Chapter 10 Learnsmart's

The entry to record the issuance of 100 bonds at their $1,000 face value causes ______.

liabilities to increase by $100,000 assets to increase by $100,000

__________are financial instruments, traded on established exchanges, that specify future payments a company promises to make in exchange for receiving a sum of money now.

bonds

The journal entry to record employer payroll taxes affects ______.

liabilities and stockholders' equity

Acme Enterprises began the new year owing its suppliers $3,000 for merchandise purchased last year. Acme then sold half of this merchandise for $5,000 on account. Two weeks later, Acme paid its suppliers $1,000 and bought another $4,000 of merchandise on account. Acme now has an Accounts Payable balance of ______.

$6,000

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. What is the net pay to employees?

$70,000

A bond's issue price is the amount of money that a lender pays (and the company receives) when a bond is ______.

issued

The issue price of 1,000, 5%, $1,000 bonds issued at 92.10 equals ______.

$921,000

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. What is John's net pay?

$486.10

The entry to record the cash sale of a $100 pair of jeans in a state that requires charging a 5% sales tax will include a ______.

$5 credit to Sales Tax Payable $105 debit to Cash $100 credit to Sales Revenue

The issue price of 1,000, 5%, $1,000 bonds issued at 100.00 equals ______.

$1,000,000

Ace Electronics signed a 10-year, $100,000, 4% note payable on January 1. When the note is signed, Ace should record a liability of ______.

$100,000

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

As of December 31, $110 of interest had been accrued and recorded on a 12%, 1-year, $1,000 note payable. On January 31 of the following year, the entry to record the payment of the note's principal and interest requires a ______.

$110 debit to Interest Payable, $10 debit to Interest Expense, $1,000 debit to Notes Payable and a $1,120 credit to Cash

Match the interest rates with the related bond prices.

6% stated interest rate and 4% market interest rate: Premium - Investors will pay more than face value 6% stated interest rate and 6% market interest rate: Investors will pay face value 6% stated interest rate and 8% market interest rate: Discount - Investors will pay less than face value

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

Cash and a credit to Bonds Payable of $100,000

The entry to record the initial borrowing of cash by issuing a promissory note includes a debit to ______ and a credit to ______.

Cash; Notes Payable

Which of the following are not required payroll deductions from an employees' gross earnings?

Charitable contributions Federal unemployment tax (FUTA) State unemployment tax (SUTA)

What are the key events with notes payable?

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

If ABC Company issues 100 of its $1,000 bonds at a price of 105.00, i.e., 105%, the journal entry to record the transaction includes ______.

a debit to Cash of $105,000 a credit to Bonds Payable of $100,000 a credit to Premium on Bonds Payable of $5,000

If a bond's stated rate is 4% and the market rate is 6%, this bond will sell at ______.

a discount

The debt-to-asset ratio indicates _____.

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

If a bond's stated rate is 6% and the market rate is 4%, this bond will sell at ______.

a premium

True or false: A classified balance sheet separates liabilities into current and non-current categories.

true

A bond's stated interest rate is ______.

used to calculate interest payments always expressed as an annual interest rate

If ABC Company issues 100 of its $1,000 bonds at a price of 110.00, i.e., $1,100 each, the journal entry to record the transaction includes a ______.

credit to Bonds Payable of $100,000 debit to Cash of $110,000 credit to Premium on Bonds Payable of $10,000

The following 12%, $1,000 notes have varying periods to maturity but all were issued on December 1. Which of the following are the correct calculations of interest for these notes on December 31 of this same year?

A 2-year note's interest equals $1,000 x 12% x 1/12 A 4-month note's interest equals $1,000 x 12% x 1/12 A 3-month note's interest equals $1,000 x 12% x 1/12

The adjusting entry to record interest accrued on a note payable is debit ______.

Interest Expense and credit Interest Payable

On November 1, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31 of the following year. Assuming the November 1 transaction was properly recorded, how would the December 31, year-end adjusting entry affect the accounting equation?

Liabilities increase and stockholders' equity decreases.

Which of the following are long-term liabilities?

Note Payable due in 3 years 20-year Mortgage Payable

Which of these payroll taxes are paid only by the employer?

SUTA FUTA

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 increases $600.

Accrued Liabilities are ______.

current liabilities resulting from adjusting entries that record amounts incurred but not yet paid

Accounts (or trade) Payable is a ______ and increases when ______ and decreases when ______.

current liability; purchases are made on credit; bills are paid

On November 1, ABC Corp. borrowed $100,000 cash on an 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31 in the following year. The last adjusting journal entry was made on December 31, ABC's year end. The entry to record the payment on October 31 would include a ______.

debit to Interest Expense of $5,000 credit to Cash of $106,000 debit to Note Payable of $100,000 debit to Interest Payable of $1,000

Bond premium is the amount by which a bond's issue price ______ its face value.

exceeds

If a bond's stated rate is 4% and the market rate is 4%, this bond will sell at ______.

face value

True or false: All payroll deductions are required by law.

false

The journal entry to record the payment of salaries and wages for work performed in the current accounting period causes ______.

liabilities to increase assets to decrease stockholders' equity to decrease

On November 1, Deli 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 for both notes

On November 30, Burrows, Inc. issued 2 notes payable at 6% per year for $10,000 each. One is a 3-month, 6%, note and the other is a 6-month, 6% note. The amount of interest owed at December 31 will be ______.

the same amount for both notes

XYZ Warehouse operates in a state with a 6% sales tax. For convenience, XYZ Warehouse credits Sales Revenue for the total amount (selling price plus sales tax) collected from each customer. What will be the effect if XYZ Warehouse fails to make an adjustment for sales tax?

Liabilities will be understated. Net income will be overstated.

________________ is a current liability that represents the amount owed for goods or services purchased on credit and is generally interest free.

accounts payable

The discount on a bonds payable becomes ______.

additional interest expense over the life of the bonds

Bonds are financial _________ that outline the future payments a company promises to make in exchange for receiving a sum of money now

instruments

If an adjusting entry is required for interest owed, then the ______ will report ______.

income statement; Interest Expense balance sheet; Notes Payable balance sheet; Interest Payable

The debt-to-assets ratio best answers which financial question?

What is the percentage of assets financed by debt?

A bond's issue price is determined by the ______.

investors

The entry to record the initial borrowing of cash by issuing a promissory note causes a(n) ______.

increase in liabilities increase in assets

Accruing a liability always involves ______ expenses and ______ liabilities.

increasing; increasing

The stated rate ______.

remains the same throughout the life of the bonds