Ch 13 ACG 3113
Best-efforts underwriting means that the investment bank guarantees the proceeds of the bond issue will be a certain amount. A. True B. False
False Firm underwriting means that the investment bank guarantees the proceeds of the bond issue will be a certain amount.
Ultra-energy Company offers a cash rebate of $2 on each $9 package of protein powder sold during 2014. Historically, 20% of customers mail in the rebate form. During 2014, 3,000,000 packages are sold, and 250,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the company's 2014 financial statements? A. $500,000; $700,000 B. $1,200,000; $700,000 C. $1,200,000; $500,000 D. $500,000; $1,200,000
$1,200,000; $700,000 The expense is (3,000,000 packages X 20% X $2/ package) = $1,200,000. Since 250,000 $2 rebates were mailed in during 2014, the liability balance is ($1,200,000 - $500,000) $700,000.
In 2013, General Dynamics Corporation began selling a new line of products that carries a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows: First year of warranty 2% Second year of warranty 5% Sales and actual warranty expenditures for 2009 and 2010 are presented below: 2013 Sales $600,000 Actual warranty expenditures $20,000 2014 Sales $800,000 Actual warranty expenditures $40,000 What is the estimated warranty liability at the end of 2014?
$38,000. { [$600,000 X (2% + 5%)] + [$800,000 X (2% + 5%)]} - ($20,000 + $40,000)= $38,000.
Ferrone Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Ferrone uses effective-interest amortization. What amount of interest expense will Ferrone record for the June 30 payment? A. $390,000 B. $392,082 C. $400,000 D. $784,164
$392,082 Interest expense for the first six months is ($9,802,072X .04) =$392,082.
On June 30, 2014, Baker Co. had outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2024. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $210,000 and $60,000, respectively. On June 30, 2014, Baker acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt? A. $5,940,000. B. $5,790,000. C. $5,730,000. D. $5,640,000.
$5,730,000. The bonds' net carrying amount used to calculate the gain or loss on extinguishment is ($6,000,000 - $210,000 - $60,000) = $5,730,000.
What kind of account is Discounts on notes payable?
A contra account; meaning that this account will have the opposite normal balance, and therefore subtract from notes payable.
Gain contingencies include all of the following except A. possible receipts of donations and bonuses. B. pending court cases where the probable outcome is favorable. C. tax loss carryforwards. D. All of the options are gain contingencies.
All of the options are gain contingencies.
When a note is exchanged for property in a bargained transaction, the stated interest rate is presumed to be fair unless: A. no interest rate is stated. B. the stated interest rate is unreasonable. C. the stated face amount of the note is materially different from the current cash sales price for similar items. D. All of these answer choices are correct.
All of these answer choices are correct. All of the options would challenge the presumption that the stated interest rate is fair.
When part of along term debt is to be paid within the next 12 months, How do we report the maturing portion of the long term debt.
As a current liability, and the remaining portion as a long term debt.
If a liability is due on demand how should a company classify the liability
As current
asset retirement obligation
Bonds Payable Discount on NP Loss on Redemption Cash
Which of the following is not an example of "off-balance-sheet financing"? A. Non-consolidated subsidiary. B. Special purpose entity. C. Operating leases. D. Capital leases.
Capital leases. Capital leases are not an example of "off-balance-sheet financing."
Selling a product that has a warranty sold separately
Cash Sales Revenue Unearned warrant revenue
Interest Bearing Note Journal Entry
Cash Notes Payable
Sales Tax Payable Entry
Cash Sales Revenue Sales Tax Payable
Unearned Revenues JE
Cash Unearned Sales Revenue
recording a issuance of a Zero Interest bearing note
Cash Discount on Notes Payable Notes Payable The notes payable is credited for the face value of the note . which is more than the amount received. It debits the difference between the cash received and the face value if the notes discount payable.
JE to record redemption
Cash Premium Expense Inventory of Premiums
Accumulated Rights
Compensation rights that employees can carry forward to future periods if not used in the period in which earned.
Vested Rights
Compensation rights that exist when an employer has an obligation to make payment to an employee even after terminating his or her employment. Vested rights are not contingent on an employee's future service.
