Accounting Exam 3

Employee income tax depends on: (Check all that apply ).

employee's income number of employee withholding allowances

______ is the total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions such as taxes .

gross pay

The legal contract between the bondholders and the issuer is called the bond _____

indenture

A written promise to pay a specified amount on a stated future date within one year or the company's operating cycle , whichever is longer , is considered a

short-term note payable

In addition to the cashier and clerk who have access to the cash a third employee should have access to

the records for cash, but not the actual cash

What is the purpose of internal controls?

to protect assets and ensure reliable accounting

Amounts received in advance from customers for future products or services are typically recorded in a liability account called

unearned revenues

Employers must pay employee taxes in addition to those paid by the employees . Which of the following is paid only by the employer ?

unemployment

A known liability is a measurable obligation arising from agreements , contracts , or laws . Known liabilities would include all of the following items , except

warranties

Jorge Lopez worked 40 hours this week and earned $ 1,000 in total compensation . Federal and state taxes and other withholdings totaled $350 . Jorge's gross pay totals ______

$1,000

Sheldon has a $ 15,000 liability for a machine that has an interest rate of 10 %. The interest expense for one year is ?

$1,500

On January 8, Lee Co. borrows $100,000 cash from National Bank by signing a 90-day, 6% interest note. On April 8, Lee Co. will pay National Bank a total of $101,500. Principal on the note totals ______

$100,000

Winn Co. signs a 60 day note payable for a $15,000 copy machine with an interest rate of 8%. Winn will record total interest expense of

$200 Reason: $15,000 x .08 x (60/360) = $200.

A company sells a 5- year , 8% bond with a par value of $ 100,000 when the market is 10 % for $96,454 . The bond requires semi - annual interest payments of $4,000 . Using the effective interest amortization method , the company will recognize interest expense on the first semi - annual interest payment

$4,823

A company sells a 6- year , 6 % bond with a par value of $ 100,000 when the market is 8% for $ 90,615 The bond requires semi - annual interest payments of $ 3,000 . Using the effective interest amortization method , the company will recognize _____ for the amortization of the discount on the first semi - annual interest payment .

$625

Jorge Lopez worked 40 hours this week and earned $1,000 . Federal and state taxes , and other withholdings totaled $350 . Jorge's net pay totals $___

$650

A company borrows $60,000 by signing a $60,000 , 8%, 6- year note that requires equal payments of $12,979 at the end of each year. The first payment will record interest expense of $4,800 and will reduce principal by _____.

$8,179

A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by:

$9,542

Which of the following are principles of internal control ? (Check all that apply . )

- Divide responsibility for related transactions - Establish responsibilities - Maintain adequate records - Perform regular and independent reviews

Which of the following are correct regarding why management uses internal controls? (Check all that apply.)

- Protect assets - Ensure reliable accounting - Promote efficient operations - Uphold company policies

Forever , Inc. announces an offer to issue bonds with a $ 100,000 par value , an 8% annual contract rate ( paid semiannually ) and a two - year life . The market rate is 10% , so the bonds will be sold at _____

A discount

A liability created by buying goods or services on credit is typically recorded to _____ _______.

Accounts payable

Used to deposit money for safekeeping and help control withdrawals .

Bank account

Service fees charged by the bank

Bank charges

The legal contract between the bond issuer and the bondholders is called a(n)

Bond indenture

A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $69,000 for the bonds, the issuer will record the sale with a debit to which of the following accounts?

Cash and Discount on Bonds Payable

On March 1, Young Co. borrowed $1,000 by extending their past- due account payable with a 120 -day , 6% interest -bearing note . On June 29 , the due date, Young pays the amount due in full. This entry would be recorded by Young with a credit to ______ in the amount of _____.

Cash; $1,020

A company issues $ 100,000 of 5%, 10- year bonds dated January 1. The bonds pay interest semiannually on June 30 and December 31 each year. If the bonds are sold at par value, the issuer records the sale with a debit to ______ in the amount of _____

Cash; $100,000

A company issues $50,000 of 8\%10 -year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the first semi-annual interest payment with a credit to ____ in the amount of _____.

Cash; $2,000

A document signed by the depositor instructing the bank to pay a specified amount of money

Check

A good internal control to protect cash is to make cash payments using

Checks

The ____ rate is the interest rate specified , sometimes referred to as the coupon rate , stated rate , or nominal rate .

Contract

A company issues $ 100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $103,000 for the bonds, the issuer will record the sale with a _____ to Bond Payable in the amount of _____

Credit; $100,000

A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $103,000 for the bonds, the issuer will record the sale with a _____ to Bond Payable in the amount of _____.

Credit; $100,000

A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $98,000 for the bonds, the issuer will record the sale with a _____ to Bonds Payable in the amount of _____

Credit; $100,000

A company issues $90,000 of 5%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $95,000 for the bonds, the issuer will record the sale with a ______ to _______ on Bonds Payable in the amount of $5,000.

Credit; Premium

A _____ liability is a liability due within one year or the company's operating cycle , whichever is longer .

