Chapter 14, Chapter 13, Chapter 12, Chapter 12, Chapter 11, Chapter 10, Chapter 9, Inventory: Cost Based Evaluation Chp 8, Cash and Cash Equivalents - Chp 7, Chapter 6, Preparing the Balance Sheet, Preparing an Income Statement, Conceptual Framework,...

Ultra-energy Company offers a cash rebate of $2 on each $9 package of protein powder sold during 2014. Historically, 20% of customers mail in the rebate form. During 2014, 3,000,000 packages are sold, and 250,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the company's 2014 financial statements?

$1,200,000; $700,000

On December 31, 2013, SoBou Co. has $5,000,000 of short-term notes payable due on February 14, 2014. On January 10, 2014, SoBou arranged a line of credit with Suntrust Bank which allows SoBou to borrow up to $3,500,000 at one percent above the prime rate for three years. On February 3, 2014,SoBou borrowed $3,500,000 from Suntrust and used $500,000 additional cash to liquidate $4,000,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as a current liability on the December 31, 2013 balance sheet which is issued on March 2, 2014 is

$1,500,000.

The interest rate written in the terms of the bond indenture is known as the

coupon rate, nominal rate, or stated rate.

Federal income taxes withheld by the employer on behalf of the employee are recorded as

current liabilities.

Bonds which do not pay interest unless the issuing company is profitable are called

income bonds.

A company can exclude a short-term obligation from current liabilities if it:

intends to refinance the obligation on a long-term basis and demonstrates an ability to consummate the refinancing.

The presentation of current and non-current liabilities in the statement of financial position (balance sheet):

is shown on both a GAAP and an IFRS statement of financial position.

The presentation of current and noncurrent liabilities in the statement of financial position:

is shown on both a GAAP and an IFRS statement of financial position.

The selling price of a bond is the sum of the present values of the principal and the periodic interest payments. The present values are determined by discounting using the

market rate.

Current liabilities are usually recorded in the accounting records and reported in financial statements at their:

maturity value.

Contingent assets need not be disclosed in the financial statements or in the notes if they are:

possible but not probable to occur.

A long-term note is valued at its

present value.

Under IFRS, bond issuance costs, including the printing costs and legal fees associated with the issuance, should be

recorded as a reduction in the carrying value of bonds payable.

Under IFRS, bond issuance costs, including the printing costs and legal fees associated with the issuance, should be:

recorded as a reduction in the carrying value of bonds payable.

A bond issued in the name of the owner is a:

registered bond.

Current liabilities are defined as obligations whose liquidation is reasonably expected to

require use of current assets or creation of other current liabilities.

Note disclosures for long-term debt generally include

restrictions imposed by the creditor. call provisions and conversion privileges. assets pledged as security.

A bond that matures in installments is called a:

serial bond.

Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty

should be reported as part current and part long-term.

Franzia Co. prepares its financial statements using IFRS. The company has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be

the mid-point of the range.

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition,

the premium must be amortized up to the purchase date. any costs of issuing the bonds must be amortized up to the purchase date. interest must be accrued from the last interest date to the purchase date.

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition

the premium must be amortized up to the purchase date. any costs of issuing the bonds must be amortized up to the purchase date. interest must be accrued from the last interest date to the purchase date.

A debt instrument with no ready market is exchanged for property whose fair market value is currently indeterminable. When such a transaction takes place

the present value of the debt instrument must be approximated using an imputed interest rate.

A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place

the present value of the debt instrument must be approximated using an imputed interest rate.

When bonds sell between interest payment dates, the purchaser will pay the seller:

the price of the bonds plus the accrued interest.

When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless

the stated face amount of the note is materially different from the current cash sales price for similar items or from current fair value of the note. no interest rate is stated. the stated interest rate is unreasonable.

When a note is exchanged for property in a bargained transaction, the stated interest rate is presumed to be fair unless:

the stated interest rate is unreasonable. the stated face amount of the note is materially different from the current cash sales price for similar items. no interest rate is stated.

IFRS requires bond issue cost:

to be netted against the carrying amount of the bonds.

Examples of contingent assets include all of the following except:

unrealized gain on the sale of investments.

A debenture bond is a (an):

unsecured bond.

In determining the amount of a provision, a company using IFRS should generally measure:

using the best estimate of the amount of the loss expected to occur.

Both discount on bonds payable and premium on bonds payable are:

valuation accounts.

Fancy Fish Company offers a cash rebate of $.25 on each $12 package of fish food sold during 2014. Historically, 10% of customers mail in the rebate form. During 2014, 5,000,000 packages are sold, and 150,000 $.25 rebates are mailed to customers. What is the rebate expense and liability, respectively, reported in the company's 2014 financial statements?

$125,000; $87,500

On January 1, 2014, Jacobs Company sold property to Dains Company which originally cost Jacobs $1,330,000. There was no established exchange price for this property. Danis gave Jacobs a $2,100,000 zero-interest-bearing note payable in three equal annual installments of $700,000 with the first payment due December 31, 2014. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $2,100,000 note payable in three equal annual installments of $700,000 at a 10% rate of interest is $1,740,900. What is the amount of interest income that should be recognized by Jacobs in 2014, using the effective-interest method?

