ACCT 400 FINAL
What is negative assurance? IMPORTANT. MUST KNOW.
"There is nothing that came to our attention that says the financial statements do not comply with GAAP." Basically says the didn't see any evidence that didn't comply.
What is the difference between an error and a fraud? IMPORTANT. MUST KNOW.
Mistake. If intentional it becomes fraud.
What is SSARS? What services are these standards applicable to? IMPORTANT. MUST KNOW.
SSARS: Standards for Accounting and Review Services Applicable to the review and compilation.
An obligation dependent upon an event that has not yet occurred is an example of a(n):
contingent liability.
Capital leases are most similar to:
mortgage notes.
Bonds that are backed only by the credit of the issuing company are:
unsecured bonds.
Ronaldo earns $21 per hour and works 40 hours a week. Last week he worked 48 hours; given that his company pays time and a half for overtime—what is Ronaldo's gross pay for the week? (Assume overtime is any time over 40 hours per week. (Assume overtime is any time over 40 hours per week. Round intermediary calculations and your final answer to the nearest cent.)
$1,092.00
Richard is paid a salary of $9,000. At the end of November, his cumulative gross earnings were $95,000. How much will his employer take out for the HI portion of social security for December? (Round your final answer to the nearest cent.)
$130.50
Stella Corp. has the following liabilities: $30,000 salaries payable, $70,000 accounts payable, $180,000 notes payable (to be made in 10 equal annual payments), and warranty payable $22,000 (all of Stella's products come with a 90-day manufacturer warranty). The total current liabilities is:
$140,000
If a $6,000, 10 percent, 10-year bond was issued at 106 on October 1, how much will accrued interest payable be on December 31 if interest payments are made annually? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)
$150
A $170,000 bond issue sold at 97 will cost: (Round your final answer to the nearest dollar.)
$164,900
If a $15,000, 8 percent, 20-year bond was issued at 95 on November 1, how much will accrued interest payable be on December 31 if interest payments are made annually? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)
$200
A $330,000 bond issue sold at 110 will cost: (Round your final answer to the nearest dollar.)
$363,000
Richard is paid a salary of $6,000. At the end of November, his cumulative gross earnings were $97,000. How much will his employer take out for the OASDI portion of social security for December? (Round your final answer to the nearest cent.)
$372.00
Kat's wages for December are $8,500. At the end of November, her cumulative gross earnings were $112,000. How much will her employer take out for the OASDI portion of social security for December? (Round your final answer to the nearest dollar.)
$403
Sydney earns $15 per hour and works 40 hours a week. Last week she worked 50 hours; given that her company pays time and a half for overtime—what is Sydney's gross pay for the week? (Assume overtime is any time over 40 hours per week. Round intermediary calculations and your final answer to the nearest cent.)
$825.00
On October 31, 2016, Renoir, Inc. recorded their semi-annual bond interest expense that contained a credit to Discount on bonds payable of $2,600. The adjusting entry on December 31, 2016 will show a credit to Discount on bonds payable of: (Round any intermediary calculations to two decimal places and your final answer to the nearest dollar.)
$858
A company signs a note payable for $4,500 at 11% for 65 days. How much interest (to the nearest cent) will the company owe using a 360-day year? (Round your final answer to the nearest cent.)
$89.38
A $9,000 bond issue with a stated interest rate of 9%, when the market rate of interest is 9%, means that the bond will sell for:
$9,000
On September 30, 2016, Illusions, Inc. recorded their semi-annual bond interest expense that contained a credit to Discount on bonds payable of $1,800. The adjusting entry on December 31, 2016 will show a credit to Discount on bonds payable of: (Round your final answer to the nearest dollar.)
$900
Most single individuals will claim:
0 or 1 allowances.
The tax rate on the HI (Medicare) portion of FICA is:
1.45%.
TLR Productions reported Interest expense of $9,000, Income tax expense of $27,000 and Net income of $110,000. TLR's interest coverage ratio is: (Round your final answer to two decimal places.)
