ACCT-2110 Exam 5

Carney's Feed Mill sold for cash 2,800 bags of grain during the month of July at $20 per bag. Sales taxes for the state of Ohio are 6.5%. All sales taxes will be paid to the appropriatetaxing authoring at the end of September. How much did Carney's collect from its customers?

$59,640

11. On January 1, 2012, Nunn Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%. Refer to the information provided for Nunn Inc. What is the carrying value of the bonds after the first interest payment is made on June 30, 2012? a. $662,356.40 b. $666,097.78 c. $670,063.65 d. $133,902.22

*B. $666,097.78

9. Use the information provided for Nunn Inc. to answer the question(s) using the effective interest method. On January 1, 2012, Nunn Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December31. The market rate is 12%. Refer to the information provided for Flounder Inc. The interest expense on the bonds at June 30, 2012, is: a. $79,482.77. b. $36,000.00. c. $39,741.38. d. $29,806.04.

*C. $39,741.38

Match the following terms to their appropriate descriptions. A. Secured Bonds B. Unsecured Bonds C. Junk Bonds D. Callable Bonds E. Convertible Bonds 1. Debt that allows the creditor to swap it for other securities, typically common stock. 2. The issuer provides collateral to back up their required payments, which the creditor can "repossess" upon failed payment. 3. Debt that does not have collateral to back it up and is relatively risky. This comes with a high rate of interest payment. 4. Debt that gives the issuer the opportunity to pay off the remaining interest and principal before maturity date. 5. Debt that does not have collateral to back it up, often called "debentures".

1. E 2. A 3. C 4. D 5. B

Tolleson Music Store had the following transactions during the year. Make the appropriate journal entry for each transaction. Tolleson Music Store had the following transactions during the year. Make the appropriate journal entry for each transaction. 1. Purchased inventory on account for $22,000. 2. End of year wages were $42,000, with associated income taxes of $8,500 and Medicare taxes of $600 withheld. 3. Total income taxes payable but unpaid for the year were estimated to be $45,000. 4. Tolleson sold merchandise on account for $1,200, including sales taxes of $115. Make the appropriate entry assuming a periodic inventory system (only record sale). 5. Tolleson's share of Medicare taxes incurred as the employer were the full $600. Taxes will be paid next year. 6. Tolleson borrowed cash on a 180-day, 12%, $30,000 note.

1: D; inventory 22,000 C; AP 22,000 2: D; wages expense 42,000 C; cash 32,900 income tax withholding 8,500 medicare tax payable 600 3: D; income tax expense 45,000 C; income tax payable 45,000 4: D; AR 1,200 C; sales tax payable 115 sales revenue 1085 5: D; medicare tax expense 600 C; medicare tax payable 600 6: D; cash 30,000 C; notes payable 30,000

On March 18th, Altuve Wire Co. sold 60 microphone wires on account to Stratton Oakmont for $250/each. There is a 9% sales tax applied to the sale. Altuve billed Stratton Oakmont for the total sale, including the sales tax. Calculate the sale and associated tax and record the appropriate journal entry.

3/18 debit: A/R $16,350 credit: sales revenue $15,000 credit: sales tax payable $1,350 $60 x $250 = $15,000 (sales revenue) $15,000 x .09 = $1,350 (sales taxes payable)

Assume a company issues a bond with a face value of $110,000. The bond matures in 10 years and has a 15% interest rate. If interest on the bond is paid monthly, how much interest will be paid on the bond each month? a.$1,375 b.$16,500 c.$1,650 d.$11,000

A. $1,375

Roberts Company issued $1,000,000 of 7% bonds due in 5 years with interest payable annually on December 31. The yield rate was 6%. The bond was issued with a premium of $42,124. The cash paid on December 31 of the first year will be $70,000. How much will interest expense be (rounded to the nearest dollar) using the effective interest rate method? a.$62,527 b.$42,124 c.$27,876 d.$70,000

A. $62,527

The current ratio is often used to analyze a company's ability to meet its current obligations. How is the current ratio calculated? A. Current assets / current liabilities B. (Cash + marketable securities + accounts receivable) / Current Liabilities C. Current assets / Stockholder's equity D. Current liabilities / current assets

A. Current assets / current liabilities

Long-term debt generally refers to obligations that extend beyond 1 year. Which of the following is NOT a long-term debt? A. Accounts payable B. Capital leases C. 20-year, 10% bonds payable D. Notes payable due in 5 years

A. accounts payable

An account payable is a liability that arises when a business purchases goods or services on credit. Which of the following is the correct entry to record a purchase of goods for resale on credit? A. Debit Inventory; credit Accounts Payable B. Debit Accounts Payable; credit Inventory C. Debit Accounts Payable; credit Cash D. Debit Inventory; credit Accounts Receivable

A. debit inventory; credit accounts payable

6. If bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will: a. decrease as the bonds approach their maturity date. b. increase as the bonds approach their maturity date. c. remain constant throughout the bonds' life. d. fluctuate throughout the bonds' life.