Current

A company issues $500,000 of 6%, 10-year bonds dated January 1, 2017 that mature on December 31, 2026. The bonds pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the sale with which of the following entries?

Debit to Cash $500,000; and credit to Bond Payable $500,000.

A company issues $ 100,000 of 6%, 10 -year bonds dated January 1, that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value , the issuer records the first semi -annual interest payment with which of the following entries ? (Check all that apply .)

Debit to interest expense for $3,000 Credit to cash for $3,000

A company issues $90,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $ 85,000 for the bonds, the issuer will record the sale with a ______ to Discount on Bonds Payable in the amount of _____.

Debit; $5,000

On June 1 , Sawyer Co. borrowed $5,000 by extending their past- due account payable with a 45-day, 12 % interest - bearing note. On July 16, the due date , Sawyer pays the amount due in full. Sawyer would record this payment with a ______ to Interest Expense in the amount of _____.

Debit; $75

On June 1, Sawyer Co. borrowed $5,000 by extending their past-due account payable with a 45-day, 12% interest -bearing note . On July 16, the due date , Sawyer pays the amount due in full. Sawyer would record this payment with a _____ to Interest Expense in the amount of ____.

Debit; $75

Deposit made and recorded by the depositor, but not yet recorde on the bank statement

Deposit in transit

Lists currency , coins and checks deposited into an account

Deposit ticket

A ____ on bonds payable occurs when a company issues bonds with a contract rate less than the market rate.

Discount

Electronic transfer of cash from one party to another

Electronic funds transfer

Unemployment taxes are examples of ______ taxes .

Employer

A known obligation of an uncertain amount that can be reasonably estimated is called a(n) ______ liability .

Estimated

A(n) ______ liability is a known obligation that is of an uncertain amount but that can be reasonably estimated .

Estimated

T/F: 2. Hiring auditors to review internal controls increases risk of theft.

False

T/F: 4. Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to him/herself

False

_________ is the total compensation an employee earns including wages, salaries, commissions , bonuses , and any compensation earned before deductions such as taxes.

Gross pay

The legal contract between the bondholders and the issuer is called the bond _____.

Indenture

A company borrows $60,000 from a bank to purchase equipment. It signs an 8% note requiring six annual payments of principal plus interest. This is an example of a(n) ______ note.

Installment

A(n) _____ note is an obligation requiring a series of payments to the lenders .

Installment

On January 8, Lee Co. borrows $ 100,000 cash from National Bank by signing a 90- day, 6 % interest note. On April 8, Lee Co. will pay National Bank a total of $ 101,500 . The difference between the amount paid back to National Bank of $101,500 and the amount borrowed of $ 100,000 (or $ 1,500) represents ____ expense .

Interest

______ is the difference between the amount borrowed and the amount repaid.

Interest

A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by $9,542. The journal entry to record this transaction will include a debit to which of the following accounts and for how much? (Check all that apply.)

Interest Expense $5,600 Notes Payable; $9,542

Identify the item below that would be added to the book balance .

Interest earned

The purpose of _____ ____ is to help managers know if the business is receiving the assets and services it has paid for.

Internal controls

A measurable obligation arising from agreements , contracts, or laws is called a _____ liability .

Known

A _____ is a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events.

Liability

Bina Consulting Co. collected $500 from a customer in advance to provide consulting fees for the next two months . The $500 would be recorded with a debit to Cash and a credit to the Unearned Revenues , which is a ______ account .

Liability

When a company has a current obligation to make a future payment to their supplier due to a shipment of supplies that were received last week , the company would record this transaction with an increase to an asset account and a( n) account

Liability

account . Bryne Co. sells merchandise and collects a 5 % state sales tax . The tax is recorded on Bryne's general ledger as a ( n)

Liability

The bond's ______ rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level .

Market

The rate that borrowers are willing to pay and lenders are willing to accept for a particular bond at its risk level is called the bond's _____ rate.

Market

The par value of a bond, also called the face value, is paid at a stated future date, known as the bond's _____ date .

Maturity

FICA tax includes both Social Security tax and

Medicare tax

Unearned subscription revenues that extends over multiple periods is an example of a ______ known liability.

Multi period

A check written by a customer who does not have enough money in his account to cover the check

NSF Check

Select the items below that would cause the bank statement balance to differ from the depositor's book balance.

NSF check, Deposit in transit, interest paid by bank

Gross pay minus all deductionsincluding federal and state taxes, FICA and any voluntary deductions equals ____ pay.

Net

Choose the items below that would increase the book balance on a bank reconciliation. (Check all that apply.)

Note collected by the bank for the depositor Interest earned on the depositor's account

A ____ _____ is similar to a bond payable but is normally transacted with a single lender such as a bank.

