Chapter 9 Accounting

Which of the following would be considered a known liability? A) Accounts payable B) Warranties payable C) Pending litigation D) Possible contingency payable

A) Accounts payable

Which current liability is generally listed first?

Accounts Payable

Safe Scooters, Inc. sold scooters which they knew had faulty brakes. Consumers found out, and Safe Scooters is now facing a lawsuit over the unsafe scooters; however, no dollar amounts have been assigned to the case. This lawsuit would be considered a(n):

contingent liability.

An obligation dependent upon an event that has not yet occurred is an example of a(n):

contingent liability.

One type of liability that is easy to overlook is a(n):

contingent liability.

Bonds that can be exchanged for stock are called:

convertible bonds.

A $30,000 bond issue with a stated interest rate of 5%, when the market rate of interest is 6%, means that the bond will sell for:

less than $30,000.

A $30,000 bond issue with a stated rate of interest of 6%, when the market rate of interest is 7%, means that the bond will be sold for:

less than $30,000.

A major difference between Accounts Payable and Notes Payable is that:

only Notes Payable charge interest.

The rate of interest that investors are willing to receive for similar bonds of equal risk at the current time is the ________ rate of interest.

market

The need to create an estimated warranty liability arises from the ________ principle.

matching

Pay stated at a monthly or annual rate is considered to be a:

salary.

Bonds that are backed by collateral are:

secured bonds.

Bonds from the same bond issue that mature at different times are called:

serial bonds.

The rate of interest that is printed on the bond is called the ________ rate of interest.

stated

Bonds that mature all at the same time are:

term bonds.

Ronaldo earns $21 per hour and works 40 hours a week. Last week he worked 48 hours; given that his company pays time and a half for overtime—what is Ronaldo's gross pay for the week? (Assume overtime is any time over 40 hours per week. (Assume overtime is any time over 40 hours per week. Round intermediary calculations and your final answer to the nearest cent.)

$1,092.00

Discount on bonds payable and Premium on bonds payable are examples of:

companion accounts.

Stella Corp. has the following liabilities: $30,000 salaries payable, $70,000 accounts payable, $180,000 notes payable (to be made in 10 equal annual payments), and warranty payable $22,000 (all of Stella's products come with a 90-day manufacturer warranty). The total current liabilities is:

$140,000

If a $6,000, 10 percent, 10-year bond was issued at 106 on October 1, how much will accrued interest payable be on December 31 if interest payments are made annually? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

$150

A $170,000 bond issue sold at 97 will cost: (Round your final answer to the nearest dollar.)

$164,900

If a $15,000, 8 percent, 20-year bond was issued at 95 on November 1, how much will accrued interest payable be on December 31 if interest payments are made annually? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

$200

A $330,000 bond issue sold at 110 will cost: (Round your final answer to the nearest dollar.)

$363,000

Sydney earns $15 per hour and works 40 hours a week. Last week she worked 50 hours; given that her company pays time and a half for overtime—what is Sydney's gross pay for the week? (Assume overtime is any time over 40 hours per week. Round intermediary calculations and your final answer to the nearest cent.)

$825.00

On October 31, 2016, Renoir, Inc. recorded their semi-annual bond interest expense that contained a credit to Discount on bonds payable of $2,600. The adjusting entry on December 31, 2016 will show a credit to Discount on bonds payable of: (Round any intermediary calculations to two decimal places and your final answer to the nearest dollar.)

$858

A company signs a note payable for $4,500 at 11% for 65 days. How much interest (to the nearest cent) will the company owe using a 360-day year? (Round your final answer to the nearest cent.)

$89.38

A $9,000 bond issue with a stated interest rate of 9%, when the market rate of interest is 9%, means that the bond will sell for:

$9,000

On September 30, 2016, Illusions, Inc. recorded their semi-annual bond interest expense that contained a credit to Discount on bonds payable of $1,800. The adjusting entry on December 31, 2016 will show a credit to Discount on bonds payable of: (Round your final answer to the nearest dollar.)

$900

TLR Productions reported Interest expense of $9,000, Income tax expense of $27,000 and Net income of $110,000. TLR's interest coverage ratio is: (Round your final answer to two decimal places.)