Which of the following is included in employer payroll taxes? A. F.I.C.A. taxes. B. Federal unemployment taxes. C. State unemployment taxes. D. All of these answers are correct.
D. All of these answers are correct. The employer is responsible for paying a matching payment for F.I.C.A. taxes and for the unemployment taxes.
Zero Interest bearing note
Does not explicitly state the an interest rate on the face of the note. Interest is still charged however. In other words the borrower recieves in cash the present value of the note. The present value equals the face value of the at maturity minus the interest or discount charged by the lender for the term of the note. In essence the bank takes its fee upfront. rather the date the note matures.
True or false if an actual refinance occurs, the portion of the short term obligation to be excluded from current liabilities may exceed the proceeds of the new obligations or equity securities used to retire the short term obligation
False
Go over question 7 addtl 14
Go over question 7 addtl 14
All of the following statements are true regarding IFRS treatment of reporting and recognition of liabilities except: A. IFRS allows the recognition of liabilities for future losses. B. IFRS requires that companies present current and noncurrent liabilities on the face of the balance sheet, with current liabilities generally presented in order of liquidity. C. For contingencies, IFRS requires insurance recoveries be "virtually certain" before recognition of an asset is permitted. D. The recognition criteria for asset retirement obligations is less stringent under IFRS than it is under U.S. GAAP.
IFRS allows the recognition of liabilities for future losses. Both U.S.GAAP and IFRS prohibit the recognition of liabilities for future losses.
Interest Bearing Note adjusting Interest Bearing Note Journal entry for Interest expense
Interest Expense Interest Payable
Which of the following is not an example of a current liability? A. Dividends Payable. B. Preferred dividends in arrears. C. Unearned Service Revenue. D. Salaries Payable.
Preferred dividends in arrears. Preferred dividends in arrears are not a liability until declared by the Board of Directors.
Adjusting JE to record estimated liability outstanding
Premium Expense Premium Liability
Which of the following statements is false? A. When rights are vested, an employer has an obligation to make payment to an employee. B. Unemployment taxes are paid by the employer. C. Profit-Sharing Bonus Payable is usually reported as a long-term liability. D. The liability for compensated absences should be recognized in the year earned.
Profit-Sharing Bonus Payable is usually reported as a long-term liability.
Salaries and Wages accrued JE
Salaries and Wages Expense Salaries and wages Payable
Gains and losses on early extinguishment of debt are reported as other gains and losses on the income statement. A. True B. False
True FASB Statement No. 145 changed the reporting of gains and losses on early extinguishment of debt from extraordinary item treatment to other gains and losses on the income statement.
The entry to record the collection of sales tax by a retailer may include credits to both Sales Revenue and Sales Tax Payable. A. True B. False
True A company may credit the entire amount to Sales Revenue or may segregate the tax and credit both Sales Revenue and Sales Tax Payable.
Gain contingencies are not recorded. A. True B. False
True Gain contingencies are disclosed in the notes only when there is a high probability that a material gain will become a reality.
The acid-test ratio excludes inventory from the calculation. A. True B. False
True The acid-test ratio is a more stringent measure of the current ratio and includes in the numerator only the most highly liquid current assets.
JE as obligations of Unearned Service Revenues are met
Unearned Sales Revenue Sales Revenue
JE for Warranty cost incurred
Warranty Expense Cash, Inventory, Accrued Payroll
trade notes payable
Written promises to pay a certain sum of money on a specified future date, required in some industries as part of the sales/purchases transaction in lieu of the normal extension of open account credit.
On January 1, 2014, Trinity Company loaned $901,560 to Litton Industries in exchange for a 3 year, zero-interest-bearing note with a face amount, $1,200,000. The prevailing rate of interest for a loan of this type is 10%. The adjusting journal entry made by Litton at December 31, 2014 with regard to the note will include A. a credit to Discount on Notes Payable for $90,160. B. a debit to Interest Expense for $120,000. C. a credit to Interest Payable for $60,000. D. a debit to Interest Expense for $29,850.
a credit to Discount on Notes Payable for $90,160. The adjusting entry made at December 31, 2014 debits Interest Expense and credits Discount on Notes Payable for ($901,560 X .10) = $90,160.
