Chapter 5, chapter 15, chapter 14, chapter 13

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when it is uncertain whether an obligation really exists, we may recognize what is referred to as a what?

contingent loss

newman company has both a contingent gain and a contingent loss that it judges to be highly probable to result in future cash flows, which it is able to reasonably estimate. what should the company accrue for the current accounting period?

contingent loss only

a bond feature that aims at making the bonds more attractive to investors is the (blank) feature

conversion

bonds that permit bond holders to exchange their bonds for common stock are referred to as (blank) bonds

convertible

initial direct costs include what?

costs necessary to acquire the lease costs that would not have been incurred if the lease agreement did not exist costs associated with completing the lease agreement

wasser company issues $500,000, 8% convertible bonds for $510,000. without the conversion feature, the bonds would issue at par. on the date of issuance, wasser should credit what account for how much?

credit additional paid-in capital-convertible bonds for $10,000

Lease Corp leases equipment to Samuel company in a sales-type lease. the present value of the lease payments is $250,000. the lease includes an unguaranteed residual value with a present value of $50,000. the rate implicit in the contract is 6% and the lease term is five years. what would be included in the journal entry for Lease Corp to record this lease?

credit equipment $300,000

wasser company issues $500,000, 8% convertible bonds for $510,000. without the conversion feature, the bonds would issue at par. consistent with IFRS, on the date of issuance, wasser should credit what account for how much?

credit equity-conversion option for $10,000

wasser company issues $500,000, 8% convertible bonds for $510,000. without the conversion feature, the bonds would issue at par. on the date of issuance, passer should credit what account for how much?

credit premium on bonds payable for $10,000

a lease is a contractual agreement by which a (blank) provides a (blank) the right to use an asset for a specified period of time

lessor; lessee

in a lease, the (blank) is the owner of the property, whereas the (blank) is the user of the property

lessor; lessee

in an operating lease, the (blank) records no asset or liability at the inception of the lease and the (blank) records both

lessor; lessee

amounts received that will be returned or remitted to others at a future date are recognized as what?

liabilities

cash collected from customers as refundable deposits or as advance payments for products or services are recognized as what?

liabilities

taxes collected for taxing authorities are recognized as what?

liabilities

what ratio provides information about a company's effectiveness of employing resources provided by owners?

rate of return on shareholders' equity

the dollar amount of potential loss from a contingent liability can be classified as what?

reasonably estimable known

what transaction will increase a company's working capital?

receipt of cash on a long-term note

Sammy invested $100,000 in a savings account for 3 years at 8% compounded annually. what is the future value of Sammy's investment?

$125,971 future value = $100,000*(1.25971) use fv of $1 table

on January 1, Arnold corp issues $100,000 of 7% bonds. interest of $3,500 is payable semiannually on June 30 and December 31. the bonds mature in 10 years. the market yield for bonds of similar risk and maturity is 5%. calculate the issue price of the bonds

$115,589 ($100,000 * 0.61027) + ($3,500 * 15.58916)

evergreen corp issues 10,000 $1,000 face amount bonds. each bond can be converted into 20 shares of common stock. at the bond issue date, the company's common shares trade for $55 per share. at the date of issue, evergreen should recognize an addition to equity of how much?

$1,000,000 ($55-$50)*10,000*20 shares

Kevin borrows $8,000 from Second National Bank at 10% interest. Kevin will repay the loan in six equal payments beginning at the end of year 1. what is the annual amount that Kevin will pay the bank each year? (round to nearest $)

$1,837 =$8,000/4.35526 pv of ordinary annuity due table

Mitchell's investment in convertible bonds has a net book value of $1.4 million when Mitchell converts the bonds to common stock. the fair value of the common stock is $1.5 million. Mitchell should recognize its investment in common stock at what value?

$1.4 million

proverbial corp signed a 6-year note relating to the purchase of a new delivery fleet; annual payment are due at the end of the year. proverbial's effective interest rate is 8%. at the time of purchase, the company recorded the fleet at $200,000. at the end of the first year, the net book value has decreased to $160,000, while the carrying value of the note is $164,000. interest expense relating to the second year should be how much?

$13,120 = $164,000 * 0.08

the value of investment a at the end of year 5 is $20,000. assuming that interest is compounded annually, and the interest rate is 8%, what is the present value of this investment at the beginning of year 1?

$13,612 =$20,000*0.68058 pv of $1 table, but multiply

Alex invested $10,000 in a savings account for 4 years at 10% compounded annually. what is the future value of Alex's investment?

$14,641 fv = $10,000*1.4641 use fv of $1 table

jean expects to receive $5,000 at the end of each year for 4 years. the annuity has an interest rate of 7%. what is the present value of this annuity at time zero, the inception of the annuity? (round to nearest $)

$16,936 =$5,000*3.38721 pv of ordinary annuity table

on January 1, 2018, meister company issues $200,000 of 6% bonds. interest of $6,000 is payable semiannually on June 30 and December 31. the bonds mature in 5 years. the market yield for bonds of similar risk and maturity is 7%. utilizing the time value of money tables in your book, calculate the issue price of the bonds

$191,684 = ($200,000 * 0.70892) + ($6,000 * 8.31661)

Spencer corp's attorney estimates that the company will ultimately have to pay between $250,000 and $500,000 relating to current litigation. Spencer should accrue a contingent liability and loss of what?

$250,000

nattel corp issues 10,000 $1,000 face amount bonds at 104. each bond can be converted into 25 shares of no-par common stock. two years after issuance, 25% of the bondholders convert their bonds. the balance in the premium on bonds payable account is $300,000. nattel should recognize this conversion by crediting common stock for how much?

$2,575,000 = ((10,000 * $1,000) + $300,000) * 25%

nattel corp issues 10,000 $1,000 face amount bonds at 104. each bond can be converted into 25 shares of no-par common stock. margarita inc purchased 2,500 of the bonds and converted them after 2 years. at that time, the balance in the premium on bond investment is $75,000. margarita should recognize this conversion by debiting investment in common stock for how much?

$2,575,000 = (2,500 * 1,000) + 75,000

Shirley borrows $10,000 from Second National Bank at 12% interest. Shirley will repay the loan in 5 equal payments beginning at the end of year 1. what is the annual amount that Shirley will pay at the bank each year? (round to nearest $)

$2,774 =$10,000/3.60478 pv ordinary annuity table

George will deposit $2,000 in a savings account at the beginning of each year for 8 years. assuming the interest rate is 5%, how much money will George have in the account at the end of year 8? (round to nearest $)

$20,053 =$2,000*10.0266

on January 1, 2018, meister company issues $200,000 of 6% bonds. interest of $6,000 is payable semiannually on June 30 and December 31. the bonds mature in 5 years. the bonds were issued at face amount. on the date of issue, meister should recognize a liability of what?

$200,000

on January 2, 2021, meister company issues $200,000 at 6% bonds. interest of $6,000 is payable semiannually on June 30 and December 31. the bonds mature in 5 years. the market yield for bonds of similar risk and maturity is 4%. utilizing the time value of money tables in your book, calculate the issue price of the bonds

$217,966 = ($200,000 * 0.82035)+($6,000 * 8.98259)

milo decides to invest $1,500 in a savings account every year at the beginning of the year for 10 years. assuming an interest rate of 7%, how much will Milo have at the end of the 10th year? (round to nearest $)

$22,175 =$1,500*14.7836 fv of annuity due table

Jennifer invested $20,000 in a savings account for 3 years at 6% compounded annually. what is the future value of Jennifer's investment?

$23,820 =$20,000*1.19102 fv of $1 table

Margot wants to calculate the installment patient amount for a new installment notes payable of $200,000, which is due in 10 years. based on the interest rate, Margot determined that the applicable present value factor is 8.1109. what is the installment payment amount?