16.222

Vintage Boutique reported Interest expense of $5,500, Income tax expense of $24,000 and Net income of $77,000. Vintage Boutique's interest coverage ratio is: (Round your final answer to two decimal places.)

19.36

Livingston Organization had total assets of $635,000; total liabilities of $185,000; and total Stockholders' Equity of $450,000. Livingston's debt ratio is: (Round your final answer to the nearest whole number.)

29%.

Bach Instruments had total assets of $600,000; total liabilities of $270,000; and total Stockholders' Equity of $330,000. Bach's debt ratio is: (Round your final answer to the nearest whole number.)

45%.

Dante's Designs has current assets of $57,000 long-term assets of $139,000 current liabilities of $49,000 long-term liabilities of $93,000. Dante's debt ratio is: (Round your final answer to the nearest whole number.)

72%.

Which of the following would NOT be a liability? A) The signing of a three-year employment contract at a fixed annual salary B) An obligation to provide goods or services in the future C) A note payable with no specified maturity date D) An obligation that is estimated in amount

A) The signing of a three-year employment contract at a fixed annual salary

With regard to long-term debt, collateral represents?

Assets pledged to secure repayment of a loan

Tazo Inc. signed a $12,000 10% 15-year installment note on December 1, 2016. The note requires quarterly payments of $200 plus interest on March 1, June 1, September 1, and December 1 of each year. How will Tazo classify this loan on its December 31, 2016 Balance Sheet?

B) Current Portion of Long-term debt, $800; Long-term debt, $11,200

Which of the following would be treated as a rental agreement? A) Capital leases B) Operating leases C) Expense leases D) Revenue leases

B) Operating leases

Which of the following would be considered an estimated liability? A) Notes payable B) Warranties payable C) Pending litigation D) Sales tax payable

B) Warranties payable

KLR Oil Company is being investigated, following an explosion on one of their oil rigs. They have multiple prior citations for safety violations, and this explosion killed several workers. The related damages are still unknown and cannot be reasonably estimated. What accounting treatment should KLR use for the investigation?

Because the likelihood of the obligation occurring is probable, but the amount is unknown, this should be disclosed in the footnotes.

Which are generally paid for exceptional performance?

Bonuses

Which of the following would be considered a contingent liability? A) Federal income tax payable B) Warranties payable C) Pending litigation D) Salaries payable

C) Pending litigation

Lionworks Inc. signed a $57,000 8% 30-year installment note on November 1, 2016. The note requires semiannual payments of $950 plus interest on May 1 and November 1 of each year. How will Lionworks classify this loan on its December 31, 2016 Balance Sheet?

Current Portion of Long-term debt, $1,900; Long-term debt, $55,100

Which of the following statements is TRUE regarding the debt ratio? A) The debt ratio focuses on the total liabilities of an organization. B) The debt ratio reveals the percentage of a business' assets financed with liabilities. C) The debt ratio is used to analyze a business's ability to pay its current obligations as they come due. D) Both A and B are true statements regarding the debt ratio.

D) Both A and B are true statements regarding the debt ratio.

Which of the following liabilities can be classified as either current or long term? A) known and estimated B) estimated and contingent C) known and contingent D) known, estimated, and contingent

D) known, estimated, and contingent

When a company settles a warranty claim by replacing the defective goods, the journal entry will include a debit to _______ and a credit to _______.

Estimated Warranty Payable, Inventory

What is the purpose of a bond discount?

It raises the bond interest rate to the market interest rate at the time the bond was issued.

Which of the following would NOT be considered a contingent liability?

Mortgage Payable

Which of the following is NOT a requirement of a capital lease? A) Ownership does not transfer at lease end. B) The agreement has a bargain purchase option. C) The lease must cover at least 75% of asset's useful life. D) The present value of lease payments must be 90% or more of market value of asset.

Ownership does not transfer at lease end.

Which of the following accurately describes how contingent liabilities are reported on the Balance Sheet?

The accounting treatment for contingent liability could be A, B, or C depending on the likelihood of an actual obligation occurring.

When a company issues bonds, what are they doing?

The company is borrowing money from third parties.

9) Which are generally paid at an hourly rate?

