Accounting 302 Final

Ziegler Company self insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1,500,000 per year. The company estimates that on average it will incur losses of $1,200,000 per year. During 2012, $525,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Ziegler Company for 2012? a. $525,000 in losses and no insurance expense b. $525,000 in losses and $675,000 in insurance expense c. $0 in losses and $1,200,000 in insurance expense d. $0 in losses and $1,500,000 in insurance expene

A

Chapter 14 (Q62)

A $1,068,000 + $699,120 = $1,767,120.

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2012 balance sheet? a. $14,709,482 b. $15,000,000 c. $14,718,844 d. $14,706,232

A $14,703,109 + [($14,703,109 × .04) - $585,000] + [$14,706,233 × .04) - $585,000] = $14,709,482.

Chapter 14 (Q60)

A $2,000,000 × .534 = $1,068,000.

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2012 balance sheet? a. $9,806,320 b. $10,000,000 c. $9,812,562 d. $9,804,154

A $9,802,072 + [($9,802,072 × .04) - $390,000] + [($9,804,154 × .04) - $390,000] = $9,806,321.

On September 1, Hydra purchased $13,300 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges were $280. Payment for the purchase was made on September 18. Assuming Hydra uses the perpetual inventory system and the net method of accounting for purchase discounts, what amount is recorded as inventory from this purchase? a. $13,167. b. $13,447. c. $13,580. d. $13,300.

A ($13,300 ×.99) = $13,167.

Chapter 13 (Q111)

A ($23.75 × 8 ×10 ×35) + ($22.50 ×8 ×2 ×35) = $79,100.

Ermler Corporation has $1,800,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? a. $1,000,000 b. $1,800,000 c. $800,000 d. $0

A 50,000 × $20 = $1,000,000.

CalCount provides its employees two weeks of paid vacation per year. As of December 31, 65 employees have earned two weeks of vacation time to be taken the following year. If the average weekly salary for these employees is $1,140, what is the required journal entry? a. Debit Salaries and Wages Expense for $148,200 and credit Salaries and Wages Payable for $148,200. b. No journal entry required. c. Debit Salaries and Wages Payable for $147,600 and credit Salaries and Wages Expense for $147,600. d. Debit Salaries and Wages Expense for $74,100 and credit Salaries and Wages Payable for $74,100.

A 65 ×2 weeks ×$1,140/week = $148,200.

Jenkins Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 90,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? a. $1,800,000 b. $2,500,000 c. $700,000 d. $0

A 90,000 × $20 = $1,800,000.

On October 1, 2012 Macklin Corporation issued 5%, 10-year bonds with a face value of $2,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. Bond interest expense reported on the December 31, 2012 income statement of Macklin Corporation would be a. $23,000 b. $25,000 c. $27,000 d. $46,000

A [($2,000,000 × .05) × 3/12] - [($80,000 ÷ 10) × 3/12] = $23,000

Chapter 13 (Q132)

A [($600,000 + $800,000) ×.07] -$60,000 = $38,000.

On January 1, 2012, Ann Price loaned $90,156 to Joe Kiger. A zero-interest-bearing note (face amount, $120,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2014. The prevailing rate of interest for a loan of this type is 10%. The present value of $120,000 at 10% for three years is $90,156. What amount of interest income should Ms. Price recognize in 2012? a. $9,016. b. $12,000. c. $36,000. d. $27,048.

A. $90,156 ×.10 = $9,016.

In the recent year Hill Corporation had net income of $280,000, interest expense of $60,000, and tax expense of $80,000. What was Hill Corporation's times interest earned ratio for the year? a. 7.0 b. 5.0 c. 4.7 d. 3.7

A. ($280,000 + $60,000 + $80,000) ÷$60,000 = 7.0.

On December 31, 2010, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,200,000 note with $120,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $580,000, an original cost of $960,000, and accumulated depreciation of $460,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2013, reduces the face amount of the note to $500,000, and reduces the interest rate to 6%, with interest payable at the end of each year. Nolte should record interest expense for 2013 of a. $0. b. $30,000. c. $60,000. d. $90,000.