$24,658 = $200,000/8.1109

Norton loans a customer $500 on January 1. on July 1 of the same year, the customer must repay Norton $525. the amount of interest earned by Norton is (blank)

$25

on January 2, 2021, Schneider company issues $100,000 of 6% bonds. interest of $3,000 is payable semiannually on June 30 and December 31. the bonds mature in 5 years. the bonds issued for $95,842 with an effective interest rate of 7%. effective interest recognized on June 30, 2021 will be equal to what?

$3,354 = $95,842 * 0.035

Rhonda expects to receive an annuity that pays $500 at the beginning of each year for 10 years. assuming the interest rate is 6%, what is the present value of this annuity? (round to nearest $)

$3,901 =$500*7.80169 pv of annuity due

on January 1, 2021, smite corp borrows $300,000 cash from first rate bank and issues 3-year $300,000 promissory note. interest of $12,000 is payable semiannually on June 30 and December 31. on the date of issuance, first rate bank should debit "notes receivable" for how much?

$300,000

on January 2, 2021, Schneider company issues $100,000 of 6% bonds. the market interest rate is 7%. interest of $3,000 is payable semiannually on June 30 and December 31. the bonds mature in 5 years. the bond issues for $95,842. on June 30, the company should recognize a discount amortization of what?

$354 = (95,842 * 0.035) - $3,000

Shadow Corp. would like to invest enough cash to have $500,000 at the end of year 3. assume the interest rate on the investment is compounded annually at 8%. how much should Shadow Corp invest today to have $500,000 at the end of year 3?

$396,915 =$500,000*0.79383 pv of $1 table but multiply instead of divide

on January 1, McLean Corp. borrowed $50,000 with 8% simple interest. what is the amount of interest that must be repaid at year-end?

$4,000 =$50,000 x 8% x (12/12)

sam expects to receive $2,000 at the end of each year for 3 years. the annuity has an interest rate of 12%. what is the present value of this annuity at time zero, the inception of the annuity?

$4,804 =$2,000*2.40183 pv of ordinary annuity table

norma manufacturing company leases an asset to maren inc in a sales type lease. the present value of the lease payments is $200,000 and the cost of the leased asset is $160,000. at the beginning of the 4 year lease term. norma should recognize a profit of how much?

$40,000

supreme inc sells it's products with a 3-year warranty. the company estimates warranty costs relating to sales during 2017 as follows: 2017: $10,000; 2018: $25,000; 2019: $15,000. assume that actual warranty costs during 2017 were as estimated. what is the amount of warranty expense that supreme should recognize in its 2017 balance sheet?

$40,000 =$25,000 + $15,000 the warranty liability is reduced by the warranty costs paid during 2017

Kate expects to receive an annuity that pays $5,000 at the beginning of each year for 10 years. assuming the interest rate is 5%, what is the present value of this annuity? (round to nearest $)

$40,539 =$5,000*8.10782

Kate expects the receive an annuity that pays $5,000 at the beginning of each year for 10 years. assuming the interest rate is 5%, what is the present value of this annuity? (round to nearest $)

$40,539 =$5,000*8.10782 pv of annuity due table

using the current period, Roberts recognized interest expense of $9,400 and paid interest of $9,000 related to its discounted bonds. what was the amortization recognized during the current period?

$400

at the beginning of the current year, Wagner company purchases equipment and signs an installment note requiring 6 annual equal payments at the end of each year. the equipment would sell for $200,000 if the company paid cash. the company's effective borrowing rate is 7%. Wagner must make annual installment payments of how much?

$41,959 = $200,000/4.76654

glueck inc issues $5 million face amount bonds at $5.2 million; interest of $100,000 is paid semiannually for 5 years. at the maturity date, how much will glueck pay bond investors?

$5 million the balance is reduced to face amount at maturity

$50,000 = $10,000 + $25,000 + $15,000

on January 2, mlk corp issued $10 million of 8% bonds at 104. each $1,000 bond is accompanied by 25 stock warrants. each warrant permits the holder to purchase one share of no-par common stock for $20. immediately after issuance, the warrants were listed on the stock exchange for $2 each. mlk should recognize equity from the sale of bonds of how much?

$500,000 = $2 * 25 * 10,000

Samuel company leased equipment from Lease Corp. the cost of the equipment to Lease Corp was $300,000. Lease Corp will require Samuel to make the first payment on the day of the lease signing (January 1 of year 1), with the next four payments due on January 1 of years 2-5. at the end of year 5, the equipment is expected to have a residual value of $50,000. the estimated useful life of the equipment is seven years. if the five lease payments are of an equal amount, what payment amount provides Lease Corp with a return of 6%?

$55,990 = $300,000 - $50,000 = $250,000/4.46511

on January 1, 2018, meister company issues $200,000 of 6% bonds. interest of $6,000 is payable semiannually on June 30 and December 31. the bonds mature in 5 years. the bonds issues for $191,684 with an effective interest rate of 7%. effective interest recognized on June 30, 2021 will be equal to what?

$6,709 = $191,684 * 0.035 0.035 = 7% semiannually

James would like to deposit enough money in a savings account to have $8,000 at the end of year 3. assuming the investment will earn 5% compounded annually, what amount should James deposit in the savings account today? (rounded to nearest dollar)

$6,911 =$8,000/(1.1576) number from fv of $1 table, but divide instead of multiply

munchin manufacturing company leases an asset to Peter inc in a sales-type lease. the present value of the lease payments is $400,000 and the cost of the asset is $330,000. at the beginning of the five-year lease term, munchin should recognize a profit of how much?

$70,000

on January 1, 2018, meister company issues $200,000 of 6% bonds. interest of $6,000 is payable semiannually on June 30 and December 31. the bonds mature in 5 years. the bonds issues for $191,684. on June 30, the company should recognize a discount amortization of what?

$709 = ($191,684 * 0.035) - $6,000 0.035 = 7% * 6/12

on January 1, 2018, meister company issues $200,000 of 6% bonds. interest of $6,000 is payable semiannually on June 30 and December 31. the bonds mature in 5 years. the market interest rate is 7%. the bond issues for $191,686. one June 30, the company should recognize a discount amortization of what?

$709 = ($191,684 * 0.035) - $6,000 0.035 = 7% * 6/12

Cindy would like to deposit money in a savings account to have $10,000 at the end of year 4. assuming the investment will earn 5% compounded annually, what amount should Cindy deposit in the savings account today? (round to nearest $)

$8,227 =$10,000/1.2155 fv of $1 amount, but divide

polly sells goods to customers in exchange for a $10,000 non interest-bearing note due in 3 years. the interest rate of this type of loan is 6%. what is the present value of the note? (round to nearest $)

$8,396 =$10,000/1.1902 fv of $1 table, but divide

on January 2, 2021, Schneider company issues $100,000 of 7% bonds. interest of $3,500 is payable semiannually on June 30 and December 31. the bonds mature in 5 years. the market yield for bonds of similar risk and maturity is 8%. utilizing the time value of money tables in your book, calculate the issue price of the bonds

$95,944 = ($100,000 * 0.67556) + (3,500 * 8.11090)

smith company leased equipment from first lease corp. the cost of the equipment to first lease was $500,000. the present value of the expected residual value is $40,000. the lease includes six annual payments beginning on the first day of the lease. if the six lease payments are of an equal amount, what payment amount would provide first lease corp with a return of 10%?

$96,018 = $500,000 - $40,000 = $46,000/4.79079

the following selected information pertains to Wilson company. current liabilities: $100; long-term liabilities: $150; contributed capital $120; retained earnings: $50; accumulated other comprehensive income: $20. the company's debt to equity ratio is what?

1.32 = ($100+$150)/($120+$50+$20)

what does it mean to credit sales revenue?

sales less the pv of the residual value

the following selected information pertains to Wilson company. total assets: $400; total liabilities: $220; operating income: $60; income from continuing operations: $55; net income: $50. what is the company's return on assets percentage?

