CH 8 and 9 Accounting 3600
A contingent liability requires three things:
1. An existing condition 2. An unknown outcome 3. Dependence on a future event
Bonds of $100,000 with a life of 10 years were issued. stated rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds?
100k*.06=6,000 so Ans = 6,000*10 = 60,000
$40,000, 10-year bond, with a stated rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period?
8%/2=4% Ans= .04*40,000= 1,600
Which of the following is not an example of an accrued liability?
Accounts payable
Quick Ratio Formula
Cash +Marketable securities+accounts receivable /Current Liabilities
Operating Cash Flow Ratio
Cash Flows from operating Activities /Current Liabilities
Cash Ratio Formula
Cash+Marketable securities /Current Liabilities
What best describes the discount on bonds payable account?
Contra Liability
Current Ratio Formula
Current assets/Current Liabilites
How is the current ratio calculated?
Current assets/current liabilites
Obligations that can be measured exactly
Definitely Determinable Liability:
Obligations that have some uncertainty in the amount to record for the obligation.
Estimated Liability:
Formula for calculating interest on a Notes Payable:
I = PRT Interest = Principal x Rate x Time
The Bower Company sold $100,000 of bonds for $95,000. What entry would be made on December 31 when the interest is paid?
Interest Expense (debit) Discount on Bonds Payable (credit) Cash (credit)
What distinguishes accounts payable from Notes Payable?
No formal paperwork or contract is needed for Accounts Payable. Notes payable has formal contracts terms ext.
Generally accepted accounting principles do not allow a contingent asset to be recorded, even if the chance of a gain is probable. T/F
TRUE, Due to the conservatism Principle
This equation represents the typical structure of a notes payable.
Total payment = Principal + (Principal x Interest Rate x Period)
the following is not a current liability--Bonds payable due in 5 years T/F
True it is not a current liability
If bonds are issued at 101.25, this means that
a $1,000 bond sold for 101.25% of par value.
The result of using the effective interest method of amortization of the discount on bonds is that
a constant interest rate is charged against the debt carrying value.
To record warranties, the adjusting journal entry would be:
a debit to Warranty Expense and a credit to Warranty Liability.
The premium on bonds payable account is shown on the balance sheet as
an addition to a long-term liability.
When bonds are issued at a premium, the interest expense for the period is the amount of interest payment for the period minus...
minus the premium amortization for the period.
Current liabilities
obligations that require the company to pay cash or another current asset, create a new current liability, or provide goods or services within one year or one operating cycle, whichever is longer.
When bonds are issued at a discount, the interest expense for the period is the amount of interest payment for the period plus...
plus the discount amortization for the period.
Bonds are sold at a premium if the
market rate of interest was less than the stated rate at the time of issue.