A. The effective-interest rate is 0%.

In February 10, 2012, after issuance of its financial statements for 2011, House Company entered into a financing agreement with Lebo Bank, allowing House Company to borrow up to $6,000,000 at any time through 2014. Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan. House Company presently has $2,250,000 of notes payable with First National Bank maturing March 15, 2012. The company intends to borrow $3,750,000 under the agreement with Lebo and liquidate the notes payable to First National. The agreement with Lebo also requires House to maintain a working capital level of $9,000,000 and prohibits the payment of dividends on common stock without prior approval by Lebo Bank. From the above information only, the total short-term debt of House Company as of the December 31, 2012 balance sheet date is a. $0. b. $2,250,000. c. $3,000,000. d. $6,000,000.

B $2,250,000.

On January 1, 2006, Hernandez Corporation issued $3,600,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hernandez at 105. Hernandez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method). On December 31, 2012, when the fair value of the bonds was 96, Hernandez repurchased $800,000 of the bonds in the open market at 96. Hernandez has recorded interest and amortization for 2012. Ignoring income taxes and assuming that the gain is material, Hernandez should report this reacquisition as a. a loss of $39,200. b. a gain of $39,200. c. a loss of $48,800. d. a gain of $48,800.

B

Stine Co. is a retail store operating in a state with a 6% retail sales tax. The retailer may keep 2% of the sales tax collected. Stine Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was $222,600.The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is a. $12,826. b. $12,348. c. $13,089. d. $13,873.

B $12,600 ×.98 = $12,348

Glaus Corp. signed a three-month, zero-interest-bearing note on November 1, 2012 for the purchase of $250,000 of inventory. The face value of the note was $253,675. Assuming Glaus used a ―Discount on Note Payable‖ account to initially record the note and that the discount will be amortized equally over the 3-month period, the adjusting entry made at December 31, 2012 will include a a. debit to Discount on Note Payable for $1,225. b. debit to Interest Expense for $2,450. c. credit to Discount on Note Payable for $1,255. d. credit to Interest Expense for $2,450

B $253,675 -$250,000 = $3,675. $3,675 ×2/3 = $2,450.

Collier borrowed $350,000 on October 1 and is required to pay $360,000 on March 1. What amount is the note payable recorded at on October 1 and how much interest is recognized from October 1 to December 31? a. $350,000 and $0. b. $350,000 and $6,000. c. $360,000 and $0. d. $350,000 and $10,000

B $360,000 -$350,000) × 3/5 = $6,000.

Winter Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Winter's lawyer states that it is probable that Winter will lose the suit and be found liable for a judgment costing Winter anywhere from $1,600,000 to $8,000,000. However, the lawyer states that the most probable cost is $4,800,000. As a result of the above facts, Winter should accrue a. a loss contingency of $1,600,000 and disclose an additional contingency of up to $6,400,000. b. a loss contingency of $4,800,000 and disclose an additional contingency of up to $3,200,000. c. a loss contingency of $4,800,000 but not disclose any additional contingency. d. no loss contingency but disclose a contingency of $1,600,000 to $8,000,000.

B $4,800,000 and $3,200,000.

A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $600,000. To extinguish this debt, the company had to pay a call premium of $200,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes? a. Amortize $800,000 over four years. b. Charge $800,000 to a loss in the year of extinguishment. c. Charge $200,000 to a loss in the year of extinguishment and amortize $600,000 over four years. d. Either amortize $800,000 over four years or charge $800,000 to a loss immediately, whichever management selects.

B $600,000 + $200,000 = $800,000.

The 10% bonds payable of Nixon Company had a net carrying amount of $760,000 on December 31, 2012. The bonds, which had a face value of $800,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2013, several years before their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2013 was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2013? Ignore taxes. a. $16,000. b. $50,400. c. $44,800. d. $56,000.

B $760,000 + [($760,000 × .06) - ($800,000 × .05)] = $765,600 (CV of bonds) $765,600 - ($800,000 × 1.02) = $50,400.

On January 1, 2012, Huber Co. sold 12% bonds with a face value of $800,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $861,600 to yield 10%. Using the effective-interest method of amortization, interest expense for 2012 is a. $80,000. b. $85,914. c. $86,160. d. $96,000.

B $861,600 × .05 = $43,080 [$861,600 - ($48,000 - $43,080)] × .05 = 42,834 $85,914

On January 1, Patterson Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of a. $164,700. b. $171,300. c. $154,830. d. $153,000.

