Accounting Chapters 13&14 Test

A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2019. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. Using effective-interest amortization, how much interest expense will be recognized in 2019?

$1,568,498

The adjusted trial balance for Lifesaver Corp on December 31, 2019 contained the following accounts: 5-year Bonds Payable 8% $1,500,000 Bond Interest Payable 50,000 Premium on Bonds Payable 100,000 Notes Payable (3 mo.) 40,000 Notes Payable (5 yr.) 165,000 Mortgage Payable ($15,000 of which is currently due) 200,000 Salaries Payable 18,000 Taxes Payable (due 1/15 of 2020) 25,000 The total long-term liabilities reported on the balance sheet are:

$1,950,000.

A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2019?

$19,663,523

Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from Frosted Flakes boxes and $1.00. The company estimates that 60% of the boxtops will be redeemed. In 2015, the company sold 500,000 boxes of Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls. If the bowls cost Frosted Flakes Company $2.50 each, how much liability for outstanding premiums should be recorded at the end of 2015?

$30,000

Slack Inc. borrowed $400,000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31?

$36,000

Seahawks Inc. manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $200 per unit sold and reported a liability for estimated warranty costs $6.5 million at the beginning of this year. If during the current year, the company sold 50,000 units for a total of $243 million and paid warranty claims of $7,500,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year?

$9,000,000

ABC Composite provides extended service contracts on electronic equipment sold through major retailers. The standard contract is for four years. During the current year, ABC Composite provided 42,000 such warranty contracts at an average price of $162 each. Related to these contracts, the company spent $800,000 servicing the contracts during the current year and expects to spend $4,200,000 more in the future. What is the net profit that the company will recognize in the current year related to these contracts?

$901,000

What is a contingency?

An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

Perry Incorporated sold $250,000 in scented alarm clock sales. Due to uncertainty surrounding the likeability of the smell and other performance issues, customers purchased a warranty covering a 2 year period. The warranty sales amounted to $25,000, and $5,000 in warranty costs have been incurred to date. What are the accounts that would be impacted to journalize this transaction?

Cash, Sales, Unearned Warranty Revenue, Warranty Expense, Warranty Revenue.

Which of the following is a characteristic of a current liability but not a long-term liability? Unavoidable obligation. Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities. Transaction or other event creating the liability has already occurred.

Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

Which of the following situations may give rise to unearned revenue? Providing trade credit to customers. Selling inventory. Selling magazine subscriptions. Providing manufacturer 30 day warranties.

Selling magazine subscriptions

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

Subsequently refinance the obligation on a long-term basis

Cupid Inc. neglected to amortize the discount on outstanding ten-year bonds payable. What is the effect of the failure to record discount amortization on interest expense and bond carrying value, respectively?

Understate; understate

When is a contingent liability recorded?

When the future events are probable to occur and the amount can be reasonably estimated.

Kandy Corporation retires its $100,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $96,250. The entry to record the redemption will include a:

credit of $3,750 to Discount on Bonds Payable.

The carrying value amount of a bond liability that appears on the balance sheet is the:

face value of the bond plus related premium or minus related discount.

Liabilities are:

obligations arising from past transactions and payable in assets or services in the future.