Acct Exam 3

If bonds are issued at a discount, it means that the: Select one: A. market interest rate is lower than the stated interest rate. B. market interest rate is higher than the stated interest rate. C. financial strength of the issuer is weak. D. bond is convertible.

The correct answer is: market interest rate is higher than the stated interest rate.

The carrying amount of bonds issued at a discount is calculated by: Select one: A. subtracting Interest Expense from Bonds Payable. B. subtracting Discount on Bonds Payable from Bonds Payable. C. subtracting the sum of Discount on Bonds Payable and Interest Payable from Bonds Payable. D. subtracting Interest Payable from Bonds Payable.

The correct answer is: subtracting Discount on Bonds Payable from Bonds Payable.

All of the following are reported as current liabilities EXCEPT: Select one: A. bonds payable due in 6 months. B. accounts payable. C. unearned revenues for services to be provided in 16 months. D. sales tax payable.

The correct answer is: unearned revenues for services to be provided in 16 months.

Pat's Pets recently paid to have the engine in its delivery van overhauled. The estimated useful life of the van was originally estimated to be 4 years. The overhaul is expected to extend the useful life of the van to 10 years. The overhaul is regarded as a(n): Select one: A. revenue expenditure. B. equity expenditure. C. capital expenditure. D. matching expenditure.

The correct answer is: capital expenditure.

If bonds have been issued at a premium, over the life of the bonds, the: Select one: A. carrying value of the bonds will increase. B. interest expense will increase. C. interest payment will increase. D. carrying value of the bonds will decrease.

The correct answer is: carrying value of the bonds will decrease.

Monthly sales are $530,000. Warranty costs are estimated at 5% of monthly sales. Warranties are honored with replacement products. No defective products are returned during the month. At the end of the month, the company should record a journal entry with a credit to: Select one: A. Sales for $26,500. B. Estimated Warranty Payable for $26,500. C. Warranty Expense for $26,500. D. Inventory for $26,500.

$530,000 × 5% = $26,500 The correct answer is: Estimated Warranty Payable for $26,500.

On January 1, 2015, a machine has a remaining book value of $7000. The residual value of the machine is $1200. The company uses the double-declining-balance method of depreciation. If 2015 is the last year for depreciation, what is Depreciation Expense for the year ending December 31, 2015? Select one: A. $0 B. $5800 C. $7000 D. $1200

$7000 - $1200 Residual Value = $5800 $7000 - $1200 Residual Value = $5800 The correct answer is: $5800

Dorman Company purchased new machinery for its production process. The following costs were incurred for the new machine: Training costs for workers for initial operation of the machine $18,000 Wages paid to workers who operate machine during production 108,000 Ordinary repairs to the machine before the first production ran 2000 Cost of platform used for machine because it moves 20,000 Cost of trial run before the first production run 12,000 Which costs should be added to the cost of the machine? Select one: A. $52,000 B. $160,000 C. $38,000 D. $18,000

All of the costs should be added except for wages paid to workers who operate the machine during production. The correct answer is: $52,000

A bond with a face value of $120,000 and a quoted price of 107 has a selling price of: Select one: A. $120,000. B. $132,000. C. $112,150. D. $128,400.

Feedback $120,000 × 1.07 = $128,400 $120,000 × 1.07 = $128,400 The correct answer is: $128,400.

A depreciation method in which an equal amount of depreciation expense is assigned to each year of the asset's use is the: Select one: A. units-of-production method. B. accelerated depreciation method. C. straight-line method. D. estimated residual value method.

The correct answer is: straight-line method.

Franco Company sold office furniture for $2500 cash. The furniture cost $70,000 and had accumulated depreciation through the date of sale totaling $32,000. The company will recognize: Select one: A. a gain of $35,500. B. a loss of $38,000. C. a gain of $38,000. D. a loss of $35,500.

Book value = $70,000 - $32,000 = $38,000 Cash proceeds $2500 Loss on sale = $38,000 - $2500 = $35,500 Loss on sale = Book value - Cash proceeds The correct answer is: a loss of $35,500.