16.222
Vintage Boutique reported Interest expense of $5,500, Income tax expense of $24,000 and Net income of $77,000. Vintage Boutique's interest coverage ratio is: (Round your final answer to two decimal places.)
19.36
Livingston Organization had total assets of $635,000; total liabilities of $185,000; and total Stockholders' Equity of $450,000. Livingston's debt ratio is: (Round your final answer to the nearest whole number.)
29%.
Bach Instruments had total assets of $600,000; total liabilities of $270,000; and total Stockholders' Equity of $330,000. Bach's debt ratio is: (Round your final answer to the nearest whole number.)
45%.
The maximum tax credit an employer can get for FUTA if they pay unemployment taxes to a state is:
5.40%.
The tax rate on the OASDI portion of FICA is:
6.20%.
62. How long is the auditor required by the PCAOB to retain the audit working papers of public companies? By the AICPA for private companies? IMPORTANT. MUST KNOW.
7 Years.
The combined FICA rate for employees is:
7.65%.
Dante's Designs has current assets of $57,000 long-term assets of $139,000 current liabilities of $49,000 long-term liabilities of $93,000. Dante's debt ratio is: (Round your final answer to the nearest whole number.)
72%.
Internal Controls
A process designed to provide assurance regarding operations, reporting and compliance. It's important because it reduces risk of misstatement and ensures the financial information is complete and accurate.
What is a representation letter? What is the date of this letter? IMPORTANT. MUST KNOW.
A representation letter is a letter prepared by officers/managers of the client company at the auditor's' request setting forth certain presentations about the company's financial position or operations. It should be obtained from management. The primary purpose is to have the client's principal officers acknowledge that they are primarily responsible for the fairness of the financial statements. The letter should be dated as of the date of the audit report. We've disclosed everything to you. We've given you all the _____ (??)
What is a walkthrough of internal controls? What is its purpose?
A walkthrough is tracing transactions start to finish, testing the internal control processes to ensure they are in place and working efficiently.
Which of the following would be considered a known liability? A) Accounts payable B) Warranties payable C) Pending litigation D) Possible contingency payable
A) Accounts payable
Which of the following does NOT have an effect on the amount of federal income tax to be withheld from an employee's pay? A) Age of employee B) Marital status of employee C) Number of withholding allowances claimed D) Gross pay of employee
A) Age of employee
Which of the following would NOT be part of an employer's payroll taxes? A) Federal income tax B) FICA C) FUTA D) SUTA
A) Federal income tax
Which of the following would NOT be a liability? A) The signing of a three-year employment contract at a fixed annual salary B) An obligation to provide goods or services in the future C) A note payable with no specified maturity date D) An obligation that is estimated in amount
A) The signing of a three-year employment contract at a fixed annual salary
What is the difference between the AICPA and PCAOB? IMPORTANT. MUST KNOW.
AICPA provides oversight for private companies. PCAOB provides oversight for public companies.
Which current liability is generally listed first?
Accounts Payable
What is an aged trial balance? How can it be used by an auditor? IMPORTANT. MUST KNOW.
Alphabetically lists accounts receivable with outstanding balances. It displays one balance for every account by age and is typically produced only once on demand to check receivable details against other reports. It can be used to make the estimates of the bad debt expenses by the auditors
Who are the clients of an auditor?
An audit client is any person or organization that requests an audit.
With regard to long-term debt, collateral represents?
Assets pledged to secure repayment of a loan
Attestation Services.
Attestation is a subset of assurance. It provides assurance to its reliability. Examination: referred to as an audit when it involves historical financial statements. Review: lesser in scope and provides a moderate degree of assurance. Agreed-upon Procedures Engagement: report by the CPA that describes procedures and their findings.
What is the audit risk model? What are its components? How is it used by auditors? IMPORTANT. MUST KNOW.
Audit Risk = Risk of Material Misstatement * Risk of Failure to Detect Misstatements Audit Risk = (Inherent Risk * Control Risk) * Detection Risk
What is audit evidence? Why is evidence obtained by auditors? How much evidence must the auditor obtain? IMPORTANT. MUST KNOW.