Black Water Inc. is being sued by former employees as a result of negligence on the company's part. Black Water's lawyers state that it is probable that the company will lose the suit and be found liable for a judgment costing the company anywhere from $100,000,000 to $200,000,000. However, the lawyer states that the most probable cost is $125,000,000. As a result of the above facts, Black Water should accrue A. a loss contingency of $100,000,000 and disclose an additional contingency of up to $100,000,000. B. a loss contingency of $125,000,000 and disclose an additional contingency of up to $75,000,000. C. a loss contingency of $125,000,000 but not disclose any additional contingency. D. no loss contingency but disclose a contingency of $100,000,000 to $200,000,000.
a loss contingency of $125,000,000 and disclose an additional contingency of up to $75,000,000. Because a loss of $125,000,000 is more likely than any other amount in the range, Black Water should accrue $125,000,000 and disclose the potential additional loss of $75,000,000.
A liability for compensated absences is A. accrued under all conditions. B. disclosed in a note only. C. accrued only if specific conditions are met. D. never accrued but may be disclosed if desired.
accrued only if specific conditions are met.
Accrued liabilities are disclosed in the financial statements by A. a footnote to the statements. B. showing the amount among the liabilities but not extending it to the liability total. C. an appropriation of retained earnings. D. appropriately classifying them as regular liabilities in the balance sheet.
appropriately classifying them as regular liabilities in the balance sheet. Accrued liabilities are disclosed in the financial statements by appropriately classifying them as regular liabilities in the balance sheet.
trade accounts payabel
are balances owed to others for goods, supplies or services purchased on open account.
The printing costs and legal fees associated with the issuance of bonds should A. be expensed when incurred. B. be reported as a deduction from the face amount of bonds payable. C. be accumulated in a deferred charge account and amortized over the life of the bonds. D. not be reported as an expense until the period the bonds mature or are retired.
be accumulated in a deferred charge account and amortized over the life of the bonds. The printing costs and legal fees associated with the issuance of bonds should be accumulated in a deferred charge account and amortized over the life of the bonds.
The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the A. bond indenture. B. bond debenture. C. registered bond. D. bond coupon.
bond indenture. The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the bond indenture.
A bond for which the issuer has the right to call and retire the bonds prior to maturity is a A. convertible bond. B. callable bond. C. retirable bond. D. debenture bond.
callable bond.
When a business enterprise enters into what is referred to as off-balance-sheet financing, the company A. is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. B. wishes to confine all information related to the debt to the income statement and the statement of cash flow. C. can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. D. is in violation of generally accepted accounting principles.
can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. When a business enterprise enters into what is referred to as off-balance-sheet financing, the company can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.
The interest rate written in the terms of the bond indenture is known as the A. effective rate. B. market rate. C. yield rate. D. coupon rate, nominal rate, or stated rate.
coupon rate, nominal rate, or stated rate.
Federal income taxes withheld by the employer on behalf of the employee are recorded as A. current liabilities. B. expenses. C. unearned revenues. D. receivables.
current liabilities. The taxes are reported as liabilities because the employer is acting as the collection agent for the government.
If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will A. exceed what it would have been had the effective-interest method of amortization been used. B. be less than what it would have been had the effective-interest method of amortization been used. C. be the same as what it would have been had the effective-interest method of amortization been used. D. be less than the stated (nominal) rate of interest.
exceed what it would have been had the effective-interest method of amortization been used. If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will exceed what it would have been had the effective-interest method of amortization been used.
If a bond sold at 97, the market rate was: A. equal to the stated rate. B. less than the stated rate. C. greater than the stated rate. D. equal to the coupon rate.
greater than the stated rate. If a bond was sold at 97, it sold at a discount (97% of face value), which occurs when the market rate is greater than the stated rate.
The numerator in the times interest earned ratio is: A. net income. B. income before interest and taxes. C. income before interest. D. income before taxes.
income before interest and taxes. The times interest earned ratio is equal to income before interest and taxes divided by interest expense.
Bonds which do not pay interest unless the issuing company is profitable are called A. income bonds. B. term bonds. C. debenture bonds. D. secured bonds.
income bonds. Income bonds are bonds which do not pay interest unless the issuing company is profitable.
