ch 10 accounting
a contractual agreement allowing one party (the lessee) to use the asset of another party (the lessor) accounted for as a rental
Operating leases
The difference btwn the selling price and the face value of a bond is sold for more than its face value
Premium
what do people use mortgage notes payable for
Purchasing homes, acquiring plant assets
How to compute ammortization amount with effective interest method
bond interest expense/ bond interest paid
a form of interest bearing notes payable issued by corporations, universities, and governmental entities
bonds
The value today of an amount to be received at some date in the future after taking into account current interest rates
the present value
what does liquidity rartios measure
the short term ability of a company to pay its maturing obligations and to meet unexpected needs for cash
debt to assets ratio equation
total liabilities/ total assets
Semiannual interest payments on bonds are equal to the face value times the stated rate times 6/12. true or false
true
The market rate is the rate investors demand for loaning funds. true or false
true
The present value of a bond is the value at which it should sell in the market. true or false
true
On January 1, Anthony Corporation issued $1,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $1,072,096. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, how much is the debit entry to Bond Interest Expense? $125,581 $128,652 $140,000 $120,000
$128,652 Bond interest expense for the first interest date = $1,072,096 × 12% = $128,652.
rate established when bonds are issued that maintains a constant balue for interest expene as a percentage of bond carrying value in each interest period
Effective interest rate
When company recognizes revenue, ------------- unearned revenue account and-------- a revenue account
(1) decreases (debits) unearned revenue account (2) increases (credits) revenue account
When the company receives an advance, it------------ cash and ---------- current liabilities identifying the source of the unearned revenue
(1) increases (debit) cash (2) increases (credit) current liabilities account
How to determine sales tax amount when companies do not enter sales taxes seperately on cash register
(1) subtract sales from total receipts (2) Multiply sales by sales tax rate
Ivanhoe Company issues $265,000, 20-year, 10% bonds at 103. Prepare the journal entry to record the sale of these bonds on June 1, 2017
(Dr.) Cash 272950 (26500 x 103%) (Cr.) premium on bonds payable 7950 bonds payable 265000
Bramble University sells 6,500 season basketball tickets at $55 each for the entire 13-game home schedule. Give the entry to record the revenue recognized after playing the first home game.
(Dr.) Unearned ticket revenue 27500 (Cr.) ticket revenue 27500 (6500 x 55 = 357500; 357500/ 13= 27500)
Riverbed Corp issued $512,000 of 11-year bonds at a discount. Prior to maturity, when the carrying value of the bonds was $496,640, the company redeemed the bonds at 98.
(Dr.) bonds payable 512000 loss on bond redemption (501760-496640) (Cr.) cash 501760 (512000 x 98%) discounts on bonds payable 15360
Kingbird, Inc. issues $250,000, 10-year, 6% bonds at 96. Prepare the journal entry to record the sale of these bonds on March 1, 2017.
(Dr.) cash 240000 (250,000 x 96%) discount on bonds payable 10000 (250000-240000) (Cr.) bonds payable 250000 (selling price)
Bramble University sells 6,500 season basketball tickets at $55 each for the entire 13-game home schedule. Give the entry to record the sale of the season tickets
(Dr.) cash 357500 (Cr.) unearned ticket revenue 357300 (6500 x 55 =357500)
Greenspan Supply does not segregate sales and sales taxes at the time of sale. The register total for March 16 is $8,400. All sales are subject to a 5% sales tax.
(Dr.) cash 8400 (Cr.) sales revenue 8000 (8400/1.05) sales taxes payable 400
Sandhill Co. borrows $98,400 on July 1 from the bank by signing a $98,400, 10%, 1-year note payable. Prepare the journal entry to record the proceeds of the note.
(Dr.) cash 98400 (Cr.) Notes payable 98400
Sandhill Co. borrows $98,400 on July 1 from the bank by signing a $98,400, 10%, 1-year note payable. Prepare the journal entry to record the accrued interest at December 31, assuming adjusting entries are made only at the end of the year
(Dr.) interest expense 4920 (Cr.) interest payable 4920 (98400 x 10% x 6/12 = 4920)
formula to find times interest earned
(net income+ interest expense+income tax expense)/ Interest expense
If $41,790 is collected in advance on November 1 for 7-month magazine subscriptions, what amount of subscription revenue should be recognized on December 31?
11940 (41970 x 2/7)
The cash register total including sales taxes is $41,790, and the sales tax rate is 5%. What is the sales taxes payable?
1990 (1 + .05 (5%)) (41790/ 1.05 =39800; 41790-39800)
If cash is borrowed on a $66,000, 11-month, 10% note on August 1, how much interest expense would be incurred by December 31?
2750 (66000 x 10% x 5/12) (5 months)
Buttner Company borrows $88,500 on September 1, 2017, from Harrington State Bank by signing an $88,500, 12%, one-year note. How much is accrued interest at December 31, 2017? $4,425 $10,620 $3,540 $2,655
3540 Interest is calculated by multiplying the principal times the annual interest rate times the time period the note is outstanding. At December 31, four months of interest should be accrued: $88,500 × 12% × 4/12 = $3,540.
Kant Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $103,745. Which of the following is part of the entry to record the bond redemption? A credit of $1,255 to Gain on Bond Redemption A debit of $5,000 to Premium on Bonds Payable A credit of $3,745 to Loss on Bond Redemption A debit of $3,745 to Premium on Bonds Payable
A debit of $3,745 to Premium on Bonds Payable he entry to record this transaction will have debits to Bonds Payable for $100,000, Premium on Bonds Payable for $3,745 and Loss on Retirement for $1,255. The credit will be to cash for $105,000.