Wisconsin Bank lends Local Furniture Company $80,000 on November 1. Local Furniture Company signs a $80,000, 10%, 4-month note. The fiscal year end of Local Furniture Company is December 31. The journal entry made by Local Furniture Company on December 31 is: Select one: A. debit Interest Expense and credit Cash for $1333. B. debit Interest Payable and credit Interest Expense for $1333. C. debit Interest Payable and credit Cash for $1333. D. debit Interest Expense and credit Interest Payable for $1333.

$80,000 × 10% × 2/12 = $1333 The correct answer is: debit Interest Expense and credit Interest Payable for $1333.

At the end of the year, a company has a short-term note payable outstanding that was entered into earlier in the current year. What accounts relating to the note payable will be reported on the financial statements at the end of the year? Select one: A. Short-term notes payable and interest payable will be reported on the balance sheet. B. Short-term notes payable, interest payable and interest expense will be reported on the balance sheet. C. Interest receivable will be reported on the balance sheet. D. Short-term notes payable will be reported on the balance sheet and interest payable will be reported on the income statement.

Short-term notes payable and interest payable will be reported on the balance sheet.

In the balance sheet, the account, Premium on Bonds Payable, is: Select one: A. added to bonds payable. B. deducted from bonds payable. C. classified as a liability account. D. A and C

The correct answer is: A and C

The journal entry to record depreciation expense is: Select one: A. debit Depreciation Expense, credit Accumulated Depreciation. B. debit Depreciation Expense, credit the asset account. C. debit Accumulated Depreciation, credit the asset account. D. debit the asset account, credit Accumulated Depreciation.

The correct answer is: debit Depreciation Expense, credit Accumulated Depreciation.

A bond was issued at a discount. The journal entry to record payment of this bond payable at maturity will include a: Select one: A. debit to Cash and a credit to Bonds Payable. B. debit to Bonds Payable, credit to Discount on Bonds Payable and a credit to Cash. C. debit to Bonds Payable, debit to Discount on Bonds Payable and a credit to Cash. D. debit to Bonds Payable and a credit to Cash.

The correct answer is: debit to Bonds Payable and a credit to Cash.

The journal entry to record a semiannual interest payment on a bond payable issued at par: Select one: A. debits Interest Expense and credits Cash. B. debits Cash and credits Interest Expense. C. debits Interest Expense and credits Bonds Payable. D. debits Cash and credits Interest Payable.

The correct answer is: debits Interest Expense and credits Cash.

On January 1, Hanley Corporation issued $2,200,000, 10-year, 6% bonds at 102. The journal entry to record this transaction would include a: Select one: A. debit to Cash $2,200,000. B. credit to Bonds Payable $2,244,000. C. debit to Discount on Bonds Payable $44,000. D. credit to Premium on Bonds Payable $44,000.

$2,200,000 × 2% = $44,000 The correct answer is: credit to Premium on Bonds Payable $44,000.

Smith Corporation issues $2,300,000, 10-year, 6% bonds payable at a price of 97. The journal entry to record the issuance will include a: Select one: A. credit to Discount on Bonds Payable for $69,000. B. debit to Cash for $2,231,000. C. credit to Bonds Payable for $2,231,000. D. debit to Cash of $2,300,000.

$2,300,000 × 0.97 = $2,231,000 $2,300,000 × 0.97 = $2,231,000 The correct answer is: debit to Cash for $2,231,000.

Barbarino Corporation purchased land and a building for $60,000. An appraisal indicates that the land's market value is $400,000 and the building's market value is $600,000. When recording this transaction Barbarino should debit: Select one: A. Land for $400,000. B. Building for $600,000. C. Land for $24,000. D. Building for $60,000.

$400,000 ÷ ($400,000 + $600,000) = 40% 40% × $60,000 = $24,000 The correct answer is: Land for $24,000.

Solderman Company issued $510,000, 6%, 10-year bonds for$402,800 with a market rate of 8%. The effective-interest method of amortization is to be used and interest is paid annually. The journal entry on the first interest payment date would include a: Select one: A. credit to Interest Expense of $30,600. B. credit to Interest Expense of $1624. C. credit to Discount on Bonds Payable of $1624. D. credit to Cash of $32,224.

$402,800 × 8% = $32,224 Cash interest: $510,000 × 6% = $30,600 Discount amortization: $32,224 - $30,600 = $1624 $402,800 × 8% = $32,224 Cash interest: $510,000 × 6% = $30,600 Discount amortization: $32,224 - $30,600 = $1624 The correct answer is: credit to Discount on Bonds Payable of $1624.

