Ch 10 study questions

Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450 ; Federal Income tax $18,000 and State income tax $3,850. The journal entry to record wages paid includes a

$100,000 debit to salaries and wages expense

On the maturity date, the bondholders of $100,000 of bonds that were issued at a $90,000 will receive

$100,000 in Cash plus the interest owed

The discount on the bonds payable becomes

additional interest expense over the life of the bonds

For an investor, bonds are attractive investments because

-they can be traded on and established bond exchanges -interest is higher than bank savings account

If ABC Company issues 100 of its $1,000 bonds at a price of 110.00, , $1,100 each, the journal entry to record the transaction includes a (Select all that apply.)

- Debit to cash of $110,000 - Credit to bonds payable of $100,000 - Credit to premium on bonds payable of $10,000

What are the key events for the issuer of notes payable

-Accruing interest incurred but not paid -Recording interest paid -Establishing the note -Recording principal paid

debt to assets ratio indicates

-the percentage of assets financed by debt -a higher ratio means greater financing risk

Coverall, Inc. , had the following amounts for the year ended: Interest Expense of $1,000, Interest Income of $2,000 Net Income of $10,000, Income Taxes of $3,000 and Earnings per Share of $3. The times interest earned ratio equals

14

If an adjusting entry is required for interest owed , then the __________ will report_____________

Balance sheet; interest payable Income statement; interest expense Balance sheet; notes payable

Bondholders are willing to pay a premium to acquire a bond because the

Bond stated interest rate is higher than the market interest rate

The issuing company can pay off the bonds at any time

Callable bonds

Bonds that can be exchanged for stock are called _______ bond

Convertible

______ ________ on a classified balance sheet report the obligations that will be paid or met within the company's operating cycle or within 1 year, whichever is longer

Current liabilities

Today's Fashions has a debt that has been properly reported as a long-term liability before this year. Part of this debt is due this year. If Today's Fashions continues to report the current position of the debt as a long-term liability, then

Current ratio will be overstated

The entry to record the payment of previous purchases made on account Includes a

Debit to accounts payable Credit to cash

Amortizing a bond premium will _____ the premium balance and _____ the carrying value of the bond so that when the bond matures the carrying value will ______ the face value

Decrease ; decrease ; equal

True or false: bond issue price is determined by the company issuing the bonds.

False

The entry to record the issuing of a note payable for cash results in a(n)

Increase in assets and liabilities

A(n) ______ note requires the borrower to pay equal payments over the note's life to maturity with each payment consisting of Interest and principal.

Installment

The stated rate is the rate used to determine the

Interest payment

Employees' gross earnings differ from their net pay because of

Payroll deductions FICA Taxes Federal and state income taxes

Premium, discount, face value

Premium: stated rate is greater than the market rate of interest Discount: stated rate is less than the market rate of interest Face Value: stated rate equals the market rate of interest

A bond that was issued at face value will have a carrying value that ___________ with each interest payment.

Remains the same

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are Social Security $37.20; Medicare $8.70 ; Federal income tax $58; and State income tax $10 . Assuming that John gets paid in cash and payroll deductions will be paid the following month how would ABC record his gross pay ?

Salaries and wages expense increase $600

Bond issue that matures on a single date

Term

bond's maturity date

The date on which the face value of the bond will be repaid in full

On November 1, Dell Llama, Inc. issued 2 notes payable at 12% per year for $10,000 each. One is a 3-month note and the other is a 2-year note. The amount of interest owed at December 31 will be

The same amount on both notes

Long-term are accounted for in the same way as short-term liabilities, except that long-term LiabIlities are on the books for more than one ________

Year

unsecured bonds

debentures

If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 value, the transaction will be recorded with a debit to

debit to Cash of $100,000 and a credit to Bonds payable of $100,000.

Assets are financed with ___ and stockholders' equity.

liabilities

When the times interest earned ratio is less than 1.0, a company is

not generating enough income to cover its interest expense

Bonds that mature in installments

serial bonds