A. decrease as the bonds approach their maturity date

Bonds may be sold as secured or unsecured. Which of the following types of bonds is always secured? A. Mortgage bonds B. Coupon bonds C. Debenture bonds D. Junk bonds

A. mortgage bonds

Which of the following statements about bonds is NOT true? a.Under the effective interest rate method, the interest expense is the same every period. b.Under the effective interest rate method, the effective interest rate on the bond book value is constant. c.The straight-line and effective interest rate methods are identical when a bond is issued at par. d.The total interest expense over the life of bonds is the same under the effective interest rate and the straight-line methods.

A. under the effective interest rate method, the interest expense is the same every period

2. The interest charged by the bank, at the rate of 9%, on a 3-month, discounted note payable for $100,000 is: a. $9,000. b. $2,250. c. $750. d. $1,000.

B. $2,250

what is a liability? A. An expense that is not yet known by the business B. A future expense to repair and maintain company equipment C. A probable future sacrifice of economic benefit D. A probable future economic benefit

B. a future expense to repair and maintain company equipment

Which of the following statements about warranties is true? A. When the warranty expense is recognized, inventory is reduced. B. Actual warranty claims are unlikely to exactly equal the business's estimate. C. A journal entry for warranty expense is recorded when the product is returned for repair. D. A journal entry to recognize warranty expense is only recorded when the actual amount of the expense is known.

B. actual warranty claims are unlikely to exactly equal the businesses estimate

12. One of the main disadvantages of the corporate form is the: a. professional management. b. double taxation of dividends. c. charter. d. corporation must issue stock.

B. double taxation of dividends

15. When a corporation declares a stock dividend, which of the following is true? a. Cash decreases. b. Equity remains the same. c. Equity decreases. d. Retained earnings increases.

B. equity remains the same

20. Cash paid for preferred stock dividends should be shown on the statement of cash flows under: a. investing activities. b. financing activities. c. both investing and financing activities. d. operating activities

B. financing activities

Most liabilities are recognized when ________ A. payments are made for goods or services received. B. goods or services are received or money is borrowed. C. a future event is less than likely to occur. D. borrowed money is repaid.

B. goods or services are received or money is borrowed

13. Issued shares represent the: a. number of previously issued shares that have been repurchased by the corporation. b. number of shares that the corporation has distributed to owners to date. c. number of shares that are currently held by stockholders. d. maximum number of shares that can be sold by the corporation.

B. number of shares that the corporation has distributed to owners to date

18. The Jones Corporation issues 10,000 shares of $50 par value preferred stock for cash at $70 per share. The entry to record the transaction will consist of a debit to Cash for $700,000 and a credit or credits to: a. Preferred Stock for $700,000. b. Preferred Stock for $500,000 and Additional paid-in Capital for $200,000. c. Preferred Stock for $500,000 and Retained earnings for $200,000. d. Paid-in Capital from Preferred Stock for $700,000

B. preferred stock for $500,000 and additional paid-in capital for $200,000

4. When will bonds sell at a discount? a. The credit standing of the issuing company is not as good as other companies in a similar line of business. b. The stated rate of interest is less than the market rate of interest at the time of issue. c. The stated rate of interest is more than the market rate of interest at the time of issue. d. The stated rate of interest is same as the market rate of interest at the time of issue.

B. the stated rate of interest is less than the market rate of interest at the time of issue

5. Amazon issued bonds in the amount of $500,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what would be the total amount of interest paid over the life of the bonds? a. $500,000 b. $200,000 c. $400,000 d. $ 40,000

C. $400,000

7. If bonds are issued at 101.25, this means that: a. a $1,000 bond sold for $101.25. b. the bonds sold at a discount. c. a $1,000 bond sold for $1,012.50. d. the bond rate of interest is 10.125% of the market rate of interest.

C. a $1000 bond sold for $1012,50

17. The excess of sales price of treasury stock over its cost should be credited to: a. Treasury Stock Receivable b. Premium on Capital Stock c. Additional Paid-In Capital d. Income from Sale of Treasury Stock

C. additional paid in capital

Which of the following is the entry that will be made to record the repayment of the bond at maturity? a.Debit Interest Expense; credit Bonds Payable b.Debit Bonds Payable; credit Interest Expense c.Debit Bonds Payable; credit Cash d.Debit Cash; credit Bonds Payable

C. debit bonds payable; credit cash

A note payable arises when a business borrows money. The company should use which of the following entries to correctly record borrowing money from a bank? A. Debit Cash; credit Notes Receivable B. Debit Cash; credit Accounts Payable C. Debit Cash; credit Notes Payable D. Debit Notes Payable; credit Cash

C. debit cash; credit notes payable

16. Many stockholders choose to invest in preferred stock because: a. preferred stock can always be converted into common stock at the stockholder's option. b. the preferred dividend distributions are generally increased each year. c. dividends are distributed to preferred stockholders before common stockholders. d. preferred stockholders includes the right to participate in management decisions through voting privileges.