$174,090.

Which of these is not included in an employer's payroll tax expense? A. State unemployment taxes B. Federal income taxes C. F.I.C.A. (social security) taxes D. Federal unemployment taxes

B

On June 30, 2014, Prouty Co. had outstanding 9%, $5,000,000 face amount, 10-year bonds that pay interest semi-annually on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $200,000 and $50,000, respectively. On June 30, 2014, Prouty acquired all of these bonds at 101 and retired them. What amount of gain or loss would Prouty record on this early extinguishment of debt?

$300,000 loss.

Cody Company has a loss contingency to accrue. The company's legal council's opinion is that that the amount can only be reasonably estimated within a range of outcomes. They estimate that the amount of the loss will be somewhere between $300,000 and $600,000. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be

$300,000.

Ferrone Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Ferrone uses effective-interest amortization. What amount of interest expense will Ferrone record for the June 30 payment?

$392,082

On January 1, Patterson Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effectiveinterest method of amortizing bond discount. At the end of the first year, Patterson should report bonds payable of:

$4,714,500.

On June 30, 2014, Baker Co. had outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2024. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $210,000 and $60,000, respectively. On June 30, 2014, Baker acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt?

$5,730,000.

On January 1, 2014, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $4,000,000 zero-interest-bearing note payable in 5 equal annual installments of $800,000, with the first payment due December 31, 2014. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $2,884,000 at January 1, 2014. What should be the balance of the Discount on Notes Payable account on the books of Leary at December 31, 2014 after adjusting entries are made, assuming that the effective-interest method is used?

$856,440

Which of the following statements is false?

1) The liability for compensated absences should be recognized in the year earned. 2_ When rights are vested, an employer has an obligation to make payment to an employee. 3) Unemployment taxes are paid by the employer.

Which of the following is not an example of "off-balance-sheet financing"? A. Capital leases. B. Non-consolidated subsidiary. C. Special purpose entity. D. Operating leases.

A

Which one of the following statements relating to mortgage notes payable is correct

A mortgage note payable is a promissory note secured by a document that pledges title to property as security for the loan. Mortgage notes payable are the most common form of long-term notes payable. Mortgage notes payable are payable in full at maturity or in installments.

All of the following are differences between IFRS and U.S. GAAP in according for liabilities

A. Under IFRS, bond issuance costs reduces the carrying value of the debt. Under U.S. GAAP, these costs are recorded as an asset and amortized to expense over the term of the bond. B. When a bond is issued at a discount U.S. GAAP records the discount in a separate contra-liability account. IFRS records the bond net of the discount. C. U.S. GAAP, but not IFRS uses the term "troubled debt restructurings."

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles?

Amount of loss is reasonably estimable and occurrence of event is probable.

Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities? A. Intend to refinance the obligation on a long-term basis. B. Obligation must be due with one year. C. Demonstrate the ability to complete the refinancing. D. Subsequently refinance the obligation on a long-term basis.

B

Which of the following is not an example of off-balance-sheet financing? A. All of these answers are examples of off-balance-sheet financing. B. Consolidated subsidiary. C. Operating leases. D. Special purpose entity.

B

Lyric Company issued a 90-day zero-interest-bearing note with a face amount of $3,000. The present value of the note is $2,855. The journal entry to record the issuance of the note will include

a debit to Cash for $2,855.

All of the following statements related to bonds are correct regarding bonds

Bonds represent a promise to pay a sum of money plus periodic interest. Bonds arise from a contract known as a bond indenture. Bonds typically have a $1,000 face value.

Of the following items, the only one which should not be classified as a current liability is A. current maturities of long-term debt. B. sales taxes payable. C. short-term obligations expected to be refinanced on a long-term basis. D. unearned revenues.

C

Which of the following is not one of the requirements for accruing the cost of compensated absences? A. The obligation relates to rights that vest or accumulate. B. The employee's services must have already been rendered. C. Payment of the compensation is possible. D. The amount can be reasonably estimated.

C

Which of the following is not a difference between IFRS and U.S. GAAP in according for non-current liabilities? A. Under U.S. GAAP, bonds payable is recorded at the face amount and any premium or discount is recorded in a separate account. Under IFRS, bonds payable is recorded at the carrying value so no separate premium or discount accounts are used. B. The criteria for recognizing environment liabilities is more stringent under U.S. GAAP compared to IFRS. C. Non-current liabilities follow current liabilities on the statement of financial position under U.S. GAAP, but precede current liabilities under IFRS. D. Bond issuance cost are recorded as a reduction of the carrying value of the debt under U.S. GAAP but are recorded as an asset and amortized to expense over the term of the debt under IFRS.

D

The generally accepted method of accounting for gains or losses from the early extinguishment of debt is to treat them as

a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.

Which of the following is a reason companies engage in off-balance sheet financing?

