Accy 2036 Ch. 10 learnsmart

After a company has issued its bonds, the daily fluctuations of market rates of interest ________

Are not considered transactions and thus not recorded in the company's accounting records

Term

Bond issue that matures on a single date

The entry to record the issuance of bonds at face value includes a debit to Cash and a credit to __________ ___________

Bonds Payable

Convertible bonds

Bonds that can be exchanged for shared of stock in the issuing company

Serial bonds

Bonds that mature in installments

_______ Liabilities are potential liabilities that arise as a result of past transactions or events and are reported on the balance sheet if the loss will probably occur and can be reasonable estimated

Contingent

________ _______ on a classified balance sheet report the obligations that will be paid or met within the company's operating cycle or within 1 year, whichever is longer

Current Liabilities

A(n) _________ note requires the borrower to pay equal payments over the note's life to maturity with each payment consisting of interest and principal

installment

On the maturity date, the bondholders of $100,000 of bonds that were issued at a $90,000 will receive _______

$100,00 in cash plus the interest owed

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10. What is John's net pay?

$486.10

Payroll deductions __________

Decrease the amount of cash an employee receives Are amounts subtracted from employees' gross earnings to determine their net pay

Which of these payroll taxes are paid only by the employer?

FUTA SUTA

What does the IRS call a corporate income tax return?

Form 1120

Under US GAAP, contingent liabilities are recorded if the estimated loss is probable. Under IFRS, contingent liabilities are recorded if the estimated loss is "more likely than not." Which framework will report more contingent liabilities on the balance sheet?

IFRS

If an adjusting entry is required for interest owed, then the ____ will report _____

Income statement; Interest Expense Balance Sheet; Notes Payable Balance Sheet; Interest Payable

The times interest earned ratio equals Net Income plus Interest Expense and Income Tax Expense, divided by ___________

Interest Expense

Assets are financed with _____ and stockholder's equity

Liabilities

XYZ Warehouse operates in a state with 6% sales tax. For convenience, XYZ Warehouse credits Sales Revenue for the total amount (selling price plus sales tax) collected from each customer. What will be the effect if XYZ Warehouse fails to make an adjustment for sales tax?

Liabilities will be understated Net income will be overstated

What factors are needed to determine the amount of installment payments?

Original principal Number of years frequency of payments interest rate

True or False: Companies issue bonds at a discount when the bond's stated interest rate is lower than the market interest rate

True Bonds issue at a discount when the stated interest rate is lower than the market interest rate

True or False: Under US GAAP, contingent liabilities are recorded if the estimated loss is probable. Under IFRS, contingent liabilities are recorded if the estimated loss is "more likely than not"

True IFRS threshold for recording contingent liabilities is lower than that of GAAP

If ABC Company issues 100 of its $1,000 bonds at a price of 105.00, i.e., 105% the journal entry to record the transaction includes ________

a credit to Premium on Bonds Payable of $5,000 a credit to Bonds Payable of $100,000 a debit to Cash of $105,000

The debt-to-asset ratio indicates __________

a higher ratio means greater financing risk the percentage of assets financed by debt

on October 1, 2019 an installment note was issued with annual payments due on September 30. given a year-end of December 31, 2020, the adjusting entry to accrued interest owed will be _____

a lesser amount than the previous year's

A $1,000 bond was issued at 107.26. The 107.26 is _______

a percent and means that bond was sold for $1,072.60

The debt-to-asset ratio is calculated by dividing total liabilities by total ___________

assets

Under US GAAP, if a company violates loan covenants on long-term debt but renegotiates the loan before releasing its financial statements, the debt remains classified as long-term. UnderIFRS, the company must reclassify that long-term debt as a(n) ___________ liability

current

The law requires _________ to pay FICA taxes

both employee and employer

The entry to record the payment of 6-months of interest on a note in which 2 months of interest was recorded as an adjusting entry in the prior accounting period includes _______

credit Cash for 6 month's of interest debit Interest Payable for 2 months of interest debit Interest Expense for 4 months of interest

When are installment notes payable commonly used?

credit card loans home mortgages student loans

For investors, the ________ provide independent, easy-to-use measurements of relative credit risk

credit rating agencies

The entry to record the early retirement of bonds when the cash paid is less than the bonds' carrying value will include a __________

credit to a Gain on Early Retirement

On the maturity date, the journal entry to record the payment of $1,000,000 of bonds payable that were issued at a $70,000 discount includes a ________

debit to Bonds Payable of $1,000,000 credit to Cash of $1,000,000

On November 1, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31 of the following year. The journal entry on November 1, would include which of the following?