B ($1,389,600 × .06) = $83,376; [$83,376 - ($1,500,000 × .05)] = $8,376 ($1,389,600 + $8,376) × .06 = $83,879 $83,376 + $83,879 = $167,255.

Chapter 14 (Q61)

B ($2,000,000 × .03) × 11.652 = $699,120

On October 1, 2012 Bartley Corporation issued 5%, 10-year bonds with a face value of $3,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. The entry to record the issuance of the bonds would include a a. credit of $75,000 to Interest Payable. b. credit of $120,000 to Premium on Bonds Payable. c. credit of $2,880,000 to Bonds Payable. d. debit of $120,000 to Discount on Bonds Payable.

B ($3,000,000 × 1.04) - $3,000,000 = $120,000 premium.

Chapter 13 (Q134)

B ($720,000 ×.5) -$300,000 = $60,000.

Vista newspapers sold 6,000 of annual subscriptions at $125 each on September 1. How much unearned revenue will exist as of December 31? a. $0. b. $500,000. c. $250,000. d. $750,000.

B (6,000 ×$125) ×8/12 = $500,000.

A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2012. Historically, 10% of customers mail in the rebate form. During 2012, 3,000,000 packages of light bulbs are sold, and 160,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2012 financial statements dated December 31? a. $300,000; $300,000 b. $300,000; $140,000 c. $140,000; $140,000 d. $160,000; $140,000

B 3,000,000 ×.10 ×$1 = $300,000; $300,000 -$160,000 = $140,000.

A company offers a cash rebate of $2 on each $6 package of batteries sold during 2012. Historically, 10% of customers mail in the rebate form. During 2012, 6,000,000 packages of batteries are sold, and 210,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2012 financial statements dated December 31? a. $1,200,000; $1,200,000 b. $1,200,000; $780,000 c. $780,000; $780,000 d. $420,000; $780,000

B 6,000,000 ×.10 ×$2 = $1,200,000; $1,200,000 -$420,000 = $780,000.

Tender Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $500,000. What is the required journal entry as a result of this litigation? a. Debit Litigation Expense for $500,000 and credit Litigation liability for $500,000. b. No journal entry is required. c. Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000. d. Debit Litigation Expense for $300,000 and credit Litigation Liability for $300,000.

B Likelihood of loss is only possible, not probable.

Stine Co. is a retail store operating in a state with a 6% retail sales tax. The retailer may keep 2% of the sales tax collected. Stine Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was $222,600.The amount of sales taxes (to the nearest dollar) for May is a. $13,089. b. $12,600. c. $13,356. d. $14,157.

B S + .06S = $222,600, S = $210,000. $222,600-$210,000 = $12,600.

LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from LeMay Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2012, the company sold 500,000 boxes of Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls. If the bowls cost LeMay Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2012? a. $150,000 b. $40,000 c. $60,000 d. $84,000

B [(500,000 ×.60) -220,000] ÷4} ×$2 = $40,000.

Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2012, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000 bowls. If the bowls cost Palmer Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2012? a. $270,000 b. $50,000 c. $75,000 d. $138,000

B [(675,000 ×.60) -330,000] ÷3} ×$2 = $50,000

The 12% bonds payable of Nyman Co. had a carrying amount of $2,080,000 on December 31, 2012. The bonds, which had a face value of $2,000,000, were issued at a premium to yield 10%. Nyman uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2013, several years before their maturity, Nyman retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is a. $0. b. $16,000. c. $24,800. d. $80,000.

B. $2,080,000 -[($2,000,000 ×.06)-($2,080,000 ×.05)] = $2,064,000 (CV of bonds) ($2,000,000 ×1.04) -$2,064,000 = $16,000.