Higher levels of debt may violate debt covenants. Less debt reported on the balance sheet creates more and cheaper financing option. Lower amounts of debt reported on the balance sheet offsets the lower book values reported for long-term assets.

A large anticipated insurance recovery is reported as

a disclosure only.

All of the following statements are true regarding IFRS treatment of reporting and recognition of liabilities except:

IFRS requires that companies present current and noncurrent liabilities on the face of the balance sheet, with current liabilities generally presented in order of liquidity. The recognition criteria for asset retirement obligations is less stringent under IFRS than it is under U.S. GAAP. For contingencies, IFRS requires insurance recoveries be "virtually certain" before recognition of an asset is permitted.

In accounting for short-term debt expected to be refinanced to long-term debt:

IFRS uses the financial statement date to determine classification of short-term debt to be refinanced.

The current ratio measures

Liquidity.

Under IFRS, which of the following is used to measure a liability, if a range of estimates is predicted and no amount in the range is more likely than any other amount in the range?

Mid-point of the range

Which of the following are examples of a current liability?

Salaries Payable. Dividends Payable. Unearned Service Revenue.

Which of the following is acceptable treatment for the presentation of current liabilities?

Showing currently maturing long-term debt as part of current liabilities. Listing current liabilities according to amount. Listing current liabilities in order of maturity.

On January 1, Gasperson Inc. issued $100,000,000, 7% bonds at 102. The journal entry to record the issuance of the bonds will include

a credit to Premium on Bonds Payable for $2,000,000.

Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements?

The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.

A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation?

The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period.

Gain contingencies are not recorded.

True

Gains and losses on early extinguishment of debt are reported as other gains and losses on the income statement.

True

If a company elects the fair value option for its long-term liabilities, an increase in the fair value of a bond payable will result in an unrealized holding loss.

True

The entry to record the collection of sales tax by a retailer may include credits to both Sales Revenue and Sales Tax Payable.

True

Under IFRS the required procedure for amortization of a discount or premium is the effective-interest method.

True

Under IFRS, all troubled-debt restructurings are accounted for as extinguishments.

True

Which of the following is stated correctly?

Under GAAP, bonds payable is recorded at the face amount and any premium or discount is recorded in a separate account. Under IFRS, bonds payable is recorded at the carrying value so no separate premium or discount accounts are used.

For which of the following areas a provision may be recognized in the financial statement?

Warranties

All of the following are differences between IFRS and GAAP in accounting for liabilities

When a bond is issued at a discount, GAAP records the discount in a separate contra liability account. IFRS records the bond net of the discount. Under IFRS, bond issuance costs reduce the carrying value of the debt. Under GAAP, these costs are recorded as an asset and amortized to expense over the terms of the bond. GAAP, but not IFRS, uses the term "troubled-debt restructurings."

On January 1, 2014, Trinity Company loaned $901,560 to Litton Industries in exchange for a 3 year, zero-interest-bearing note with a face amount, $1,200,000. The prevailing rate of interest for a loan of this type is 10%. The adjusting journal entry made by Litton at December 31, 2014 with regard to the note will include

a credit to Discount on Notes Payable for $90,156.

Black Water Inc. is being sued by former employees as a result of negligence on the company's part. Black Water's lawyers state that it is probable that the company will lose the suit and be found liable for a judgment costing the company anywhere from $100,000,000 to $200,000,000. However, the lawyer states that the most probable cost is $125,000,000. As a result of the above facts, Black Water should accrue

a loss contingency of $125,000,000 and disclose an additional contingency of up to $75,000,000.

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows,

a new effective-interest rate must be computed.

A typical provision is:

a warranty liability.

Under IFRS, a provision is the same as:

an estimated liability.

Long-term debt that matures within one year and is to be converted into stock should be reported

as non-current and accompanied with a note explaining the method to be used in its liquidation.

The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the

bond indenture.

Under IFRS, short-term obligations expected to be refinanced can be classified as noncurrent if the refinancing is completed:

by the financial reporting date.

A bond for which the issuer has the right to call and retire the bonds prior to maturity is a

callable bond.

The interest rate actually earned by bondholders is called the

effective rate.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will

exceed what it would have been had the effective-interest method of amortization been used.

IFRS generally assumes that all restructurings be accounted for as:

extinguishments of debt.

Both IFRS and U.S. GAAP permit valuation of long-term debt and other liabilities at

fair value with gains and losses on changes in fair value recorded in income in certain situations.

Under IFRS, a provision is the same as:

fair value with gains and losses on changes in fair value recorded in income in certain situations.

A troubled debt restructuring will generally result in a

gain by the debtor and a loss by the creditor.

If a bond sold at 97, the market rate was:

greater than the stated rate.

To record an asset retirement obligation (ARO), the cost associated with the ARO is

included in the carrying amount of the related long-lived asset.

The entry to accrue a contingent liability

includes a debit to a loss account.

The times interest earned ratio is computed by dividing:

income before income taxes and interest expense by interest expense.

The numerator in the times interest earned ratio is:

income before interest and taxes.