debit to Cash $100,000 credit to Note Payable $100,000

If ABC Company issued its $5,000,000, 8% bonds payable at a discount and uses the straight-line method of amortization, then the ___________

debit to Cash is less than the credit to Bonds Payable credit to Discount on Bonds Payable will be the same each payment market rte of interest must be greater than the stated rate of interest

The entry to record the issuance of 100, $1,000 bonds for 98.000 includes a __________

debit to Discount on Bonds Payable for $2,000 debit to cash for $98,000 credit to Bonds Payable for $100,000

When a bond is sold at a premium and is amortized using the effective-interest method, each subsequent interest payment will result in a ________ compared to the prior payment

debit to Premium on Bonds Payable for a greater amount debit to Interest Expense for a smaller amount credit to Cash for the same amount lower carrying value

ABC purchased $500 of merchandise on account. ABC's journal entry to record this transaction includes a ______

debit to inventory of $500 credit to accounts payable of $500

A bond that was issued at a premium will include a _________

debit to the Premium on Bonds Payable each interest payment

6% stated interest rate and 8% market interest rate

discount - investors will pay less than face value

The straight-line method of amortization ______________

distorts the financial results somewhat because it produces an equal Interest Expense each period despite a change in the bond's carrying value evenly allocates the amount of bond premium or discount over each period of a bond's life

Which method of bond amortization amortizes the premiums/discounts accurately and is considered a conceptually superior method?

effective-interest

When recording the adjusting entry to accrue the interest owed on a bond that was issued at face value, the debit to Interest Expense will be ________

equal to the credit to Interest Payable

Accruing a liability involves recording both a(n) _____ and a liability

expense

Whether a bond is issued at par, premium or discount, when the bond matures the amount paid equals the ___________ value

face

If a $1,000 bond is issued at 100.00, then the bond sold at __________

face value

Using the effective-interest method on a bond issued at a discount, the entry to record each interest payment will include a debit to Interest Expense that is _______ the credit to Cash

greater than

A bond that was issued at a discount will have a carrying value that _______ with each interest payment

increases

If a company issues its bonds at a discount and uses the straight-line method of amortization, then the carrying value of the bond will _____ with each interest payment

increases by the same amount

Bonds are financial ___________ that outline the future payments a company promises to make in exchange for receiving a sum of money now

instruments

An amortization schedule for a $10,000 installment note with a 6% interest fully repaid in a 4 annual installments of $2,886 will include the following amounts for the 1st installment payment.

interest expense of $600 ending note payable of $7,714 repaid principal on note payable of $2,286

The stated rate is the rate used to determine the _____

interest payment

6% stated interest rate and 6% market interest rate

investors will pay face value

A bond's issue price is the amount of money that a lender pays (and the company receives) when a bond is _________

issued

Current portion of Long-Term Debt reports the amount of _______ and is reported on the _______

long-term debt that is reclassified because it is due within a year balance sheet

When the times interest earned ratio is less than 1.0, a company is __________

not generating enough income to cover its interest expense

Bond Carrying value equals Bonds Payable _________

plus Premium on Bonds Payable minus Discount on Bonds Payable

6% stated interest rate and 4% market interest rate

premium - investors will pay more than face value

Each installment payment on an installment note consists of interest and _____________

principal

A bond that was issued at face value will have a carrying value that _______ with each interest payment

remains the same

An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) _________ account

revenue

Face Value

stated rate equals the market rate of interest

Premium

stated rate is greater than the market rate of interest

Discount

stated rate is less than the market rate of interest

When using the straight-line method of bond amortization, Interest Expense ________ each payment

stays the same

Callable bonds

the issuing company can pay off the bonds at any time

Bond Amortization

the process that causes the balance in Premium on Bonds Payable to decline each period

On November 1, Deli Llama, Inc. issued 2 notes payable at 12% per year for $10,000 each. One is a 3-month note and the other is a 2-year note. The amount of interest owed at December 31 will be _______

the same amount for both notes

Debentures

unsecured bonds

The debt-to-assets ratio best answers which financial question?

what is the percentage of assets financed by debt?

Long-term liabilities are accounted for in the same way as short-term liabilities, except that long-term liabilities are on the books for more than one ______

year