Audit evidence is the information auditors used to come to an opinion. It includes physical observation, accounting records, internal and external documents, results of test of controls and substantive tests, confirmation letters. It depends on the auditors judgment. Auditor must obtain enough to form an opinion.
12) Which of the following would NOT be a required payroll deduction for an employee? A) FICA B) 401(K) retirement C) Federal income tax D) State income tax
B) 401(K) retirement
Tazo Inc. signed a $12,000 10% 15-year installment note on December 1, 2016. The note requires quarterly payments of $200 plus interest on March 1, June 1, September 1, and December 1 of each year. How will Tazo classify this loan on its December 31, 2016 Balance Sheet?
B) Current Portion of Long-term debt, $800; Long-term debt, $11,200
Which of the following would be a required payroll tax for both the employee and the employer? A) Federal income tax B) FICA C) FUTA D) SUTA
B) FICA
Which of the following would be treated as a rental agreement? A) Capital leases B) Operating leases C) Expense leases D) Revenue leases
B) Operating leases
Which of the following would be considered an estimated liability? A) Notes payable B) Warranties payable C) Pending litigation D) Sales tax payable
B) Warranties payable
KLR Oil Company is being investigated, following an explosion on one of their oil rigs. They have multiple prior citations for safety violations, and this explosion killed several workers. The related damages are still unknown and cannot be reasonably estimated. What accounting treatment should KLR use for the investigation?
Because the likelihood of the obligation occurring is probable, but the amount is unknown, this should be disclosed in the footnotes.
Which are generally paid for exceptional performance?
Bonuses
Which of the following would be considered a contingent liability? A) Federal income tax payable B) Warranties payable C) Pending litigation D) Salaries payable
C) Pending litigation
26. Identify three (3) items often misclassified as miscellaneous revenue. Why is it important to audit miscellaneous revenue and expenses?
Collections on previously written-off receivables; these should be credited to the allowance for doubtful accounts and notes receivable. Write-offs of old outstanding checks or unclaimed wages; in states having unclaimed property laws these write-offs should be credited to a liability account. Proceeds from sale of scrap; these are generally applied to reduce cost of goods sold. Rebates or refunds of insurance premiums; these should be offset against the related insurance expense or unexpired insurance. Proceeds from sales of plant assets; these should be accounted for in the determination of gain or loss on the assets sold.
What are the responsibilities of the successor and predecessor auditor when a company is changing auditors?
Communicate with the predecessor auditor Determine integrity of management Accounting principles Governance regarding fraud and noncompliance with laws Governance regarding internal control deficiencies and material weaknesses The reason of change of auditors
Lionworks Inc. signed a $57,000 8% 30-year installment note on November 1, 2016. The note requires semiannual payments of $950 plus interest on May 1 and November 1 of each year. How will Lionworks classify this loan on its December 31, 2016 Balance Sheet?
Current Portion of Long-term debt, $1,900; Long-term debt, $55,100
Which of the following statements is TRUE regarding the debt ratio? A) The debt ratio focuses on the total liabilities of an organization. B) The debt ratio reveals the percentage of a business' assets financed with liabilities. C) The debt ratio is used to analyze a business's ability to pay its current obligations as they come due. D) Both A and B are true statements regarding the debt ratio.
D) Both A and B are true statements regarding the debt ratio.
Which of the following liabilities can be classified as either current or long term? A) known and estimated B) estimated and contingent C) known and contingent D) known, estimated, and contingent
D) known, estimated, and contingent
What is the Balanced Scorecard? List and describe its 4 perspectives.
Employees should be evaluated on things other than just the financial perspective. (1)Financial (2) Customer (3) Internal Business Processes (4) Innovation/Learning and Growth
Bonding of employees is an example of internal controls. What is bonding? IMPORTANT. MUST KNOW.
Employer purchases insurance on you in case you steal something/defraud somebody. Insurance will pay the employer.
What is an engagement letter? What are the items covered in it?