On January 1, 2012, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $3,000,000 zero-interest-bearing note payable in 5 equal annual installments of $600,000, with the first payment due December 31, 2012. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $2,163,000 at January 1, 2012. What should be the balance of the Discount on Notes Payable account on the books of Leary at December 31, 2012 after adjusting entries are made, assuming that the effective-interest method is used? a. $0 b. $642,330 c. $669,600 d. $837,000

B. $3,000,000-$2,163,000-($2,163,000 ×.09) = $642,330

At the beginning of 2012, Winston Corporation issued 10% bonds with a face value of $1,200,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,111,680 to yield 12%. Winston uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2012? (Round your answer to the nearest dollar.) a. $133,000 b. $133,400 c. $133,804 d. $137,664

B. $4,000,000 × .11) - ($4,260,000 × .10) = $14,000 ($4,260,000 - $4,000,000) - $14,000 = $246,000.

On December 31, 2010, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,200,000 note with $120,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $580,000, an original cost of $960,000, and accumulated depreciation of $460,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2013, reduces the face amount of the note to $500,000, and reduces the interest rate to 6%, with interest payable at the end of each year. Nolte should recognize a gain or loss on the transfer of the equipment of a. $0. b. $80,000 gain. c. $120,000 gain. d. $380,000 loss.

B. $580,000 -($960,000 -$460,000) = $80,000.

On January 1, Martinez Inc. issued $4,000,000, 11% bonds for $4,260,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of: a. $246,840 b. $246,000 c. $231,400 d. $220,000

B. ($2,817,000 × .10) - ($3,000,000 × .09) = $11,700 ($3,000,000 - $2,817,000) - $11,700 = $171,300.

At December 31, 2012 the following balances existed on the books of Foxworth Corporation: Bonds Payable $3,000,000 Discount on Bonds Payable 240,000 Interest Payable 75,000 Unamortized Bond Issue Costs 180,000 If the bonds are retired on January 1, 2013, at 102, what will Foxworth report as a loss on redemption? a. $555,000 b. $480,000 c. $405,000 d. $300,000

B. ($3,000,000 × 1.02) - ($3,000,000 - $240,000 - $180,000) = $480,000.

On October 1, 2012 Bartley Corporation issued 5%, 10-year bonds with a face value of $3,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. Bond interest expense reported on the December 31, 2012 income statement of Bartley Corporation would be a. $40,500 b. $69,000 c. $34,500 d. $37,500

B. [($3,000,00 0 × .05) × 3/12] - [($120,000 ÷ 10) × 3/12] = $34,500.

Didde Company issues $15,000,000 face value of bonds at 96 on January 1, 2011. The bonds are dated January 1, 2011, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2014, $9,000,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2014? a. $900,000 loss b. $408,000 loss c. $540,000 loss d. $680,000 loss

B. {$14,400,000 + [$600,000 ×(3 2/3 ÷10)]} ×.60 = $8,772,000 $9,180,000 - $8,772,000 = $408,000.

Cortez Company issues $3,000,000 face value of bonds at 96 on January 1, 2011. The bonds are dated January 1, 2011, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2014, $1,800,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2014? a. $180,000 loss b. $81,600 loss c. $108,000 loss d. $136,000 loss

B. {$2,880,000 + [$120,000 × (3 2/3 ÷10)]} ×.60 = $1,754,400 $1,836,000-$1,754,400 = $81,600.

The December 31, 2012, balance sheet of Hess Corporation includes the following items: 9% bonds payable due Dec 31, 2021 $2,000,000 Unamortized premium on bonds payable 54,000 The bonds were issued on December 31, 2011, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2013, Hess retired $800,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. a. $37,600. b. $21,600. c. $37,200. d. $40,000.

C

Purest owes $2 million that is due on February 28. The company borrows $1,600,000 on February 25 (5-year note) and uses the proceeds to pay down the $2 million note and uses other cash to pay the balance. How much of the $2 million note is classified as long-term in the December 31 financial statements. a. $2,000,000. b. $0. c. $1,600,000. d. $400,000.

C $1,600,000.

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using effective-interest amortization, how much interest expense will be recognized in 2012? a. $585,000 b. $1,170,000 c. $1,176,374 d. $1,176,249

C $14,703,109 × .04) + 14,706,233 × .04) = $1,176,374.

Electronics4U manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $200 per unit sold and reported a liability for estimated warranty costs $7.8 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $243 million and paid warranty claims of $9,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? a. $3,000,000. b. $4,200,000. c. $10,800,000. d. $12,000,000.

C $7,800,000 + (60,000 ×$200) -$9,000,000 = $10,800,000

Feller Company issues $10,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $9,700,000 b. $10,225,000 c. $9,850,000 d. $9,550,000

C ($10,000,000 × .97) + ($900,000 × 2/12) = $9,850,000.

