilities.
The amortization of the bond premium decreases
both interest expense and bond carrying value.
If bonds have been issued at a discount, over the life of the bonds, the
carrying value of the bonds will increase.
The current ratio is
current assets divided by current liabilities.
Which of the following statements concerning current liabilities is incorrect? A) current liabilities include unearned revenues. B) a company that has more current liabilities than current assets is usually the subject of some concern. C) current liabilities include prepaid expenses. D) a current liability is a debt that can reasonably be expected to be paid out of existing current assets or result in the creation of other current liabilities.
current liabilities include prepaid expenses.
The term used for bonds that are unsecured is
debenture bonds
Hoffman Corporation retires its bonds at 106 on January 1, following the payment of semiannual interest. The face value of the bonds is $400,000. The carrying value of the bonds at the redemption date is $419,800. The entry to record the redemption will include a
debit of $19,800 to Premium on Bonds Payable.
Modern Magazine sells annual subscriptions to its magazine for $18. Subscribers receive a magazine each month. The current news stand price is $2 per monthly magazine. For the current year, Modern Magazine sold 1,000 annual subscriptions. The monthly adjusting entry to record the revenue earned would be a:
debit to Unearned Subscription Revenue, $1,500, and a credit to Subscription Revenue, $1,500.
The entry to record the issuance of an interest-bearing note includes a credit to Notes Payable for the note's
face value.
All of the following are advantages of bond financing over common stock except A) stockholder control is not affected. B) tax savings. C) possibly higher earnings per share. D) higher net income.
higher net income.
The major disadvantages resulting from the use of bonds are that
interest must be paid and the principal must be repaid.
Discount on Bonds Payable
is a contra account.
Premium on Bonds Payable
is considered to be a reduction in the cost of borrowing.
The interest rate investors demand for loaning funds to a corporation is the
market interest rate.
The present value of a bond is also known as its
market price
Companies report current liabilities on the balance sheet in:
order of magnitude.
When the issuing company records a conversion of bonds into common stock
the company transfers the carrying value of the bonds to paid-in capital accounts.
Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that
the contractual interest rate exceeds the market interest rate.
Both the straight-line method and the effective-interest method of amortizationwill always result in
the same amount of interest expense being recognized over the term of the bonds.
The debt to total assets ratio is computed by dividing
total debt by total assets.
Payroll deductions include all of the following except: A) FICA taxes. B) federal income taxes. C) health insurance. D) unemployment taxes.
unemployment taxes.
The relationship between current liabilities and current assets is
useful in evaluating a company's liquidity.