The presentation of current and noncurrent liabilities in the statement of financial position: A. is shown only on GAAP financial statements. B. includes contingent liabilities under IFRS. C. is always shown with current liabilities reported first in an IFRS statement of financial position. D. is shown on both a GAAP and an IFRS statement of financial position.
is shown on both a GAAP and an IFRS statement of financial position. The presentation of current and noncurrent liabilities in the statement of financial position (balance sheet) is shown on both a GAAP and an IFRS statement of financial position.
Under the effective interest method, interest expense: A. always increases each period the bonds are outstanding. B. always decreases each period the bonds are outstanding. C. is the same annual amount as straight-line interest expense. D. is the same total amount as straight-line interest expense over the term of the bonds.
is the same total amount as straight-line interest expense over the term of the bonds. Interest expense is the same total amount over the term of the bonds in both the effective interest and straight-line methods.
A loss related to general or unspecified business risks is A. always accrued. B. not accrued. C. sometimes accrued. D. usually accrued.
not accrued A loss related to general or unspecified business risks is not accrued.
Under IFRS, bond issuance costs, including the printing costs and legal fees associated with the issuance, should be: A. accumulated in a deferred charge account and amortized over the life of the bonds. B. reported as an expense in the period the bonds mature or are redeemed. C. expensed in the period when the debt is issued. D. recorded as a reduction in the carrying value of bonds payable.
recorded as a reduction in the carrying value of bonds payable. Under IFRS, bond issuance costs should be recorded as a reduction in the carrying value of bonds payable.
A bond issued in the name of the owner is a: A. bearer bond. B. convertible bond. C. income bond. D. registered bond.
registered bond.
A bond that matures in installments is called a: A. term bond. B. serial bond. C. callable bond. D. bearer bond.
serial bond. Bonds that mature in installments are referred to as serial bonds.
On December 31, 2013, SoBou Co. has $5,000,000 of short-term notes payable due on February 14, 2014. On January 10, 2014, SoBou arranged a line of credit with Suntrust Bank which allows SoBou to borrow up to $3,500,000 at one percent above the prime rate for three years. On February 3, 2014,SoBou borrowed $3,500,000 from Suntrust and used $500,000 additional cash to liquidate $4,000,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as a current liability on the December 31, 2013 balance sheet which is issued on March 2, 2014 is A. $0. B. $500,000. C. $1,000,000. D. $1,500,000.
$1,500,000. The correct amount is ($5,000,000 - $4,000,000)+ $500,000 = $1,500,000.
Pontchartrain Company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. The company uses effective-interest amortization. Interest expense reported on the 2014 income statement will total A. $1,529,115 B. $1,560,000 C. $1,568,498 D. $1,600,000
$1,568,498 Interest expense for the first 6 month period is ($19,604,145 X.04) =$784,166. The new carrying value for the bonds is [$19,604,145 + ($784,166 - $780,000)] = $19,608,311. Interest expense for the second six months is ($19,608,311 X .04) = $784,332. Total interest expense for 2014 is ($784,166 + $784,332) = $1,568,498.
Fancy Fish Company offers a cash rebate of $.25 on each $12 package of fish food sold during 2014. Historically, 10% of customers mail in the rebate form. During 2014, 5,000,000 packages are sold, and 150,000 $.25 rebates are mailed to customers. What is the rebate expense and liability, respectively, reported in the company's 2014 financial statements? A. $125,000; $37,500 B. $37,500; $87,500 C. $125,000; $125,000 D. $125,000; $87,500
$125,000; $87,500 The expense is 5,000,000 packages X 10% X $.25 per package or $125,000. Since 150,000 $.25 rebates were mailed in during 2014, the liability balance is ($125,000 - $37,500) $87,500
On January 1, 2014, Kimbrough Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Kimbrough uses the effective-interest method of amortizing bond discount. At December 31, 2014, Kimbrough should report unamortized bond discount of A. $274,500. B. $285,500. C. $258,050. D. $255,000.
$285,500. The discount on bonds payable is recorded at ($5,000,000 - $4,695,000) = $305,000 at issuance. The amortization of discount in 2014 is [$450,000 -($4,695,000 X .10)] =$19,500 leaving a balance of $305,000 - $19,500 = $285,500.