Chapter 14 (Q63)

C ($3,000,000 × .78120) + ($90,000 × 8.75206) = $3,131,285.

Presented below is information available for Morton Company. Current Assets Cash $ 4,000 Short-term investments 75,000 Accounts receivable 61,000 Inventory 110,000 Prepaid expenses 30,000 Total current assets $280,000 Total current liabilities are $110,000 The acid-test ratio for Morton is a. 2.55 to 1. b. 2.27 to 1. c. 1.27 to 1. d. 0.72 to 1.

C ($4,000 + $75,000 + $61,000/ 110,000) = 1.27 to 1

The total payroll of Teeter Company for the month of October, 2012 was $600,000, of which $150,000 represented amounts paid in excess of $106,800 to certain employees. $500,000 represented amounts paid to employees in excess of the $7,000 maximum subject to unemployment taxes. $150,000 of federal income taxes and $15,000 of union dues were withheld. the state unemployment tax is 1%, the federal unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on an employee's wages to $106,800 and 1.45% in excess of $106,800. What amount should Teeter record as payroll tax expense? a. $197,700. b. $188,400. c. $38,400. d. $47,400.

C ($450,000 ×7.65%) + ($150,000 ×1.45%) + ($100,000 ×1.8%) = $38,400.

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, how much interest expense will be recognized in 2012? a. $390,000 b. $780,000 c. $784,248 d. $784,166

C ($9,802,072 × .04) + ($9,804,154 × .04) = $784,248.

Vopat, Inc., is a retail store operating in a state with a 5% retail sales tax. The state law provides that the retail sales tax collected during the month must be remitted to the state during the following month. If the amount collected is remitted to the state on or before the twentieth of the following month, the retailer may keep 3% of the sales tax collected. On April 10, 2012, Vopat remitted $135,800 tax to the state tax division for March 2012 retail sales. What was Vopat 's March 2012 retail sales subject to sales tax? a. $2,716,000. b. $2,660,000. c. $2,800,000. d. $2,741,667.

C .05S × .97 = $135,800, S = $2,800,000.

A company gives each of its 50 employees (assume they were all employed continuously through 2012 and 2013) 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 2012, they made $21 per hour and in 2013 they made $24 per hour. During 2013, 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. What amount of vacation liability would be reflected on the 2012 and 2013 balance sheets, respectively? a. $100,800; $140,400 b. $115,200; $144,000 c. $100,800; $144,000 d. $115,200; $140,400

C 50 ×12 ×8 ×$21 = $100,800; 50 ×15 ×8 ×$24 = $144,000.

A company gives each of its 50 employees (assume they were all employed continuously through 2012 and 2013) 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 2012, they made $24.50 per hour and in 2013 they made $28 per hour. During 2013, 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. What amount of vacation liability would be reflected on the 2012 and 2013 balance sheets, respectively? a. $117,600; $163,800 b. $134,400; $168,000 c. $117,600; $168,000 d. $134,400; $163,800

C 50 ×12 ×8 ×$24.50 = $117,600; 50 ×15 ×8 ×$28 = $168,000.

On January 1, 2012, Jacobs Company sold property to Dains Company which originally cost Jacobs $950,000. There was no established exchange price for this property. Danis gave Jacobs a $1,500,000 zero-interest-bearing note payable in three equal annual installments of $500,000 with the first payment due December 31, 2012. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $1,500,000 note payable in three equal annual installments of $500,000 at a 10% rate of interest is $1,243,500. What is the amount of interest income that should be recognized by Jacobs in 2012, using the effective-interest method? a. $0. b. $50,000. c. $124,350. d. $150,000.

C. $1,243,500 ×.10 = $124,350.

Farmer Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $19,400,000 b. $20,450,000 c. $19,700,000 d. $19,100,000

C. $20,000,000 × .97) + ($1,800,000 × 2/12) = $19,700,000.

Carr Corporation retires its $500,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $518,725. The entry to record the redemption will include a a. credit of $18,725 to Loss on Bond Redemption. b. debit of $18,725 to Premium on Bonds Payable. c. credit of $6,275 to Gain on Bond Redemption. d. debit of $25,000 to Premium on Bonds Payable.