12.5% = $50/$400

27.78% = $50/($400-$220)

assuming an interest rate of 12% with quarterly compounding, what is the interest rate per compounding period?

the value of investment b at the end of year 6 is $50,000. assuming that interest is compounded semi-annually, and the interest rate is 8%, the present value of investment b can be calculated by multiplying $50,000 times the present value factor of (blank)

4% for 12 periods

a reasonable conclusion is that the "major part" of the leased asset's life is included in the lease, if (blank) of the remaining economic life of the asset is covered by the lease term

75% or more

the following selected information pertains to Wilson company. net income: $50; taxes: $20; interest: $10. what's the company's times interest earned ratio?

8 = ($50 + $20 + $10)/$10

a reasonable conclusion is that (blank) of the fair value of the asset amounts to "substantially all" of the fair value

90% or more

warranties that assure the customer that the products are delivered free from major defects typically result in the accrual of what?

contingent liabilities

what is the formula that represents the present value?

FV divided by (1+i)^n

private placements of bonds typically incur lower bond issue costs because they are not subject to what?

SEC registration

when some doubt exists about whether or not a loss will occur in the future we refer to is as a(n) (blank)

contingent liability

what does fv stand for?

future value

grouper company arranged for a line of credit with its local bank. the company can borrow up to $100,000 as needed. grouper pays the bank a fee of $200 per year regardless of any specific borrowing under the arrangement. this is an example of what?

a committed line of credit

Norbert Company's recently signed a 20-year mortgage that requires monthly payments of principal and interest. Norbert should report the mortgage principal payments due during the following accounting period as what?

a current liability

debt that is callable by the creditor in the upcoming year, but is not expected to be called, is reported as what?

a current liability

Wagner company's financial records show that it has a mortgage that requires monthly principal payments of $3,000. the mortgage loan matures in 15 years. what should Wagner show on its balance sheet at the end of the current year?

a current liability of $36,000 a concurrent liability of $504,000

which of the following represent the correct accounting treatment for loss contingencies that do not meet the criteria for accrual but are at least reasonably possible?

a disclosure must describe the contingency an estimate of the potential loss should be made (if possible) and disclosed

what is a bond indenture?

a document detailing the promises made by the bond issuer

Ludwig corporation leases a machine to kluge corporation under a three-year lease agreement determined to be a finance/sales-type lease. at the inception of the lease, what should kluge record?

a lease payable right-of-use asset

Ludwig corporation leases a machine to kluge corporation under a three year lease agreement determined to be a finance/sales-type lease. at the inception of the lease, Ludwig corporation should record what?

a lease receivable

gunner corp has $2 million in bonds outstanding that mature during 2018. the company intends to refinance some of its obligation by issuing $1 million in 10-year binds. on January 31, 2018, the new bond issue is sold. the funds will be utilized to pay part of the maturing bond obligation. the balance sheet at 12/31/2017 should show the following regarding the maturing bonds

a long-term bonds payable of $1 million a current bonds payable of $1 million

what do period payments on installment notes typically include?

a portion that reflects interest at the effective interest rate a portion that reduces the outstanding loan balance

depending on the nature of the leasing agreement, a lease is accounted for as what?

a rental or a purchase/sale

depending on the nature of the leasing arrangement, a lease is accounted for as what?

a rental or a purchase/sale

obligations to suppliers of merchandise and obligations for services purchased on open account are referred to as what?

accounts payable

which of the following is an example of a monetary asset? inventory accounts payable accounts receivable

accounts receivable

what practical reason may motivate companies to rarely accrue losses for ongoing litigation?

accrual of a contingent loss may adversely affect the outcome of the company's legal case

January 15, 2018, Munter company learned of a judgement against the company in a lawsuit brought by a client relating to services provided by Munter during the 2017 fiscal period. the 2017 financial statements have not yet been issued. what should Munter do?

accrue an estimated liability if a loss is probable and estimable

interest that has been incurred but not yet been paid is recognized as what?

accrued interest payable

expenses already incurred, but not yet paid are referred to as what?

accrued liabilities

initial direct costs incurred by the lessee are what?

added to the right-of-use asset

the lessor's receipt of payment on an operating lease is what?

all recorded as lease revenue

for bonds issued with detachable stock warrants, the issue price is what?

allocated between debt and equity

accrued liabilities relate to expenses that were (blank), but not yet (blank)

already incurred; paid

the difference between the effective interest and the interest paid represents what?

amortization of a discount or premium

Schmidt company borrows $10,000 from its bank and signs a 6-month note, interest, which is due quarterly, is specified in the note as 6%. the interest rate stated in the loan agreement most likely applies to what time period?

an entire year

in the statement of cash flows, interest received on long-term notes receivable should be reported as inflows from what?

an operating activity

an interest rate, unless otherwise specified, is typically a(n) (blank) rate

annual

interest is typically stated as a(n) (blank) rate regardless of the compounding period involved

annual

what is a series of payments in the same amount referred to as?

annuity

Jenson rents equipment by signing a contract to pay $1,000 per month at the beginning of each month. the first payment is due upon signing the contract. the lease is a(n) (blank)

annuity due

Susan signs a lease to rent a building for three years and the first payment is due at lease signing. this is an example of what type of annuity?

annuity due

tom signs a contract to rent a car for 3 years. the first payment is due the day the agreement is signed. what type of annuity is this?

annuity due

what does pmt stand for?

annuity payment

what does the lease term include?

any periods covered by options to extend with significant incentive the contractual term of the lease

the rights granted to a lessee under a finance lease (blank) the same as those granted to a company that purchases an asset

are not

in what ways can a lease be accounted for?

as a purchase/sale agreement with debt financing as a rental agreement

what are the steps necessary to determine whether unasserted claims or assessments should be recognized or disclosed (in order)

assess probability of whether claims will be asserted if probability conditions are met, treat the claim as if they had been asserted recognize contingency if conditions are met and amount can be estimated; otherwise disclose

what purchases frequently involve installment notes payable?

automobiles land buildings

when the lessee is given the option of purchasing the leased property at a price significantly lower than its fair value, a (blank) is present

bargain purchase option

what is the amount of money that a dollar will grow to at some point in the future?

future value of a single amount

a loss contingency is recognized only if the event that gave rise to it occurred when?

before the financial statement date

best equipment inc. sells its products with a 3-year limited warranty. during 2017, best equipment recognizes $550,000 in sales revenue. based on past experience, some of its products will need repair during the warranty period. what is the appropriate accounting treatment for best equipment's product warranty?

best should estimate the contingent liability and accrue it in 2017

on July 1, 2021, Klein company issued $200,000 face amount bonds for $195,000. the effective interest rate is 8%. the bonds pay semi-annual interest of 7% on January 1 and July 1. on December 31, 2021, the company should credit what?

bond discount for $800

one of the advantages associated with bonds is that a relatively large amount of debt can be what?

broken into small portions

events occurring between the end of the fiscal year and the date the financial statements are issued or available to be issued should be what?

considered to clarify financial statement elements at the reporting date

bonds that don't include a call provision can do what?

can be repurchased on the open market

which of the following accounts uses the time value of money concepts to value the account? common stock cash inventory capital leases

capital leases

how does a lessor report cash flows from a sales-type lease?

cash receipts are reported as cash inflows from operating activities

which of the following transactions require the recognition of a liability? collection of a refundable deposit from a customer placing a purchase order for inventory receipt of payment for a service performed next month

collection of a refundable deposit from a customer receipt of payment for a service performed next month

unsecured notes sold in minimum denominations of $25,000 with maturities ranging from 1 to 270 days are referred to as what?

commercial paper

Neumann corp compares three different investment opportunities. opportunity A has $1 million in debt and $2 million in equity; opportunity B has $1.5 million in debt and $2 million in equity; opportunity C has $1 million in debt and $2.5 million in equity. if the companies are equal in all other aspects, which of the companies tends to have the lowest investment risk?