On June 30, 2014, Prouty Co. had outstanding 9%, $5,000,000 face amount, 10-year bonds that pay interest semi-annually on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $200,000 and $50,000, respectively. On June 30, 2014, Prouty acquired all of these bonds at 101 and retired them. What amount of gain or loss would Prouty record on this early extinguishment of debt? A. $505,000 gain. B. $300,000 loss. C. $200,000 gain. D. $250,000 loss.
$300,000 loss. The bonds' net carrying amount is ($5,000,000 - $200,000 - $50,000) = $4,750,000. The loss on extinguishment is ($5,000,000 X 1.01) - $4,750,000 = $300,000.
Which of the following factors need not be considered in determining whether a liability should be recorded with respect to pending or threatened litigation? A. The time period in which the cause of action occurred. B. The probability of an unfavorable outcome. C. The ability to make a reasonable estimate of the loss. D. All of the options must be considered.
All of the options must be considered. All of the options are factors that must be considered in determining whether a liability should be recorded.
Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? A. Amount of loss is reasonably estimable and event occurs infrequently. B. Amount of loss is reasonably estimable and occurrence of event is probable. C. Event is unusual in nature and occurrence of event is probable. D. Event is unusual in nature and event occurs infrequently.
Event is unusual in nature and occurrence of event is probable. Loss contingencies are accrued with the amount of the loss is reasonably estimable and the occurrence of the event is probable.
If a company elects the fair value option for its long-term liabilities, a decrease in the fair value of a bond payable will result in an unrealized holding loss. A. True B. False
False When the fair value of a bond decreases, the cost to settle the debt at that point has decreased, resulting in an unrealized holding gain to the issuing company.
Bellingham Inc. sold bonds with a face value of $100,000,000 and a stated interest rate of 8% for $922,780,000, to yield 10%. If the company uses the effective interest method of amortization, interest expense for the first six months would be $4,000,000. A. True B. False
False Using the effective interest method of amortization, interest expense for the first six months would be $4,614,000 (10% X .5 X $922,780,000).
The loss recorded by the creditor in a troubled debt restructuring is based on the expected future cash flows discounted at the current effective interest rate. A. True B. False
False The loss recorded by the creditor in a troubled debt restructuring is based on the expected future cash flows discounted at the historical effective interest rate.
Bonds that are not recorded in the name of the bondholder are called unsecured bonds. A. True B. False
False Bonds not recorded in the name of the bondholder are called coupon bonds.
When the effective rate of a bond is lower than the stated rate, the bond sells at a discount. A. True B. False
False A bond sells at a premium when the stated rate is higher than the effective rate.
When assets such as buildings and equipment are transferred in a troubled debt restructuring, the creditor should record a gain or loss for the difference between the fair value and the debtor's book value. A. True B. False
False Assets transferred to a creditor in connection with a troubled debt restructuring are recorded on the books of the creditor at fair value. Any gain or loss on the transfer would be recognized by the debtor.
Boomchickapop Company elects the fair value option for a long-term note payable. In 2014, the company reported an unrealized holding gains which was reported as a component of Other Comprehensive Income. A. True B. False
False Unrealized holding gains and losses are included in net income if a company elects the fair value option.
The effective interest method calculates interest expense by multiplying the carrying value of the bonds by the stated rate of interest. A. True B. False
False The effective interest method calculates interest expense by multiplying the carrying value of the bonds by the market rate of interest.
State and federal unemployment taxes are imposed on both employers and employees. A. True B. False
False Unemployment taxes are imposed solely on the employer.
If a company intends to refinance a short-term liability on a long-term basis, the liability must be reported as current unless the company has consummated the refinancing agreement by the balance sheet date. True False
False False The debt would be reported as current unless the company has consummated the refinancing agreement by the date the financial statements are issued.
In accounting for short-term debt expected to be refinanced to long-term debt: A. GAAP uses the authorization date to determine classification of short-term debt to be refinanced. B. IFRS uses the financial statement date to determine classification of short-term debt to be refinanced. C. IFRS uses the authorization date to determine classification of short-term debt to be refinanced. D. GAAP uses the date of issue, but only for secured debt, to determine classification of short-term debt to be refinanced.