C. $518,725 - $500,000 = $18,725 premium.

On January 2, 2012, a calendar-year corporation sold 8% bonds with a face value of $900,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $830,400 to yield 10%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2012? a. $72,000. b. $83,040. c. $83,316. d. $90,000.

C. $830,400 × .05 = $41,520 [$830,400 + ($41,520 - $36,000)] × .05 = 41,796 $83,316

Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $481,250. The entry to record the redemption will include a a. credit of $18,750 to Loss on Bond Redemption. b. credit of $18,750 to Discount on Bonds Payable. c. debit of $28,750 to Gain on Bond Redemption. d. debit of $10,000 to Premium on Bonds Payable.

C. ($1,111,680 × .06) = $66,701; [$66,701 - ($1,200,000 × .05)] = $6,701 ($1,111,680 + $6,701) × .06 = $67,103 $66,701 + $67,103 = $133,804.

At the beginning of 2012, Wallace Corporation issued 10% bonds with a face value of $1,500,000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,389,600 to yield 12%. Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2012? (Round your answer to the nearest dollar.) a. $172,080 b. $167,255 c. $166,750 d. $166,250

C. ($1,389,600 × .06) = $83,376; [$83,376 - ($1,500,000 × .05)] = $8,376 ($1,389,600 + $8,376) × .06 = $83,879 $83,376 + $83,879 = $167,255.

Chapter 14 (Q65)

C. ($15,000,000 × .78120) + ($450,000 × 8.75206) = $15,656,427.

At December 31, 2012 the following balances existed on the books of Rentro Corporation: Bonds Payable $2,500,000 Discount on Bonds Payable 200,000 Interest Payable 60,000 Unamortized Bond Issue Costs 150,000 If the bonds are retired on January 1, 2013, at 102, what will Rentro report as a loss on redemption? a. $250,000 b. $337,500 c. $400,000 d . $460,000

C. ($2,500,000 × 1.02) - ($2,500,000 - $200,000 - $150,000) = $400,000.

In recent year Cey Corporation had net income of $350,000, interest expense of $70,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year? a. $700,000 b. $630,000 c. $560,000 d. None of the above.

C. ($350,000 + $70,000 + X) ÷$70,000 = 9 ($420,000 + X) = 9 × $70,000 X = $210,000; IBT = $560,000 ($350,000 + $210,000).

On January 3, 2012, Boyer Corp. owned a machine that had cost $300,000. The accumulated depreciation was $180,000, estimated salvage value was $18,000, and fair value was $480,000. On January 4, 2012, this machine was irreparably damaged by Pine Corp. and became worthless. In October 2012, a court awarded damages of $480,000 against Pine in favor of Boyer. At December 31, 2012, the final outcome of this case was awaiting appeal and was, therefore, uncertain. However, in the opinion of Boyer's attorney, Pine's appeal will be denied. At December 31, 2012, what amount should Boyer accrue for this gain contingency? a. $480,000. b. $390,000. c. $300,000. d. $0.

D $0, gain contingencies are not accrued.

Chapter 13 (Q131)

D $1,500,000 × .02 = $30,000.

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2013? a. $14,752,673 b. $14,955,466 c. $14,725,375 d. $14,747,642

D $14,703,109 + ($296,891 × 3/20) = $14,747,642.

On October 1, 2012 Macklin Corporation issued 5%, 10-year bonds with a face value of $2,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. The entry to record the issuance of the bonds would include a credit of a. $50,000 to Interest Payable. b. $80,000 to Discount on Bonds Payable. c. $1,920,000 to Bonds Payable. d. $80,000 to Premium on Bonds Payable.

D $2,000,000 × 1.04) - $2,000,000 = $80,000 premium.

Chapter 13 (Q110)

D $21.50 ×8 ×10 ×35 = $60,200.

Purchase Retailer made cash sales during the month of October of $221,000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions? a. Debit Cash for $221,000. b. Credit Sales Taxes Payable for $12,510. c. Credit Sales Revenue for $208,490. d. Credit Sales Taxes Payable for $13,260.

D $221,000 ×.06 = $13,260

The effective interest on a 12-month, zero-interest-bearing note payable of $300,000, discounted at the bank at 8% is a. 8.51%. b. 8%. c. 11.49%. d. 8.70%.