Engagement letter is a contract with the client that covers the agreed terms of the engagement. The letter includes: The name of the entity Management's responsibilities - financial statements, effective internal control reporting, compliance with laws and regulations, making records available to auditors, and providing written representations at the end of the audit (adjustments to the financial statements) The auditor's responsibilities - conduct an audit in accordance with GAAS, obtain understanding of internal control to plan audit and determine the nature, timing and extent of procedures, and making communications required by GAAS. Optional items - arrangements regarding conduct of the audit (timing, client assistance), use of specialists or internal auditors, information from predecessor auditor's, fees and billing, examination of internal control and limitations.
When a company settles a warranty claim by replacing the defective goods, the journal entry will include a debit to _______ and a credit to _______.
Estimated Warranty Payable, Inventory
Distinguish between internal and external audit evidence. Which one is more reliable? Why?
Evidence obtained from a knowledgeable external source that is independent of the company is more reliable than evidence obtained only from internal company sources
What are the auditor's responsibilities related to internal controls for public companies? For nonpublic companies?
External auditors are responsible for evaluating and testing internal controls to ensure they are being used as designed.
What are the analytical procedures? When are they required to be used in an audit? What other times can they be used during an audit? Give five examples of analytical procedures. IMPORTANT. MUST KNOW.
Horizontal analysis, vertical analysis, ratio analysis, etc. Required two times in an audit, at the beginning (done to determine the nature, timing, and extent) and at the end to see if you gathered enough evidence to render an opinion. Can use in the middle too. Examples: (1) review current ratio, (2) days sales outstanding, (3) equity multiplier, (4) asset turnover, (5) EPS.
Why are auditors required to retain audit documentation? IMPORTANT. MUST KNOW.
If auditors are subsequently charged with negligence, the working papers included in the audit file will be a major factor in refuting or substantiating the charge. Properly prepared audit documentation will help the auditors should litigation follow, improperly prepared documentation will work against them. ***The professional standards require a period of not less than five years, while the Sarbanes-Oxley Act of 2002 requires that auditors maintain documentation for seven years. For public clients, auditors must retain working papers for seven years, but they may destroy them after five years if the client is a nonpublic company.***
What is the auditor's responsibility if a material misstatement is discovered after the financial statements have been issued?
If the auditor subsequently discovers material facts that existed at the date of the report, after the financial statements, they must review the latest available financial statements, minutes, and subsequent GL. Discuss with client if subsequent event is recorded in the wrong year, make adjustment.
Define the following: inherent risk, business risk, audit risk, control risk, planned detection risk,and materiality.
Inherent Risk - Risk of a material misstatement occurring in an assertion assuming no related internal controls (inconsistent profitability, going concern, lg misstatements in previous audits, difficult to audit balances, complex calculations). Business Risk - Possibility that a company has lower than anticipated profits. Audit Risk - Risk that financial statements are materially incorrect when the auditors express an inappropriate opinion. Control Risk - Risk that a material misstatement in an assertion will not be prevented or detected on a timely basis by the company's internal control. Detection Risk - Risk that the auditors' procedures will lead them to conclude that a material misstatement does not risk an assertion when in fact such misstatement does exist. Materiality - The threshold above which missing or incorrect information in F/S is considered to have an impact on the decision-making of users.
What is the purpose of a bond discount?
It raises the bond interest rate to the market interest rate at the time the bond was issued.
What is a comfort letter? What is its purpose? IMPORTANT. MUST KNOW.
Letter given to the underwriters - gives them comfort. Includes: Auditors are independent. Complying with SEC Act of 1933 & more (check ppt - discussed in class) Provides negative assurance.
Loss Contingencies
Loss contingencies are possible losses stemming from past events
Who has the responsibility for the financial statements?
Management
What are the requirements of Section 404a of the Sarbanes-Oxley Act of 2002? IMPORTANT. MUST KNOW.
Management must establish and maintain an adequate internal control structure and procedures for financial reporting. Management is responsible for internal control.
Which of the following would NOT be considered a contingent liability?