Solderman Company issued $490,000, 5%, 10-year bonds for$462,800 with a market rate of 7%. The effective-interest method of amortization is to be used and interest is paid annually. The journal entry on the first interest payment date would include a: Select one: A. credit to Interest Expense of $24,500. B. credit to Discount on Bonds Payable of $7896. C. credit to Interest Expense of $7896. D. credit to Cash of $32,396.

$462,800 × 7% = $32,396 Cash interest: $490,000 × 5% = $24,500 Discount amortization: $32,396 - $24,500 = $7896 The correct answer is: credit to Discount on Bonds Payable of $7896.

On January 2, 2013, Saminski, Inc., acquired equipment for $600,000. The estimated life of the equipment is 5 years. The estimated residual value is $20,000. What is the Accumulated Depreciation of the equipment on December 31, 2014, if Saminski uses the double-declining-balance method of depreciation? Select one: A. $240,000 B. $232,000 C. $580,000 D. $384,000

$600,000 × 40% = $240,000 ($600,000 - $240,000) × 40% = $144,000 $240,000 + $144,000 = $384,000 The correct answer is: $384,000

NBC Corporation issued $640,000, 11%, 5-year bonds on January 1, 2014 for $608,930 when the market interest rate was 9%. Interest is paid semiannually on January 1 and July 1. The corporation uses the effective-interest method to amortize bond discount. The total amount of bond interest expense recognized on July 1, 2014 is: Select one: A. $33,491. B. $35,200. C. $27,402. D. $28,800.

$608,930 × 4.5% = $27,402 The correct answer is: $27,402.

On January 4, 2012, Margaret's Cafe acquired equipment for $147,500. The estimated life of the equipment is 4 years or 42,500 hours. The estimated residual value is $20,000. What is the depreciation for 2012, if Margaret's Cafe uses the asset 14,100 hours and uses the units-of-production method of depreciation? Select one: A. $42,300 B. $36,875 C. $31,875 D. $20,000

($147,500 - $20,000) ÷ 42,500 = $$3 per hour $3 × 14,100 = $42,300 The correct answer is: $42,300

On January 2, 2015, Kaiman Corporation acquired equipment for $300,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $30,000. What is the balance in Accumulated Depreciation on December 31, 2016, if Kaiman Corporation uses the straight-line method of depreciation? Select one: A. $13.5 B. $54,000 C. $6.75 D. $108,000

($270,000 ÷ 5) = $54,000 $54,000 × 2 = $108,000 ($270,000 ÷ 5) = $54,000 $54,000 × 2 = $108,000 The correct answer is: $108,000

Marjorie Corporation acquired a building on January 1, 2015, for $500,000. The building had an estimated useful life of 20 years and an estimated salvage value of $27,000. On January 1, 2017, Marjorie Corporation determined that the building could only be used for another 10 years and there would be no salvage value. Compute depreciation expense for the year ending December 31, 2017, if Marjorie Corporation uses straight-line depreciation. Select one: A. $70,950 B. $45,270 C. $23,650 D. $47,300

($500,000 - $27,000) ÷ 20 = $23,650 × 2 = $47,300 ($500,000 - $47,300) ÷ 10 = $45,270 ($500,000 - $27,000) ÷ 20 = $23,650 × 2 = $47,300 ($500,000 - $47,300) ÷ 10 = $45,270 The correct answer is: $45,270

Fenway Corporation issued a $15,000, 10-year, 8% bond dated January 1, at 102. The journal entry to record the issuance of the bond will include a: Select one: A. debit to Discount on Bonds Payable for $300. B. credit to Bonds Payable for $15,300. C. debit to Cash for $15,300. D. debit to Cash for $15,000.

15,000 × 1.02 = 15,300 15,000 × 1.02 = 15,300 The correct answer is: debit to Cash for $15,300.