Note payable

Lyle Co. borrowed $20,000 from First Bank by signing a written promise to pay a definite sum of money on a specific future dateLyle will record this in the general ledger as a _____ payable

Notes

A company borrows $60,000 by signing a $60,000, 8%, 6-year note that requires equal payments of $12,979 at the end of each yearThe first payment will record interest expense of $4,800 and will reduce principal by $8,179. The journal entry to record this payment will include a debit to which of the following accounts and in what amount? (Check all that apply.)

Notes payable $8,179 Interest expense $4,800

Which of the following items would be considered a current liability? (Check all that apply.)

Notes payable due, in 3 months Wages payable Accounts payable, terms n/30

A check written by the depositor that has not yet been received by the bank for payment

Outstanding check

The _____ value of a bond , also called the face amount or face value , is paid at a stated future date , known as the bond's maturity date .

Par

The bond carrying value can be determined by taking the bond ____ value minus the discount on bonds payable.

Par

The bond contract rate determines the annual interest paid by multiplying the bond ____ value by the contract rate.

Par

The bond carrying value can be determined by which of the following formulas ?

Par value - discount on bonds payable

KRS Co. sells merchandise for $120 and collects sales tax of $12. KRS would record the $12 sales tax with a credit to the Sales Tax _____ account.

Payable

When the contract rate of the bonds is higher than the market rate, the bond sells at a higher price than par value. The amount by which the bond price exceeds par value is the _____ on bonds .

Premium

When the market rate is less than the bond contract rate on the date of issuance , the bonds will be sold at a ______.

Premium

The _______ of a note is the amount that the signer of a note agrees to pay back when it matures, not including interest .

Principal or face value

Explains the reason for payment

Remittance advice

Show your understanding of what a bank reconciliation is by completing the following sentence . A bank reconciliation is a _____ explaining any differences between the ______ account balance according to the depositor's records and the balance reported on the ____ statement .

Report Checking Bank

Damen's Co. sells merchandise with a list price of $500 and collects sales tax of $ 50. The sales tax would be recorded with a credit to which account ?

Sales tax payable

Zion Co. sells $ 100 of merchandise and collects $10 sales tax. The sales tax is recorded to which account ?

Sales tax payable

Cadie Construction Co. signed a note promising to pay a cement supplier $ 1,000 60- days from now . As a result of this transaction , Cadie would record a _______ on her balance sheet .

Short term not payable

T/ F: these are principles of internal control: - Establish responsibilities . - Maintain adequate records . - Insure assets . - Separate recordkeeping from custody of assets. - Apply technological controls - Perform regular and independent reviews

True

T/F: 1. Separation of recordkeeping for assets from the custody over assets does not prevent collusion between two or more employees to commit fraud .

True

T/F: 3. Bonding key employees helps reduce risk of theft.

True

T/F: An owner of a small business usually knows if the business is receiving the assets and services the company paid for

True

T/F: Technologically advanced systems can record who made entries , the date and time of the entry and the source of the entry.

True

T/F: Technology has encouraged the growth of e- commerce, which means that there is a higher risk of credit card number theft.

True

T/F: Technology has reduced the number of processing errors.

True

T/F: The adjusted bank balance must equal the adjusted cash balance per books.

True

T/F: The adjusted book balance and the adjusted bank balance must equal each other on a bank reconciliation ; otherwise , the cash account is not reconciled.

True

T/F: The employer must pay FICA tax in an amount equal to that paid by the employee.

True

T/F: The following would show up on a monthly bank statement: - Deposits and other increases to the account during the period - Beginning -of-period balance in the account - Withdrawals and other decreases to the account during the period - End-of- period balance in the account

True

T/F: The information on the bank statement reflects the bank's records of the depositor's account.

True

T/F: These are services provided by a bank: - A bank account is a record set up by a bank for a customer. - To withdraw money from an account, the depositor can use a check. - Each bank deposit is supported by a deposit ticket .

True

T/F: These are technological impacts related to internal control: - new evidence of processing - more extensive testing of records - separation of duties - reduced processing errors

True

T/F: These are the basic internal control guidelines which should be in place to protect a business's cash: - Cash payments are made by check. - Handling cash is separate from recordkeeping of cash. - Cash receipts are promptly deposited in a bank.

True

T/F: When a bank reconciliation is used: - The bank reconciliation is useful in proving the accuracy of the Cash account in the general ledger. - We must reconcile the balance of the bank's records and the Cash account in the general ledger and explain or account for any differences in the two. - Timing differences between the bank statement and the depositor's records are reflected in the bank reconciliation .

True

T/F: are these examples of good internal control designed to protect over-the-counter cash receipts: - Clerks should be required to give the customer a receipt for each sale. - The clerk and the cashier have access to cash, but not to the accounting records .

True

Which of the following liabilities could be a multi-period known liability? (Check all that apply.)

Unearned Subscription Revenues Notes Payable

Spot Co. purchases office supplies from Sally Supplies , Inc .. Spot does not pay cash for the purchase , and now owes the amount to Sally . This transaction would typically be recorded in which account in Spot's books ?

accounts payable

Amounts withheld from employee's earnings for employee income tax is considered a _____ by the employer until the government is paid.

current liability