IFRS uses the financial statement date to determine classification of short-term debt to be refinanced. Under IFRS, short-term obligations expected to be refinanced can be classified as noncurrent if the refinancing is completed by the financial statement date. GAAP uses the date the financial statements are issued.
The discount on notes payable represents?
Interest expense char gable to future periods. Thus a company should not debit interest expense at the time of obtaining a Zero Interest bearing note.
JE for purchase of premium items for ongoing offer if something is bought for the promotion (ex cost of baking pans)
Inventory of Premiums Cash
The current ratio measures A. Profitability. B. Solvency. C. Liquidity. D. All of these options are correct.
Liquidity. The current ratio is a measure of a firm's ability to meet its currently maturing debt.
Which one of the following statements relating to mortgage notes payable is not correct? A. Mortgage notes payable are the most common form of long-term notes payable. B. A mortgage note payable is a promissory note secured by a document that pledges title to property as security for the loan. C. Mortgage notes payable are payable in full at maturity or in installments. D. Mortgage notes payable are always reported as a long-term liability.
Mortgage notes payable are always reported as a long-term liability. Mortgage notes payable in installments are reported as part current liabilities and part long-term liabilities.
Which of the following is not an example of off-balance-sheet financing? A. Non-consolidated subsidiary. B. Special purpose entity. C. Non-interest bearing note. D. Operating lease.
Non-interest bearing note. All of the options except the non-interest bearing note are examples of off-balance-sheet financing.
Gain contingencies are recorded when: A. it is probable that a benefit will be received. B. the amount of the gain can be reasonably estimated. C. it is probable that a benefit will be received, and the amount of the gain can be reasonably estimated. D. None of these answers is correct.
None of these answers is correct. Gain contingencies are never recorded.
At maturity the entry to record the note and the accrued interest
Notes Payable 100 Interest Payable 2 Cash 102
Which of the following is not acceptable treatment for the presentation of current liabilities? A. Listing current liabilities in order of maturity. B. Listing current liabilities according to amount. C. Offsetting current liabilities against assets that are to be applied to their liquidation. D. Showing currently maturing long-term debt as part of current liabilities.
Offsetting current liabilities against assets that are to be applied to their liquidation. Offsetting current liabilities against assets that are to be applied to their liquidation is not proper presentation of current liabilities.
The entry to record the amount due to the taxing unit when the tax is not segregated from the sales revenue.
Sales Revenue Sales Tax Payable
If the tax is not segregated from the sales revenue what must be done?
Separate the sales revenue amount fro the tax amount by: Sales Revenue account / 1+IR= Sales amount Sales Revenue Account- Sales amount= Tax Liability
Which of the following statements is false? A. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing. B. Cash dividends should be recorded as a liability when they are declared by the board of directors. C. Unearned revenues represent advance payments for goods or services from customers. D. Stock dividends declared but not yet distributed are a reported as a liability until the stock is issued.
Stock dividends declared but not yet distributed are a reported as a liability until the stock is issued.
Which of the following is not true about the discount on short-term notes payable?
The Discount on Notes Payable account should be reported as an asset on the balance sheet. The Discount on Notes Payable account should be reported as a deduction from the note payable account, not as an asset, on the balance sheet.
A company is required to exclude a short term obligation from the current liabilities if both of the following conditions are met
The company must intend to refinance The company must demonstrate an ability to consummate the refinancing.
Operating cycle
The period of time elapsing between the acquisition of goods and services involved in the manufacturing process and the final cash realization resulting from sales and subsequent collections. Side Note: Most retail and service establishments have several operating cycles within a year; some manufacturers and capital-intensive industries have an operating cycle of considerably more than one year.
On January 1, Gasperson Inc. issued $100,000,000, 7% bonds at 102. The journal entry to record the issuance of the bonds will include A. a credit to Bonds Payable for $102,000,000. B. a credit to Premium on Bonds Payable for $2,000,000. C. a debit to Cash for $100,000,000. D. a credit to Interest Expense for $2,000,000.
a credit to Premium on Bonds Payable for $2,000,000. The entry will credit Bonds Payable for $100,000,000 and Premium on Bonds Payable for $2,000,000.