company C

margot, an accounting student, tries to determine whether a bond sells at a premium, discount, or face amount. Margot can determine whether the bond sells at a premium, discount or face value by doing what?

comparing the effective and stated interest rates

Mikel company grants stock options and bonuses to its full-time employees. these benefits are considered employee (blank)

compensation

Sandra borrows $1,000 at an interest rate of 12%. if Sandra pays $133 interest at year-end, the interest rate is (blank) interest

compound

interest on the initial investment plus interest calculated on the previously earned interest is called (blank) interest

compound

what does cpt stand for?

compute

what is lower risk from the perspective of a potential investor or creditor?

concurrent liabilities already reported on the balance sheet

what accounting principle is the primary reason why gain contingencies are not accrued, even if they are probable?

conservatism

For the current interest period, Jones Corporation's accountant correctly recognized interest expense of $7,350 relating to Jones' bonds and paid $7,000 in interest to bond holders. The journal entry recording the interest also must have included a what?

credit to discount on bonds payable

generally, a current liability is expected to be satisfied from (blank) (blank)

current assets

what is higher risk from the perspective of a potential investor or creditor?

current liabilities already reported on balance sheet

Roberts corp sells its products with a 2-year warranty. estimated total warranty cost relating to sales for the year ending December 31, 2017, is $21,000. one third of these estimated costs are expected to be incurred during 2018 with two thirds expected to be incurred during 2019. indicate the amount and classification of the estimated warranty costs on the balance sheet at 12/31/2017

current liability of $70,000 long-term liability of $140,000

what is the formula to calculate future value?

d(1+i)^n

a bond that is secured only by the faith and credit of the issuing corporation is referred to as a what?

debenture bond

north company leased equipment from Lease Corp in a finance/sales-type lease. the annual payments equal $105,000. payments include $5,000 which Lease Corp will use to pay the annual maintenance fee on the equipment. how should Lease Corp record the first payment?

debit cash $105,000 credit lease receivables $100,000 credit maintenance fee payable $5,000

supreme inc offers a 3-year extended warranty for all its products. on January 1, 2018, the company collects $45,000 relating to extended warranty contracts. what entry should supreme make on January 1, 2018?

debit cash and credit deferred revenue for $45,000

mergenthal company issues bonds with a face amount fo $800,000 for $749,000. what would the journal entry be?

debit cash for $749,000 debit discount on bonds payable for $51,000 credit bonds payable for $800,000

debit deferred revenue for $15,000 and credit revenue-extended warranty for $15,000

Otto company purchases bonds with a face amount of $80,000 for $74,000. what is the correct journal entry?

debit investment in bonds $80,000 credit discount on bond investment for $6,000 credit cash for $74,000

debit investment in bonds of $200,000 credit cash $200,000

on January 1, year 1, Samuel company leases equipment from Lease Corp. the lease agreement specifies five annual payments of $50,000, with the first payment due at lease signing (January 1, year 1) and at each January 1 from year 2 to year 5. at the end of the lease term, the equipment will be returned to the lessor and is expected to have a residual value of $30,000. the estimated useful life of the equipment is six years. the interest rate in the financing arrangement is 6%. the cost to Lease Corp of manufacturing the equipment is $150,000. what would the journal entry be for the lessor on January 1, year 1?

debit lease receivable $245,673 =$50,000*4.46511 = $223,255 + ($30,000*0.74726) credit sales revenue $223,255 credit equipment $150,000

Lease Corp leases equipment to western company in a sales-type lease. the present value of the lease payments is $450,000. the lease includes an unguaranteed residual value with a present value of $50,000. what would the journal entry for Lease Corp be to record this lease?

debit lease receivable $500,000 credit equipment $500,000

at the inception of a finance lease for computer equipment, the lessee should do what?

debit right-of-use asset credit lease payable

on January 1, 2021, Mitchell company leases equipment from Donelson corp for the equipment's entire useful life of six years. Donelson acquired the asset for $239,826, and normally utilizes a 5% interest rate for these types of transactions. the annual lease payment is $45,000. Mitchell should recognize the first lease payment on January 1, 2021 by doing what?

debiting lease payable for $45,000

which of the following are classified as current liabilities? all long-term loans with debt covenants debt callable in the upcoming year, even when not expected to be called current portion of long-term debt long-term loans with violated debt covenants notes payable due in two years that require monthly interest payments

debt callable in the upcoming year, even when not expected to be called current portion of long-term debt long-term loans with violated debt covenants

what ratio may provide information about a company's default risk?

debt to equity

dividing total liabilities by total stockholder's equity will result in a ratio referred to as what?

debt to equity ratio

diving total liabilities by total stockholders' equity will result in what ratio?

debt to equity ratio

if a liability is classified as current, rather than concurrent, the company's working capital will (blank)

decrease

glocken company is trying to increase its share of the consumer electronics market. to stimulate sales, the company offers cash rebates ranging from $25-$50 on all of its products. at December 31, 2017, the company estimates that, during 2018, customers will redeem $2,550 in rebates relating to 2017 sales. on December 31, 2017, glocken should do what?

decrease revenue and recognize a liability for $2,550

how does the bargain purchase option affect the calculation of the amount to be recovered through periodic rental payments for the lessor?

decreases

the debt equity ratio can provide information regarding a company's risk that it will be unable to pay its debt when due. this is called the company's (blank) risk

default

what is the treatment of a sales-type lease with no selling profit by the lessor?

deferred and expensed over the lease term by increasing the lease receivable

what is the treatment of an operating lease by the lessor?

deferred and expensed over the lease term typically on a straight-line basis

valuing defined benefit pension obligation typically requires the calculation of the present value of a (blank) (blank)

deferred annuity

during December, Martin department stores sells $240,000 in gift cards. when it sells the gift cards, Martin should recognize what?

deferred revenue

on January 1, 2021, tucker company leases equipment from Franz inc over three years of the equipment's five year estimated useful life. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. the present value of these lease payments is $357,710. the annual lease payment is $100,000; the first payment is due on January 1, 2021. tucker should recognize the first lease payment by doing what?

depicting lease payable for $100,000 crediting cash for $100,000

which of the following situation would involve the calculation of the future value of an ordinary annuity? determining the value of a liability that must be reported on the balance sheet today depositing an amount to a savings account each month that will grow to purchase a car in 5 years determining a single amount borrowed today, which will be repaid in 3 years

depositing an amount to a savings account each month that will grow to purchase a car in 5 years

what are required disclosures for lessees and lessors?

description of the leasing agreement future payments for total remaining years future payments in each of the next 5 years

Taylor company's attorney informs its client that it is possible, but not probable, that the company will lose a currently litigated lawsuit. no reliable estimate of the potential loss is currently available. how should Taylor accrue and/or disclose this potential loss?

disclose the contingency and state that an estimate cannot be made

Greene company experienced a warehouse fire on January 28,2018. the company estimates that the uninsured portion of its loss will be approximately $10,000. if the company's 2017 financial statements have not yet been issued. what should Greene do?

disclose the estimated loss in its 2017 financial statements

what happens when loss is reasonably possible and not reasonably estimable?

disclosure note only

a bond that sells for less than its face amount is sold at a (blank)

discount

if the market rate of interest is higher than the stated rate on the bond at the dat of issuance, the bond will be issued at a (blank)

discount

sales revenue for the lessor (blank) the expected residual value to be recovered

does not include

the costs satisfying product-related warranties should be recorded as an expense when?

during the year of sale

recording interest each period as the effective rate of interest multiplied by the outstanding balance of the debt during the interest period is referred to as the (blank) (blank) method

effective interest

periodic interest expense on liabilities is calculated by multiplying the amount of debt outstanding during the period by the what?