Mortgage Payable
Marla Smith, an employee of Clown College, earned $113,000 prior to December. Smith's salary for December is $11,000. For what amount will Smith's December salary be subject to OASDI tax and HI tax, respectively.
OASDI $5,500; HI $11,000
Which of the following is NOT a requirement of a capital lease? A) Ownership does not transfer at lease end. B) The agreement has a bargain purchase option. C) The lease must cover at least 75% of asset's useful life. D) The present value of lease payments must be 90% or more of market value of asset.
Ownership does not transfer at lease end.
What are the three (3) components of the fraud triangle? IMPORTANT. MUST KNOW.
Perceived Pressure, Perceived Opportunity, Rationalization
Once the auditor has accepted a client, list and describe the six stages of an audit.
Plan the audit Obtain an understanding of the client and its environment, including internal control Assess risk of misstatement and design audit procedures Perform further audit procedures Complete the audit Form an opinion
What are the requirements of Section 404b of the Sarbanes-Oxley Act of 2002? IMPORTANT. MUST KNOW.
Public accounting firms that prepare/issue audit reports need to report on internal control. Auditors are responsible for auditing internal control of companies with market capital over $75 million.
List and describe three (3) methods that can be utilized to document internal controls. IMPORTANT. MUST KNOW.
Questionnaires Written Narratives - memos that describe the flow of transaction Flow Charts - systems flowcharts Walk-Through - trace one or two transactions through the cycle
What is the auditor's responsibility after the end of field work but before the financial statements have been issued?
Representation letter, review of subsequent events, loss contingencies
Other than audits, what other type of attestation services can be performed by an auditor?
Short answer: Review and agreed-upon procedures engagement. Long answer: Attestation services are a major subset of assurance services. To attest to information means to provide assurance as to its reliability. A practitioner is engaged to issue or does an examination, a review, or an agreed-upon procedures report on subject matter or an assertion about subject matter that is the responsibility of another party. Examination - referred to as an audit when it involves historical financial statements, provides the highest form of assurance a CPA can offer. Review - lesser in scope and is designed to lend only a moderate (limited) degree of assurance. Agreed-upon procedures engagement - a report by the CPA that describes those procedures and their findings.
Subsequent Events
Subsequent event refers to an event occurring between the date of the financial statement and the date of the auditor's report. Probable and reasonably estimated (timing of expense and what year it is recorded in) Type 1 provides additional evidence to conditions that already existed at the date of the financial statements. This requires financial statement amounts to be adjusted to reflect the changes. Type 2 is an event that came after the date of the financial statements. They don't require adjustments to amounts in financial statements but should be disclosed in notes if statement would be misleading.
Explain three situations in which the wording of a report with an unmodified opinion might depart from the auditor's standard report.
Substantial doubt about an entity's ability to continue as a going concern exists. Principles of accounting have not been consistently applied in relation to the prior year - The auditors wish to emphasize some matter in the financial statements (e.g., significant transactions, significant events, uncertainties). A group auditor makes references to a component auditor.
Under what circumstances can an additional paragraph be issued in an unqualified opinion? Where is this additional paragraph presented in the auditor's report?
Substantial doubt about the company's going-concern status Generally accepted accounting principles not consistently applied Uncertainties Other circumstances that auditors believe should be emphasized (e.g., major catastrophe, related party transactions, and subsequent events) Group audits
What are substantive procedures?
Tests done to detect misstatements or fraud at the assertion level. Three types: (1) tests of account balances (address whether there are misstatements in ending balances), (2) tests of transactions (address whether transactions have been properly accounted for), (3) tests of disclosures (address whether disclosures are properly presented).
What is SOX, the PCAOB? Why was this Standard enacted? IMPORTANT. MUST KNOW.
The PCAOB is a private-sector created by the Sarbanes-Oxley Act of 2002 to oversee accounting professionals who provide independent audit reports for publicly traded companies.
Which of the following accurately describes how contingent liabilities are reported on the Balance Sheet?
The accounting treatment for contingent liability could be A, B, or C depending on the likelihood of an actual obligation occurring.
When a company issues bonds, what are they doing?
The company is borrowing money from third parties.