A legal document that indicates the name of the issuer, the face value of the bonds, and other data such as contractual interest rate and the maturity dat of the bonds
Bond certificate
equation to calculate bond discount amortization
Bond discount/ number of interest periods
How to calculate bond premium amortization
Bond premium/ number of interest periods
who is the person who buys bonds
Bondholder
whats considered long term liabilities
Bonds and long term notes
How is the market value of a bond issuance determined? By computing the present value of the principal. By adding the face value of the principal amount to the stated value of the interest payments. By adding the present value of the principal amount to the present value of the interest payments. By computing the present value of the interest payments.
By adding the present value of the principal amount to the present value of the interest payments.
Bonds that the issuing company can redeem (buy back) at a started dollar amount prior to maturity
Callable bonds
Rate used to determine the amount of interest the borrower pays and the investor receives
Contractual (stated) interest rate
bonds that can be converted into common stock at the bondholder's option
Convertible bonds
how do you measure liquidity (current ratio)
Current assets/current liabilities
A debt that a company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilites and (2) within one year or the operating cycle, whichever is longer
Current liability
the difference btwn face value of a bond and its selling price when a bond is sold for less than its face value
Discount ( on a bond)
How do you determine amount of sales when companies do not enter sales taxes seperately on cash register
Divide total receipts by 100% plus the sales tax percentage
superior university sells 10,000 season football tickets for $50 each for 5 games home schedule, Journal entry looks like
Dr. Cash 500,000 Cr. Unearned ticket revenue 500,000
As each game is completed superior records recogintion of $100,000 (500,000/ 5) of revenue, journal entry looks like
Dr. unearned ticket revenue 100,000 Cr. ticket revenue 100.000
Amount of principal due at the maturity date of the bond
Face value
how would you journalize contingencies (losing lawsuit)
Increasing (DR.) loss account increasing (Cr.) a liability (like lawsuit liability)
What is the effect of amortizing a bond discount? It decreases bond interest expense. There is no effect on the bond interest expense. It decreases the maturity value of the bonds. It increases the carrying value of the bonds.
It increases the carrying value of the bonds.
The rate investors demand for loaning funds to the corporation
Market interest value
The date on which the final payment on a bond is due from the bond issuer to the investor
Maturity date
In operating leasses, does asset or liabilities show up on the books?
Neither
the intentional effort by a company to structure its financing arrangements so as to avoid showing liabilities on its balance sheet
Off balance sheet financing
bonds that have specific assets of the issuer pledged as collateral
Secured bonds
a method of amortixing bond discount of bond premium that allocates the smae amount to interest expense in each interest period
Straight line method of amortization
a measure of a companys solvency, calculated by dividing the sum of net income, interest expense and income tax expense by interest expense
TImes interest earned
The relationship between time and money. A dollar received today is worth more than a dollar promised at some time in the future
Time value of money
The Jacksonville Jaguars sell season tickets to NFL football games. There are 10 home games during the season, which runs from August through December. During February, 65,000 season tickets were sold for $12,000,000 cash. Which account will be credited by the Jacksonville Jaguars upon receipt of the $12,000,000? Prepaid Tickets Unearned Ticket Revenue Tickets Receivable Ticket Revenue
Unearned Ticket Revenue
Bonds issued against the general credit of the borrower
Unsecured bonds
when do bonds sell at face value?
WHen contactual interst rate and the market interest rate are the same
For capital leases, does liabilities or assets increase?
both
indicate whether it should be classified as a current liability, noncurrent liability, or both. b) A 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments.
both
A contractual agreement allowing one party (the lessee) to use the assets of another party ( the lessor) accounted for like a debt financed purchase by the lessee
captial leases
how to compute the bond interest expense
carrying value of bonds at the beginningof interest period x effective interest rate
events with uncertain outcomes that may represent potential liabilities
contingencies
indicate whether it should be classified as a current liability, noncurrent liability, or both. (c) Interest payable of $15,000 on the mortgage.
current liability
indicate whether it should be classified as a current liability, noncurrent liability, or both. (d) Accounts payable of $60,000.
current liability
Qhat does sovency ratios measure
the ability of a company to survive over a long period of time
a method of amortizing bond discount or bond premium that results in periodic interest expense equal to a constant percentage of the carrying value of the bonds
effective interest method of amortization
How to compute bond interest paid
face value of bonds x contractual interest rate
Convertible bonds are also known as callable bonds. true or false
false
If the contractual rate of interest is lower than the market rate of interest, bonds will sell at a premium. True False
false
obligations that a company expects to pay more than one year in the future
long term liabiliities
The time period for classifying a liability as current is one year or the operating cycle, whichever is probable. shorter. possible. longer.
longer
A long term note secured by a mortgage that pedges title to specific assets as security for the loan
mortgage note payable
Which one of the following is not a typical current liability? Mortgages payable Current maturities of long-term debt Salaries payable Interest payable
mortgages payable
indicate whether it should be classified as a current liability, noncurrent liability, or both. (a) A note payable for $100,000 due in 2 years.
noncurrent liabilities
An obligatin in the form of a written note
notes payable
What are considered current liabilities
notes payable, accounts payable, unearned revenues, accured liabilities (taxes, salaries and wages, and interest)
how do you determine carrying value
subtracting balance of discounts account from balance of bonds payable account