A machine is purchased for $70,000. The transportation costs were $1000, installation costs were $2000 and taxes on the purchase price were $400. Testing runs of the new machine cost $4000. What is the cost of the machine? Select one: A. $70,000 B. $73,400 C. $73,000 D. $77,400

All the costs are added to the cost of the machine. The correct answer is: $77,400

Tony Company sells a piece of equipment for $20,000 cash. The equipment has a historical cost of $60,000 and accumulated depreciation of $55,000. What is the gain or loss on sale of the equipment? Select one: A. $20,000 Loss B. $20,000 Gain C. $15,000 Loss D. $15,000 Gain

Book Value = $60,000 - $55,000 = $5000 Cash Received = $20,000 Gain = Cash Received $20,000 - Book Value $5000 = $15,000 The correct answer is: $15,000 Gain

A company incurred the following costs: Purchase price of land $210,000 Survey fees 7000 Payment for demolition of old building on land 40,000 Back property taxes on land 3000 Paving costs for parking lot 60,000 Fence around perimeter of land 15,000 Lights in parking lot 90,000 Signs for new business 5,000 What is the cost of the land? Select one: A. $320,000 B. $210,000 C. $257,000 D. $260,000

Purchase price $210,000 + Survey fees $7000 + Demolition $40,000 + Back taxes $3000 = $260,000 The correct answer is: $260,000

On December 31, 2014, a note payable of $220,000 has installments of $55,000 due yearly, beginning on December 31, 2015. On December 31, 2014, how will the note payable be reported on the balance sheet? Select one: A. $220,000 current liability B. $55,000 current liability and $110,000 long-term liability C. $55,000 current liability and $165,000 long-term liability D. $220,000 long-term liability

The correct answer is: $55,000 current liability and $165,000 long-term liability

Bonds with a 7% stated interest rate were issued when the market rate of interest was 6%. This bond was issued at: Select one: A. a premium. B. a discount. C. face value. D. par value.

The correct answer is: a premium.

Land Improvements include: Select one: A. fences. B. neon signs on property. C. lights in parking lot. D. all of the above.

The correct answer is: all of the above.

Under the effective-interest method, the amount of bond discount amortized each interest period is equal to the: Select one: A. amount of interest expense less the cash paid for interest. B. face value of the bond times the stated interest rate. C. face value of the bond times the market interest rate at the date of issue. D. amount of interest expense plus the cash paid for interest.

The correct answer is: amount of interest expense less the cash paid for interest.

If the market interest rate is greater than the stated interest rate on bonds, bonds will sell: Select one: A. at a discount. B. at face value. C. at a premium. D. at market value.

The correct answer is: at a discount.

Unsecured bonds are called ________. Secured bonds are called ________. Select one: A. term bonds; serial bonds B. regular bonds; special bonds C. convertible bonds; callable bonds D. debentures; mortgage bonds

The correct answer is: debentures; mortgage bonds

Kathy's Corner Store has total cash sales for the month of $40,000 excluding sales taxes. If the sales tax rate is 5%, what journal entry is needed? (Ignore Cost of Goods Sold.) Select one: A. debit Cash $40,000 and credit Sales $40,000 B. debit Cash $42,000, credit Sales $42,000 C. debit Cash $42,000, credit Sales $40,000 and credit Sales Tax Payable $2000 D. debit Cash $38,000, debit Sales Tax Receivable for $2000 and credit Sales for $40,000

The correct answer is: debit Cash $42,000, credit Sales $40,000 and credit Sales Tax Payable $2000

Madison Bank lends Neenah Paper Company $120,000 on January 1, 2014. Neenah Paper Company signs a $120,000, 8%, 6-month note. The journal entry made by Neenah Paper Company on January 1, 2014 is: Select one: A. debit Cash for $120,000 and credit Notes Payable for $120,000. B. debit Cash for $110,400 and credit Note Payable for $110,400. C. debit Interest Expense for $9600 and credit Cash for $9600. D. debit Interest Expense for $9600 and credit Interest Payable for $9600.

The correct answer is: debit Cash for $120,000 and credit Notes Payable for $120,000.

The journal entry to record depreciation expense is: Select one: A. debit Depreciation Expense, credit Accumulated Depreciation. B. debit the asset account, credit Accumulated Depreciation. C. debit Accumulated Depreciation, credit the asset account. D. debit Depreciation Expense, credit the asset account.

The correct answer is: debit Depreciation Expense, credit Accumulated Depreciation.