C. dividends are distributed to preferred stockholders before common stockholders

14. When a corporation declares a cash dividend, which of the following is true? a. Cash decreases. b. Liabilities decrease. c. Equity decreases. d. No entry is necessary.

C. equity decreases

If the likelihood that the contingent liability will occur is remote, __________ A. a journal entry is made to record the liability. B. a journal entry is made and the information regarding the contingency must be disclosed in the financial statement footnotes C. no journal entry is made; information regarding the contingency should be disclosed in the financial statement footnotes. D. neither a journal entry is made nor a disclosure in the financial statement footnotes.

C. no journal entry is made; information regarding the contingency should be disclosed in the financial statement footnotes

8. Under the effective interest method, the cash paid on each interest payment date will: a. decrease if bonds are issued at a premium. b. increase if bonds are issued at a premium. c. remain constant regardless of the issuance price. d. increase if bonds are issued at a discount.

C. remain constant regardless of the issuance price

Dominic Incorporated issued 5-year, $700,000, 8% bonds at 97. The discount at the time of the sale was $21,000. These bonds pay interest semiannually. What amount of the discount will be amortized each semiannual period under the straight-line method? a.$21,000 b.$10,500 c.$4,200 d.$2,100

D. $2,100

10. On January 1, 2012, Nunn Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%. Refer to the information provided for Nunn Inc. The interest payment on June 30, 2012, is: a. $30,000 b. $32,237 c. $31,740 d. $36,000

D. $36,000

Which of the following accounts is classified as a current liability? A. Accounts Receivable B. Cash C. Interest Expense D. Accounts Payable

D. Accounts Payable

Under the effective interest method, which of the following calculates the effective interest expense? a.Face Value × Stated Rate × Time (in years) b.Face Value × Yield Rate × Time (in years) c.Carrying Value × Stated Rate × Time (in years) d.Carrying Value × Yield Rate × Time (in years)

D. carrying value x yield rate x time (in years)

current liabilities are: a. due, but not receivable for more than one year. b. due, but not payable for more than one year. c. due and receivable within one year. d. due and payable within one year.

D. due and payable within one year

Which of the following best describes a warranty? A. It is a deferred revenue. B. An assurance that you'll be paid cash if you aren't satisfied with the product. C. It is a long-term liability. D. It is a guarantee that the company will repair the product or replace it if the product is defective during a period following the sale.

D. it is a guarantee that the company will repair the product or replace it if the product is defective during a period following the sale

When a company borrows money from a bank, it typically signs a formal agreement with the bank. The company also creates a liability that must be recorded in its accounting records. This liability is called a(n) __________ A. account payable. B. bond payable. C. certificate of deposit. D. note payable.

D. note payable

3. Which of the following would most likely be classified as a current liability? a. Two-year notes payable b. Bonds payable c. Mortgage payable d. Portion of long-term debt due within one year

D. portion of long-term debt due within one year

The effective interest rate method does a better job of matching the __________ to the proper period. a.principal amount paid b.outstanding loan balance c.face value of the bond d.time value of money

D. time value of money

If $100,000, 5% bonds are sold at 100, what amount will be credited to Bonds Payable? a.$100,000 b.$103,000 c.$97,000 d.$105,000

a. $100,000

Which of the following accounts is debited in every bond issuance whether at par, premium, or discount? a.Cash b.Bonds Payable c.Premium on Bonds Payable d.Discount on Bonds Payable

a. Cash

19. All of the following are reasons that a corporation may purchase treasury stock except: a. if it needs the stock for its employee stock bonus program. b. if it desires to make an investment in its own stock and is reported as an asset. c. to buy out the ownership of stockholders. d. to increase the reported amount of earnings per share.

b. if it desires to make an investment in its own stock and is reported as an asset

When bonds are sold at a premium, which of the following statements is true? a.The market rate of interest is greater than the stated rate of interest. b.The market rate of interest is less than the stated rate of interest. c.The amount paid to the creditors will be greater than the face amount of the bonds. d.The company has a better reputation than other companies in the same business.

b. the market rate of interest is less than the stated rate of interest

If $130,000 face value bonds are issued at 98, how much cash would the corporation receive for the bonds? a.$130,000 b.$2,600 c.$132,600 d.$127,400

d. $127,400

Assume a company issues a bond with a face value of $490,000. The bond matures in 10 years and has a 15% interest rate. If interest on the bond is paid annually, how much interest will be paid on the bond each year? a.$14,700 b.$12,250 c.$1,470 d.$73,500

d. $73,500

Assume a company issues a bond with a face value of $490,000. The bond matures in 10 years and has a 15% interest rate. If interest on the bond is paid annually, how much interest will be paid on the bond each year? a.$14,700 b.$12,250 c.$1,470 d.$73,500

d. $73,500

B) When the stated interest rate is lower than the market interest rate, is the bond traded at a premium or discount?

discount

A) When the stated interest rate is higher than the market interest rate, is the bond traded at a premium or discount?

premium