What is dual dating of the auditor's report? Why might the report be dual dated?
The independent auditor has two methods available for dating the report when a subsequent event disclosed in the financial statements occurs after the original date of the auditor's report but before the issuance of the related financial statements. The auditor may use "dual dating," for example, "February 16, 20__, except for Note __, as to which the date is March 1, 20__," Dual-dating: finding something afterwards.
What is meant by a tick mark? What is its purpose? IMPORTANT. MUST KNOW.
Tick marks are used to show work done on work papers. Sees activities have been completed, also provides evidence to show steps were completed to support audit opinion.
What types of opinions are issued by the auditor for financial statements? For internal controls? IMPORTANT. MUST KNOW.
Unqualified - free of misstatement and in accordance with GAAP Qualified - not in accordance with GAAP Adverse - not in accordance with GAAP and F/S are grossly misstated Disclaimer - unable to complete the audit due to absense of financial records or insufficient cooperation for management.
What types of audit procedures are performed by an auditor in order to gather evidence? IMPORTANT. MUST KNOW.
Visual observation, examination of records, and employee interviews.
9) Which are generally paid at an hourly rate?
Wages
When there is a group audit with a shared responsibility or when an auditor relies on the work of another auditor, what reference is contained in the audit report and which paragraphs contain the reference?
When group auditors make reference to other auditors work, they should perform procedures previously describe to validate/confirm it was done correctly/it is accurate.
What are the factors that an auditor should consider before accepting an engagement? Why?
When taking on a new client, the firm should investigate the potential client, its owners and business activities in order to evaluate whether there are any questions over the integrity of the potential client which could create an unacceptable risk Investigate whether the new client would be a threat
Why are contingent liabilities considered unique and different from all other liabilities?
Whether or not a company has an obligation depends on the result of a future event.
What are the responsibilities of management regarding internal controls?
Without adequate internal controls, management has little assurance that its goals and objectives will be accomplished. Management is responsible for making sure that the right controls are in place and that they are performed as intended.
What are working papers? Who do they belong to? IMPORTANT. MUST KNOW.
Working papers are papers that document evidence gathered by auditors to show the work they have done, the methods and procedures they have followed and the conclusions they have developed in an audit of financial statements or other types of engagement.
Is it possible for the auditor to issue two different opinions in the same year on the same financial statements? If yes, give an example. IMPORTANT. MUST KNOW.
Yes, you can give a qualified and unqualified opinion.
If the market rate of interest is greater than the bond's stated rate of interest, the bond will be issued at:
a discount.
For a liability to exist:
a past transaction or event must have occurred.
If the market rate of interest is less than the bond's stated rate of interest, the bond will be issued at:
a premium.
Bonds that may be retired at a prearranged price are called:
callable bonds.
In a(n) _____ lease the lessee will record the lease by debiting an asset account and crediting Lease Payable.
capital
Leases that are treated as financed purchases are called:
capital leases.
Bonds payable minus the Discount on bonds payable yields the:
carrying amount.
Many salespersons have part of their payroll determined by a percent of sales. These are called:
commissions
Discount on bonds payable and Premium on bonds payable are examples of:
companion accounts.
Safe Scooters, Inc. sold scooters which they knew had faulty brakes. Consumers found out, and Safe Scooters is now facing a lawsuit over the unsafe scooters; however, no dollar amounts have been assigned to the case. This lawsuit would be considered a(n):
contingent liability.
One type of liability that is easy to overlook is a(n):
contingent liability.
Bonds that can be exchanged for stock are called:
convertible bonds.
Wolfe Company has a 5-year mortgage for $120,000 which requires 4 equal payments of principal plus interest. In the first year of the mortgage, Wolfe will report this liability as a:
current liability of $30,000 and a long-term liability of $90,000.
Cypress Corp. had sales on account of $19,500 which were subject to state sales tax of 12%. The entry to record the sales would be to:
debit Accounts Receivable $21,840; credit Sales Revenue $19,500; credit Sales Tax Payable $2,340.