Wages

Why are contingent liabilities considered unique and different from all other liabilities?

Whether or not a company has an obligation depends on the result of a future event.

If the market rate of interest is greater than the bond's stated rate of interest, the bond will be issued at:

a discount.

For a liability to exist:

a past transaction or event must have occurred.

If the market rate of interest is less than the bond's stated rate of interest, the bond will be issued at:

a premium.

Bonds that may be retired at a prearranged price are called:

callable bonds.

In a(n) _____ lease the lessee will record the lease by debiting an asset account and crediting Lease Payable.

capital

Leases that are treated as financed purchases are called:

capital leases.

Bonds payable minus the Discount on bonds payable yields the:

carrying amount.

Wolfe Company has a 5-year mortgage for $120,000 which requires 4 equal payments of principal plus interest. In the first year of the mortgage, Wolfe will report this liability as a:

current liability of $30,000 and a long-term liability of $90,000.

Cypress Corp. had sales on account of $19,500 which were subject to state sales tax of 12%. The entry to record the sales would be to:

debit Accounts Receivable $21,840; credit Sales Revenue $19,500; credit Sales Tax Payable $2,340.

The Print Shoppe had sales on account of $7,000 which were subject to state sales tax of 6.5%. The entry to record the sales would be to: (Round your final answer to the nearest cent.)

debit Accounts Receivable $7,455.00; credit Sales Revenue $7,000; credit Sales Tax Payable $455.00.

S&C Roofing had sales on account of $32,500 which were subject to state sales tax of 8%. The entry to record the sales would be to:

debit Accounts Receivable, $35,100; credit Sales revenue, $32,500; credit Sales tax payable, $2,600.

Metropolitan Masonry had sales on account of $7,700 which were subject to state sales tax of 10%. The entry to record the sales would be to:

debit Accounts Receivable, $8,470; credit Sales revenue, $7,700; credit Sales tax payable, $770.

A $260,000 issue of bonds that sold for $255,000 matures on June 25, 2020. The journal entry to record the payment of the bond on the maturity date is to:

debit Bonds payable, $255,000; credit Cash, $255,000.

A $430,000 issue of bonds that sold for $403,000 matures on August 1, 2020. The journal entry to record the payment of the bond on the maturity date is to:

debit Bonds payable, $430,000; credit Cash, $430,000.

The journal entry to record $230,000 of bonds that were issued at 98 would be to:

debit Cash, $225,400; debit Discount on bonds payable, $4,600; credit Bonds payable, $230,000.

The journal entry to record $300,000 of bonds that were issued at 104 would be to:

debit Cash, $312,000; credit Bonds payable, $300,000; credit Premium on bonds payable, $12,000

The journal entry to record $330,000 of bonds that were issued at 97 would be to:

debit Cash, $320,100; debit Discount on bonds payable, $9,900; credit Bonds payable, $330,000.

The journal entry to record $400,000 of bonds that were issued at 107 would be to:

debit Cash, $428,000 ; credit Bonds payable, $400,000; credit Premium on bonds payable, $28,000.

During the month, Evergreen Roofing settled $600 in warranty claims by replacing the defective flashing. Evergreen uses an estimated warranty account. The journal entry to record the settled claims would have been:

debit Estimated Warranty Payable $600; credit Inventory $600.

During the month, TNT Construction paid $300 to settle warranty claims. TNT uses an estimated warranty account. The journal entry to record the claims payment would have been:

debit Estimated warranty payable, $300; credit Cash, $300.

During the month, Southeast Plumbing paid $600 to settle warranty claims. Southeast uses an estimated warranty account. The journal entry to record the payment would have been:

debit Estimated warranty payable, $600; credit Cash, $600.

$500,000 of 8%, 10-year bonds were sold for $520,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to:

debit Interest Expense $19,000; debit Premium on bonds payable, $1,000; credit Cash, $20,000.

$400,000 of 11%, 10-year bonds were sold for $370,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to:

debit Interest Expense $23,500; credit Discount on bonds payable, $1,500; credit Cash, $22,000.

$200,000 of 6%, 25-year bonds were sold for $160,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to:

debit Interest Expense $6,800; credit Discount on bonds payable, $800; credit Cash, $6,000.