effective interest rate

the interest rate at which money will actually grow during a full year is referred to as the (blank)

effective rate

if a lease is modified and is reclassified from an operating to a sales-type lease, the lessor will record interest revenue at the (blank) rate, instead of the (blank) rate

effective; straight-line

on January 1, 2021, tucker company leases equipment from Franz inc over three years of the equipment's five year estimated useful life. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. the annual rental payment is $100,00; the first payment is due on January 1, 2021. at the commencement of the lease, Franz should credit what account for how much?

equipment for $431,213 (book value of asset)

if the lease payments have a total value that represents "substantially all" of the asset's fair value, it's logical to identify the contract as (blank)

equivalent to a sale

what is an extended warranty contract?

essentially constitutes a separate performance obligation provides protection beyond the manufacture's original warranty

Werner inc sells its products with a 2-year warranty. on December 31, 2107, Werner recognized estimated warranty-related costs of $54,000 for its 2017 sales. during 2018, Werner incurs repair costs of $21,000 related to products sold during 2017. the journal entry to record the cost of repairs would include a debit to what account?

estimated warranty liability

what does it mean to debit cost of goods sold?

lessor's cost of the equipment less the pv of the residual value

information relative to a loss contingency that becomes available after the fiscal year ends, but before the financial statement date should be considered in what?

estimating the amount of the loss determining the probability of a loss contingency

a conversion feature is "beneficial" if the stock into which the bond can be converted what?

exceeds the face amount of the bond

in an operating lease, the lessee reports lease (blank) and the lessor reports lease (blank), both on a straight-line basis

expense; revenue

what is the treatment of a sales-type lease with selling profit by the lessor?

expensed at the beginning of the lease

at the time of maturity, the repayment amount for bonds is equal to the what?

face amount of the bonds

true or false: at the date of issue, the stated rate of interest on the bond is always equal to the market rate of interest on the bond

false

true or false: the residual value of a leased asset impacts the lessee's calculation of effective interest

false

true or false: the formula to calculate future value 2 years in the future is the amount invested times the interest rate

false the formula is the amount invested times (1+i)^n where i is the interest rate and n is the number of periods

true or false: the incremental borrowing rate is the rate of return that the lessor desires to earn and is used to calculate the lease payments

false the implicit rate is the desired rate of return of the lessor

true or false: when a bargain purchase option is present, the lessor subtracts the future vale of the exercise price from the amount to be recovered to determine the amount to be recovered through rental payments

false the lessor subtracts the present value

what are possible reasons for leasing an asset rather than purchasing an asset?

fear of obsolescence tax benefits insufficient cash flow lower periodic payments on the asset

which of the following must employers by law withhold from their employee's pay? unemployment taxes federal taxes FICA contributions contributions toward retirement funds

federal taxes FICA contributions

corr inc leases equipment from LM leasing. the lease requires rental payments of $20,000 per year for 5 years. title of the property transfers at the end of the lease term. the equipment has a useful life of 10 years. how should the lease be classified by corr?

finance lease

the accounting in which of the following parallels that of an installment purchase?

finance lease

kordel company pays $15,200 relating to its installment note payable; of this amount $9,000 represents interest. in kordel's statement of cash flows, this payment should be reported as what?

financing activity outflow of $6,200 operating activity outflow of $9,000

fit company leases building space from Lease Corp. fit company agrees to pay Lease Corp an additional amount if Lease Corp attracts a higher amount of traffic through the doors resulting in more profit for fit company. how are these variable lease payments treated?

fit company records lease expense when the variable lease payment is paid Lease Corp records lease revenue when the variable lease payment is received

as a result of applying the effective interest method, the carrying value of bonds is equal to the present value of the (blank) cash flows

future

what are the typical characteristics of liabilities?

future cash payments are certain or estimable the requirement of future cash payments interest accrues as time passes on long-term liabilities

Joshua would like to deposit $12,000 in a savings account today. he is interested in knowing what the investment will be worth when he retires at age 62. Joshua is interested in calculating what amount?

future value

the amount of money that a dollar will grow to at some point in the future is known as

future value

jerry corp wishes to deposit $10,000 in the bank at the end of each year, and would like to know how much money it will have at the end of year 10. which table should jerry use to make this calculation?

future value of an ordinary annuity

lewis company wishes to deposit $8,000 in the bank at the end of each year, and would like to know how much money it will have at the end of year 10. which table should lewis use to make this calculation?

future value of an ordinary annuity

the future value of a series of equal-sized cash flows with the first payment taking place at the end of the first period is a (blank)

future value of an ordinary annuity

all liabilities involve a probable (blank) sacrifice of economic benefits and arise as a result of (blank) transactions or events

future; past

what is the formula to calculate future value of an amount "d"?

fv = d(1+i)^n

a purchase option does what?

gives the lessee the option to purchase the asset during the lease term or at the end of the lease includes a specified exercise price

a bargain purchase option is a provision in a lease contract that does what?

gives the lessee the right to purchase the leased asset at a price significantly less than the expected fair value of the property

a bond will be issued at a discount when the market rate of interest is what?

greater than the stated rate

sometimes a lease agreement includes a commitment by the lessee that the lessor will recover a special amount when the asset is returned. this is known as what?

guaranteed residual value

the (blank) is a commitment by the lessee that the lessor will recover a specified residual value when the asset is returned to the lessor

guaranteed residual value

Agatha corp leases store space from christie company. Agatha agrees to pay $10,000 per month. in addition, if Agatha exceeds specified sales targets, it will pay additional monthly rent based on a percentage of those excess sales. do the additional rent payments have any effect or no?

has no effect on the lessee's lease liability and lessor's lease receivable

hatter company's new bond issue with face amount of $7 million sells for $6.8 million. what may explain why the bonds sell at a discount?

hatter company's stated interest rate must be lower than that of competing companies in the bond market

abby corp purchases a machine and signs a $20,000 note, the note requires periodic payments of 8% interest. the equipment would normally sell for $19,000 in cash. this implies that the company's implicit interest rate probably is what?

higher than 8%

the desired rate of return for the lessor when determining the lease payments is referred to as the (blank) interest rate

implicit

what is the effective rate of return that the lease payments provide the lessor called?

implicit rate

when are the costs incurred to satisfy customer claims under an extended warranty period covered?

in the same period as the warranty revenue

the present value of the residual value is (blank) in/from the lease receivable, and it is (blank) in/from sales and cost of goods sold for the lessor

included; excluded

by law, employers must withhold security taxes and (blank) from their employee's paychecks

income taxes

on January 1, 2021, water company issues $100,000 of 6% bonds. interest of $3,000 is payable semi-annually on June 30 and December 31. the bonds mature in 5 years and sell for $95,842. on June 30, 2021, the company recognizes interest expense of $3,354. as a result of recognizing this transaction, what will happen to the bond carrying value?

increase by $354 difference between cash interest paid $3,000 and effective interest of $3,354 = $354 reduces the discount and increases the carrying value of the bond

on January 1, 2021, wormer company issues $200,000 of 6% bonds. interest of $6,000 is payable semiannually on June 30 and December 31. the bonds mature in 5 years and sell for $191,684. on June 30, 2021, the company recognizes interest expense of $6,709. as a result of recognizing this transaction, what will happen to the bond carrying value?

increase by $709 the difference between the cash interest paid of $6,000 and the effective interest of $6,709 decreases the bond discount, which increases the carrying value of the bond

what are non interest-bearing notes?

incur interes the face amount includes interest

the specific promises made to bondholders are described in a document referred to as a bond (blank)

indenture

legal fees for executing lease documents, and the preparation and processing cost of lease documents are referred to as what?

initial direct costs

the accounting for finance leases is similar to the purchase of an asset using an (blank) note

installment

Jim borrows $1,000 and has to repay $1,100 at the end of the year. the $100 payment is referred to as (blank)

interest

what does accrued interest payable relate to?

interest already incurred but not yet paid

after the first lease payment, each lease payment in a finance lease consists of an amount representing what?

interest and a reduction in the principal

at the first lease payment, each lease payment in a finance lease consists of an amount representing what?