The Print Shoppe had sales on account of $7,000 which were subject to state sales tax of 6.5%. The entry to record the sales would be to: (Round your final answer to the nearest cent.)
debit Accounts Receivable $7,455.00; credit Sales Revenue $7,000; credit Sales Tax Payable $455.00.
S&C Roofing had sales on account of $32,500 which were subject to state sales tax of 8%. The entry to record the sales would be to:
debit Accounts Receivable, $35,100; credit Sales revenue, $32,500; credit Sales tax payable, $2,600.
Metropolitan Masonry had sales on account of $7,700 which were subject to state sales tax of 10%. The entry to record the sales would be to:
debit Accounts Receivable, $8,470; credit Sales revenue, $7,700; credit Sales tax payable, $770.
A $260,000 issue of bonds that sold for $255,000 matures on June 25, 2020. The journal entry to record the payment of the bond on the maturity date is to:
debit Bonds payable, $255,000; credit Cash, $255,000.
A $430,000 issue of bonds that sold for $403,000 matures on August 1, 2020. The journal entry to record the payment of the bond on the maturity date is to:
debit Bonds payable, $430,000; credit Cash, $430,000.
The journal entry to record $230,000 of bonds that were issued at 98 would be to:
debit Cash, $225,400; debit Discount on bonds payable, $4,600; credit Bonds payable, $230,000.
The journal entry to record $300,000 of bonds that were issued at 104 would be to:
debit Cash, $312,000; credit Bonds payable, $300,000; credit Premium on bonds payable, $12,000
The journal entry to record $330,000 of bonds that were issued at 97 would be to:
debit Cash, $320,100; debit Discount on bonds payable, $9,900; credit Bonds payable, $330,000.
The journal entry to record $400,000 of bonds that were issued at 107 would be to:
debit Cash, $428,000 ; credit Bonds payable, $400,000; credit Premium on bonds payable, $28,000.
During the month, Evergreen Roofing settled $600 in warranty claims by replacing the defective flashing. Evergreen uses an estimated warranty account. The journal entry to record the settled claims would have been:
debit Estimated Warranty Payable $600; credit Inventory $600.
During the month, TNT Construction paid $300 to settle warranty claims. TNT uses an estimated warranty account. The journal entry to record the claims payment would have been:
debit Estimated warranty payable, $300; credit Cash, $300.
During the month, Southeast Plumbing paid $600 to settle warranty claims. Southeast uses an estimated warranty account. The journal entry to record the payment would have been:
debit Estimated warranty payable, $600; credit Cash, $600.
$500,000 of 8%, 10-year bonds were sold for $520,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to:
debit Interest Expense $19,000; debit Premium on bonds payable, $1,000; credit Cash, $20,000.
$400,000 of 11%, 10-year bonds were sold for $370,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to:
debit Interest Expense $23,500; credit Discount on bonds payable, $1,500; credit Cash, $22,000.
$200,000 of 6%, 25-year bonds were sold for $160,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to:
debit Interest Expense $6,800; credit Discount on bonds payable, $800; credit Cash, $6,000.
$300,000 of 6%, 20-year bonds were sold for $330,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to: (Round your final answer to the nearest dollar.)
debit Interest Expense $8,250; debit Premium on bonds payable, $750; credit Cash, $9,000.
On January 1, Greene Autos signed a $270,000, 8%, 30-year mortgage that requires semiannual payments of $11,934 on June 30 and December 31 of each year. The journal entry to record the second semiannual payment would be: (Round your final answer to the nearest dollar.)
debit Interest Expense, $10,755; debit Mortgage Payable, $1,179; credit Cash, $11,934.
On January 1, Clive Corporation signed a $450,000, 5%, 30-year mortgage that requires semiannual payments of $14,559 on June 30 and December 31 of each year. The journal entry to record the second semiannual payment would be: (Round your final answer to the nearest dollar.)
debit Interest Expense, $11,167; debit Mortgage Payable, $3,392; credit Cash, $14,559.