$300,000 of 6%, 20-year bonds were sold for $330,000 on January 1. The bonds require semiannual interest payments on June 30 and December 31. The entry to record the June 30 interest payment on the bonds would be to: (Round your final answer to the nearest dollar.)

debit Interest Expense $8,250; debit Premium on bonds payable, $750; credit Cash, $9,000.

On January 1, Greene Autos signed a $270,000, 8%, 30-year mortgage that requires semiannual payments of $11,934 on June 30 and December 31 of each year. The journal entry to record the second semiannual payment would be: (Round your final answer to the nearest dollar.)

debit Interest Expense, $10,755; debit Mortgage Payable, $1,179; credit Cash, $11,934.

On January 1, Clive Corporation signed a $450,000, 5%, 30-year mortgage that requires semiannual payments of $14,559 on June 30 and December 31 of each year. The journal entry to record the second semiannual payment would be: (Round your final answer to the nearest dollar.)

debit Interest Expense, $11,167; debit Mortgage Payable, $3,392; credit Cash, $14,559.

On January 1, Clive Corporation signed a $460,000, 6%, 30-year mortgage that requires semiannual payments of $16,621 on June 30 and December 31 of each year. The journal entry to record the first semiannual payment would be: (Round your final answer to the nearest dollar.)

debit Interest Expense, $13,800; debit Mortgage Payable, $2,821; credit Cash, $16,621.

On January 1, Greene Autos signed a $250,000, 6%, 30-year mortgage that requires semiannual payments of $9,033 on June 30 and December 31 of each year. The journal entry to record the first semiannual payment would be (round interest calculation to the nearest dollar) to:

debit Interest Expense, $7,500; debit Mortgage Payable, $1,533; credit Cash, $9,033.

TNT Construction had cash sales for the month of June totaling $44,000. TNT offers a 1-year warranty on its construction services. If TNT estimates warranty claims will equal 5% of sales, the journal entry to record the estimated warranty expense for the month is:

debit Warranty expense, $2,200; credit Estimated warranty payable, $2,200.

Southeast Plumbing had cash sales for the month totaling $732,000. Southeast offers a 6-month warranty on its services. If Southeast estimates warranty claims will equal 3% of sales, the journal entry to record the estimated warranty expense for the month is:

debit Warranty expense, $21,960; credit Estimated warranty payable, $21,960.

Evergreen Roofing had cash sales for the month totaling $42,000. Evergreen offers a 1-year warranty on its roofing services. If Evergreen estimates warranty claims will equal 3% of sales, the journal entry to record the estimated warranty expense for the month is:

debit warranty expense $1,260; credit Estimated Warranty Payable $1,260.

Contingent liabilities may be classified as:

either current or long-term liabilities.

A known obligation of an unknown amount is a(n):

estimated liability.

You just purchased a new cell phone, which comes with a manufacturer's warranty of one year. The company that manufactures the cell phone would record the warranty as a(n):

estimated liability.

A ratio which measures a company's ability to pay interest on its debt is called the:

interest coverage ratio.

Accrued liabilities, such as interest payable, would be considered a(n):

known liability.

Strong Dog Magazine sold 100 new pre-paid subscriptions to their publication. The subscription money is an example of a(n):

known liability.

A $45,000 bond issue with a stated interest rate of 10%, when the market rate of interest is 7%, means that the bond will sell for:

more than $45,000.

Capital leases are most similar to:

mortgage notes.

If the likelihood of an obligation is remote:

no action is necessary in the accounting treatment.

If a bond's stated rate of interest is equal to the market rate of interest, the bond will be issued at:

par

The disclosure of a contingent liability only in the footnotes designates that the possibility of an actual obligation occurring is:

possible.

The amount that a borrower must pay back to the bondholders on the maturity date is the:

principal.

The disclosure of a contingent liability in the footnotes and on the Balance Sheet indicates that the potential for the obligation occurring is:

probable.

By NOT accruing warranty expense:

reported liabilities will be understated and net income will be overstated.

Bonds that are backed only by the credit of the issuing company are:

unsecured bonds.

Debenture bonds are the same as:

unsecured bonds.