D $24,000 ÷($300,000 -$24,000) = 0.0870 = 8.70%.

CalCount pays a weekly payroll of $170,000 that includes federal taxes withheld of $25,400, FICA taxes withheld of $15,780, and 401(k) withholdings of $18,000. What is the effect of assets and liabilities from this transaction? a. Assets decrease $170,000 and liabilities do not change. b. Assets decrease $128,820 and liabilities increase $41,180. c. Assets decrease $128,820 and liabilities decrease $41,180. d. Assets decrease $110,820 and liabilities increase $59,180.

D $25,400 + $15,780 + $18,000 = $59,180; 170,000 -$59,180 = $110,820.

Sodium Inc. borrowed $280,000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31? a. $0. b. $33,600. c. $8,400. d. $25,200.

D $280,000 × .12 ×9/12 = $25,200

On December 31, 2012, Irey Co. has $4,000,000 of short-term notes payable due on February 14, 2013. On January 10, 2013, Irey arranged a line of credit with County Bank which allows Irey to borrow up to $3,000,000 at one percent above the prime rate for three years. On February 2, 2013, Irey borrowed $2,400,000 from County Bank and used $1,000,000 additional cash to liquidate $3,400,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2012 balance sheet which is issued on March 5, 2013 is a. $0. b. $600,000. c. $1,000,000. d. $1,600,000.

D $4,000,000 -$2,400,000 = $1,600,000.

Chapter 13 (Q123)

D $4,200,000 ×.09) -$209,000 = $169,000.

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2013? a. $9,835,116 b. $9,970,312 c. $9,816,916 d. $9,831,762

D $9,802,072 + ($197,928 × 3/20) = $9,831,762.

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. What is interest expense for 2013, using straight-line amortization? a. $770,104 b. $780,000 c. $784,596 d. $789,896

D ($10,000,000 × .078) + ($197,928 ÷ 20) = $789,896.

A company buys an oil rig for $2,000,000 on January 1, 2012. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $400,000 (present value at 10% is $154,220). 10% is an appropriate interest rate for this company. What expense should be recorded for 2012 as a result of these events? a. Depreciation expense of $240,000 b. Depreciation expense of $200,000 and interest expense of $15,422 c. Depreciation expense of $200,000 and interest expense of $40,000 d. Depreciation expense of $215,420 and interest expense of $15,422

D ($2,000,000 + $154,220) ÷10 = $215,420; $154,220 ×.10 = $15,422.

Chapter 12 (Q125)

D ($2,800,000 ×.09) -$136,000 = $116,000.

A company buys an oil rig for $3,000,000 on January 1, 2012. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000 (present value at 10% is $231,330). 10% is an appropriate interest rate for this company. What expense should be recorded for 2012 as a result of these events? a. Depreciation expense of $360,000 b. Depreciation expense of $300,000 and interest expense of $23,133 c. Depreciation expense of $300,000 and interest expense of $60,000 d. Depreciation expense of $323,133 and interest expense of $23,133

D ($3,000,000 + $231,330) / 10 = $323,133; $231,330 × .10 = $23,133.

Recycle Exploration is involved with innovative approaches to finding energy reserves. Recycle recently built a facility to extract natural gas at a cost of $15 million. However, Recycle is also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $21 million (the present value of which is $8 million). What is the journal entry required to record the asset retirement obligation? a. No journal entry required. b. Debit Natural Gas Facility for $21,000,000 and credit Asset Retirement Obligation for $21,000,000 c. Debit Natural Gas Facility for $6,000,000 and credit Asset Retirement Obligation for $6,000,000. d. Debit Natural Gas Facility for $8,000,000 and credit Asset Retirement Obligation for $8,000,000

D Present value of the removal cost.

Preston Co., which has a taxable payroll of $700,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Preston Co.? a. $81,900 b. $57,400 c. $28,000 d. $19,600

D [(.062 -.054) + .02] × $700,000 = $19,600.

Roark Co., which has a taxable payroll of $600,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company's state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Roark Co.? a. $70,200 b. $49,200 c. $24,000 d. $16,800

D [(.062 -.054) + .02] × $600,000 = $16,800.