A company has a lawsuit pending with regard to patent infringement. The amount of the loss can be estimated and has a probable chance of occurrence. What journal entry is required? Select one: A. debit Lawsuit Loss and credit Cash B. debit Estimated Lawsuit Loss and credit Estimated Lawsuit Liability C. debit Cash and credit Estimated Lawsuit Liability D. debit Estimated Lawsuit Loss and credit Cash

The correct answer is: debit Estimated Lawsuit Loss and credit Estimated Lawsuit Liability

A company purchased a machine for $600,000 many years earlier. The accumulated depreciation on the machine is $100,000. The machine is scrapped. Which journal entry is prepared to record the disposal? Select one: A. debit Loss on Disposal of Machine for $500,000, debit Accumulated Depreciation for $100,000 and credit Machine for $600,000 B. debit Accumulated Depreciation for $100,000 and credit Machine for $100,000 C. debit Accumulated Depreciation for $600,000, credit Machine for $100,000 and credit Gain on Disposal of Machine for $500,000 D. debit Loss on Disposal of Machine for $500,000, debit Accumulated Depreciation $500,000 and credit Machine for $1,000,000

The correct answer is: debit Loss on Disposal of Machine for $500,000, debit Accumulated Depreciation for $100,000 and credit Machine for $600,000

The journal entry to record salaries earned by 10 employees will: Select one: A. debit Salary Expense for the net pay, debit FICA Tax Payable, debit Employee Income Tax Payable, and credit Salary Payable for the gross pay. B. debit Salary Expense and credit Salary Payable for the gross pay. C. debit Salary Expense and credit Salary Payable for the net pay. D. debit Salary Expense for the gross pay, credit FICA Tax Payable, credit Employee Income Tax Payable and credit Salary Payable for the net pay.

The correct answer is: debit Salary Expense for the gross pay, credit FICA Tax Payable, credit Employee Income Tax Payable and credit Salary Payable for the net pay.

Costs that do not extend a plant asset's capacity or its useful life, but merely maintain the asset or restore it to working order are recorded as: Select one: A. capital expenditures. B. extraordinary repairs. C. expenses. D. modification of assets.

The correct answer is: expenses.

Under the effective-interest method of amortization, the bond cash payment on each interest date is calculated by multiplying the: Select one: A. carrying value of the bonds times the stated interest rate for the appropriate time period. B. face value of the bonds times the effective-interest rate for the appropriate time period. C. carrying value of the bonds times the effective-interest rate for the appropriate time period. D. face value of the bonds times the stated interest rate for the appropriate time period.

The correct answer is: face value of the bonds times the stated interest rate for the appropriate time period.

If the market interest rate is 6%, a $10,000, 7%, 5-year bond, that pays interest semiannually would sell at an amount: Select one: A. less than the maturity value. B. less than face value. C. greater than face value. D. equal to face value.

The correct answer is: greater than face value.

The book value of a plant asset is defined as: Select one: A. historical cost minus annual maintenance expense. B. historical cost minus residual value. C. current sales value minus historical cost. D. historical cost minus accumulated deprecation.

The correct answer is: historical cost minus accumulated deprecation.

Under the effective-interest method, if bonds are issued at a discount, the amount of interest expense: Select one: A. increases each period as the bonds move towards maturity. B. is less than the cash interest payment. C. decreases each period as the bonds move towards maturity. D. remains the same over the term of the bonds.

The correct answer is: increases each period as the bonds move towards maturity.

If bonds have been issued at a discount, the ________ over the life of the bonds. Select one: A. carrying value of the bonds will decrease B. interest expense will decrease C. interest payment will increase D. interest expense will increase

The correct answer is: interest expense will increase

Lisle Corporation issued $200,000 of 10% bonds on January 1, 2014. The bonds pay interest semiannually on January 1 and July 1. The company has a fiscal year end of May 31. On May 31, 2014, the Lisle Corporation will: Select one: A. make a journal entry to accrue interest expense from January 1 through May 31. B. make a journal entry to record cash interest paid on May 31. C. make a journal entry to accrue interest expense from July 1 through December 31. D. make a journal entry to accrue interest expense from January 1 through July 1

The correct answer is: make a journal entry to accrue interest expense from January 1 through May 31.