interest and a reduction in the principal

interest expense $20,617 =($357,710-$100,000)*0.08 lease payable for $79,383 $100,000-$20,617

which of the following is correct regarding the effective interest method? interest expense is equal to the effective interest rate multiplied by the outstanding balance of the debt interest recorded is equal to the effective interest rate multiplied by the issue price interest paid is equal to the effective interest rate multiplied by the maturity value

interest expense is equal to the effective interest rate multiplied by the outstanding balance of the debt

choose the statement that best reflects the nature of interest interest represents the return on investment to the lender interest is a fee that the lender charges for processing a loan agreement interest is the "rent" money paid by the borrower for using the lender's money

interest is the "rent" money paid by the borrower for using the lender's money

to solve for the present value of a single sum, you need to know the future value, the number of compounding periods, and the (blank) (blank)

interest rate

what does %I stand for?

interest rate

which of the following are required to compute the present value of a known future amount? interest rate market value future value date number of compounding periods

interest rate; future value; number of compounding periods

in practice, the most commonly used assets to secure loans are what?

inventory and accounts receivable

from an accounting standpoint, legal ownership of a leased asset is (blank) to the accounting method used

irrelevant

what are zero-coupon bonds?

issue at deep discounts don't pay interest

Gregory company issues $5 million face amount bonds. the bond indenture is held by a large national bank. why is a bank holding the indenture?

it is impractical for the issuer to enter into an agreement with each bondholder

a contingent liability is accrued if which conditions are met?

it is probable that a future loss will occur the amount of the loss can be reasonably estimated

a liability is accrued for a contingent loss what happens?

it is probably the confirming event will occur the amount can be reasonably estimated

which of the following is true regarding a debenture bond? it is secured by the issuer's long-term assets is is secured by the faith and credit of the issuer it is secured by an outside third party

it is secured by the faith and credit of the issuer

identify a primary reason why financial statement users assess a company's liquidity

lack of liquidity can lead to the demise of a company that otherwise may have been successful

what types of costs relating to ongoing litigation are commonly recognized by companies?

lawyer fees and other legal costs

a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time is called a (blank)

lease

lease receivable for $431,213 = $100,000 * 4.31213 (pv of lease payments, 8%, 5 years)

with respect to on-going litigation, companies typically recognize related (blank), but not related (blank)

legal fees; losses

lease payments are often (blank) than installment payments

less

over a 5-year period, simple interest is (blank) compound interest on the same note

less than

the (blank) adds the present value of the bargain purchase option to the present value of periodic rental payments when computing the amount to be recorded as a tight-of-use asset and a lease liability

lessee

the (blank) should recognize amortization of the right-to-use asset

lessee

the (blank) must disclose its net investment in the lease

lessor

the (blank) subtracts the present value of a bargain purchase option price to determine the amount that must be recovered through the periodic rental payments

lessor

who owns the asset in an operating lease?

lessor

what does it mean to credit inventory?

lessor's cost of equipment

growler commercial cleaning company collects a $1,000 deposit associated with the rental of industrial cleaning equipment. the deposit is refundable upon return of the equipment. when the customer returns the cleaning equipment, growler should debit which account?

liability - refundable deposits

what happens when loss is probable and reasonably estimable?

liability is accrued and related information is disclosed

a (blank) of (blank) is an agreement between a bank and a company that allows the company to borrow up to a specified amount without completing additional paperwork

line; credit

a company's cash position, its overall ability to obtain cash in the normal course of business, and to satisfy its current obligations reflects the company's what?

liquidity

an otherwise successful company may fail to exist, if it experiences serious (blank) problems

liquidity

which of the following accounts uses time value of money concepts to value the account? long-term bonds treasury stock accounts payable inventory

long-term bonds

the dollar amount of a potential loss when reporting a (blank) (blank) can be classified as either known, reasonable estimable, or not reasonably estimable

loss contingency

the fundamental reason why companies issue convertible bonds is to what?

make the bonds more attractive to investors

the interest rate on notes payable typically is equal to the (blank) rate

market

a common reason for redeeming a bond prior to its maturity date is what?

market interest rates decreased

under both us gaap and IFRS, if the fair value of bonds is not readily determinable, the fair value may be calculated as the present value of the future cash flows using the (blank) (blank) of interest

market rate

recognition of costs related to manufacturers' quality assurance warranty during the same period that the related revenue is recognized is consistent with what accounting principle?

matching principle

what are short-term obligations?

may be classified as long-term liabilities if they meet certain criteria

what are money and claims to receive money in amounts that are fixed or determinable called?

monetary assets

an obligation to pay amounts of cash, the amount to which is fixed or determinable, is called a (blank)

monetary liability

a (blank) bond is backed by a lien on specified real estate owned by the issuer

mortgage

bonds that are backed by a lien on a specific real estate owned by the issuer are referred to as (blank) bonds

mortgage

the return on assets is calculated by dividing (blank) (blank) by total assets

net income

the return on shareholders' equity is calculated by dividing (blank) (blank) by total shareholders' equity

net income

how is the times interest earned ratio calculated?

net income plus interest plus taxes divided by interest

what happens when loss is remote?

no disclosure note needed

jones company signs a $15,000, 12-month note and receives $14,250 from the bank. jones probably signed what?

non interest-bearing note

when a portion of a lease payment represents the transfer of a good or service to the lessee, it is considered a what?

non lease component

accounting for convertible bonds subsequent to issuance is the same as accounting for what?

non-convertible bonds

notes payable for $300,000

on January 1, 2021, greenbaum corp borrows $500,000 cash from first national bank and issues 2-year, $500,000 promissory note. interest of $10,000 is payable semiannually on June 30 and December 31. on the date of issuance, greenbaum corp should credit what account for how much?

notes payable for $500,000

Schulz company borrows cash from a bank and signs a promissory note. what should the bank record?

notes receivable

what does n stand for?

number of periods

how is lease revenue recorded by the lessor in an operating lease?

on a straight-line basis

when does the first cash flow of an ordinary annuity occurs?

one compounding period after the agreement begins

a lease that is more true to the nature of a rental agreement is called a(n) (blank) lease

operating

for a sales-type lease, the lessor should report cash received on the lease as a(n) (blank) activity

operating

in which section of the statement of cash flows should a lessee report payments on an operating lease?

operating

selma leases equipment from abc corp. the 4 -year lease requires payments of $10,000 per year, beginning at the inception of the lease. the fair value of the equipment at the inception of the lease is $100,000. the equipment has a 6-year life. selma's incremental borrowing rate is 6%. the lease does not transfer title and does not have a bargain purchase option. how should the lease be classified by selma?

operating

when the rights and responsibilities of ownership are retained by the lessor, the lease is classified as an (blank) lease

operating

in the statement of cash flows, interest paid on long-term notes should be reported as outflows from what?

operating activity

what are the two basic lease classifications by a lessee?

operating and finance

in a finance lease, the lessee reports the interest portion of the payment as a cash outflow from (blank) activities, and it reports the portion representing principal repayment as a cash outflow from (blank) activities

operating; finance

in a finance lease, the lessee records the interest portion of payments as a cash outflow from (blank) activities, and the principal portion as a cash outflow from (blank) activities on the statement of cash flows

operating; financing

in a(n) (blank) (blank) the series of equal payments are made at the end of each period

ordinary annuity

periodic interest expense on liabilities is calculated by multiplying the effective interest rate by the amount of debt that is what?

outstanding during the interest period

a bond investor who applies the effective interest method calculates interest revenue based on the (blank) balance of the bonds times the (blank) interest rate

outstanding; effective

when is revenue related to extended warranty contracts typically recognized?

over time

the right-of-use asset is amortized straight-line, unless the lessee's (blank) of using the asset is different

pattern

what are common types of employee compensation?

pensions, commissions, salaries

the requirements of a future payment of a specific or estimated amount of cash, at a specific or projected date are characteristics of debt. what is another common characteristic?