Chapter 13 (Q 128)

D [(200,000 -120,000) ÷8] ×$3 = $30,000

Warranty4U provides extended service contracts on electronic equipment sold through major retailers. The standard contract is for three years. During the current year, Warranty4U provided 42,000 such warranty contracts at an average price of $81 each. Related to these contracts, the company spent $400,000 servicing the contracts during the current year and expects to spend $2,100,000 more in the future. What is the net profit that the company will recognize in the current year related to these contracts? a. $902,000. b. $3,002,000. c. $300,667. d. $734,000.

D [(42,000 ×$81)/3 yrs.] -$400,000 = $734,000.

Chapter 13 (Q 127)

D [(500,000 ×.4) ÷8] ×$3 = $75,000.

Chapter 13 (Q 129)

D {[(600,000 ×.4) -150,000] ÷8} ×$3 = $33,750. $33,750 + $30,000 = $63,750.

Chapt 14 (Q102)

D. $2,000,000 + $100,000 + $165,000 + ($200,000-$15,000) = $2,450,000.

On December 31, 2010, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,200,000 note with $120,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $580,000, an original cost of $960,000, and accumulated depreciation of $460,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2013, reduces the face amount of the note to $500,000, and reduces the interest rate to 6%, with interest payable at the end of each year. Nolte should recognize a gain on the partial settlement and restructure of the debt of a. $0. b. $30,000. c. $110,000. d. $150,000.

D. ($1,200,000 + $120,000)-[$580,000 + $500,000 + ($500,000 ×.06 ×3)] = $150,000.

Putnam Company's 2012 financial statements contain the following selected data: Income taxes $40,000 Interest expense 25,000 Net income 60,000 Putnam's times interest earned for 2012 is a. 3.0 times b. 3.4 times. c. 4.0 times. d. 5.0 times.

D. ($60,000 + $40,000 + $25,000) / 25000 = 5 Times

A bond may only be issued on an interest payment date.

F

A company must accrue a liability for sick pay that accumulates but does not vest.

F

A mortgage bond is referred to as a debenture bond.

F

A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis.

F

A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized.

F

Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment.

F

All long-term debt maturing within the next year must be classified as a current liability on the balance sheet.

F

Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense.

F

Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is probable that a liability has been incurred.

F

Dividends in arrears on cumulative preferred stock should be recorded as a current liability.

F

If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current.

F

If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate.

F

If the market rate is greater than the coupon rate, bonds will be sold at a premium.

F

In a troubled debt restructuring, the loss recognized by the creditor will equal the gain recognized by the debtor.

F

Paying a current liability with cash will always reduce the current ratio.

F

Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio.

F

The cash paid for interest will always be greater than interest expense when using effective-interest amortization for a bond.

F

The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold.

F

The interest rate written in the terms of the bond indenture is called the effective yield or market rate.

F

The loss to be recognized by a creditor on an impaired loan is the difference between the investment in the loan and the expected undiscounted future cash flows from the loan.

F

The times interest earned ratio is computed by dividing income before interest expense by interest expense.

F

Under the expense warranty approach, companies charge warranty costs only to the period in which they comply with the warranty.

F

A company discloses gain contingencies in the notes only when a high probability exists for realizing them.

T

An unrealized holding gain or loss is the net change in the fair value of the liability from one period to another, exclusive of interest expense recognized but not recorded

T

Bond issue costs are capitalized as a deferred charge and amortized to expense over the life of the bond issue.

T

Bond issues that mature in installments are called serial bonds.

T

Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until they are remitted.

T

Companies should recognize the expense and related liability for compensated absences in the year earned by employees.

T

Companies usually make bond interest payments semiannually, although the interest rate is generally expressed as an annual rate.

T

Current liabilities are usually recorded and reported in financial statements at their full maturity value.

T

Discount on Notes Payable is a contra account to Notes Payable on the balance sheet.

T

Magazine subscriptions and airline ticket sales both result in unearned revenues.

T

Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale.

T

Off-balance-sheet financing is an attempt to borrow monies in such a way to minimize the reporting of debt on the balance sheet.

T

The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements.

T

The debt to total assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet.

T

The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability.

T

The implicit interest rate is the rate that equates the cash received with the amounts received in the future.

T

The replacement of an existing bond issue with a new one is called refunding.

T

The stated rate is the same as the coupon rate.

T