On January 1, Clive Corporation signed a $460,000, 6%, 30-year mortgage that requires semiannual payments of $16,621 on June 30 and December 31 of each year. The journal entry to record the first semiannual payment would be: (Round your final answer to the nearest dollar.)
debit Interest Expense, $13,800; debit Mortgage Payable, $2,821; credit Cash, $16,621.
On January 1, Greene Autos signed a $250,000, 6%, 30-year mortgage that requires semiannual payments of $9,033 on June 30 and December 31 of each year. The journal entry to record the first semiannual payment would be (round interest calculation to the nearest dollar) to:
debit Interest Expense, $7,500; debit Mortgage Payable, $1,533; credit Cash, $9,033.
TNT Construction had cash sales for the month of June totaling $44,000. TNT offers a 1-year warranty on its construction services. If TNT estimates warranty claims will equal 5% of sales, the journal entry to record the estimated warranty expense for the month is:
debit Warranty expense, $2,200; credit Estimated warranty payable, $2,200.
Southeast Plumbing had cash sales for the month totaling $732,000. Southeast offers a 6-month warranty on its services. If Southeast estimates warranty claims will equal 3% of sales, the journal entry to record the estimated warranty expense for the month is:
debit Warranty expense, $21,960; credit Estimated warranty payable, $21,960.
The journal entry to record the employer's portion of FICA tax includes a:
debit to payroll tax expense.
Evergreen Roofing had cash sales for the month totaling $42,000. Evergreen offers a 1-year warranty on its roofing services. If Evergreen estimates warranty claims will equal 3% of sales, the journal entry to record the estimated warranty expense for the month is:
debit warranty expense $1,260; credit Estimated Warranty Payable $1,260.
Contingent liabilities may be classified as:
either current or long-term liabilities.
A known obligation of an unknown amount is a(n):
estimated liability.
You just purchased a new cell phone, which comes with a manufacturer's warranty of one year. The company that manufactures the cell phone would record the warranty as a(n):
estimated liability.
A ratio which measures a company's ability to pay interest on its debt is called the:
interest coverage ratio.
Accrued liabilities, such as interest payable, would be considered a(n):
known liability.
Strong Dog Magazine sold 100 new pre-paid subscriptions to their publication. The subscription money is an example of a(n):
known liability.
A $30,000 bond issue with a stated interest rate of 5%, when the market rate of interest is 6%, means that the bond will sell for:
less than $30,000.
A $30,000 bond issue with a stated rate of interest of 6%, when the market rate of interest is 7%, means that the bond will be sold for:
less than $30,000.
Withheld payroll deductions become:
liabilities of the employer.
The lower the number of withholdings claimed on a W-4, the:
lower the net pay.
The rate of interest that investors are willing to receive for similar bonds of equal risk at the current time is the ________ rate of interest.
market
The need to create an estimated warranty liability arises from the ________ principle.
matching
A $45,000 bond issue with a stated interest rate of 10%, when the market rate of interest is 7%, means that the bond will sell for:
more than $45,000.
If the likelihood of an obligation is remote:
no action is necessary in the accounting treatment.
A major difference between Accounts Payable and Notes Payable is that:
only Notes Payable charge interest.
If a bond's stated rate of interest is equal to the market rate of interest, the bond will be issued at:
par
The disclosure of a contingent liability only in the footnotes designates that the possibility of an actual obligation occurring is:
possible.
The amount that a borrower must pay back to the bondholders on the maturity date is the:
principal.
The disclosure of a contingent liability in the footnotes and on the Balance Sheet indicates that the potential for the obligation occurring is:
probable.
By NOT accruing warranty expense:
reported liabilities will be understated and net income will be overstated.
Pay stated at a monthly or annual rate is considered to be a:
salary.
Bonds that are backed by collateral are:
secured bonds.
Bonds from the same bond issue that mature at different times are called:
serial bonds.
The rate of interest that is printed on the bond is called the ________ rate of interest.
stated
Bonds that mature all at the same time are:
term bonds.
FUTA is paid by the employer on:
the first $7,000 of an employee's earnings.
Debenture bonds are the same as:
unsecured bonds.