periodic interest in incurred

the lessor's gross investment in the lease is the total of periodic rental payments and what?

plus any residual value

premium on bonds payable for $75,000 bonds payable for $2,500,000

the formula "future value divided by the quantity (1+i)^n" is the formula for (blank) value

present

the issue price of bonds is calculated as the (blank) value of all the cash flows required of the bonds

present

when recording a finance lease, the amount initially recognized for the right-of-use asset is the what?

present vale of the lease payments

Carr Company borrowed $100,000 by signing a 5-year note payable at 8% interest. at the end of year 5, Carr will repay the bank $146,933. at the time the note is signed, the $100,000 is referred to as the (blank) of the note payable

present value

what does pv stand for?

present value

Harold would like to deposit a sum of money today that will grow to $20,000 in year 8. which table should Harold use when making this calculation?

present value of a single amount

today, the value of a series of equal-sized cash flows with the first payment taking place at the end of the first compounding period is what?

present value of an ordinary annuity

amortization of bond discounts results in the bond being valued on the balance sheet at the what?

present value of the associated future cash flows

most monetary liabilities are valued at the (blank) value of (blank) cash flows

present; future

we value most receivables and payables at the (blank) value of (blank) cash flows), reflecting on appropriate time value of money

present; future

what is the issue price of a bond always equal to?

prevent value of the future cash flows

what does the return on assets indicate?

profitability without regard to how resources are financed

which of the following represents the formal credit instrument for a trade notes payable? commercial paper supplier's invoice promissory note

promissory note

the primary purpose of the call feature associated with bonds is to what?

protect the issuer against declining interest rates

the present value of a residual asset in a lease does what?

provides a source of recovery of the lessor's investment regardless of guarantee reduces the lessee's lease payments regardless of guarantee

a (blank) is a lease provision giving the lessee the option to buy the leased property at the end of the lease term at a specified exercise price

purchase option

what are strategies for debtors to retire bonds prior to the maturity date?

purchasing bonds on an open market including a call feature when the bonds are issued

what does it meant to debit lease receivable?

pv of lease payments plus the pv of residual value

which ratio indicates profitability without regard to how resources are financed?

rate of return on assets

Taylor company leased an asset from Lease Corp using an operating lease for equipment with a useful life of seven years. the initial lease team was for three years. after two years, Taylor company and Lease Corp agree to extend the lease term by three years, and to change the amount of lease payments. the additional three years were not originally an option. how should Lease Corp address this lease modification?

reclassify from an operating lease to a sales-type lease record a lease receivable for the present value of the remaining lease payments

seine company, a trucking company, accidentally spilled a load of ice cream across an open girls. the owner of the field has not yet demanded clean-up of the spill. seine's expert source predicts that it is probable that the owner will file a claim and that seine will probably have to pay for the clean-up cost of approximately $29,000. upon determining these facts, what should seine do?

recognize a contingent liability of $29,000

superior printer company sells a new model with a $30.00 mail-in rebate. at the end of the accounting period, the company estimates that 25% of the 2,000 rebates associated with the sales during December will still be returned by customers. on December 31, superior printer should do what?

recognize an expense and estimated liability of $15,000

on January 2, 2021, Hauser company issues $2 million face amount, 10-year bonds. issue costs associated with these bonds are $100,000. how are the issue costs accounted for?

reduce the cash proceeds and increase the discount and debt issue costs account

what do bond issue costs do?

reduce the cash proceeds from the insurance of debt increase the effective interest rate of borrowing

the residual value of a leased asset (blank) the amount the lessor needs to recover through periodic lease payments

reduces

in a typical finance lease, the first lease payment at the beginning of the lease consists of what?

reduction in principal only

lease accounting guidance suggests that a "major part" of the leased asset's life is 75% or more of the what?

remaining economic life

what are the categories used to asses the likelihood of a loss contingency?

remote reasonably possible probable

Neumann company issues 20-year bonds. related to these bonds, Neumann is obligated to do what?

repay a certain amount at a specific date

which of the following describe the role of a trustee with respect to corporate bonds? represents the rights go the bond holder holds the bond indenture appointed by bond issuer represents the rights of the bond issuer

represents the rights of the bond holders holds the bond indenture appointed by bond issuer

installment notes typically involve the purchase of assets and what?

require installment payments over time periodic payments include principal and interest

the estimated commercial value of leased property at the end of the lease term is known as what?

residual value

which of the following would be included in the lessor's gross investment in the lease?

residual value periodic lease payments

an early extinguishment of debt refers to long-term liability such as bonds that are what?

retired prior to maturity

costs incurred to satisfy customer claims under an extended warranty period are recorded during the same period as the related (blank)

revenue

on January 1, 2021, tucker company leases equipment from Franz inc over three years of the equipment's five year estimated useful life. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. the annual rental payment is $100,00; the first payment is due on January 1, 2021. at the commencement of the lease, tucker should credit what account for how much?

right-of-use asset for $431,213

what is an operating lease?

rights and responsibilities of ownership are retained by the lessor

what is a finance or sales-type lease?

rights and responsibilities of ownership are transferred to the lessee

growler commercial cleaning company collects a $1,000 deposit associated with the rental of industrial cleaning equipment. the deposit is refundable when the customer returns the equipment within the 30 days of rental. if the customer does not return the equipment, growler should recognize a what?

sale on the equipment

lester corp. sells merchandise to a customer for $1,000. the company also collects state and local sales taxes of 6% and 4%, respectively. at the time of sale, Lester should recognize what credits in its ledger

sales revenue of $1,000 sales taxes payable of $100

if a borrower pledges specific assets as collateral for a loan, the loan is considered what?

secured

bonds that retire in installments during all or part of the life of the bond issue are called (blank) bonds

serial

bonds that systematically mature over a succession of years are referred to as what?

serial bonds

classifying liabilities as current or concurrent depends on when the contingent liability is expected to be (blank)

settled

an opening lease is (blank) to a typical rental agreement

similar

On January 1, Gino signs a note payable for $10,000. the note has an interest rate of 3%. if Gino repays $10,300 at the end of year 1, the interest is (blank) interest

simple

multiplying an initial investment times both the applicable interest rate and the period of time for which the money is used is referred to as what?

simple interest

(Blank) interest is calculated by multiplying an initial investment times the applicable interest rate and the period of time the money is used, whereas (blank) interest involves earning interest on the interest

simple; compound

what values can bonds be sold at in comparison to the face amount?

sold below, above, or at face value

Jennifer, an intermediate accounting student, wants to determine whether a particular bond issue will sell at face amount, a premium, or discount without calculating the actual issue price. Jennifer should compare the (blank) and the (blank)

stated interest rate; market interest rate

the (blank) rate of interest on a bond is the interest rate printed on the bond; the (blank) rate of interest is the current rate of interest being paid on investments with similar characteristics

stated; market

convertible bonds are retired when bondholders choose to convert them into shares of (blank)

stock

bond holders who are not entitled to receive any liquidation payments until claims of other specified debt issues are satisfied must have purchased indentures that are referred to as what?

subordinate

which of the following represents the formal credit instrument for an account's payable? promissory note supplier's invoice purchase order commercial paper

supplier's note

what are the criteria for a financial lease?

the agreement specifies that ownership of the asset transfers to the lessee the agreement contains a purchase option that the lessee is responsibly certain to exercise (bargain purchase option) the lease term is for the "major part" of the remaining economic life of the underlying asset (75%=<) the present value of the lease payments equals or exceeds "substantially all" of the fair value of the underlying asset (90%=<) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term

what is the definition of accrue?

the amount of future loss can be reasonably estimated

what is the definition of disclose only?

the amount of future loss cannot be reasonably estimated

what is a requirement for recognizing employee compensation for future absences?

the amount of payment can be reasonably estimated

a contingent liability typically is accrued for product warranties because it meets what criteria?