Lyric Company issued a 90-day zero-interest-bearing note with a face amount of $3,000. The present value of the note is $2,855. The journal entry to record the issuance of the note will include A. a credit to Notes Payable for $2,855. B. a debit to Interest Expense for $145. C. a debit to Cash for $2,855. D. None of these answers are correct.
a debit to Cash for $2,855. The borrower receives the present value of the note because the interest has already been deducted so the Cash account is debited for that amount.
A large anticipated insurance recovery is reported as A. an accrued amount. B. deferred revenue. C. an account receivable with additional disclosure explaining the nature of the contingency. D. a disclosure only.
a disclosure only. An anticipated insurance recovery is a gain contingency and thus is as a disclosure only.
When a bond sells at a premium, interest expense will be: A. equal to the bond interest payment. B. greater than the bond interest payment. C. less than the bond interest payment. D. None of these answer choices are correct.
less than the bond interest payment. Selling a bond at a premium results in interest expense being less than the interest payment because of the amortized premium.
The selling price of a bond is the sum of the present values of the principal and the periodic interest payments. The present values are determined by discounting using the A. stated rate. B. nominal rate. C. coupon rate. D. market rate.
market rate. The market rate is used to discount the cash flows in determining the selling price (proceeds) of a bond.
Note disclosures for long-term debt generally include all of the following except A. assets pledged as security. B. call provisions and conversion privileges. C. restrictions imposed by the creditor. D. names of specific creditors.
names of specific creditors. Note disclosures for long-term debt generally do not include the names of specific creditors.
Liabilities are
obligations arising from past transactions and payable in assets or services in the future.
Current Liabilities
obligations whose liquidation is reasonably expected to require use of existing resources properly classified as current assets or the creation of other current liabilities.
Current liabilities are defined as obligations whose liquidation is reasonably expected to A. be paid within a year. B. require use of current assets. C. require use of current assets or creation of other current liabilities. D. require the distribution of cash.
require use of current assets or creation of other current liabilities. Current liabilities are obligations whose liquidation will require use of current assets or creation of other current liabilities.
The acid-test ratio relates total current liabilities to cash A. and receivables. B. and short-term investments. C. receivables, and inventory. D. short-term investments, and receivables.
short-term investments, and receivables. The acid-test ratio is computed by dividing the sum of cash, short-term investments, and receivables by current liabilities.
Employer payroll taxes include all of the following except A. federal unemployment taxes. B. state income taxes. C. FICA taxes. D. state unemployment taxes.
state income taxes.
Franzia Co. prepares its financial statements using IFRS. The company has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be A. zero. B. the minimum of the range. C. the mid-point of the range. D. the maximum of the range.
the mid-point of the range. Under IFRS, if no amount within a range is a better estimate than any other amount, a loss contingency is accrued for the mid-point of the range.
A debt instrument with no ready market is exchanged for property whose fair market value is currently indeterminable. When such a transaction takes place A. the present value of the debt instrument must be approximated using an imputed interest rate. B. it should not be recorded on the books of either party until the fair market value of the property becomes evident. C. the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction. D. the directors of both entities involved in the transaction should negotiate a value to be assigned to the property.
the present value of the debt instrument must be approximated using an imputed interest rate. When such a transaction takes place the present value of the debt instrument must be approximated using an imputed interest rate.
Stonehenge, Inc. issued bonds with a maturity amount of $5,000,000 and a maturity eight years from date of issue. If the bonds were issued at a premium, this indicates that A. the market rate of interest exceeded the stated rate. B. the stated rate of interest exceeded the market rate. C. the market and stated rates coincided. D. no necessary relationship exists between the two rates.
the stated rate of interest exceeded the market rate. Bonds will sell at a premium when the market rate is lower than the stated rate.
Short-term obligations expected to be refinanced are not classified as current liabilities because: A. they will be paid by the balance sheet date. B. the obligations will be satisfied before the financial statements are issued. C. their satisfaction will not require the use of assets classified as current as of the balance sheet date. D. None of these answers are correct.
their satisfaction will not require the use of assets classified as current as of the balance sheet date. Because these obligations will not require the use of working capital during the next year (or operating cycle), they are not classified as current liabilities.
JE to accrue estimated warranty cost
warranty expense warranty liability
Notes Payable
written promises to pay a certain sum of money on a specified future date