the amount of the future loss can be reasonably estimated a future loss is probably

callable bonds can be redeemed at the choice of who?

the bond issuer

for a loss contingency to be accrued, what has to happen?

the cause of the lawsuit must have occurred before the end of the accounting period it is not necessary that the lawsuit was filed before the end of the accounting period

residual value is an estimate of what?

the commercial value of an asset at the end of the lease term

Jackie company's new bond issue with face amount of $6 million sells for $6.4 million. why did the bonds sell at a premium?

the company's stated interest rate must be higher than that of the other competing companies

what is the lease term typically considered to be?

the contractual term of the lease plus any periods covered by options to extend if extension is reasonably certain to occur

effective interest expense is calculated as what?

the effective rate times the carrying value of the debt outstanding during the period

what does the rate of return on shareholders' equity indicate?

the effectiveness of employing resources provided by owners

the formula FV = $1(1+i)^n is used to calculate (blank)

the future value of $1

the future value of an ordinary annuity table is used when calculating what?

the future value of a series of payments

how does a residual value in a finance/sales-type lease affect the lessee

the lessee lease payments are lower

what is the accounting for an operating lease?

the lessee records both an asset and a liability even when the risks and rewards of ownership do not transfer

how does a residual value in a finance/sales-type lease affect the lessor?

the lessor includes the residual value in lease receivable computations regardless of guarantee

what is the definition for classifying a liability as current?

the liability is expected to be satisfied from current assets

what is an installment loan?

the loan balance is reduced over time and reaches zero at the end of the loan term

what is a loan with lump sum principal payment at maturity?

the loan balance reflects the face amount at the date of maturity

what does the times interest earned ratio indicate?

the margin of safety provided to creditors

what are the essential characteristics of a liability?

the obligation results from a past event a future sacrifice of an economic benefit is probable the future sacrifice arises from a present obligation

in practice, accrual of loss contingencies related to litigation claims are uncommon because of what?

the outcome related to litigation is highly uncertain it may adversely affect the outcome of the litigation

using the effective interest method, the bond issuer calculated interest expense based on what?

the outstanding balance of the bonds

what conditions must be met to recognize employee compensation for future absences?

the paid absences vest or the benefits can be accumulated over time the amount can be reasonable estimated the obligation is attributed to employee's services already performed payment is probable

assume you borrow $10,000 from the bank and promise to repay the amount in 5 equal installments beginning one year from today. the stated interest rate on the loan is 5%. what is the unknown variable in this problem?

the payment amount

what is necessary for a contingency loss to exist?

the potential loss must arise from an event that occurred prior to the financial statement date

three years ago, harper company issued 10-year bonds at a discount. the company utilizes the effective interest method to recognize periodic interest. after 3 years, the carrying value of the bonds is equal to what?

the present value of future cash flows using original rates

consistent with IFRS, if the fair value of convertible bonds for which no active market exists cannot be determined, the value of the bonds can be calculated based on what?

the present value of the bonds' cash flows using the market interest rate

what does the price of a bond include?

the present value of the face amount PLUS the present value of the periodic interest payments

the lessee records the right-of-use asset as what?

the present value of the lease payments

selling profit exists in a sales-type lease when what happens?

the present value of the lease payments is greater than the cost of the asset

in an operating lease, interest expense plus amortization expense is equal to what?

the straight-line lease payment

which of the following is an advantage of issuing bonds?

the total loan is broken into many parts, making it easier to find lenders

what is correct regarding the default of a bond issuer?

the trustee holding the indenture can sue the issuer on behalf of the bondholders

which of the following is correct regarding the default of a bond issuer?

the trustee holding the indenture can sue the issuer on behalf of the bondholders

which of the following transactions require recognition of a liability on December 31? employees are promised a 4% pay raise starting next month the utility bill for December will be paid January 3 receipt of inventory purchases on account

the utility bill for December will be paid January 3 receipt of inventory purchases on account

which of the following is correct regarding the recognition of the value of a conversion feature associated with a convertible bond? the value of the conversion feature is recognized as additional paid-in capital the value of the conversion feature is not recognized separately

the value of the conversion feature is not recognized separately

which of the following is correct regarding the recognition of the value of a conversion feature associated with a convertible bond consistent with IFRS?

the value of the conversion feature is recognized as equity

which of the following are true regarding bonds sold with detachable warrants? the warrants require that upon exercise of the warrants, the bonds are exchanged for stock the warrants can be exercised separately from the bonds the warrants can be sold by the bondholder to another investor

the warrants can be exercised separately from the bonds the warrants can be sold by the bondholder to another investor

what represents an important difference between bonds with detachable warrants and convertible bonds?

the warrants can be separated from the bonds

why is revenue related to extended warranty contracts typically recognized over time?

the warranty provides coverage over time

generally, what are liabilities valued at?

their present value

what happens with the cost when issuing privately placed corporate bonds?

they are less costly to issue than publicly offered bonds

what happens with material events giving rise to a contingency that occur after the end of the fiscal period but before the financial statements are issued?

they must be disclosed in a subsequent events disclosure note

which of the following statements is correct regarding payment priority to holders of subordinated debentures in the case of a bankruptcy? they receive payment after secured debt has been satisfied they are paid at the same time that other specific debt is satisfied they receive payment only after other specific debt has been satisfied

they receive payment only after other specific debt has been satisfied

the most common way for corporations to obtain temporary financing is what?

through short-term bank loans

what do bonds obligate the issuing company to do?

to repay the bonds at a specific date to pay a specific amount

what are the most important reasons why companies issue convertible instead of nonconvertible bonds?

to use a medium of exchange in mergers and acquisitions to sell the bonds at a higher price to enable smaller or debt-heavy companies to gain access to the bond market

obligations to suppliers of merchandise that bear interest and are for a longer term than open accounts are called what?

trade notes payable

true or false: a lease is an annuity when it requires equal payments at the same interval

true

true or false: present value calculations are used in calculating pension contributions for defined benefit plans

true

true or false: the implied interest rate may be different from the stated interest rate of a loan

true

true or false: the interest rate stated in a note is typically equal to the market rate

true

true or false: when pricing a bond, the present value of the annuity of the coupon payments is added to the present value of the maturity value of the bond

true

what is an important characteristic of loss contingencies that is not commonly shared by other liabilities?

uncertainty exists regarding whether a future event giving rise to the obligation will occur

the feature that distinguishes loss contingencies from other liabilities is the what?

uncertainty that a loss will occur

what is the most common loss contingency that does not result in the recognition of a liability?

uncollectible receivables

what are commercial papers?

unsecured notes often purchased by other companies as investments have minimum denominations of $25,000

short term bank loans...

usually have a lower interest rate than long-term debt are frequently used by large corporations as a significant component of capital structure

if an asset is exchanged for notes payable and the stated interest rate does not closely reflect the market rate at time of negotiation, the market rate should be established with reference to the what?

value of the asset or service exchanged

norbert purchases a piece of equipment and signs a note with a very low interest rate that is unlikely to reflect current market conditions. norbert should estimate the appropriate market rate with reference to the what?

value of the purchased equipment

what are required disclosures related to leases?

variable lease cost non lease payments residual values

which of the following items represent loss contingencies? warranty liabilities advanced payment from customers accounts payable for inventory purchases legal liabilities uncollectible receivables

warranty liabilities legal liabilities uncollectible receivables

what do extended warranty contracts provide?

warranty protection beyond the manufacturer's original warranty

when is a non lease component of a lease agreement recorded separately from the lease payments?

when the amount represents transfer of a good or service to the lessee

when is a nonlease component of a lease agreement recorded separately from the lease payments?

when the amount represents transfer of a good or service to the lessee

revenue associated with the sale of gift cards normally is recognized when?

when the gift cards are redeemed

bonds that pay no interest and instead issue at a deep discount are commonly referred to as (blank) coupon bonds

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